Ch 1- Corporate Governance Flashcards
Define internal control within the context of the COSO Internal control framework including the purpose objectives
Purpose and objectives: control environment, risk assessment, control activities, info and comm, and monitoring operational and financial performance goals, measuring efficiency and effectiveness, safeguarding assets, reporting, and adherence to regulations
Define internal control within the context of the COSO Internal control framework including limitations
unrealistic to think controls are invincible or foolproof only provide reasonable assurance collusion, management override human judgement, faulty decision-making, and human error limit
Identify and define the components and underlying structure of the COSO Internal Control framework- Control Environment
organizational structure, culture of integrity, and ethical decision-making, and performance measurement criteria Principles- Organization demonstrates committment to integrity and management sets the tone at the top and it trickles down
Identify and define the components and underlying structure of the COSO Internal Control framework- Risk Assessment
likelihood risks will occur and effects risks will have on organization; iterative process (repitious)
Identify and define principles of the COSO Internal Control framework- Control Environment
Principles- Organization demonstrates committment to integrity and ethical values– management sets the tone at the top and it trickles down Board of directors demonstrates independence from mgt and exercises oversight of the development and performance of internal controls Mgt establishes, with board oversight, structures,reporting lines, and approppriate authorities and responsiblities in pursuit of objectives The organization demonstrates a committment to attract, develop, and retain competent individuals in alighnment with objectives– individuals have performance measures related to internal control accountability
Identify and define principles of the COSO Internal Control framework- Risk Assessment
organization specifies objectives with sufficient clarity to enable the identification and assessment of risks relating to objectives organization identifies risks to achievement of its objectives across the entity and analyzes risks as a basis for determining how the risks should be managed Organization considers the potential for fraud in assessing risks to the achievement of objectives The organization identifies and assesses changes that could significantly impact system of internal controls
Identify and define the components and underlying structure of the COSO Internal Control framework- Control Activities
mitigate risks across all levels of the organization, including information system segregation of duties, authorization and approval, reconciliation, information matching and verification, access admin, and supervisor review
Identify and define principles of the COSO Internal Control framework- Control Activites
organization selects and develops control activities that contribute to mitigation of risks to the achievement of objectives to acceptable levels The organization selects and develops general control activities over technology to support the achievement of objectives The oganization deploys activities through policies that establish what is expected and procedures that put policies into action
Identify and define principles of the COSO Internal Control framework- Information and Communication
organization obtains or genreates uses relevant, quality info to support the functioning of internal control organization internally communicates info, including objectives and responsibilities of internal control, necessary to support the functioning of internal control organization communicates with external parties regarding matters affecting functioning of internal control
Identify and define the components and underlying structure of the COSO Internal Control framework- Information and communication
Relevant internal and external info is necessary to achieve objectives and timely communication supports the function of internal control
Identify and define the components and underlying structure of the COSO Internal Control framework- Monitoring activites
evaluating if the 5 components of COSO IC are present, if not communicates them to mgt and board of directors
Identify and define principles of the COSO Internal Control framework- Monitoring activites
organization selects, develops, and performs ongoing and/or separate evaluations to ascertain whether the components of internal control are present and functioning organization evaluates and communicates internal control definciencies in a timely manner to those parties responsible for taking corrective action including senior mgt and board of directors as appropriate
Apply COSO IC framework to identify control for risks scenarios in an entity- Preventative
Controls aim to deter the occurence of errors and fraudulent activities and are designed to stop unauthorized acts before they happen Controls over security, access admin
Apply COSO IC framework to identify control for risks scenarios in an entity- Detective
Controls helps identify errors and fraud that have previously occurred within the organization when preventive controls fail to stop an undesirable act in place to discover and communicate issues in timely manner reconciliation of account balances
Apply COSO IC framework to identify control for risks scenarios in an entity- Corrective
Controls fix errors and irregularities discovered after the fact. Identifies issue and plays active role in alleviating the issue and restoring functionality User access review to remove inappropriate access
Describe the corporate governance structure within organization- Tone of the top
Crucial element of ethical operations and decision-making Ethical climate or atmosphere within entity that cascades from leadership to frontline employees Discourages or encourages certain behaviors Can find by asking employees or gathering data, evidence from records, or gauge by online representation
Describe the corporate governance structure within organization- Corporate formation policies
Articles of incorporation- file with the state name of corp, corp address, purpose, shares, registered agents, and incorporators; processing fee to amend with state Bylaws- high-level rules over how corp is to operate on day-to-day basis; how Board elected, duties of directors, schedule of required meetings, procedure for meetings, and process for disputes. free to amend with vote of board of diretors
Describe the corporate governance structure within organization- Corp stakeholders, steering committees, and oversight
Hierarchy of who reports to who
Describe the corporate governance structure within organization- Owners (Shareholders)
provide capital for org to conduct business
Rights of SH
Economic rights- to receive dividends
Control rights- right to vote on important matters relating to business
Info rights- right to inspect the corp’s books and records
Litigation rights- judicial enforcement of other rights under certain circumstances
Pre-emptive rights- right of common SH to purchase new issuances first so they can maintain proportions share of outstanding
Cumulative Right to sell
right to elect most fundamental
Describe the corporate governance structure within organization- Officers
Executive team in charge of directing day-to-day business
Agency relationship- authority to contractually bind corp
Responsibilities- Fiduciary duty, fair representation of FAR, and CEO/CFO certification of FAR
Describe the corporate governance structure within organization- Directors
Board of directors to oversee business
Responsibilities- selecting and appointing officers, declaring dividends, determing mgt compensation, appoint external auditors, resolve disagreements between magt and external auditors, fiduciary duties, duty of loyalty
Committees-
Audit committees, Compensation committee, nominating/ corp governance committee
Requirement- Financial expert on audit committee, director independence
Additional Oversight- Intenral auditors and external auditors, IRS, SEC, creditors, attorneys, eyc
Describe the corporate governance structure within organization- Corp Classifications
Filing class- market capitalization or aggregate worldwide market value of voting and non-voting common equity
Emerging Growth Company (EGC)- gross revenues of less than billion dollars that has completed an IPO, the first time issuing stock, and IPO occured after 12/18/2011
Benefits of EGC- confidential review by SEC, FASB private company standards, No mandatory disclosures for compensation and say-for-pay requirements
Maintain EGC- Gross rev >= $1 bill, accelerated filer, Issues $1 bill in non-convertible debt over 3 years, 5 years after IPO
Define enterprise risk mgt within context of COSO ERM framework including purpose, objectives
process to identify events that may effect entity and manage risk to provide reasonable assurance the entity is able to achieve objectives while avoiding surprises
provides guidance for entities as they navigate uncertainity and challenges with balancing risk and opportunites
Expansion of COSO IC, objectives in operations, reporting, compliance, and strategic
Define enterprise risk mgt within context of COSO ERM framework including limitations
Define role of business strategy within context of COSO ERM framwork
Apply framework to scenarios
uncertinaty, imperfect info resulting in poor human judgement, unforeseen circumstances, and wiling disregard for risk mgt policies and procedures, collusion and mgt override
Cost-benefit for risk mgt is strategic
