Corporate Governance

Question 2

What is the primary duty of the board of directors?

Answer 2

To monitor management behavior.

Question 3

What is the responsibility of the Nominating or Corporate Governance Committee of the board of directors?

Answer 3

Oversees the board

Responsible for hiring new CEO

Question 4

What is the responsibility of the audit committee of the board of directors?

Answer 4

The audit committee appoints and oversees the external auditor.

Question 5

What is the duty of the compensation committee of the board of directors?

Answer 5

The compensation committee handles the CEO’s compensation package.

Question 6

What does the NYSE and NASDAQ require of the board of directors?

Answer 6

They require the board to be independent.

Question 7

What is the main goal in an executive compensation package?

Answer 7

The package should ensure that the goals of management should match those of the shareholders.

Question 8

How can an executive compensation package ensure that goals of management align with those of shareholders?

Answer 8

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 9

Which influences help mold the direction that management takes?

Answer 9

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 10

What is shirking?

Answer 10

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 11

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

Answer 11

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

Management must 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 12

What characteristics are promoted by the COSO framework on internal control?

Answer 12

Reliable financial reporting

Effectice and efficient operations

Compliance

Question 13

What are the elements of the control environment?

Answer 13

Integrity & Ethics
Competence
The Board of Directors & Audit Committee
Management's Operating Style
Organizational Structure
Authority & Roles of Responsibilities
HR Policies

Question 14

What are control activities?

Answer 14

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

Question 15

What are the basic elements of internal control?

Answer 15

Control Environment
Risk Assessment
Control Activities
Information and Communication
Monitoring

Question 16

What is the significance of the Information and Communication aspect of internal control?

Answer 16

Management must have access to relevant and timely information to make good decisions.

Question 17

How does Monitoring affect internal control?

Answer 17

Internal Control activities must be constantly monitored and evaluated for effectiveness.

Question 18

What activities does the COSO framework for enterprise risk management include?

Answer 18

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 19

What are possible responses to risk under the COSO framework for enterprise risk management?

Answer 19

Avoid or Reduce

Share or Accept