Corporate Governance

Question 1

What is the primary duty of the board of directors?

Answer 1

To monitor management behavior.

Safeguard co assets

Maximize shareholder return

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

Executice 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.

Disclose significant Internal Control deficiences.

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/objectives that 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

o Commitment to Integrity
o Exercise Oversight Responsibility 
o Establish Structure and Authority 
o Commitment to Competence
o Accountability

Question 13

What are control activities?

Answer 13

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

o Develop Control Activities
o Develop IT Controls
o Policies and Procedures

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.

o Relevant Information
o Internal Communications
o External Communications

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

Which of the three objectives within the Internal Control - Integrated Framework is the focus of COSO?

Answer 19

Reporting objectives

Question 20

What are the four categories in enterprise risk management (ERM)?

Answer 20

Internal environment 
objective setting ( strategic, operations, reporting, compliance)
event identification (event that affects implementation of a strategy/achievement of objective)
risk response (avoid, reduce, share or except)

Question 21

What type of risk requires no action?

Answer 21

Inherent Risk

Question 22

What type of risk exists after management takes action?

Answer 22

Residual Risk

Question 23

What does enterprise risk management (ERM) do for an organization?

Answer 23

It manages risks and seizes opportunities to achieve the goals of the organization.

It provides a framework for risk management, determines response strategy, and monitors the progress.

Question 24

What are limitations of enterprise risk management (ERM)?

Answer 24

Limitations refer to reasons the control system may not function as designed.

ERM is as effective as the people responsible for its functioning.
ERM operates at different levels with respect to different objectives.
ERM deals with risk, which relates to the future and is inherently uncertain

Question 25

As part of the enterprise risk management process, who is the best person to devise and execute risk procedures for a particular department?

Answer 25

Manager within the department