Corporate Governance Flashcards
Corporate Governance
What is the primary duty of the board of directors?
To monitor management behavior.
Corporate Governance
What is the responsibility of the Nominating or Corporate Governance Committee of the board of directors?
Oversees the board
Responsible for hiring new CEO
Corporate Governance
What is the responsibility of the audit committee of the board of directors?
The audit committee appoints and oversees the external auditor.
Corporate Governance
What is the duty of the compensation committee of the board of directors?
The compensation committee handles the CEO’s compensation package.
Corporate Governance
What does the NYSE and NASDAQ require of the board of directors?
They require the board to be independent.
Corporate Governance
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.
Corporate Governance
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.
Corporate Governance
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
Corporate Governance
What is shirking?
When management doesn’t act in the best interest of shareholders.
It can be alleviated by tying compensation to stock performance or company profit.
Corporate Governance
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.
Corporate Governance
What characteristics are promoted by the COSO framework on Internal Control?
Reliable financial reporting
Effective and efficient operations
Compliance
Corporate Governance
What are the elements of the control environment?
Integrity & Ethics Competence The Board of Directors & Audit Committee Management's Operating Style Organizational Structure Authority & Roles of Responsibilities HR Policies
Corporate Governance
What are control activities?
A component of Internal Control that includes actions being taken to promote the control environment.
Corporate Governance
What are the basic elements of Internal Control?
Control Environment Risk Assessment Control Activities Information and Communication Monitoring
Corporate Governance
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.
