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BEC > Corp. Governance-becker > Flashcards

Corp. Governance-becker Flashcards

0
Q

What is the role of BOD?

A
  • Safeguard company’s assets
    -maximize shareholder return
  • Fiduciary responsibility
  • due diligence- not liable for acts if ethical
  • cannot compete but could have conflict of interest
    ..this requires full disclosure prior to transaction
    .. Deals have to be fair to company
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1
Q

What is the responsibility of BOD?

A
  • manage mangers in best interest of the company

- no individual authority “quorum” - power as group

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2
Q

What is indemnification?

A

If sued. The company pays for and hires a lawyer as long as the action was in good faith

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3
Q

Who are officers and what are their responsibility?

A
  • individual agents
  • can be removed without cause
  • actual authority ( oral & written)
  • apparent authority; their role to act on behalf of the corp.
  • indemnification
  • fiduciary responsibility : good faith of the company
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4
Q

Can officers be BOD?

A

Yes. But the majority of the board should be independent

  • Officers are not required to be shareholders
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5
Q

What does SOX enforce?

A
  • corporate responsibility
  • enhance financial disclosed
  • Fraud
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6
Q

What is corporate responsibility under SOX?

A
  • audit committee
    • select oversee, compensate audits
    • auditor report directly to audit committee
    • resolve dispute between officers and auditors
    • are BOD but is independent otherwise
    • establish whistle blower procedures to accept complaints
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7
Q

What is the corporate responsibility for Officer (CEO/CFO)?

A
  • sign and review all reports
  • no omission of material facts
  • responsible for internal controls
  • transparent
  • no improper influences (bribery to audit)
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8
Q

What happens if financial statements get restated due to omission or non compliance?

A
  • Company takes it out of the bonus

- is sold stock and have gain, the gain goes back to the company

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9
Q

What are SOX’s enhanced financial disclosures?

A

Disclosures of 10k and 10q

  • ensure compliance with GAAP
  • all material correcting adj. identified by audit req. disclosure
  • off balance sheet transaction should be disclosed
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10
Q

What are some off balance suggest transactions that should be disclosed?

A
  • operating lease
  • contingent liabilities
  • related party transactions
  • special purpose entities
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11
Q

Restriction for issuers?

A

Prohibited from making loans to executive officers & directors unless it’s the company’s ordinary course of business

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12
Q

What is SEC roles?

A
  • Enhanced review of disclosure for completeness

- ensure independence

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13
Q

How does SOX address fraud?

A 
Up to 10-20 years in jail if violated
-alteration of documents ( distort, impede ( stop investigation))
Failure of officer to sign= penalties 
Corp fraud= 20 years
Known misstatement = 10 years
Intentional= 20 years
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14
Q

SEC actions against fraud

A

Freeze assets
Prohibit BOD / officers to serve
Any retaliation against whistleblower = 10 years

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15
Q

What is COSO for internal controls?

A

Private sector that established initiative to help managers and stockholders understand internal controls.

16
Q

What are the 3 major objectives of internal control?

A

O- operation objectives: effectiveness & efficiency of entity’s operation

R- reporting objectives: reliability, timeliness & transparency of financial statements

C- compliance: comply w/ laws and regulations

17
Q

What are the 5 major components of internal control?

A 
C- Control environment- EBOCA
R- Risk assessment- EAR 
I- Information and Communication- FACT
M- Monitoring
E- Existing Controls
18
Q

What is control environment in CRIME?

A 
E- Ethics and integrity
B- Board independence of management 
O- Organizational Structure
C- commitment to Compliance  
A- Authority and Accountability

Process structure standards that provide the foundation for entities to establish a system of internal controls

19
Q

What is Risk assessment in CRIME?

A

E- Event Identification
A- Assess Risk
R- Respond to Risk

Identify and analyze risk
Consider potential for fraud

20
Q

What is Information and communication in CRIME?

A

F- Fair
A- Accurate
C- Complete
T- Timely

Internal communication: audit committee, management & BOD

External communication: users

21
Q

What is Monitoring in CRIME?

A

Assess internal control overtime by assessing the designs and operations of controls on a timely basis
Correct deficiency

Frequently testing and detect risk
Report deficiency

22
Q

What is Existing control activities in CRIME?

A

Controls that are in placed to Detect and prevent

Mitigate risk

23
Q

What is COSO enterprise risk management?

A

ERM helps strategize- balance risk and return

ERM assist organizations develop comprehensive response to all risk management

24
Q

COSO ERM summarized.

A
  • identify events
  • mange risk
  • provide reasonable assurance
  • align risk appetite strategy
  • enhance risk response
  • reduce operational surprise/ losses (event identification)
  • improves development of capital (max efficiency & effectiveness)
25
Q

What are the 4 categories of ERM objectives?

A 
S- Strategic
O- Operation
R- Reporting
C- Compliance 
"Broader in scope- beyond internal control"
26
Q

7 ERM components?

A 
I- Internal environment- EBOCA HR (CRIME- C)
S- Setting objectives - SORC
E- Event ID- EAR (CRIME- R)
A- Assessment of Risk - EAR  (CRIME- R)
R- Risk Response- EAR  (CRIME- R)
A- control Activities  (CRIME- E)
I- Information and communication  (CRIME- I)
M- Monitoring  (CRIME- M)
27
Q

ERM Internal Environment?

A 
E- commit to Ethical values and integrity
B- Board oversight
O- Organizational structure
C- commitment to Competence
A- Accountability

HR- Human resource

  • risk management philosophy
  • human resource standards
  • risk appetite -aggressive vs. conservative
28
Q

ERM - Setting objectives

A

SORC

strategic objectives, operations, reporting and compliance

29
Q

ERM- Event ID (Ear)

A

Internal and external risks
Negative risk= risk: prevent achievement of objectives
Positive risk= opportunities: promote achievement of objectives

30
Q

ERM- Assessment of risk (eAr)

A

Measure the probability or severity of occurrence

Inherit risk- management does nothing
Residual risk- management does something

31
Q

Assessment of risk techniques?

A
  • Benchmarking
  • probabilistic model- statistical data
  • non- probabilistic- opinion ex: outcome of lawsuit
32
Q

ERM Risk Response (EaR)

A

Must align risk with company’s appetite : conservatism vs. aggressive
Risk Response:
- avoidance: discontinue
- reduce: mitigate- invest
- acceptance: do nothing, because not cost effective
- sharing: transfer of risk, insurance

33
Q

ERM- control activities

A
  • types of actives in place
  • variance analysis- top level reviews
  • performance reports
  • physical control- safeguard of assets
  • red flags, performance indicators
  • segregation of duty
34
Q

ERM Information and communication?

A

FACT

Communication with internal and external, customers feedback, supplier communication

35
Q

ERM- Monitor

A
  • ongoing monitoring activities
    • dictated by risk
    • verify effective operation controls
  • separate evaluations
    • internal control audits (multiple checks and balance)
  • report/ correct deficiency
    • through normal chains of command
    • blow the whistle

BEC (10 decks)

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