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BEC > B1 - Corporate Governance > Flashcards

B1 - Corporate Governance Flashcards

1
Q

Title III of the Sarbanes-Oxley Act, “Corporate Responsibility”, includes the following topics pertaining to financial reporting:

A

Public Company Audit Committee

Corporate Responsibility for Financial Reports

Improper Influence on Conduct of Audits

Forfeiture of Certain Bonuses and Profits

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2
Q

The Sarbanes-Oxley Act defines the responsibilities of the audit committee of an issuer as including:

A
  1. Appointment of the auditor.
  2. Compensation of the auditor.
  3. Oversight of the auditor.
    1. Resolve disagreements between management and the auditor.
    2. The accounting firm reports directly to the audit committee.
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3
Q

The Sarbanes-Oxley Act defines the criteria for the independence of audit committee members for issuers as including the following characteristics:

A
  1. Each member of the audit committee shall be a member of the board of directors of the issuer but shall be otherwise independent.
  2. Audit committee members may not accept any consulting, advisory or other compensation or fees from the issuer other than pursuant to their roles on the board.
  3. Audit committee members may not be an affiliated person (a person who can influence financial decisions) of the issuer or any subsidiary of the issuer.
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4
Q

The Sarbanes-Oxley Act requires that an issuer’s audit committee establish a complaint procedure that includes:

A
  1. Receipt, retention, and treatment of complaints received by issuers regarding:
    1. Accounting
    2. Internal Controls
    3. Auditing
  2. Confidential or anonymous submissions by employees of issuers regarding questionable accounting or auditing matters.
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5
Q

The Sarbanes-Oxley Act assigns the following corporate responsibilities for financial reports for issuers:

A

The CEO and CFO must certify the following for annual and quarterly reports:

  1. The officers have read the report.
  2. The report does not include untrue statements.
  3. The financial statements are fairly stated.
  4. The signing officers make assertions regarding their responsibilities for internal control.
  5. The signing officers have disclosed internal control weakness and instances of fraud to the auditors and the audit committee.
  6. The status of changes to internal control subsequent to the date of their evaluation.
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6
Q

The Sarbanes-Oxley Act assigns the following corporate responsibilities regarding internal controls that must accompany financial reports:

A

The CEO and CRO must ceritfy the following for annual and quarterly reports:

  1. The officers are responsible for establishing and maintaining internal controls.
  2. Internal control is designed to ensure that material information is provided to internal and external users.
  3. Internal controls have been evaluated within 90 days prior to the report.
  4. The officers’ conclusions regarding internal control effectiveness as of the evaluation date.
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7
Q

The Sarbanes-Oxley Act assigns the following corporate responsibilities regarding the required disclosures to the auditors and audit committee by officers:

A

The CEO and CFO must ceritfy the following for annual and quarterly reports to the auditors and the audit committee:

  1. All significant deficiencies in the design or operation of internal controls.
  2. Any fraud, whether or not matrial, that involves management.
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8
Q

The Sarbanes-Oxley Act specifically prohibits improper influence on the conduct of audits defined as follows:

A

No officer or director may take any action to fraudulently influence, coerce, manipulate, or mislead an independent CPA engaged in an audit to the financial statements of an issuer for the pusrpose of rendering the financial statements materially misleading.

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9
Q

The Sarbanes-Oxley Act imposes certain financial penalties on officers who are responsible for material misstatements resulting from their misconduct. Penalties include:

A
  1. Refund to the issuer of any bonus or other incencitve-based or equity-based compensation during the 12-month period following the first public issuance of the financial document.
  2. Refund any profits realized from the sale of securitites of the issuer during the 12-month period following the first public issuance of the financial document.
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10
Q

Title IV of the Sarbanes-Oxley Act, “Enhanced Financial Disclosures”, includes the following topics:

A

Disclosures in periodic reports

Enhanced Conflict-of-Interest Provisions

Disclosures of Transactions Involving Management and Principal Stockholders

Management Asssessment of Internal Control

Exemption

Code of Ethics for Senior Financial Officers

Disclosure of Audit Committee Financial Expert

Enhanced Review of Periodic Disclosures By Issuers

Real Time Issuer Disclosures

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11
Q

The Sarbanes-Oxley Act requires certain disclosures in periodic reports. Those disclosures include:

A
  1. All adjusting entries identified by the public accounting firm reporting on the financial statements.
  2. All off balance sheet transactions including contingent obligations and other relationships that may have a material current or future effect on the financial statements.
  3. Pro forma financial statements shall include all relevant information and shall not include misleading or untrue information.
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12
Q

The Sarbanes-Oxley Act includes certain enhanced confligt-of-interest provisions. Those provisions include:

A

Prohibitions on personal loans to executives with some exceptions.

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13
Q

The Sarbanes-Oxley Act includes provisions for disclosure of transactions involving management and principal stockholders. Those provisions include:

A

Reporting by persons wtih ownership of 10% or more. Statements are filed at the time of registration, when a person achieves 10% ownership, and when there has been a change in ownership.

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14
Q

The Sarbanes-Oxley Act includes provisions for management assessment of internal controls. Those provisions include a report showing:

A
  1. Management’s assertion that it is responsible for adequate internal control structure.
  2. Management’s conclusions regarding its assessment of the effectiveness of the internal control structure and procedures for financial reporting.
  3. The auditor’s attestation regarding management’s assessment of internal control.
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15
Q

The Sarbanes-Oxley Act includes provisions for audit committee disclosures. These disclosures are:

A

The issuer must disclose the existence of a financial expert on the comittee or the reasons why the committee does not have a member who is a financial expert.

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16
Q

For purposes of service on the audit committee, what qualifies an individual for classification as a financial expert?

A

A financial expert qualifies through education, past experience as a public accountant, or past experience as a finance officer for an issuer. Knowledge of the financial expert should include:

  1. Understanding of GAAP.
  2. Experience in the preparation or auditing of financial statements for comparable issuers.
  3. Application of GAAP.
  4. Experience with internal controls.
  5. Understanding of audit committee functions.
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17
Q

Title VIII of the Sarbanes-Oxley Act considers what topics?

A

Criminal penalties for altering documents

Statute of limitations for securities fraud

Whistleblower protection

Criminal penalties for securities fraud

18
Q

What are the components of the Committee on Sponsoring Organization’s (COSO) Internal Control Integrated Framework?

CRIME

A
  1. Control Environment
  2. Risk Assessment
  3. Information and Communications
  4. Monitoring
  5. Existing Control Activities
19
Q

What are the principles associated with the control environment component of the Committee on Sponsoring Organization’s (COSO) Internal Control Integrated Framework?

PHRASED

A
  1. Management’s Philosophy and Operating Style
  2. Human Resources
  3. Financial Reporting Competencies
  4. Authority and Responsibility
  5. Organizational Structure
  6. Integrity and Ethical Values
  7. Board of Directors
20
Q

What are the principles associated wtih the risk assessment component of the Committee on Sponsoring Organization’s (COSO) Internal Control Integrated Framework?

A
  1. Financial Reporting Objectives
  2. Financial Reporting Risks
  3. Fraud Risk
21
Q

What are the principles associated with the control activities component of the Committee of Sponsoring Organization’s (COSO) Internal Control Integrated Framework?

A
  1. Risk Assessment Integration
  2. Selection and Development
  3. Policies and Procedures
  4. Information and Technology
22
Q

What are the principles associated with the information and communication component of the Committee on Sponsoring Organization’s (COSO) International Framework?

A
  1. Financial Reporting Information
  2. Internal Control Information
  3. Internal Communication
  4. External Communication
23
Q

What are the principles associated with the monitoring component of the Committee on Sponsoring Organization’s (COSO) Internal Control Integrated Framework?

A
  1. Ongoing and Separate Evaluation
  2. Reporting Deficiencies
24
Q

What are the **components **of the Committee on Sponsoring Organization’s (COSO) Enterprise Risk Management (ERM) Integrated Framework?

IS EAR AM

A
  1. Internal Environment
  2. Objective Setting
  3. Event Identification
  4. Risk Assessment
  5. Risk Response
  6. Control Activities
  7. Information and Communication
  8. Monitoring
25
Q

What are the **key elements **of the internal environment component of the Committee on Sponsoring Organization’s (COSO) Enterprise Risk Management (ERM) Integrated Framework?

PHRASED C

A
  1. Philosophy of risk management
  2. Human resources standards
  3. Risk appetite
  4. Authority and responsibility
  5. Structure (organizational)
  6. Ethical values (and integrity)
  7. Directors
  8. Commitment to Competence
26
Q

What are the key elements of the objective setting component of the Committee on Sponsoring Organization’s (COSO) Enterprise Risk Management (ERM) Integrated Framework?

A
  1. Strategic Objectives
  2. Related Objectives
  3. Selected Objectives
  4. Risk Appetite
  5. Risk Tolerances
27
Q

What are the key elements of the event identification component of the Committee on Sponsoring Organization’s (COSO) Enterprise Risk Management (ERM) Integrated Framework?

A
  1. Events
  2. Influencing Factors
  3. Event Identification Techniques
  4. Event Interdependencies
  5. Event Categories
  6. Distinguish Risks and Opportunities
28
Q

What are the key elements of the risk assessment component of the Committee on Sponsoring Organizatoin’s (COSO) Enterprise Risk Management (ERM) Integrated Framework?

A
  1. Inherent and Residual Risk
  2. Establishing Likelyhood and Impact
  3. Data Sources
  4. Assessment Techniques
  5. Event Relationships
29
Q

What are the key elements of the risk response component of the Committee on Sponsoring Organization’s (COSO) Enterprise Risk Management (ERM) Integrated Framework?

A
  1. Evaluating Possible Responses
  2. Selected Responses
  3. Portfolio View
30
Q

What are the key elements of the control activities component of the Committee on Sponsoring Organization’s (COSO) Enterprise Risk Management (ERM) Integrated Framework?

A
  1. Integration with Risk Response
  2. Types of Control Activities
  3. Policies and Procedures
  4. Controls over Information Systems
  5. Entity Specific
31
Q

What are the key elements of the information and communication component of the Committee on Sponsoring Organization’s (COSO) Enterprise Risk Management (ERM) Integrated Framework?

A
  1. Information
  2. Communication
32
Q

What are the key elements of the monitoring component of the Committee of Sponsoring Organization’s (COSO) Enterprise Risk Management (ERM) Integrated Framework?

A
  1. Ongoing Monitoring Activities
  2. Separate Evaluations
  3. Reporting Deficiencies
33
Q

Define the integrity and ethical values principle associated with the control environment component of the Committee on Sponsoring Organization’s (COSO) Internal Control Integrated Framework for achieving effective internal control over financial reporting.

A

Top managment must set a standard of conduct for financial reporting that demonstrates a commitment to integrityh and ethical values.

34
Q

Define the board of directors’ principle associated with the control environment component of the Committee on Sponsoring Organization’s (COSO) Internal Control Integrated Framework for achieving effective internal control over financial reporting.

A

The board of directors is charged with understanding and exercising oversight responsibility for financial reporting and related internal control.

35
Q

Define the management philosophy and operating style principle associated with the control environment component of the Committee on Sponnsoring Organization’s (COSO) Internal Control Integrated Framework for achieving effective internal control over financial reporting.

A

Management philosophy and operating style should support achieving effective internal control over financial reporting.

36
Q

Define the organizational structure principle associated with the control environment component of the Committee on Sponsoring Organization’s (COSO) Internal Control Integrated Framewrok for achieving effective internal control over financial reporting.

A

The organizational structure of the company should support effective internal control over financial reporting.

37
Q

Define the financial reporting competencies principle associated with the control environment component of the Committee of Sponsoring Organization’s (COSO) Internal Control Integrated Framework for achieving effective internal control over financial reporting.

A

The company retains only individuals who are competent in financial reporting roles.

38
Q

Define the authority and responsibilities competencies principle associated with the control environment component of the Committee on Sponsoring ORganization’s (COSO) Internal Control Integrated Framework for achieving effective internal control over financial reporting.

A

Assignment of authority and responsibility should promote and effectively achieve internal control over financial reporting.

39
Q

Define the human resources competencies principle associated wtih the control environment component of the Committee on Sponsoring Organization’s (COSO) Internal Control Integrated Framework for achieving effective internal control over financial reporting.

A

Human resources principles and practices promote and achieve effectiveness with respect to internal control over financial reporting.

40
Q

Define the ongoing and separate evaluations principle associated with the monitoring component of the Committee on Sponsoring Organization’s (COSO) Internal Control Integrated Framework for achieving effective internal control over financial reporting.

A

The functioning of internal control over financial reporting must be verified on an ongoing basis or in separate evaluations.

41
Q

Define the reporting deficiencies principle associated wtih the monitoring component of the Committee on Sponsoring Organization’s (COSO) Internal Control Integrated Framework for achieving effective internal control over financial reporting.

A

Deficiencies in internal control over financial reporting should be identified and reported timely to parties responsible for taking corrective action, to management and, if necessary, the board.

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