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BEC > Corporate Governance > Flashcards

Corporate Governance Flashcards

1
Q

What is in the Articles of Incorporation

A

Name

Address

Purpose

Powers

Registered Agent Name, Address

Incorporators

Number shares of stock

SH may amend

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2
Q

What are By-Laws

A
  • Lists authorized officer positions
  • Duties
  • How BOD/officers are elected
  • How meetings are conducted
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3
Q

Who is BOD?

A

Elected by SH, joint or staggered

Monitor activities of company

Inside/outside directors

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4
Q

What are the BOD Committees

A
  • Executive
  • Audit Compensation - Bene, bonus, pension
  • Nominating - BOD and CEO
  • Corporate Governance
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5
Q

8 BOD duties

A
  1. Review plans (Strat, Op, Fin); corp procedures
  2. Establish ethical conduct
  3. Corporate risk profile, risk management
  4. Fiduciary role in F/S and I/C
  5. Monitor goal setting and CEO comp
  6. Oversee efficient/effective financial reprtng
  7. Senior management succession
  8. BOD and committee succession
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6
Q

Audit Committee responsibilities

A
  • Ensures F/S are true and accurate
  • Monitor BOD independence
  • Appoint, compensate, supervise Ext Auditor
  • Independence req: Sarbox, NYSE, NASDAQ
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7
Q

Nominating / Corporate Governance Committee

duties (4)

A
  • Oversees the board organization
  • Determines director qualifications
  • Develops governance principles
  • Oversee succession
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8
Q

Strategic Plan components

(BOD reviewed)

A

ST / LT high level plans and objectives

products/markets,

asset/bus acquisition

sourcing and manufacturing

S&M

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9
Q

Operating Plan

(BOD reviewed)

A

Business level plans to execute Strategic Plan

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10
Q

Corporate Code of Conduct

(BOD reviewed)

A

annual EE certification of compliance:

  • contractor compliance standards
  • audit and standards for sourcing facilities
  • bribes/kickbacks
  • supplier payment process
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11
Q

Officer responsibilities

A

Execute Strategic Plan

Can bind corporation within scope of authority

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12
Q

SEC gave authority to NYSE and NASDAQ requiring __________ of the board of directors?

A

Independence 5 year cooling off period

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13
Q

Which influencers help mold the direction that management takes?

A
  • Internal
    • BOD
    • Audit Committee
    • I/C
  • External
    • Creditors
    • SEC
    • IRS

These influencers should not be tainted by undue influence from management or have financial ties to management such as compensation-related duties

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14
Q

What is shirking?

A

When management doesn’t act in the best interest of shareholders.

It can be alleviated by tying compensation to stock performance or company profit.

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15
Q

What is the main goal in an executive compensation package?

A

Ensure that the goals of management should match those of the shareholders.

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16
Q

How can an executive compensation package ensure that the goals of management align with those of shareholders?

A

Create an incentive for management to govern in a SH-friendly way that doesn’t sacrifice the LT success of the enterprise for ST gain.

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17
Q

What requirements are imposed on a public company under Sarbanes-Oxley?

A
  • Management must submit a report on the effectiveness of Internal Control in the 10K.
  • Management must disclose significant Internal Control deficiencies.
  • CEO/CFO must certify that the financial statements comply with securities laws and fairly present the financial condition of the company.
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18
Q

Internal Auditing

Institute of Internal Auditing

Certified Internal Auditor

International Standards for the Professional Practice of Internal Auditing (similar to GAAS)

A
  • Attributes
    • Code of Ethics
    • Organizational independence
    • Proficiency and Due Care Performance
  • Performance
    • develop quality assurance program
    • evaluate effectiveness to risk mgt processes Implementation
  • Implementation
    • Chief Audit Exec determine audit priorities
    • Chief Audit Exec audit results to mgt
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19
Q

Internal Control Limitations

A
  • Human error
  • Human judgement
  • Collusion
  • Mgt override
  • Costly
  • Customs/Culture
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20
Q

What are the basic elements of internal control?

A

Control Activities

Risk Assessment

Information and Communication

Monitoring

Environment

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21
Q

What are Control activities?

A

component of internal control

actions being taken to promote the control environment.

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22
Q

Risk Assessment Inluencing Factors

(Internal - External)

A

Internal:

  • personnel change
  • new IS
  • new product

External:

  • economy
  • competition
23
Q

What is the significance of the Information and Communication aspect of internal control?

A

Management must have access to relevant and timely information to make good decisions.

24
Q

Key Controls

Montitoring

A

Defined as

  • Material to objectives if failure
  • Provide early warning
  • Might prevent/detect other control failures

Evidence it is working

  • direct - observe, reperform
  • indirect - anamolies
25
Q

What are the elements of the control environment?

ICHAMBO

A

Integrity & Ethics

Competence

HR Policies

Authority & Roles of Responsibilities

Management’s Operating Style

BOD and Audit Comm

Organizational Structure

26
Q

What 3 characteristics are promoted by the COSO (1992) framework on I/C?

A
  1. Reliable financial reporting
  2. Effective and efficient operations
  3. Compliance
27
Q

What activities does the COSO framework for enterprise risk management include?

A
  • Identifies Risk Factors
  • Promotes Risk Response Decisions
  • Compares Mngt Risk vs. SH Goals
  • Aids in evaluating opportunities
  • Promotes Quicker Capital movement
  • Does NOT eliminate all risk
28
Q

What is COSO framework for ERM?

A

process

by an entity’s BOD/Mgt

applied in a strategy setting

across the enterprise

designed to identify potential events

manage risk to be within its risk appetite

provide reasonable assurance of achieving objectives.

29
Q

8k Reports

A
  • 4 Business Days,
  • prompt or simultaneous info
  • Bus/Oper
  • Finacials
  • Sec-Trad Mkt
  • Accounting in F/S
  • Ass-backed Sec
  • Reg FD (Fair Disclosure)
30
Q

Risk response decisions

A

Avoid

Reduce

Share

Accept

31
Q

Business Judgement rule

A

Case law-derived

Good faith

loyalty

due care

May be held liable for illegal dividends

32
Q

Internal Audit Charter Standards

A

Should set forth the purpose, authority, and responsibility of the internal audit activity.

33
Q

Duty of Loyalty

A

put interest of corporation before personal interest

34
Q

Internal Auditors / External Auditors

(Access)

A

Internal - direct access to BOD

External - report to BOD

35
Q

5 SEC divisions

A
  1. Division of Corporate Finance - doc review
  2. Division of Enforcement
  3. Office of Chief Accountant
  4. PCAOB
  5. Office of Whistleblower
36
Q

Dodd-Frank Rules

A

Compensation Committee independent

SH have Say-on-Pay every 3 years

SH non-binding vote wrt Golden Parachute

37
Q

NYSE/NASDAQ Rules

A

Majority BOD independent

5 year cooling off NYSE

3 year cooling off NASDAQ

38
Q

Internal Control (COSO)

A

A process, effected by the entity’s BOD, mngt designed to provide reasonable assurance regarding achievement of objectives in:

  1. Reliability of fin reptng
  2. Effectiveness and efficiency of ops
  3. Compliance with law and reg
39
Q

How does Monitoring affect internal control?

A

Evaluate for effectiveness.

40
Q

Control Activities

A

Performance review:

  • balanced scorecard

Info Processing review (GAPS):

  • G eneral
  • A pplication
  • P hysical
  • S egregation of Duties (ARC)
41
Q

Information/Communication

A

Cutoff/Ownership

Valuation/Completeness

Presentation

Disclosure

42
Q

COSO model view of ERM

A

Four objectives:

  1. Strategic Mission Stmt
    • LT goals
  2. Operations- ST resource use
    • efficient and effective
  3. Reporting- reliability of info
  4. Compliance- laws/reg
43
Q

Monitor

Process of accessing quality of internal control over time

(COSO guidance)

A

Internal Auditor Evaluator characteristics:

  • Knowledge and Competence
  • Objectivity
44
Q

ERM entails

A
  • Coordinate risk appetite and strategy
  • Support risk response decisions
  • Decrease operational unawareness
  • Mitigate org-wide risk
  • integrated response
  • Proactive search for risk
  • Assess weaknesses in corp risk mgt
  • Create crises mngt response procedures
45
Q

ERM: Internal Environment

A

Risk Appetite overall

Risk Tolerance specific objective

46
Q

How does ERM (2004) manage risk?

A

Strategic/Operational Risk procedures to:

  • identify,
  • assess,
  • manage,
  • control
47
Q

Risk Appetite

A

Overall org risk management is willing to endure

48
Q

Risk Tolerance

A

Risk in individual tasks

49
Q

ERM: Risk Assessment

A

Analyzing potential likelihood and impacts

inherent - if you do nothing

residual - if you respond

50
Q

ERM Components (8)

vs IC, Env, Risk Ass, Activ, Info/Comm, Mon

A

Control Activities

Risk Assessment / Response

* Objective setting

* Event ID - activity affecting objective

Information and Communication

Monitoring

Environment - tone

51
Q

ERM: Risk Response

A

Avoid

Reduce

Share

Accept

52
Q

ERM: Event ID

A

Potential risks or opportunities affecting achievement of objective

53
Q

Monitoring Activities

Process of accessing quality of internal control over time

(COSO guidance)

A
  • Establish Baseline for Int Control system
  • Change Identification
  • Change Management procedures
  • Control Revalidation / Update
54
Q

ERM: Objective Setting (3)

A

Operational: effectiveness efficiency

Reporting:

  • internal - external
  • financial - nonfinanacial

Compliance: adherence to laws and regs

BEC (9 decks)

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