B1: Corporate Governance Flashcards

1
Q

What is the primary duty of the board of directors?

A

To monitor management behavior.

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2
Q

What is the responsibility of the Nominating or Corporate Governance Committee of the board of directors?

A

Oversees the board

Responsible for hiring new CEO

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3
Q

What is the responsibility of the audit committee of the board of directors?

A

The audit committee appoints and oversees the external auditor.

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4
Q

What is the duty of the compensation committee of the board of directors?

A

The compensation committee handles the CEO’s compensation package.

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5
Q

What does the NYSE and NASDAQ require of the board of directors?

A

They require the board to be independent.

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6
Q

What is the main goal in an executive compensation package?

A

The package should ensure that the goals of management should match those of the shareholders.

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7
Q

How can an executive compensation package ensure that goals of management align with those of shareholders?

A

Executive compensation should create an incentive for management to govern in a shareholder-friendly way that doesn’t sacrifice the long-term success of the enterprise for short-term gain.

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8
Q

Which influences help mold the direction that management takes?

A

They range from internal (Board of Directors- Audit Committee- Internal Control) to external (Creditors- SEC- IRS)

These influences should not be tainted by undue influence from management or have financial ties to management such as compensation-related duties

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9
Q

What is shirking?

A

When management doesn’t act in the best interest of shareholders.

It can be alleviated by tying compensation to stock performance or company profit.

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10
Q

What requirements are imposed on a public company under Sarbanes-Oxley?

A

Management must submit a report on the effectiveness of Internal Control in the 10K.

Management must disclose significant Internal Control deficiencies.

CEO/CFO must certify that the financial statements comply with securities laws and fairly present the financial condition of the company.

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11
Q

What characteristics are promoted by the COSO framework on Internal Control?

A

Reliable financial reporting

Effective and efficient operations

Compliance

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12
Q

What are the elements of the control environment?

A
Integrity & Ethics
Competence
The Board of Directors & Audit Committee
Management's Operating Style
Organizational Structure
Authority & Roles of Responsibilities
HR Policies
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13
Q

What are control activities?

A

A component of Internal Control that includes actions being taken to promote the control environment.

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14
Q

What are the basic elements of Internal Control?

A
Control Environment
Risk Assessment
Control Activities
Information and Communication
Monitoring
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15
Q

What is the significance of the Information and Communication aspect of Internal Control?

A

Management must have access to relevant and timely information to make good decisions.

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16
Q

How does Monitoring affect Internal Control?

A

Internal Control activities must be constantly monitored and evaluated for effectiveness.

17
Q

What activities does the COSO framework for enterprise risk management include?

A
Identifies Risk Factors
Promotes Risk Response Decisions
Compares Management Risk vs. Shareholder Goals
Aids in evaluating opportunities
Promotes Quicker Capital movement

Does NOT eliminate all risk

18
Q

What are possible responses to risk under the COSO framework for enterprise risk management?

A

Avoid or Reduce

Share or Accept