B1 - Corporate Governance & Financial Risk Management Flashcards
1
Q
How many objectives are in the COSO Framework?
A
3
2
Q
What are the 3 objects in the COSO Framework?
A
ORC
3
Q
How many components are in the COSO Framework?
A
5
4
Q
What are the components in the COSO Framework?
A
CRIME
5
Q
“O” in ORC
A
Operations
6
Q
“R” in ORC
A
Reporting
7
Q
“C” in ORC
A
Compliance
8
Q
“C” in CRIME
A
Control environment
9
Q
“R” in CRIME
A
Risk Management
10
Q
“I” in CRIME
A
Info and communication systems
11
Q
“M” in CRIME
A
Monitoring
12
Q
“E” in CRIME
A
Existing controls
13
Q
Who is responsible for the following:
-effectively applying IC
-Determining requirements for IC
A
Management & Board
14
Q
Which of the components of ORC does this apply to:
Effectiveness and efficiency of the company’s operations and ensuring safeguards of the assets
A
Operations
15
Q
Which of the components of ORC does this apply to:
Reliability, timeliness, and transparency of an entity’s external and internal financial/nonfinancial reporting
A
Reporting
16
Q
Which of the components of ORC does this apply to:
Entity is adhering to applicable laws and regulations
A
Compliance
17
Q
Control Environment Principle
A
EBOCA
18
Q
“E” in EBOCA
A
Ethics
19
Q
“B” in EBOCA
A
Board independence
20
Q
“O” in EBOCA
A
Organizational structure
21
Q
“C” in EBOCA
A
Commitment to competence
22
Q
“A” in EBOCA
A
Accountability
23
Q
Risk Assessment principle
A
SAFR
24
Q
“S” in SAFR
A
Specify objectives
25
"A" in SAFR
Assess change
26
"F" in SAFR
Fraud risk
27
"R" in SAFR
Risk analysis
28
Information and communication principle
OIE
29
O in OIE
Obtain and use info
30
I in OIE
Internally communicate
31
E in OIE
Externally communicate
32
Who should be internally communicated to?
Internal auditors & committee
33
Who should be externally communicated to?
Management, CPA firm, consultants
34
Monitoring Activities principle
SOD
35
S in SOD
Separate evaluations of IC
36
O in SOD
Ongoing evaluations of IC
37
D in SOD
Deficiencies are communicated
38
Existing Control Activities principles
CAT P
39
CA in CAT P
Control activities are developed
40
T in CAT P
Tech controls
41
P in CAT P
Policies and procedures
42
Major deficiency
Material IC deficiency
43
What is the objective of applying the COSO framework?
Reduce assessed risk to acceptable levels
44
COSO Framework documentation pnuemonic
COPS
45
C in COPS
Component evaluation
46
O in COPS
Overall assessment
47
P in COPS
Principal evaluations
48
S in COPS
Summary of IC deficiencies
49
What is the objective of ERM
Strategy to balance risk and return
50
Risk
Possibility events will occur and affect the achievement of strategy and business objectives
51
Value creation
Benefits exceed the cost of resources used
52
What are signs that value is being created
+NPV, Profit, successful launch of a product
53
Value preservation
Ongoing operations efficiently and effectively sustain created benefits
54
Value erosion
Cost exceed benefits
55
What are signs that value is being eroded?
stock price declines
-NPV
56
Value realization
Benefits created by the organization are received by stakeholders
57
Mission
core purpose of an entity
58
Vistion
strategy and goals
59
Core values
how a company achieves goals
60
CCPIS
manage risk and create value
61
C1 in CCPI
Culture
62
C2 in CCPI
Capabilities
63
P in CCPI
Practices
64
I in CCPI
Integration with strategy
65
Culture
collective thinking that shapes decisions
66
Capabilities
competitive advantage
67
Risk appetite
Willingness to assume risk
68
Where is risk appetite expressed?
Mission and vision
69
Risk Inventory
All risk that could impact an entity
70
What is the term:
trends, events, relationships, and other factors that may influence, clarify or change an entity's current or future strategy
Business context
71
Risk capacity
Maximum amount of risk
72
Risk profile
Type, severity, and interdependence of risk
73
How many components are associated with ERM?
5
74
What are the components of ERM
GO PRO
75
G in GO PRO
Governance and culture
76
O1 in GO PRO
Objective setting
77
P in GO PRO
Performance
78
R in GO PRO
Review and revision
79
O2 in GO PRO
Ongoing performance
80
Governance and culture
DOVES
81
D in DOVES
Desired culture
82
O in DOVES
Board oversight
83
V in DOVES
Values (core values)
84
E in DOVES
Employees are capable
85
Strategy and objective setting
SOAR
86
S in SOAR
Strategies
87
O in SOAR
Objectives
88
A in SOAR
Analyze business context
89
R in SOAR
Risk appetite
90
Performance principles
VAPIR
91
V in VAPIR
Portfolio view
92
A in VAPIR
Assesses severity of risk
93
P in VAPIR
Prioritize risk
94
I in VAPIR
Identifies risk
95
R in VAPIR
Risk response
96
What kind of risk preference:
increase in level of risk doesn't result in an increase in management's required rate of return
Risk-Indifferent
97
What kind of risk preference:
increase in the level of risk results in an increase in management's required rate of return
Risk-averse
98
What kind of risk preference:
increase in the level of risk results in a decrease in management's required rate of return
Risk-seeking
99
What kind of risk:
exposure of the owner of the instrument to fluctuations in the value of the instrument in response to changes in interest rates
Interest rate risk
100
What kind of risk:
Portion of a firm's or industry's risk that is associated with random causes and can be eliminated through diversification
Unsystematic Risk
101
What kind of risk:
Exposure of a firm to fluctuations in value as a result of operating within an economy
Systematic Risk
102
What kind of risk:
Political events, war, inflation, international events
Market risk
103
What kind of risk:
Strikes, lawsuits, regulation, loss of key account
Diversifiable risk
104
What kind of risk:
Company's inability to secure financing or favorable credit terms
Credit Risk
105
What kind of risk:
Debtors may not repay principal or interest due
Default risk
106
What kind of risk:
Lendors or investors are exposed when they cannot sell securities in a timely manner and must make material price concessions
Liquidity risk
107
What kind of risk:
Investors have to decline in the value of their individual securities or portfolios
Price risk
108
What kind of rate:
Rate of interest charged before any adjustments for compounding or market factors
Stated interest
109
What kind of rate:
Interest paid per period/Net proceeds from loan OR
(P X SAR)/# Periods
Effective interest
110
What kind of rate:
Effective Period Rate X # of periods
Annual percentage rate
111
What kind of rate:
(1+Effective periodic rate)^# of periods - 1
Effective annual percentage rate
112
What kind of rate:
P X SAR X # years
Simple interest
113
What kind of rate:
P X (1 + Effective periodic)
Compound interest
114
Maturity risk premium
Compensation that investors demand for exposure to interest rate risk over time; risk increases with term to maturity
115
Purchasing power risk
Compensation investors require to bear the risk that price levels will change and affect asset values
116
Liquidity risk premium
Compensation demanded by lenders for the risk that an investment security cannot be sold on a short notice without making significant price concessions
117
Default risk premium
Additional compensation demanded by lenders for bearing the risk that the issuer of the security will fail to pay interest or principal on a timely basis
118
Certainty equivalent
The point at which an investor is indifferent to an expected return on an investment
119
What premiums go into the require rate of return?
Maturity risk
Purchasing power risk
Liquidity risk
Default riks
120
This would mitigate _________ risk
Investing in floating debt securities
Forward rate agreements or interest rate swaps
Interest rate risk
121
This would mitigate ________ risk
Derivates that provide gains to the investor when the market declines
Short selling
Market Risk
122
Short selling
selling an investment in hopes of buying it back at a lower price later
123
This would mitigate _______ risk
Diversification
Unsystematic risk
124
This would mitigate ________ risk
Improving credit ratings
Credit risk
125
This would mitigate ________ risk
Adjust interest rates charged to better reflect the risk of each borrower
Default risk
126
This would mitigate ______ risk
Allocating a greater percentage of capital to investments that trade on active markets
Liquidity risk
127
This would mitigate ______ risk
Short selling/put options
Price Risk
128
Put option
Selling a security at a specific price by a specific time
