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 characteristics are promoted by the COSO framework on Internal Control?

Answer 11

Reliable financial reporting

Effective and efficient operations

Compliance

Question 12

What are the elements of the control environment?

Answer 12

Integrity & Ethics
Competence
The Board of Directors & Audit Committee
Management's Operating Style
Organizational Structure
Authority & Roles of Responsibilities
HR Policies

Question 13

What are control activities?

Answer 13

A component of Internal Control that includes actions being taken to promote the control environment.

Question 14

What are the basic elements of Internal Control?

Answer 14

Control Environment
Risk Assessment
Control Activities
Information and Communication
Monitoring

Question 15

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

Answer 15

Management must have access to relevant and timely information to make good decisions.

Question 16

How does Monitoring affect Internal Control?

Answer 16

Internal Control activities must be constantly monitored and evaluated for effectiveness.

Question 17

What activities does the COSO framework for enterprise risk management include?

Answer 17

Identifies Risk Factors
Promotes Risk Response Decisions
Compares Management Risk vs. Shareholder Goals
Aids in evaluating opportunities
Promotes Quicker Capital movement

Does NOT eliminate all risk

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

Sarbanes-Oxley Act of 2002 Title III

Answer 19

Establishes requirements for the audit committee, including the composition of the committee and their duties. Also, establishes the representations that are required by the CEO and CFO of a public company.

Question 20

Sarbanes-Oxley Act of 2002 Title IV

Answer 20

Describes enhanced financial disclosures associated with the financial statements, management’s assessment of internal controls, officer code of ethics, and the operations of the audit committee.

Question 21

Sarbanes-Oxley Act of 2002 Title VIII

Answer 21

Outlines criminal penalties for altering documents, the status of limitations for securities fraud, whistle-blower protection rules, and criminal penalties for securities fraud.

Question 22

Sarbanes-Oxley Act of 2002 Title IX

Answer 22

Pertains to individuals who conspire to commit any white collar offense. These individuals will be subject to penalties as predetermined (and amended) by the United States Sentencing Commission. It also, outlines the requirements for officers certifying financial reports filed with the SEC as well as the penalties that corporate officers may be subject to for not properly certifying these financial reports.

Question 23

Sarbanes-Oxley Act of 2002 Title XI

Answer 23

Outlines corporate fraud accountability, which includes any individual who tampers with records, impedes an official proceeding, or retaliates against informants. In cease-and-desist proceedings, the SEC may temporarily or permanently prohibit an individual from serving as an officer or director of a company.

Question 24

What does COSO stand for?

Answer 24

Committee on Sponsoring Organizations

Question 25

What is COSO?

Answer 25

An independent private-sector group that was established to study factors leading to fraudulent financial reporting.