Corporate Governance Flashcards
The _______________ provides guidance for policymakers in evaluating and improving the legal, regulatory, and institutional framework for corporate governance.
A. IIA Standards for the Professional practice of Internal Auditing
B. IOSCO Principles for Auditor Oversight
C. INTOSAI Code of Ethics
D. G20/OECD Principles of Corporate Governance
D. G20/OECD Principles of Corporate Governance
G20/OECD Principles of Corporate Governance (the Principles), a publication by the Organisation for Economic Co-operation and Development (OECD), is regarded as one of the hallmark sources of guidance for corporate governance practices for organizations throughout the world. According to the OECD, the Principles “are intended to help policymakers evaluate and improve the legal, regulatory, and institutional framework for corporate governance with a view to support economic efficiency, sustainable growth, and financial stability.” Policymakers in many countries have used these Principles as a basis for legislative and regulatory corporate governance initiatives.
See pages 4.309 in the Fraud Examiner’s Manual
Good corporate governance practices:
A. Define the relationships and expectations of the parties involved
B. Ensure that no single party is capable of making all the business decisions without influence, input, or approval of other
parties
C. Provide clear lines of accountability and reporting
D. All of the above
D. All of the above
(A. Define the relationships and expectations of the parties involved
B. Ensure that no single party is capable of making all the business decisions without influence, input, or approval of other
parties
C. Provide clear lines of accountability and reporting)
An organization’s corporate governance structure provides the lines of accountability and reporting, defines the relationships and expectations of the parties involved, and sets the rules and practices that these parties must follow in executing their responsibilities. The checks-and-balances system of corporate governance ensures that no single party is capable of making all the business decisions without influence, input, or approval of other parties.
See pages 4.301 in the Fraud Examiner’s Manual
To reduce the probability of fraud in financial reports, the National Commission on Fraudulent Financial Reporting (the Treadway Commission) provided recommendations about which of the following parties involved in corporate governance?
A. Shareholders
B. The Compensation Committee
C. Management
D. The Audit Committee
D. The Audit Committee
The National Commission on Fraudulent Financial Reporting (the Treadway Commission) offered the following four recommendations for the audit committee that, in combination with other measures, are designed to reduce the probability of fraud in financial reports:
** Mandatory independent audit committee—The Treadway Commission recommended that each board of directors have an
audit committee composed of outside directors.
** Written audit committee charter—The Treadway Commission also suggested that companies develop a written charter that
sets the audit committee’s duties and responsibilities. The board of directors should periodically review, modify, and
approve this written charter.
** Adequate audit committee resources and authority—According to the Treadway Commission, the existence of an audit
committee and a written charter is not enough. The committee must also have adequate resources and authority to
execute its responsibilities.
** Informed, vigilant, and effective audit committee members—The audit committee should be composed of members who
are informed, vigilant, and effective.
The principles behind these recommendations have been incorporated into the corporate governance requirements for public companies in many jurisdictions, including the United States; however, these recommendations are foundational best practices for all organizations.
See pages 4.305 in the Fraud Examiner’s Manual
Effective corporate governance is the foundation of fraud risk management.
True/False
True!
The importance of active and committed board participation in the fraud risk management process cannot be overstated. As stated in Fraud Risk Management Guide, a joint publication by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and the ACFE, fraud risk governance is one of the principles of effective fraud risk management, and “the board of directors and senior management provide a solid foundation of fraud risk management.” Managing the Business Risk of Fraud: A Practical Guide, the predecessor to Fraud Risk Management Guide, expands this point, noting, “Effective governance processes are the foundation of fraud risk management. Lack of effective corporate governance seriously undermines any fraud risk management program.”
See pages 4.307-4.308 in the Fraud Examiner’s Manual
Which of the following parties is responsible for overseeing business operations by assessing the strategy and underlying purpose of management’s decisions and actions?
A. Shareholders
B. The board of directors
C. External auditors
D. Industry regulators
B. The board of directors
A corporation’s board of directors is made up of individuals who are generally elected by the entity’s voting members (e.g., shareholders in the case of a corporation or members in the case of an association). The directors represent the intermediaries between the corporation’s owners (i.e., shareholders) and those executing its activities (i.e., management), and they act as guardians of the organization’s resources and assets. As such, the board oversees business operations by assessing the strategy and underlying purpose of management’s decisions and actions.
See pages 4.302 in the Fraud Examiner’s Manual
According to G20/OECD Principles of Corporate Governance (the Principles), an entity’s corporate governance framework should:
A. Ensure the timely and accurate disclosure of all material matters regarding the corporation
B. Ensure the equitable treatment of all shareholders, including minority and foreign shareholders
C. Encourage active cooperation between corporations and stakeholders in creating wealth and jobs
D. All of the above
D. All of the above
(A. Ensure the timely and accurate disclosure of all material matters regarding the corporation
B. Ensure the equitable treatment of all shareholders, including minority and foreign shareholders
C. Encourage active cooperation between corporations and stakeholders in creating wealth and jobs)
G20/OECD Principles of Corporate Governance (the Principles), a publication by the Organisation for Economic Co-operation and Development (OECD), is regarded as one of the hallmark sources of guidance for corporate governance practices for organizations throughout the world. Broadly, the Principles state that an entity’s corporate governance framework should:
** Promote transparent and fair markets and the efficient allocation of resources.
** Be consistent with the rule of law.
** Support effective supervision and enforcement.
** Protect and facilitate the exercise of shareholders’ rights.
** Ensure the equitable treatment of all shareholders, including minority and foreign shareholders.
** Provide all shareholders with the opportunity to obtain effective redress for violation of their rights.
** Create sound incentives throughout the investment chain.
** Enable stock markets to function in a way that contributes to good corporate governance.
** Recognize the rights of stakeholders established by law or through mutual agreements.
** Encourage active cooperation between corporations and stakeholders in creating wealth, jobs, and the sustainability of ** financially sound enterprises.
** Ensure that timely and accurate disclosure is made on all material matters regarding the corporation, including the
company’s financial situation, performance, ownership, and governance.
*** Ensure the strategic guidance of the company, the effective monitoring of management by the board, and the board’s
accountability to the company and the shareholders.
See pages 4.310-4.320 in the Fraud Examiner’s Manual
Which of the following is NOT one of the core principles of sound corporate governance?
A. Responsibility
B. Transparency
C. Independence
D. Fairness
C. Independence
Most systems of corporate governance are focused on several core principles or values, which include:
- ** Accountability
- ** Transparency
- ** Fairness
- ** Responsibility
See pages 4.308 in the Fraud Examiner’s Manual
Effective ownership and reporting structures within an organization are necessary for ensuring which of the following principles of corporate governance?
A. Accountability
B. Transparency
C. Responsibility
D. Fairness
A. Accountability
One of the core principles or values of corporate governance is accountability. The ownership and reporting structures within an organization allow for the involved parties’ accountability. In most corporations, the owners (i.e., shareholders) are separate from the decision-makers (i.e., management) and overseers (i.e., board of directors). To ensure that the organization operates effectively and efficiently, there must be mechanisms in place to ensure that management is accountable to the board and that the board is accountable to the shareholders.
See pages 4.308 in the Fraud Examiner’s Manual
Specific corporate governance practices for publicly traded corporations are often mandated by the listing standards for the stock markets on which they are listed.
True/False
True!
In many jurisdictions, organizations—particularly those that are publicly traded—are subject to specific corporate governance requirements. These requirements might take the form of legislation (e.g., the U.S. Sarbanes-Oxley Act of 2002 [SOX] and similar legislation in Japan, Canada, Turkey, and other countries) or as conditions set for companies listed on stock exchanges (e.g., the New York Stock Exchange [NYSE] Listed Company Manual, the UK Corporate Governance Code, and the King Code in South Africa). Therefore, companies should be familiar with the existing guidance specific to all the regions in which they operate, and those charged with governance should ensure compliance with the laws and regulations governing their organization.
See pages 4.323 in the Fraud Examiner’s Manual
Which of the following parties is responsible for directing employees to execute business activities and managing their performance of those tasks?
A. External auditors
B. Shareholders
C. The board of directors
D. Management
D. Management
An organization’s management team leads the organization and its employees. Management is responsible for making the day-to-day decisions that affect company performance and, ultimately, shareholder wealth. Management’s roles pertaining to corporate governance include:
- ** Establishing strategic goals and operating objectives under the board’s oversight
- ** Directing employees to execute business activities and managing their performance of those tasks
- ** Determining the use and allocation of company resources and assets
- ** Evaluating the organization’s successes or failures and recalibrating the strategic approach accordingly
- ** Holding responsibility for the design and operation of the organization’s internal controls
- ** Setting the organization’s true ethical tone
See pages 4.306 in the Fraud Examiner’s Manual
The purpose of corporate governance is to:
A. Prevent and detect financial misstatements, whether caused by errors or fraud.
B. Ensure the accuracy and reliability of the organization’s financial reports.
C. Provide reasonable assurance regarding the organization’s compliance with applicable laws and regulations.
D. Encourage the efficient use of resources and require accountability for the stewardship of those resources.
D. Encourage the efficient use of resources and require accountability for the stewardship of those resources.
Sir Adrian Cadbury, chairman of the committee that developed the foundational corporate governance guidance, The Cadbury Report, stated that the purpose of corporate governance is “to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. The aim is to align as nearly as possible the interests of individuals, corporations, and society.”
See pages 4.301 in the Fraud Examiner’s Manual
Specific corporate governance requirements for publicly traded corporations in all jurisdictions are:
A. Considered optional and left to the discretion of the corporation’s board of directors
B. Found in the Universal Corporate Governance Act
C. Contained in the various laws and regulations imposed upon corporations in the jurisdictions in which they operate
D. Mandated by G20/OECD Principles of Corporate Governance
C. Contained in the various laws and regulations imposed upon corporations in the jurisdictions in which they operate
Although there is not a universal law or set of rules for corporate governance, legislators, regulators, and other bodies around the world have issued guidance that provides best practices and requirements that organizations should enact as appropriate. For example, G20/OECD Principles of Corporate Governance (the Principles) provides a nonbinding foundational corporate governance framework for organizations throughout the world.
Additionally, in many jurisdictions, organizations—particularly those that are publicly traded—are subject to specific corporate governance requirements. These requirements might take the form of legislation (e.g., the U.S. Sarbanes-Oxley Act of 2002 [SOX] and similar legislation in Japan, Canada, Turkey, and other countries) or as conditions set for companies listed on stock exchanges (e.g., the New York Stock Exchange [NYSE] Listed Company Manual, the UK Corporate Governance Code, and the King Code in South Africa). Therefore, companies should be familiar with the existing guidance specific to all the regions in which they operate, and those charged with governance should ensure compliance with the laws and regulations governing their organization.
See pages 4.322-4.323 in the Fraud Examiner’s Manual
The National Commission on Fraudulent Financial Reporting (the Treadway Commission) made which of the following recommendations to reduce the probability of fraud in financial reports?
A. Develop a written charter for the audit committee.
B. Have adequate audit committee resources and authority.
C. Have a mandatory independent audit committee.
D. All of the above are recommendations made by the Treadway Commission.
D. All of the above are recommendations made by the Treadway Commission.
The National Commission on Fraudulent Financial Reporting (the Treadway Commission) offered the following four recommendations for the audit committee that, in combination with other measures, are designed to reduce the probability of fraud in financial reports:
** Mandatory independent audit committee—The Treadway Commission recommended that each board of directors have an
audit committee composed of outside directors.
** Written audit committee charter—The Treadway Commission also suggested that companies develop a written charter that
sets the audit committee’s duties and responsibilities. The board of directors should periodically review, modify, and
approve this written charter.
** Adequate audit committee resources and authority—According to the Treadway Commission, the existence of an audit
committee and a written charter is not enough. The committee must also have adequate resources and authority to
execute its responsibilities.
** Informed, vigilant, and effective audit committee members—The audit committee should be composed of members who
are informed, vigilant, and effective.
*** The principles behind these recommendations have been incorporated into the corporate governance requirements for
public companies in many jurisdictions, including the United States; however, these recommendations are foundational
best practices for all organizations.
See pages 4.305 in the Fraud Examiner’s Manual
Good corporate governance is based on a framework that:
A. Takes into account the organization’s cultural and ethical environment
B. Is appropriate for the organization’s legal and regulatory environment
C. Remains adaptable
D. All of the above
D. All of the above
(A. Takes into account the organization’s cultural and ethical environment
B. Is appropriate for the organization’s legal and regulatory environment
C. Remains adaptable)
Corporate governance structure and practices vary widely and should be determined based on each organization’s specific needs. In developing a corporate governance framework for an organization, directors and management must consider the legal, regulatory, institutional, cultural, and ethical environments in which the company operates. Additionally, good corporate governance is fluid—that is, it maintains the ability to find a different course when its current direction runs into barriers, such as changes in the corporate landscape, new regulations or legal requirements, or shifts in organizational strategy. However, even while remaining adaptable, sound corporate governance is based on established best practices.
See pages 4.321-4.322 in the Fraud Examiner’s Manual
________ in the context of corporate governance generally refers to the clarity, accuracy, completeness, and timeliness of the financial statements and other information provided by management to shareholders.
A. Transparency
B. Fairness
C. Responsibility
D. Accountability
A. Transparency
Transparency in the context of corporate governance generally refers to the clarity, accuracy, completeness, and timeliness of the financial statements and other information provided by management to shareholders. The organization’s governance processes must include policies and procedures designed to ensure transparent disclosure of all material matters that the shareholders need to make timely and informed decisions regarding their investment in the company. An independent audit of the financial statements is one such mechanism that helps meet this objective.
See pages 4.308-4.309 in the Fraud Examiner’s Manual
