Corporate Governance Flashcards
What is the primary duty of the board of directors?
The Board of Directors monitors management behavior.
What is the responsibility of the Nominating or Corporate Governance Committee of the board of directors?
The Nominating or Corporate Governance Committee oversees the board responsible for hiring new CEO.
What is the responsibility of the audit committee of the board of directors?
The audit committee appoints and oversees the external auditor.
What is the duty of the compensation committee of the board of directors?
The compensation committee handles the CEO’s compensation package.
What do the NYSE and NASDAQ require of the board of directors?
The NYSE and NASDAQ require the board to be independent.
What is the main goal in an executive compensation package?
The package should ensure that the goals of management should match those of the shareholders.
How can an executive compensation package ensure that goals of management align with those of shareholders?
Executive compensation should create an incentive for management to govern in a shareholder-friendly way that doesn’t sacrifice the long-term success of the enterprise for short-term gain.
Which influences help mold the direction that management takes?
They range from internal (Board of Directors, Audit Committee, Internal Control) to external (creditors, SEC, IRS). These influences should not be tainted by undue influence from management or have financial ties to management such as compensation-related duties.
What is shirking?
Shirking is when management doesn’t act in the best interest of shareholders. It can be alleviated by trying compensation to stock performance or company profit.
What requirements are imposed on a public company under Sarbanes-Oxley?
- 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.
What characteristics are promoted by the COSO framework on Internal Control?
The COSO promotes:
- Reliable financial reporting - Effective and efficient operations - Compliance
What are the elements of the control environment?
The elements of the control environment are:
- Integrity & Ethics Competence - The Board of Directors & Audit Committee - Management's Operating Style - Organizational Structure - Authority & Roles of Responsibilities - HR Policies
What are control activities?
Control activities are components of Internal Control that include actions being taken to promote the control environment.
What are the basic elements of Internal Control?
Internal Control has the following basic elements:
- Control Environment - Risk Assessment - Control Activities - Information and Communication - Monitoring
What is the significance of the Information and Communication aspect of Internal Control?
Management must have access to relevant and timely information to make good decisions.
