Corporate Governance

Question 1

What is the primary duty of the board of directors?

Answer 1

To monitor management behavior.

Question 2

What is the responsibility of the Nominating or Corporate Governance Committee of the board of directors?

Answer 2

Oversees the board

Responsible for hiring new CEO

Question 3

What is the responsibility of the audit committee of the board of directors?

Answer 3

The audit committee appoints and oversees the external auditor.

Question 4

What is the duty of the compensation committee of the board of directors?

Answer 4

The compensation committee handles the CEO’s compensation package.

Question 5

What does the NYSE and NASDAQ require of the board of directors?

Answer 5

They require the board to be independent.

Question 6

What is the main goal in an executive compensation package?

Answer 6

The package should ensure that the goals of management should match those of the shareholders.

Question 7

How can an executive compensation package ensure that goals of management align with those of shareholders?

Answer 7

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.

Question 8

Which influences help mold the direction that management takes?

Answer 8

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

Question 9

What is shirking?

Answer 9

When management doesn’t act in the best interest of shareholders.

It can be alleviated by tying compensation to stock performance or company profit.

Question 10

What requirements are imposed on a public company under Sarbanes-Oxley?

Answer 10

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.

Question 11

What objectives are promoted by the COSO framework on Internal Control?

Answer 11

O - effective and efficient Operations

R - reliable financial Reporting

C - Compliance

Question 12

What are the principles of the control environment?

Answer 12

E - Ethics & integrity 
B - Board independence & oversight
O - Organizational structure
C - commitment Competence
A - Accountability

Question 13

What are control activities?

Answer 13

A component of Internal Control that includes actions being taken to mitigate the risk of material misstatement of financial statements.

Question 14

What are the basic components of Internal Control?

Answer 14

C - Control Environment
R - Risk Assessment
 I - Information and Communication
M - Monitoring
E - Existing Control Activities

Question 15

What is the significance of the Information and Communication aspect of Internal Control?

Answer 15

To make good decisions, management must have access to information that is:
F - Fair
A - Accurate
C - Complete
T - Timely

Question 16

How does Monitoring affect Internal Control?

Answer 16

Internal Control activities must be 1.) constantly monitored and evaluated for effectiveness & 2.) deficiencies need to be communicated.

Question 17

What are the components of Enterprise Risk Management?

Answer 17

I - Internal environment
S - Setting objectives

E - Event identification
A - Assessment of risk
R - Response to risk

A - Activities/control activities
I - Information & Communication
M - Monitoring

Question 18

What are possible responses to risk under the COSO framework for enterprise risk management?

Answer 18

Avoid or Reduce

Share or Accept

Question 19

What are the principles of the Risk Assessment component of the COSO framework?

Answer 19

E - Event Identification
A - Assess Risk
R - Respond to Risk

Question 20

What is enterprise risk management (ERM)?

Answer 20

ERM is a process, effected by an entity’s board of directors, management, and other personnel, applied in strategy setting & across the enterprise, designed to identify potential events that may affect the entity, & manage risk to be within its risk appetite, to provide reasonable assurance regarding the achievement of entity objectives.

Does NOT eliminate risk, but reduces to provide reasonable assurance.