Corporate Governance

Question 1

Framework Objectives of COSO -ORC

Answer 1

• Operations Objectives
• Reporting Objectives- Focus of COSO
• Compliance Objectives

Question 2

Components of Internal Control

Answer 2

Control Environment- Tone at the top
Risk Assessment-F/S misstated or Fraud?
Control Activities-Policies/Procedures to mitigate risk
Information & Communication-Fair, Accurate, Complete, Timely
Monitoring- Efficiencies of Internal Control and report deficiencies

Question 3

Enterprise Risk Management Framework

IS EAR AIM

Answer 3

• Internal Environment
• Setting Objectives
• Event Identification
• Assessment of Risk
• Risk Response
• Control Activities
• Information & Communication
• Monitoring

Question 4

BOD

Answer 4

-Gets to decide whether or not the Corp pays dividends

Question 5

BOD has a Fiduciary Duties

Answer 5

• Must always act in the best interests of the corp. Ethically
  a) Right to Rely-Part of due diligence.

Question 6

Liability for Unlawful Distributions/Dividends

Answer 6

-Directors may be held liable for authorizing a distribution in violation of law

Question 7

BOD -duty of loyalty

Answer 7

• Cannot compete serve on board of coke and pepsi.

- You could have conflicts of interests.

Question 8

BOD conflict of Interest

Answer 8

a) Full Disclosure

b) Abstain from voting.

Question 9

Corporate Opportunity Doctrine- A director is presented with a business opportunity that is of interest to his corporation

Answer 9

His duty prohibits him to take the opportunity for himself. He Must preset the opportunity to the corporation, and can take the opportunity for himself only if the corp decides not to take it.

Question 10

Officers are individual agents

Answer 10

CEO

CFO

Question 11

Agents have 2 types of authrities

Answer 11

Actual-Oral/Written Instructions
Apparent- “Title” CEO CFO President..
If they enter into contracts and act on behalf of the corporation in the ordinary course of business.

Question 12

Majority of the board of directors being independent shows

Answer 12

that there is good corporate gov.

Question 13

An Agent when it comes to shareholders

Answer 13

-Are not required to be shareholders

Question 14

SOX Act of 2002 addresses

Answer 14

• Corp Resp.
• Enhanced Financial Disclosure
• Fraud

Question 15

Corporate Responsibility

Answer 15

• We look At Audit Comm

- And certain representations that the CEO pr CFO makes

Question 16

Audit Committeee- Public Company

Answer 16

1) Auditor reports directly to the audit committee

2) Audit Comm. is responsible for resolving disputes between the auditor and management.

Question 17

Audit Comm. Members

Answer 17

• Must be independent ant not part of the day to day operations..
• Must establish procedures to accept reports of complaints regarding audit, accounting, or internal control issues.

Question 18

Corp Resp. For Financial Reports

CFO & CEO must sign reps regarding annual and quarterly reports

Answer 18

a) They have reviewed the reports
b) The report does not contain untrue statements or omit material information
The CEO and CFO signing the report have assumed resp for internal controls including the assertion that controls have been evaluated for effectiveness as of a date within 90 days prior to the report(eCOSO)

Question 19

Significate deficiencies in Internal Control

Answer 19

The CEO and CFO must make disclosures in regards to any sig. def in Internal control to the auditors and the audit committee

Question 20

If There is an accounting restatement due to material noncompliance an agent may lose their

Answer 20

-Bonuses

Question 21

Enhanced Financial Disclosure

Answer 21

May make them quarterly and annually
-Disclosures are intended to ensure that the application of GAAP reflects the economics of the transactions included in the report and that those transactions are transparent to the reader.

Question 22

Section 404

Answer 22

The assessment of Internal controls
-Management is resp. for establishing & maintaining an adequate of the internal controls.
Practically DIM

Question 23

Code of Ethics for Senior Officers

Code of Conduct AKA tone at the top

Answer 23

1) Honest & Ethical Conduct
2) Full, Fair, accurate , adn timely disclosures
3) Compliance with laws.

Question 24

Disclosures of Audit Commitee “Financial Expert”

Answer 24

• To resolve disputes between management and auditor.

- If you don’t have one then why not

Question 25

Enhanced Review Disclosures by Issuers SEC

Answer 25

SEC is required to review disclosures made by issuers including those in form 10-K

Question 26

Statue of Limitations for Securities Fraud

Answer 26

2 and 5
2 years after the discovery of the facts
5 years after the violation

Question 27

COCO-Internal Control

Answer 27

Avoid Financial Reporting CRIME.

COSO tells us how to establish good controls

Question 28

Definition of Internal Control

Answer 28

Process that is designed and implemented by an organization’s management.
To provide reasonable assurance that it will achieve its compliance, operating and reporting objectives.

Question 29

COSO applies to

Answer 29

• Operational
• Compliance
• Reporting

Question 30

COSO Issued ERM

Enterprise Risk Management Framework

Answer 30

-To assist organizations in developing a comprehensive response to risk management.

Question 31

Intent of ERM

Answer 31

-To allow management to effectively deal with uncertainty, evaluate risk. while determining how much uncertainty to accept

Question 32

ERM framework encompasses the following themes

Answer 32

1) Aligning Risk Appetite & Strategy
2) Enhancing Risk Response Decisions
3) Reducing Operational Surprises & Losses
4) Identifying & Managing Multiple & Cross-Enterprise Risks
5) Seizing Opportunities
6) Improving Deployment of Capital

Question 33

ERM Objectives- 4 Categories
SORC
Objective Settings in the ERM

Answer 33

1) Strategic-Mission of the company
2) Operations
3) Reporting
4) Compliance

Question 34

Event Categories-External & Internal

Answer 34

1) External
a) Economic
b) Natural Environment
c) Political
d) Social
e) Technological

2) Internal
a) Infrastructure
b) Personnel
c) Process
d) Technology

Question 35

Inherent Risk

Answer 35

The risk to an organization that exists if management takes no action to change the likelihood or impact of an adverse event

Question 36

Residual Risk

Answer 36

The risk to an organization that exists after management takes action to mitigate the adverse impact of the event

Question 37

Assessment Techniques

Answer 37

1) Benchmarking
2) Probabilistic Models
3) Non-Probabilistic Models

Question 38

Benchmarking

Answer 38

Use of common data from organizations with similar characteristics

Question 39

Probabilistic Models

Answer 39

Statistical Data- More subjective “historical”

Use of a range of events and impacts with likelihood estimated using assumptions

Question 40

Non-Probabilistic Models

Answer 40

Opinion-Outcome of lawsuit

Use of subjective assumptions to estimate event impact without estimating likelihood

Question 41

Types of Control Activities

Answer 41

1) Top-level Reviews-Variance Analysis
2) Direct function or activity management -Performance Reports
3) Information Processing
4) Physical Controls- Assets are kept physically sec. locations
5) Performance Indicators-“red flags” material variances
6) Segregation of Duties
7) Information & communication-AIM

Question 42

Information and Communication

Answer 42

1) Strategic & Integrated Systems
2) Integration with Operations
3) Depth & Timeliness of Information

Question 43

Monitoring

Answer 43

a) Ongoing Monitoring Activities- Dictated by Risks
Verify the effective operation of controls
b) Separate Evaluations
we want multiples checks and controls. Internal & external audit
c) Reporting Deficiencies.
Report via normal chain of command and correct it.

Question 44

ERM & Material Weaknesses

Answer 44

There can be no material weaknesses for enterprise rish management to be considered effective