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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
What are the elements of the ***control environment***? ICHAMBO
**I**ntegrity & Ethics **C**ompetence **H**R Policies **A**uthority & Roles of Responsibilities **M**anagement's Operating Style **B**OD and Audit Comm **O**rganizational Structure
26
What 3 characteristics are promoted by the COSO (1992) framework on I/C?
1. Reliable financial reporting 2. Effective and efficient operations 3. Compliance
27
What activities does the COSO framework for enterprise risk management include?
* 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
What is COSO framework for ERM?
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
8k Reports
* 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
Risk response decisions
Avoid Reduce Share Accept
31
Business Judgement rule
Case law-derived Good faith loyalty due care May be held liable for illegal dividends
32
Internal Audit Charter Standards
Should set forth the purpose, authority, and responsibility of the internal audit activity.
33
Duty of Loyalty
put interest of corporation before personal interest
34
Internal Auditors / External Auditors (Access)
Internal - direct access to BOD External - report to BOD
35
5 SEC divisions
1. Division of Corporate Finance - doc review 2. Division of Enforcement 3. Office of Chief Accountant 4. PCAOB 5. Office of Whistleblower
36
Dodd-Frank Rules
Compensation Committee independent SH have Say-on-Pay every 3 years SH non-binding vote wrt Golden Parachute
37
NYSE/NASDAQ Rules
Majority BOD independent **5** year cooling off **NYSE** **3** year cooling off **NASDAQ**
38
Internal Control (COSO)
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
How does Monitoring affect internal control?
Evaluate for effectiveness.
40
Control Activities
Performance review: * balanced scorecard Info Processing review (GAPS): * G eneral * A pplication * P hysical * S egregation of Duties (ARC)
41
Information/Communication
Cutoff/Ownership Valuation/Completeness Presentation Disclosure
42
COSO model view of ERM
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
Monitor Process of accessing quality of internal control over time (COSO guidance)
Internal Auditor Evaluator characteristics: * Knowledge and Competence * Objectivity
44
ERM entails
* 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
ERM: Internal Environment
Risk Appetite overall Risk Tolerance specific objective
46
How does ERM (2004) manage risk?
Strategic/Operational Risk procedures to: * identify, * assess, * manage, * control
47
Risk Appetite
Overall org risk management is willing to endure
48
Risk Tolerance
Risk in individual tasks
49
ERM: Risk Assessment
Analyzing potential likelihood and impacts ## Footnote inherent - if you do nothing residual - if you respond
50
ERM Components (8) vs IC, Env, Risk Ass, Activ, Info/Comm, Mon
**C**ontrol Activities **R**isk Assessment / Response \* Objective setting \* Event ID - activity affecting objective **I**nformation and Communication **M**onitoring **E**nvironment - tone
51
ERM: Risk Response
Avoid Reduce Share Accept
52
ERM: Event ID
Potential risks or opportunities affecting achievement of objective
53
Monitoring Activities Process of accessing quality of internal control over time (COSO guidance)
* Establish Baseline for Int Control system * Change Identification * Change Management procedures * Control Revalidation / Update
54
ERM: Objective Setting (3)
Operational: effectiveness efficiency Reporting: * internal - external * financial - nonfinanacial Compliance: adherence to laws and regs

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