Corporate Governance Flashcards
What is the primary duty of the board of directors?
To monitor management behavior.
What is the responsibility of the Nominating or Corporate Governance Committee of the board of directors?
“Oversees the board
Responsible for hiring new CEO”
What is the responsibility of the audit committee of the board of directors?
The audit committee appoints and oversees the external auditor.
What is the duty of the compensation committee of the board of directors?
The compensation committee handles the CEO’s compensation package.
What does the NYSE and NASDAQ require of the board of directors?
They require the board to be independent.
What is the main goal in an executive compensation package?
The package should ensure that the goals of management should match those of the shareholders.
How can an executive compensation package ensure that goals of management align with those of shareholders?
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.
Which influences help mold the direction that management takes?
“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”
What is shirking?
“When management doesn’t act in the best interest of shareholders.
It can be alleviated by tying compensation to stock performance or company profit.”
What requirements are imposed on a public company under Sarbanes-Oxley?
“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.”
What characteristics are promoted by the COSO framework on Internal Control?
“Reliable financial reporting
Effective and efficient operations
Compliance”
What are the components of the control environment?
"Integrity and Ethics Competence B.O.D. And Aud Committee Indep. Management's Operating Style Organizational Structure Authority and Roles of Responsibilities
What are control activities?
A component of Internal Control that includes actions being taken to promote the control environment.
What are the basic elements of Internal Control?
Control Environment Risk Assessment Information and Communication Monitoring Existing Control Activities
It would be a CRIME if you didn’t have this memorized
What is the significance of the Information and Communication aspect of Internal Control?
Management must have access to relevant and timely information to make good decisions.
How does Monitoring affect Internal Control?
Internal Control activities must be constantly monitored and evaluated for effectiveness.
What activities does the COSO framework for enterprise risk management include?
"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”
What are possible responses to risk under the COSO framework for enterprise risk management?
“Avoid or Reduce
Share or Accept”
What year was SOX established
2002
What is a principal stock holder
Person who has direct or indirect ownership of more than 10% of any class of any equity security
Knowledge of the financial expert of an audit committee should include
Understanding of GAAP
Experience in preparation or auditing of financial statements for comparable issuers
Experience with internal controls
Understanding of audit committee functions
What is the punishment for individuals who alter documents
Fine and up to 20 years imprisonment
How long should auditors of issuers retain all audit and review work papers
7 years
Describe the statute of limitations for securities fraud
no later than 2 years after the discovery of the facts constituting the violation, or 5 years after the violation
