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BEC > Corporate Governance > Flashcards

Corporate Governance Flashcards

1
Q

What is corporate governance

A

These are the systems that are applied to control and direct a corporation

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2
Q

What does the BoD do

A
  • They are not directly involved in the operations
  • They use compensation to incentive managers
  • They also monitor management to make certain decisions are consistent with achieving the objectives
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3
Q

Cadbury report

A

This is a voluntary code for corporate governance

Co listed on London Stock exchange must comply or stay why not

What is included:
- clear division of responsibility at the top - CEO is not Chairmen of the board

  • Majority of board member s should be outside directors
  • Renumeration should be determined by non-executive directors
  • Board selects an audit committee with 3 non-executive directors
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4
Q

What is the OECD and what are their principles of Corporate governance

A

Organization for economic Co-operation and development:

Six areas:

1) effective corporate governance framework - should be transparent and have clear division of responsibility
2) Shareholder Rights and Ownership Functions - the framework should protect the shareholders rights
3) Equitable Treatment of Shareholders
4) Disclosure and Transparency - these should be timely and accurate in all material matters
5) Board responsibility - these need to monitor management

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5
Q

What are the duties of the BoD

A

They have a fiduciary duty to:

  • Act loyally and in the best interest of the corp.
  • Act with Duty of Care - be diligent when making company decisions
  • Act with Due Diligence - using reasonable care when entering into agreements

They are responsible for the missions and bylaws

They are responsible for strategic planning

They are responsible for selecting the CEO

They are responsible for securing the availability of financial resources

They have budget approval

They are accountable to stakeholders

They establish dividend policy

They are responsible for reacquiring treasury stock

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6
Q

NYSE BoD requirements

A
  • Majority of director must be independent and must show proof of this
  • Defines what makes them not independent
  • Must meet regularly
  • Must have a published code of conduct
  • Must have an independant audit committee
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7
Q

What is the business judgement rule

A

This says that as long as a director was not doing fraud they can’t be held liable for the outcome of their decisions

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8
Q

What is the difference between an outside and an inside director

A

Outside - no involvement in the entity

Inside - is significantly involved in eh entity

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9
Q

What are the three committee that a publicly held company is required to maintain

A

Nominating Committee - who should serve on the BoD, CEO

Audit Committee - must have finance expert, responsible for the financial reporting process, hiring and compensating the auditors, dealign with whistleblowers

Compensation committee - what the executives get paid.

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10
Q

What is in Dodd Frank - what are the 4 significant provisions

A

Must disclose if CEO is the same person as the Chairmen of the Board and why

1) Say on Pay - stockholders can vote if they approve executive pay
2) Independence - Committee member must be independent
3) Disclosure - must disclose how executive compensation is related to company performance
4) Clawbacks - It a company is required to restate their F/S then there is a policy to recoup compensation

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11
Q

What is the difference between fixed and incentive compensation

A

Fixed - salary and perks

Incentive - Bonus and share based compensation (stock options, shared appreciation rights, restricted shares, performance share

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12
Q

What is the IIA and the IPPF

A

IIA - Institute of Internal Auditors

IPPF - International Professional Practices Framework
the IIA established the IPPF -

It have 3 components:

1- Definition of Internal Auditing

2-The code of Ethics

3- ISPPIA - International Standards for the professional Practice of Internal Auditing

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13
Q

What is the definition of internal auditing

A

Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations

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14
Q

What is in the IIA’s code of ethics

A

Principles and Rules
Principles: Integrity, Objectivity, Confidentiality, Competency

Rules are under each

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15
Q

What are the ISPPIA

A

They have attribute standards and performance standards

Attribute:
-purpose, authority, responsibility

  • Independence and Objectivity
  • Proficiency and Due Professional Care
  • Quality assurance and Improvement Program

Performance Standards- 7 categories

1) manage the internal Audit Activity
2) Nature of work
3) Engagement Planning
4) Performing the engagement
5) Communicating results
6) Monitoring Progress
7) Communicating Acceptance of Risks

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16
Q

What is the function of the division of Corporate Finance

A

They provide guidance in regard to the Securities act of 1933, Securities and Exchange Act of 1934, Trust Indenture Act of 1939, and SOX

17
Q

What is the role of the Division of Enforcement

A

To investigate possible securities violations

18
Q

What is the role of the Office of Chief Accountant

A

They are responsible for the transparency and relevancy of financial reporting

19
Q

What is the JOBS ACT

A

Jumpstart Out Business Startups

helps small businesses

20
Q

What is occupational Fraud

A

Thi sis the use of your occupation for personal gain through the deliberate misuse of the organizations resources or assets

21
Q

What are the 5 steps in FRMP

A

1) establish governance policies
2. Conduct risk assessment
3. Plan and execute preventative and detective control processes
4. Perform timely and confidential investigations
5. Monitor and assess the program

22
Q

Why have a FRMP program

A

Helps the BoD satisfy Duty of Care for stakeholders

Helps stakeholders confidence

  • Enhance employee morale
  • Help entity survival (image, profitability)
23
Q

Audit Committee

A

They are members of the board, but not part of the day to day operations

24
Q

What are articles of incorporation

A

These are the companies charter

name of company

address

The purpose of the corporation

Name of the registered agent (your lawyer)

Number of shares authorized and type of stocks

25
Q

What are the fiduciary duties of the BoD:
Act Loyally
Act with Duty of Care
Act with Due Diligence

A

The BoD has a fiduciary duty to act loyally in the best interest of to the company

Act Loyally
So if you are offered a business opportunity you need to bring this to the attention of the board - if they pass then you can do it

Duty of care - be diligent when making company decisions

Act with Due Diligence - using reasonable care when entering into agreements or transactions

26
Q

What are the three committees of a BoD is required to have?

A

Nominating Committee - oversee succession of CEO
-Chair of board also the CEO? must be disclose and if so the reasons why. Inside director

Audit Committee - must have 1 be a financial expert - not a CPA. If not they must say why. Oversee of F/s prep and external auditors.

Compensation Committee: All require to assume certain responsibility. They need to establish a compensation philosophy. They have to listen to shareholders about the compensation package.

Say on Pay - shareholder vote if they approve of the compensation and how often vote

Independence - committee must be independent

Disclosures - must disclose the CEO’s compensation and if performance based - how and why

Clawbacks - if the co has to restate f/s - then they can go back and get compensation back from CEO

27
Q

What is the business Judgement Rule

A

When a director fulfills their fiduciary duty to the entity by acting in good faith, being loyal and applying due care - they are not liable for decisions as long as they are not guilty of fraud

regardless of the outcome

regardless if the decisions was questionable

28
Q

3 components of IPPF - Internal auditors- developed by COSO

A
  1. Definition of Internal Auditing: IA is an independent objective assurance and consulting activity designed to add value and improve organizations operations
  2. Code of Ethics - thes are the principles that internal auditors are expected to uphold and rules to follow :

principles (Integrity, Objectivity, Confidentiality, competency)

3 ISPPIA - International Standards of the Professional Practice of Internal Auditing

  • 4 Attribute standards
  • Purpose
  • Independence/Objectivity
  • proficiency and Due Prof. care
  • Quality Assurance and Improvement

7 Performance standards

  • Managing Internal Audit Activity
  • Nature of the work
  • Engagement Planning
  • Performing the engagement
  • Communicating results
  • Monitoring progress-
  • Communicating the acceptance of Risk
29
Q

What are the inherent limitations of an Internal Control System

A

COCO

Collusion

Override by Management

Competence / Cost Benefit

Obsolescence - change in Co operations or size

30
Q

what is CRIME

A 
Control Activities
Risk management 
Information and Communication
Monitoring
Control Environment
31
Q

What are Control Activities

A

These are policies and procedures to mare sure management’s intention are carried out
PIPS:

Performance Reviews (actual vs budget, P/Y, financial vs nonfinancial

I- Information processing (general controls over technology)

P - Physical Controls - Access to Assets

S - Segrations of Duties - ARCCS
authorization, recording, custody, comparisons

these are deployed through policies and procedures

32
Q

What are Risk Assessments

A

thi sis the identification, Analysis, and Management of Risk in the prep of F/S

  • objectives are clear to allow identification of eval of risks
  • Risks are identified and analyzed
  • Consider the possibility of fraud
  • The impact on the effectiveness of I/C
33
Q

What are Information and Communications

A

This is how management obtains or generates and uses information and how it is discriminated throughout the entity

  • Uses relevant information
  • Communicates internally
  • Communicates externally
34
Q

What is Monitoring

A

Are all of the Internal Controls that have been put in place are functioning as intended
- monitor on an ongoing basis

  • communication of findings and deficiencies on a timely basis
35
Q

What is Control Environment

A

CHOPPER This is the environment or tone at the top. It is the foundation of internal control
C - commitment to Competence
H- Human resources policies and procedures
O - Organizational structure - is it in place - clear line of reporting and communication
P -Philosophy and Operating Style of Management - unethical management can lead to unethical employees
P - Participation of Board of Directors or audit committee - play key role in establishing I/C
E - Ethical and Integrity Values - established through a code of conduct, etc
R - Responsibility and authority assignment - personnel have clear understanding of their responsibilities and the rules and regulations

BEC (30 decks)

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