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Corporate Governance & Financial Risk Management Flashcards

1
Q

What is internal control?

A

Process designed & implemented to provide reasonable assurance that the organization will achieve operating, reporting, & compliance objectives

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2
Q

ORC - internal control objectives

A

Operating
Reporting
Compliance

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3
Q

CRIME - internal control components

A

Control environment
Risk assessment
Control activities
Information & communication
Monitoring activities

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4
Q

What are operations objectives?

A

Relate to effectiveness & efficiency of operations, includes financial & operational performance goals & safeguarding assets

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5
Q

What are reporting objectives?

A

Pertain to reliability, timeliness, transparency of external & internal financial and nonfinancial reporting

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6
Q

What are compliance objectives?

A

To ensure entity is adhering to laws & regulations

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7
Q

EBOCA - control environment

A

Commitment to ethics & integrity
Board independence & oversight
Organizational structure
Commitment to competence
Accountability

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8
Q

What is the control environment?

A

Processes, structures, & standards providing foundation to establish internal control, tone at the top

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9
Q

What is risk assessment?

A

Entity’s identification & analysis of risk to achievement of its objectives

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10
Q

SAFR - risk assessment

A

Specify objectives
Identify & analyze risks
Consider potential for fraud
Identify & assess changes

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11
Q

What is information & communication?

A

Support identification, capture, & exchange of information in a timely manner

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12
Q

OIE - information & communication

A

Obtain & use information
Internally communicate information
Communicate with external parties

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13
Q

What is monitoring?

A

Assessing quality of internal control performance over time by assessing design & operation of controls & taking corrective actions

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14
Q

SOD - monitoring activities

A

Ongoing and/or separate evaluations
Communication of deficiencies

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15
Q

What are control activities?

A

Set forth by entity’s policies & procedures, may be detective or protective

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16
Q

CATP - control activities

A

Select & develop control activities
Select & develop technology controls
Deployment of policies & procedures

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17
Q

What are the two general requirements for effective internal control?

A

Components & principles are present & functioning

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18
Q

What does present mean for components & principles?

A

Included in design & implementation of internal controls

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19
Q

What does functioning mean for components & principles?

A

Operating as designed in internal control system

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20
Q

What is a major deficiency?

A

Material internal control deficiency or combination of deficiencies that reduces likelihood that an organization can achieve its objectives

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21
Q

COPS - COSO framework document

A

Overall assessment
Component evaluation
Principal evaluation
Summary of internal control deficiencies

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22
Q

What is risk?

A

Possibility events will occur & affect achievement of strategy & business objectives

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23
Q

CPER - develop value

A

Creation
Preservation
Erosion
Realization

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24
Q

CCPIS - ERM

A

Culture
Capabilities
Practices
Integration with strategy-setting & performance
Managing risk linked to value

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25
What is risk inventory?
All risk that could impact an entity
26
What is ERM reasonable expectation?
Amount of risk having strategy & business objectives appropriate for an entity
27
What is business context?
Trends, events, relationships, & other factors that may influence, clarify, or change entity's current & future strategy & business objectives
28
What is risk capacity?
Maximum risk entity is able to absorb in pursuit of strategy & business objectives
29
What is risk profile?
Composite view of risk assumed at a particular level that positions management to consider types, severity, & interdependence of risk
30
What is portfolio view?
Compositive view or risk entity faces which positions management to consider types, severity, & interdependence of risk
31
What is organizational sustainability?
Ability of an entity to withstand impact of large-scale events
32
What is performance management?
Measurement of efforts to achieve or exceed strategy & business objectives
33
GO PRO - enterprise management framework
Governance & culture Strategy & objective-setting Performance Review & revision Information, communication, & reporting (ongoing information gathering and feedback)
34
DOVES - governance & culture
Defines desired culture Exercises board oversight Demonstrates commitment to core values Attracts, develops, & retains capable individuals (employees) Establishes operating structure
35
SOAR - strategy & objective-setting
Evaluate alternative strategies Formulates business objectives Analyzes business context Defines risk appetite
36
VAPIR - performance
Develops portfolio view Assesses severity of risk Prioritizes risk Identifies risks (events) Implements risk responses
37
SIR - review & revision
Assesses substantial change Pursues improvement in ERM Reviews risk & performance
38
TIP - information, communication, & reporting (ongoing)
Leverages information & technology Communicates risk information Reports on risk, culture, & performance
39
What is inherent risk?
Risk to entity in absence of actions by management to alter severity
40
What is target residual risk?
Amount of risk entity prefers to assume in pursuit of strategy & business objectives
41
What is actual residual risk?
Risk remaining after management has taken action
42
ARTS - risk responses
Accept Avoid Pursue Reduce Share (transfer)
43
What is an audit committee?
Directly responsible for appointment, compensation, & oversight of work of public accounting firm employed by that public company
44
Audit Committee
Auditor reports to audit committee Resolve disputes between auditor & management Members of board but are independent May not accept compensation for consulting or advisory Establish procedures to accept reports of complaints
45
CEO/CFO Corporate Responsibility
Review report Financial statements fairly present financial condition & results of operations Assume responsibility for internal controls Assert they made disclosures
46
What off-balance sheet transactions should financial statements disclose?
Operating leases, contingent liabilities, & relationships with unconsolidated subsidiaries
47
Related Party Disclosures
Required for persons with direct or indirect ownership of more than 10%
48
Section 404
Management assessment of internal controls
49
Financial Expert
Financial reports must disclose existence of export or reason why they do not have one
50
How long should auditors of issuers retain workpapers?
Seven years from end of fiscal period when audit was conducted
50
How long should auditors of issuers retain workpapers?
Seven years from end of fiscal period when audit was conducted
51
Statute of Limitations for Securities Fraud
No later than earlier of two years after discovery of facts constituting violation or five years after violation
52
Compensatory Damages for Whistleblowers
Reinstatement, back pay with interest, & compensation for special damages
53
What are business processes?
Activities performed by organization to achieve specific goal
54
What is business process management?
Process that reviews and oversees organization's approach to business process design & implementation
55
What is business process analysis?
Methodology that looks at organization's business processes to improve effectiveness & efficiency
56
What is business process automation?
To identify & automate business processes
57
What are business modeling tools?
Effort to graphically depict organizations' business processes
58
What are management & policy controls?
Govern how processes are performed, what safeguards should be adhered to, & how to address & escalate exceptions
59
ARC - segregation of duties
Custody of assets Record keeping Authorization
60
What are input edit checks?
Preventive controls assisting in protecting integrity of information & allowing complete transactions to be submitted
61
What are processing controls?
Protect an organization against processed data from being incomplete/inaccurate
62
What are standing data controls?
Master files or general data files that contain long-term data that does not change often
63
What are spreadsheet controls?
Effective controls over spreadsheets
64
What are supervisory & monitoring controls?
Review, monitoring, & oversight of businesses process activities by management
65
What are reconcilations?
Review changes in account balances due to business process activities or difference in ledger accounts & value provided by third parties
66
What are verification controls?
Preventive controls to verify identity of authorized users
67
What are process narratives?
Written documents telling story of process
68
What are data flow diagrams?
Document logical flow of data through a process
69
What are flowcharts?
Visual representations of how documents & information flow through a process
70
What are system interface diagrams?
Demonstrate how users & functions (internal & external) interface with organization's systems
71
What is risk?
Chance of financial loss
72
What is return?
Total gain or loss
73
What is risk-indifferent behavior?
Increase in level of risk does not increase management's required rate of return
74
What is risk-averse behavior?
Increase in level of risk results in an increase in management's required rate of return
75
What is risk-seeking behavior?
Increase in level of risk results in a decrease in management's required rate of return
76
What is interest rate/yield risk?
Fluctuations in value of instrument in response to changing interest rates
77
What is market/systematic/nondiversifiable risk?
Fluctuations in value as result of operating within an economy, factors include war, inflation, international incidents, & political events
78
What is unsystematic/firm-specific/diversifiable risk?
Risk associated with random cause & can be eliminated through diversification, attributable towards firm or industry specific events
79
DUNS - risk types
Diversifiable risk Unsystematic risk Nondiversifiable risk Systematic risk
80
What is credit risk?
Affects borrowers, includes a company's inability to secure financing or secure credit terms as a result of poor credit ratings
81
What is default risk?
Affects lenders, possibility debtors may not repay principal or interest due
82
What is liquidity risk?
Affects lenders/investors, when they desire to sell security but cannot do so in a timely manner or when price concessions have to be made
83
What is price risk?
Exposure investors have to a decline in value of securities or portfolios, related to diversifable risk
84
What is transaction exposure?
Potential an organization could suffer loss or gain upon settlement of transactions as a result of changes in exchange rates
85
What is economic exposure?
Potential that present value of cash flows could increase or decrease as result of exchange rates
86
What is translation exposure?
Risk that assets, liabilities, equity, or income of a consolidated organization that includes foreign subsidiaries will change as a result of changes in exchange ratee
86
What is translation exposure?
Risk that assets, liabilities, equity, or income of a consolidated organization that includes foreign subsidiaries will change as a result of changes in exchange ratee

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