B1: Corporate Governance and Operations Management Flashcards
What are the 3 categories of objectives within the internal control framework?
ORC
Operations - effectiveness and efficiency of operations, safeguarding against losses
Reporting - reliability, timeliness, transparency
Compliance - ensure adherence to applicable laws and regulations
What are the 5 components of internal control?
CRIME
Control Environment - tone at top (ethics)
Risk assessment - f/s misstated or fraud
Information and communication - fair, accurate, complete, timely (FACT)
Monitoring - efficiencies of IC, report deficiencies
Existing control activities - policies/procedures to mitigate risk
What are the 5 principles related to the control environment?
EBOCA Commitment to ethics and integrity Board independence and oversight Organizational structure Commitment to competence Accountability
What are the 3 steps for Risk Assessment?
EAR
Event identification
Assess risk
Respond to risk
What are the requirements of effective internal control?
reasonable assurance entity’s objectives will be achieved
all 5 components and 17 principles that are relevant be BOTH present and functioning
present - included in design
functioning - operating as designed
all operating together as an integrated
What are the requirements of effective internal control?
reasonable assurance entity’s objectives will be achieved
all 5 components and 17 principles that are relevant be BOTH present and functioning
present - included in design
functioning - operating as designed
all operating together as an integrated
What are the components and order of ERM?
IS EAR AIM (broader in scope than just financial reporting objectives)
Internal environment
Setting objectives
Event identification
Assessment of risk
Risk response
Control Activities
Information and communication
Monitoring
What are the elements of the ERM internal environment component?
EBOCA HR Commitment to ethical values and integrity Board oversight Organizational structure Commitment to competence Accountability
HR standards
Risk management philosophy and risk appetite
What are the elements of the ERM internal environment component?
EBOCA HR Commitment to ethical values and integrity Board oversight Organizational structure Commitment to competence Accountability
HR standards
Risk management philosophy and risk appetite
What does monitoring consist of?
Ongoing/separate evaluations
Communicating deficiencies
What does SOX Section 407 requires that the financial expert have?
- understanding of GAAP and financial statements
- be able to assess the application of accounting principles
- comparable experience applying accounting principles to entities that present a similar level of complexity of the issuer
- understand both internal controls and audit committee functions
What did SOX put in place to address the problem of inadequate board oversight?
Audit committee requirement
What 3 things are specifically required by SOX in the code of ethics?
Honest and ethical conduct
Full, fair, accurate, and timely disclosure
Compliance with laws, rules, and regulations
What is included in management’s report on internal control?
Mgmt’s responsibility for IC
Assessment of effectiveness of IC
Statement that auditor has reported on mgmt’s evaluation of IC
Mgmt does NOT describe disagreements
What is included in management’s report on internal control?
Mgmt’s responsibility for IC
Assessment of effectiveness of IC
Statement that auditor has reported on mgmt’s evaluation of IC
Mgmt does NOT describe disagreements
Who created COSO (Treadway Commission) ?
American Accounting Association (AAA)
American Institute of Certified Public Accountants (AICPA)
Financial Executives Institute (FEI)
Institute of Internal Auditors (IIA)
Institute of Management Accountants (IMA)
Who created COSO (Treadway Commission) ?
American Accounting Association (AAA)
American Institute of Certified Public Accountants (AICPA)
Financial Executives Institute (FEI)
Institute of Internal Auditors (IIA)
Institute of Management Accountants (IMA)
What are the 4 responses to risk?
Assume/accept (doing nothing)
Avoid (discontinuing)
Reduce (relocating)
Transfer/share (insuring)
What is inherent risk? residual risk?
risk if no response by mgmt
risk left over after mgmt responded
What are control activities?
Methods to implement risk response
The board of directors has a ________ responsibility to act on behalf of and in the best interest of the corporation
fiduciary
The board of directors has a ________ responsibility to act on behalf of and in the best interest of the corporation
fiduciary
What are the 4 objectives within HRM?
SORC Strategic Operating Reporting Compliance
When is a related contract from a corporation’s director not voidable?
When fair to the company
Full disclosure & approved by directors or shareholders
