Final Quiz Flashcards
(36 cards)
BOD responsibilities and conflict
Strategic guidance (advisory)- operational direction, balancing risk and reward Monitor/incent management (Oversight)- hire/fire executives, legal and reporting requirements
BOD operations committees
Compensation committee- independent directors
Governance committee
BOD nominating committee
Audit committee- 3 members must be financially literate
BOD fiduciary duties
A duty of care: “business judgment rule” (informed good faith)
A duty of loyalty: act in best interests of corporation
A duty of candor: Inform shareholders by disclosing material information publicly
Duty of care considerations
Attendance at board meetings
Staying informed
Must inquire of potential issues when alerted to them
Must disclose info to other directors
Duty of loyalty considerations
Act in good faith
Cannot use their position for personal gain
Decisions should be fair to corporation
Board must review business opportunities before a member can pursue them
Duty of candor considerations
Report all material info known to shareholders
Must have disclosure policy that meets regulatory standards (8-K for US companies)
Do not disclose confidential information
Fiduciary duty stake holders in order of importance
- All shareholders
- Investors
- Customers
- Creditors
- Management
- Employees
- Analysts and Wall Street
- Activist shareholders
- Community
Risk (COSO definition)
The possibility that events will occur and affect the achievement of strategy and business objectives
Uncertainty (COSO definition)
The state of not knowing how or if potential events may manifest
ERM (COSO definition)
The culture, capabilities, and practices, integrated with strategy-setting and performance, that organizations rely on to manage risk in creating, preserving, and realizing value
COSO ERM 5 components
Governance and Culture- oversee board risk, define culture
Strategy and Objective Setting- define risk analysis
Performance- identify, assess, prioritize risk
Review and Revision
Information, Communication, Reporting- on risk, culture, performance
Components of strategy
Objective
Scope
Competitive Advantage
Risk Assessment Approach
Identify Risks Develop Assessment Criteria Assess Risks Assess Risk Interactions Prioritize Risks Respond to Risks
Risk Assessment Equation
Likelihood x Risk + Vulnerability + Speed of onset
Risk Responses
Accept (and monitor)
Avoid
Reduce (via controls)
Share (insurance, R&D efforts)
2 types of corporation perspectives
Contract based: aligned with shareholders- advocate for free markets and little governance
Public interest based: aligned with stakeholders- advocate for impact on society, need governance
US corporate governance gatekeepers- those we rely on for financial information
Auditors
Security Analysts
Bankers
Credit Rating Agencies
Conservatism
GAAP requires more verifiable evidence to record revenues and gains, less verifiable evidence to record expenses/losses
Entices managers to tell the truth
How can a company manage (increase) ROA
Do nothing, let assets depreciate
Big Bath strategy
If a company fires CEO and management, new CEO brought in writes down assets heavily, large non-restructuring charge (non-recurring) and blame the prior management team
Equity method in earnings management
Joint Venture revenues, expenses, assets, and liabilities are hidden.
Used to hide debt, borrow off balance sheet
Cap and trade system
Government sets a cap on emissions for all organizations combined, issues allowances for this cap proportionately to companies depending on how much they emit.
Tax on carbon emissions
Companies who can reduce their emissions for a lower price will sell their allowances for a higher price
Cap and trade systems in US
Regional GHG initiative- Goal: reduce 10% of CO2 emitted in power generation by 2018
Western Climate Initiative- Goal: reduce 2005 GHG levels by 15% by 2020
California Carbon Dashboard
US GAAP records allowances as ______ and IFRS records allowances as __________ and _________
Inventory,
Intangible assets,
deferred revenue to be recognized over the year
