BEC 1 - Corporate Governance

Question 1

3 objectives within the COSO framework/of an internal control (ORC)

Answer 1

1) Operations - ensuring the efficiency and effectiveness of operations, and also ensuring assets are safeguarded
2) Reporting - ensuring the reliability, timeliness, and transparency of an entities internal and external financial and non financial reporting
3) Compliance - adhering to all laws and regulations

Question 2

5 components of internal control (CRIME)

Answer 2

1) Control Environment - tone at the top
2) Risk Assessment - FS misstated, not efficient, breaking the law
3) Information and communication - Fair, Accurate, Complete, Timely
4) Monitoring - Effectiveness of controls and report deficiencies
5) (Existing) Control Activities - Policies and procedures to mitigate risks

Question 3

Principles related to the Control Environment (EBOCA)

Answer 3

1) commitment to Ethics and integrity
2) Board independence and oversight
3) Organizational structure - establishing reporting lines
4) Commitment to Competence
5) Accountability - establishing performance measures and incentives

Question 4

Principles related to Risk Assessment (SAFR)

Answer 4

1) Specify objectives
2) identify and Assess changes - in external environment, business model, leadership, etc
3) consider potential for Fraud
4) identify and analyze Risks - determine how risks should be managed

Question 5

Principles related to Information and Communication (OIE)

Answer 5

1) Obtain and use information - use relevant, high quality information
2) Internally communication information
3) communicate with External parties

Question 6

Principles related to Monitoring (SO D)

Answer 6

1) Separate and Ongoing evaluations - components of internal control are present and functioning
2) communication of Deficiencies

Question 7

Principles related to Existing Control Activities (CATP)

Answer 7

1) select and develop Control Activities
2) select and develop Technology controls
3) deployment of Policies and Procedures

Question 8

General Requirements for an effective system of internal controls

Answer 8

All five components and 17 principles that are relevant to be both PRESENT and FUNCTIONING

• Present: components and relevant principles are included in the design and implementation of the internal control system
• Functioning (operating effectively): components and relevant principles are currently operating as designed in the internal control system

Question 9

Specific Requirements for an effective system of internal controls

Answer 9

Must have reasonable assurance that ORC objectives are being achieved

Question 10

COSO framework guidance on what to DOCUMENT (COPS)

Answer 10

1) Overall assessment
2) Component evaluation
3) Principal evaluation
4) Summary of internal control deficiencies

Question 11

Common risks identified using the COSO framework

Answer 11

• Material omission or misstatement (unintentional)
• Fraud
• Management override
• Illegal acts: violation of government regulations

Question 12

Develop value through ERM (CPER)

Answer 12

• value Creation
• value Preservation
• value Erosion
• value Realization

Question 13

5 components of ERM (GO PRO)

Answer 13

1) Governance and culture
2) strategy and Objective-setting
3) Performance
4) Review and Revision
5) Ongoing information, communication and reporting

Question 14

Principles related to Governance and Culture (DOVES)

Answer 14

1) defines Desired culture
2) exercises board Oversight
3) demonstrates commitment to core Values
4) attracts, develops and retains capable Employees
5) establishes operating Structure

Question 15

Principles related to Strategy and Objective Setting

Answer 15

1) evaluates alternative Strategies
2) formulates business Objectives
3) Analyzes business context
4) defines Risk appetite

Question 16

Principles related to Performance

Answer 16

1) develops portfolio View
2) Assesses severity of risk
3) Prioritizes risk
4) Identifies risk events
5) implements risk Responses (ARTS)

Question 17

Principles related to Review and Revision

Answer 17

1) assesses Substantial change
2) pursues Improvement in ERM
3) Reviews risk and performance

Question 18

Principles related to Information, Communication and Reporting (Ongoing)

Answer 18

1) leverages information and Technology
2) communicates risk Information
3) reports on risk, culture and Performance

Question 19

Risk responses (ARTS)

Answer 19

1) High frequency, High impact: Avoid
2) High frequency, Low impact: Reduce (hedge, derivatives, etc)
3) Low frequency, High impact: Transfer (insurance)
4) Low frequency, Low impact: Self insure / Accept

Question 20

Residual Risk vs Inherent Risk

Answer 20

Inherent Risk - the risk present in any scenario where NO ATTEMPTs at mitigation have been made and no controls or other measures have been applied to reduce the risk from initial levels to levels more acceptable to the organization

Residual Risk - the risk remaining after efforts have been made to reduce the inherent risk.