Corporate Governance Flashcards
What is the role of the audit committee?
The audit committee is responsible for resolving disputes between the auditor and management.
Members of the audit committee are to be member’s of the issuer’s _____ but are to be otherwise _____.
Board of Directors.
Independent.
Does the audit committee hired auditor satisfy the Sarbanes-Oxley Act of 2002’s requirement of independence?
No.
Board membership does not impair independence for purposes of audit committee membership (in fact, being a board member is a requirement). The independent auditor is hired and paid by the audit committee and thus is not independent.
Communication by the external auditor illustrates which principle of the information and communication component of the COSO framework?
External Communication
The regular evaluation of transactions as part of the risk assessment component of the COSO framework reflects the principle of:
Financial Reporting Objectives
A response to risk that involves the disposal of a business unit, product line, or geographical segment is called:
Risk Avoidance
A response to risk that involves insuring against losses or entering into joint ventures to address risk is known as:
Risk Sharing
When management uses listings of potential events common to a specific industry as a means of identifying risks or opportunities, the method is known as which risk assessment technique?
Event Inventory
Control Activities are most closely related to:
- Inherent Risks
- Residual Risks
- Risk Responses
- Risk Assessments
Risk Responses.
Control activities are the methods used to implement the response to risk.
Relocation of production facilities to assure an uninterrupted supply chain is an example of which response to risk?
Risk Reduction
The Board of Directors has a ________ responsibility to act on behalf of and in the best interest of the corporation.
Fiduciary
Periodically comparing and updating the mission vision and values of a not-for-profit could be best classified as which component of internal control?
Monitoring
Establishment of a company-wide uniform chart of accounts would most likely be which type of enterprise objective?
Related Reporting Objective
Conducting focus groups with customers and suppliers to determine responsiveness to the needs of various parties would most likely be which type of enterprise objective?
Related Operations Objective
______ objectives support the mission and vision of an organization and are implemented via various strategies and related objectives.
Strategic objectives
The principle that protects corporate directors from personal liability for acts performed in good faith on behalf of the corporation is known as:
The Business Judgment Rule
Which COSO framework component is designed to ensure that internal controls continue to operate effectively?
Monitoring
According to COSO, which component of enterprise risk management addresses an entity’s assignment of authority and responsibility?
Internal Environment
According to COSO, which component of enterprise risk management addresses an entity’s reporting deficiencies?
Monitoring
According to COSO, which component of enterprise risk management addresses an entity’s timely reporting of identified internal control deficiencies?
Monitoring
A company that retains a CPA with the appropriate knowledge, skills, and abilities to prepare timely and effective financial reporting is applying the ideas from which principle of effective internal control over financial reporting?
Financial reporting competencies
The Sarbanes-Oxley Act of 2002 requires that at least one member of the audit committee be a:
Financial expert
The Sarbanes-Oxley Act of 2002 addresses the problems related to inadequate board oversight by requiring public companies to have an:
Audit committee
The regular evaluation of transactions as part of the risk assessment component of the COSO framework reflects the principle of:
Financial Reporting Objectives
The determination of what might interrupt a company’s ability to present their financial statements in accordance with GAAP is which part of risk assessment?
Financial Reporting Risk
Self insuring or simply tolerating full exposure to risk is what type of risk response?
Risk acceptance
A response to risk that involves the diversification of product offerings rather than the elimination of product is offerings is called:
Risk reduction
A technique for risk assessment that involves gathering management together to discuss or even brainstorm ideas in a structured manner is a:
Facilitated workshop
A technique for risk assessment that involves sending out questionnaires to affected parties requesting opinions on potential events is:
Questionnaire/Survey approach
A technique for risk assessment that involves using a flow chart of activities to identify potential risks is a:
Process flow analysis
The risk to an entity in the absence of any actions management might take to alter either the risk’s likelihood or impact is known as:
Inherent Risk
The risk to an entity that remains after management responds to the risk is known as:
Residual Risk
The methods used to implement the response to risk are known as:
Control activities
In order for the operating efficiencies contemplated by enterprise risk management to operate effectively, there cannot be material weaknesses in:
Internal Control
According to COSO, which component of enterprise risk management addresses an entity’s integrity and ethical values?
Internal environment
According to COSO, which component of enterprise risk management addresses an entity’s information and communications standards?
Information and communication
According to COSO, which component of enterprise risk management includes the identification of inherent and residual risk, the evaluation of likelihood and impact of risk, and data sources?
Risk assessment
According to COSO, which component of enterprise risk management includes types of control activities, policies and procedures, and integration of control issues with risk responses?
Control activities
In order to comply with a director’s duty of loyalty to a corporation, what action(s) should a director take when presented with a corporate opportunity?
Offer the opportunity to the corporation and accept it if the corporation rejects it.
According to COSO, the use of ongoing and separate evaluations to identify and address changes in internal control effectiveness can be best accomplished in which stage of the monitoring-for-change continuum?
Change identification
What are the three categories of objectives within the COSO framework?
- Operations Objectives
- Reporting Objectives
- Compliance Objectives
Which of the three COSO framework objectives relates to the effectiveness and efficiency of an entity’s operations?
Operations
Which of the three COSO objectives pertains to the reliability, timeliness, and transparency of an entity’s external and internal financial and non-financial reporting as established by regulators, accounting standard setters, or the firm’s internal policies?
Reporting
Which of the three COSO objectives is established to ensure the entity is adhering to all applicable laws and regulations?
Compliance
What are the five integrated components of internal control?
- Control environment
- Risk assessment
- Information and communication
- Monitoring
- Existing control activities
The COSO recommends that the number of organizational layers between the Chief Financial Officer and those involved in financial reporting should not exceed:
Three
The risk assessment technique characterized by the development of a listing of potential events common to a specific industry or functional area is known as:
Event inventory
The method of event identification that involves meetings of cross-functional teams are generally referred to as:
Event workshops
What are the key elements of Objective Setting?
- Strategic Objectives
- Operations Objectives
- Reporting Objectives
- Compliance Objectives
Which objective relates to the broad, mission-driven objectives of an organization?
Strategic Objective
Which objective supports strategic objectives to help identify critical success factors at each level of business operation?
Related Objective
Which objective includes efficiency, effectiveness, and profitability objectives that are subject to management discretion or style?
Operations Objective
Which objective deals with external and internal reporting objectives associated with timeliness and accuracy and are associated with both financial and non-financial data?
Reporting Objective
Which objective includes adherence to the laws, rules, and regulations associated with operations, including tax and financial reporting compliance, workplace safety, environmental regulations, and other laws?
Compliance Objective
What are the eight components of COSO’s enterprise risk management framework?
- Internal environment
- Setting objectives
- Event identification
- Assessment of risk
- Risk response
- Activities (control)
- Information and communication
- Monitoring
Which internal control principle says that reporting relationships should not undermine the commitment to effective reporting and internal control?
Organizational structure
What are the seven principles of the control environment?
- Philosophy and operating style of management
- Human resources
- Reporting financial competencies
- Authority and responsibility
- Structure of the organization
- Ethical values and integrity
- Directors of the board
