Study Unit 1 Flashcards

(46 cards)

1
Q

Articles of incorporation include

A
corporation name
# shares authorized
street address of corporation's initial registered office
name of registered agent @ office
name & address of each incorporator
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2
Q

Additional provision aoi may include

A

purpose & power of corp
internal mgt
subject matter allowed to be addressed in the bylaws

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3
Q

bylaws

A

provision for managing the business

states authorirty of officers/directors, selection process, term length, pay, how to decide to issue new stock

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4
Q

Shareholders

A
  • required to hold annual meeting, need special meetings for important issues (mergers, etc.)
  • @ annual meeting may amend aoi, vote, elect/remove officers
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5
Q

BOD

A
  • select/remove officers
  • decisions wrt capital structure
  • add/amend/repeal bylaws
  • initiate changes (m&a)
  • decide to declare/distribute dividends
  • set mgt comp
  • coordinate audit activities
  • evaluate & manage risk
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6
Q

Fiduciary duty

A

Directors owe fiduciary duty
fiduciary- legal duty to act for benefit of corp, held to higher std of care
fiduciary duty req directors & officers to be
-act in corp best interest, be loyal, use due diligence wrt responsibilities, disclose conflicts of interest

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7
Q

Officers

A

resp for day to day ops
CEO selected by & report to BOD
CEO selects other execs; officers are agents (fiduciary duty)

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8
Q

internal auditors

A

IA assess make recomm for improving governance to achieve

  • promote ethics & values
  • ensure effective org performance mgt & accountability
  • communicate risk & ctrl info
  • coordinate activities/info among BOD, ext/int auditors, mgt
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9
Q

Audit committee

A
  • address complaints wrt acctg & audit
  • receive reports about acctg policies, material alt treatments, effects of at disclosures, treatments preferred by ext auditors
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10
Q

Section 302

A

-f/s free from material misstatements
-responsible for IC & evaluate for effectiveness
-inform audit committee & auditors of significant ctrl def, fraud (material or not)
-significant changes were (or weren’t) made wrt IC (including corrective ctrl)
intentional violations can result in forfeiting bonus/incentive based compensation

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11
Q

Section 404

A

report contains statement by CEO/CFO that includes

  • mgt takes responsibility for establish/maintain system of IC
  • name of IC model used to design/assess effectiveness (COSO)
  • evaluate IC effectiveness
  • statement pubic acctg firm registered w/ PCAOB
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12
Q

Section 407

A

each audit committee must have financial expert if not, disclose reason
financial experts must
-know GAAP & F/S
-experience in prep of F/S of comparable issuers & application of principles wrt acctg estimates, etc.
-experience w/ internal acctg ctrls
-understand audit committee functions

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13
Q

Section 906

A

corp responsibility for financial reports
certify filings into U.S. Code
criminal penalties for unkwnowing & knowing noncompliance for filing
-knowing- fines up to $5M and/or up to 20 yrs in prison
-unknowing- fines up to $1M and/or up to 10 yrs in prison

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14
Q

Whistleblowers

A

SOX & Dodd-Frank, SEC may pay for info other than from audit or investigation

  • may sue retaliating employers
  • claims asserted for up to 180 days
  • trial by jury allowed
  • rights & remedies can’t be waived (i.e. employment contract)
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15
Q

Internal Control & it’s objectives

A
  • has 3 classes of objectives (ORC)
  • ongoing
  • effected by all ppl in org
  • provide only reasonable assurance
  • adaptable to entity’s structure
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16
Q

Operations (mission)

A

-improving financial perf, productivity, quality, innovation, customer satisfaction
-includes safeguarding assets (assist in risk assessment; avoid waste/inefficiency)
Pitch Perfect is quality comedy (P P I Q C)

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17
Q

Reporting

A
  • timely, reliable info needed for DM & stakeholders

- relate to financial/nonfinancial & internal/external reporting

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18
Q

Compliance

A

subject to laws/regs that have minimum stds of conduct

-compliance with internal policies/procedures is an operational objective

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19
Q

Control Environment

A
  • Integrity & ethical values (tone @ top, stds of conduct, perf eval, correct deviations)
  • oversight (operates independently)
  • establ of structures, reporting lines, authorities & resp (design, assign, limit authority)
  • commitment to attract, develop, retain competent indiv
  • org holds indiv accountable
20
Q

Risk Assessment

A

assessment of risk & need to manage org change
principles
specifies objectives to ID & assess objectives
ID & analyze risk,
assess fraud risk,
ID & assess changes that affect IC

21
Q

Risk Assessment objectives

A

operations- mgt choice, risk tolerance, op & financial perf goals, basis for committing resources
ext f.reporting- comply w/ stds, materiality, reflect activities
ext nonf reporting- comply w/ stds/frameworks, consider preclusion, reflect activities
internal reporting- mgt choices, precision, reflect activies
compliance- ext laws/regs, risk tolerance

22
Q

Control Activities

A

policies, procedures ensure mgt directive carried out.
applied @ various level
preventive or detective, segregation of duties

23
Q

3 principles of control activities

A

select/develop c.a. to mitigate risk
select/develop general c.a. over tech to support achievement of objectives
deploys c.a. thru policies that establish expectations & procedures that put policies into action

24
Q

Information & Communication

A

enable org to obtain info to maintain accountability, measure & review perf

3 principles

  • relevant, quality info (ext & int)
  • internally communicates info
  • communicates with external parties
25
Monitoring
process assesses quality of IC perf over time to ensure controls continue to meet needs of org 2 principles -develops & performs ongoing/sep (both) to determine if components IC are present & functioning -evaluates & communicates ctrl deficiencies
26
3 components for COSO
``` establish foundation for monitoring -tone @ top -org structure -baseline for IC effectiveness Design/execute monitoring procedures based on risks to achieve org obj -prioritize risk -ID ctrl -ID persuasive info -implement monitoring procedures assess/report results & include follow up on corrective action -prioritize findings -report results -follow up ```
27
Control Baseline
starting point | supported understanding of current system's design & operation
28
Change ID
IDs & addresses changes needed
29
Change management
evaluates design & implementation of changes (establishes new baseline)
30
Control revalidation
update periodically | revalidates proper operation of system at a time when no known changes occurred
31
COSO Cube
The rows are the 5 components of IC (CRIME), with the slices representing the 3 objectives (ORC), and the columns representing the 4 parts of org structure (Entity level, division, operating unit, function)
32
BOD & Its committees responsibility
oversight role integrity, ethics need to be objective, have industry knowledge
33
Senior MGT
CEO- tone @ the top | responsible for design & op of IC
34
Internal Auditors
consulting & advisory role | evaluates adequacy & effectiveness of IC wrt risks in oversight, ops, Info sys
35
ERM
extends COSO to enterprise risk mgt way to integrate & coordinate all risk mgt activities emphasis on objectives & establ ways to evaluate ERM effectiveness
36
Risk mgt
Id potential events | manage risk to be w/in risk appetite (degree of willingness of sr mgt to accept risk)
37
ERM helps mgt to
reach objectives prevent loss of reputation & resources report effectively comply with laws & regs
38
ERM capabilities
consideration of risk appetite & strategy risk response decisions (avoid, reduce, share, accept) reduction of op surprise/losses multiple & cross enterprise risk (integrated response to multiple risks) response to opps (mgt respond quickly thru ID potential events) Deployment of capital
39
Risk & opportunity
risk- potential negative impact | opportunities- potential positive impact (offset risks)
40
ERM objectives
Operations- effectiveness/efficiency Reporting- reliability Compliance- adherence to laws/regs Strategic- align w/ & support mission Strategic & ops affected by ext events Report & compliance are w/in entity's control
41
Components of COSO ERM
Control activities, risk assessment, info & comm, monitoring, control env, risk response, objective setting, internal environment
42
Risk response objective setting internal environment
risk response-consistent w/ risk tolerance & appetite obj setting- must be complete before events can be ID'd; ensures process established & align w/ mission & appetite internal- reflects mgt philosophy, appetite, integrity, ethics, overall env
43
COSO ERM cube
4 objectives (ORCS), 8 interrelated components (CRIME ROI) & org units (Entity level, division, business unit, subsidiary) on the other side apply approach to each intersection of 3 elements (control activities for reporting objectives at the division level)
44
Present & functioning fairly
no material weakness | risk w/in appetite
45
Strategies for risk response
avoidance- get rid of the risk retentition- accept (self-insurance) reduction- lowers level of risk (mitigate) share- transfer some loss potential to another party (insurance)
46
Risk MGT process
``` ID risk Assess risk Prioritize risk Formulate response Monitor response ```