Corporate Governance

Question 1

What is the primary duty of the board of directors?

Answer 1

To monitor mgmt 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

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 mgmt should match

those of the shareholders

Question 7

How can an executive compensation package

ensure that goals of mgmt

align with those of shareholders?

Answer 7

Create incentive for mgmt 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 mgmt takes?

Answer 8

Range from

internal (_{Board of Directors, Audit Committee, Internal Control})

to external (_{Creditors, SEC, IRS})

NO undue influence from mgmt

NO financial ties to mgmt (_{compensation-related duties})

Question 9

What is shirking?

Answer 9

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

Alleviate by tying compensation to

stock performance/company π

Question 10

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

Answer 10

Mgmt must submit a report on the effectiveness of Internal Control in the 10K

Mgmt must disclose significant Internal Control deficiencies

CEO/CFO must certify that F/S 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

Actions being taken

to promote the control environment.

A component of Internal Control

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

Mgmt 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