Corporate Governance

Question 1

Audit Committee

Answer 1

Oversees the accounting financial reporting processes of the company and oversees the audits of the financial statements of the company. SOX requires all members to be independent.

Appoints and oversees external auditor
Interacts with internal auditors
Receives and resolves complaints regarding accounting and auditing matters
Investigates issues regarding financial reporting and internal control

Question 2

Black Swan Analysis

Answer 2

Evaluating the occurrence of events that had negative effects and were unanticipated or viewed as highly unlikely

Question 3

Enterprise risk management

Answer 3

Process designed to identify potential events that may affect the organization and manage risk to be within its risk appetite, to provide reasonable assurance regarding the achievement of organizational objectives

1. Internal Environment
2. Objective setting
3. Event identification
4. Risk assessment
5. Risk response
6. Control activities
7. Information and Communication
8. Monitoring

Question 4

ERM Objective Setting

Answer 4

Operations objectives
Reporting objectives
Compliance objectives

Question 5

ERM Identification

Answer 5

Event Inventories
Internal analysis
Escalation or threshold triggers
Facilitated workshops or interviews
Process flow analysis
Leading event indicators
Loss event data methodologies

Question 6

ERM Risk Assessment

Answer 6

Qualitative techniques:
Probabilistic - associate a range of events and the resulting impact with the likelihood of those events based on certain assumptions (ex: value at risk, cash flow at risk, earnings at risk)

Nonprobabilistic - subjective assumptions in estimating the impact of events without quantifying an associated likelihood (ex: sensitivity measures, stress tests, and scenario analysis)

Question 7

ERM Risk Response

Answer 7

Management selects risk responses that are consistent with the risk appetite of the organization

1. Avoidance
2. Reduction
3. Sharing
4. Acceptance

Question 8

Limitations of ERM

Answer 8

1. Assessed risk relates to the future which is uncertain
2. ERM cannot provide reasonable assurance that objectives will be achieved
3. ERM cannot provide absolute assurance with respect to any of the objective categories.
   a. effectiveness of ERM is subject to the limitations of the ability of humans
   b. well-designed ERM can break down
   c. collusion among two or more individuals can result in failures
   d. ERM systems can never be perfect due to cost-benefit constraints
   e. ERM is subject to management override

Question 9

COSO defined internal control

Answer 9

A process, effected by the entity’s board of directors, managements, and other personnel designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting and compliance.

Components:

1. control environment
2. risk management
3. control activities
4. information and communication
5. monitoring activities

Question 10

Evaluator

Answer 10

an individual that monitors internal control within an organization

Question 11

Executive perquisites

Answer 11

Executive benefits other than compensation, such as retirement, use of corporate assets, golden parachutes, and corporate loans

Question 12

Inherent risk

Answer 12

Risk to the organization if management does nothing to alter its likelihood or impact

Question 13

Residual risk

Answer 13

the risk of the event after considering management’s response

Question 14

Risk appetite

Answer 14

the amount of risk an organization is willing to accept to achieve its objectives

Question 15

Risk tolerance

Answer 15

acceptable variation with respect to achieving a particular objective

Question 16

Risk assessment

Answer 16

analyzing the potential effects of a risk