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BEC > Corporate Governance & Financial Risk Management > Flashcards

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
Q

What is risk inventory?

A

All risk that could impact an entity

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26
Q

What is ERM reasonable expectation?

A

Amount of risk having strategy & business objectives appropriate for an entity

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27
Q

What is business context?

A

Trends, events, relationships, & other factors that may influence, clarify, or change entity’s current & future strategy & business objectives

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28
Q

What is risk capacity?

A

Maximum risk entity is able to absorb in pursuit of strategy & business objectives

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29
Q

What is risk profile?

A

Composite view of risk assumed at a particular level that positions management to consider types, severity, & interdependence of risk

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30
Q

What is portfolio view?

A

Compositive view or risk entity faces which positions management to consider types, severity, & interdependence of risk

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31
Q

What is organizational sustainability?

A

Ability of an entity to withstand impact of large-scale events

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32
Q

What is performance management?

A

Measurement of efforts to achieve or exceed strategy & business objectives

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33
Q

GO PRO - enterprise management framework

A

Governance & culture
Strategy & objective-setting
Performance
Review & revision
Information, communication, & reporting (ongoing information gathering and feedback)

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34
Q

DOVES - governance & culture

A

Defines desired culture
Exercises board oversight
Demonstrates commitment to core values
Attracts, develops, & retains capable individuals (employees)
Establishes operating structure

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35
Q

SOAR - strategy & objective-setting

A

Evaluate alternative strategies
Formulates business objectives
Analyzes business context
Defines risk appetite

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36
Q

VAPIR - performance

A

Develops portfolio view
Assesses severity of risk
Prioritizes risk
Identifies risks (events)
Implements risk responses

37
Q

SIR - review & revision

A

Assesses substantial change
Pursues improvement in ERM
Reviews risk & performance

38
Q

TIP - information, communication, & reporting (ongoing)

A

Leverages information & technology
Communicates risk information
Reports on risk, culture, & performance

39
Q

What is inherent risk?

A

Risk to entity in absence of actions by management to alter severity

40
Q

What is target residual risk?

A

Amount of risk entity prefers to assume in pursuit of strategy & business objectives

41
Q

What is actual residual risk?

A

Risk remaining after management has taken action

42
Q

ARTS - risk responses

A

Accept
Avoid
Pursue
Reduce
Share (transfer)

43
Q

What is an audit committee?

A

Directly responsible for appointment, compensation, & oversight of work of public accounting firm employed by that public company

44
Q

Audit Committee

A

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
Q

CEO/CFO Corporate Responsibility

A

Review report
Financial statements fairly present financial condition & results of operations
Assume responsibility for internal controls
Assert they made disclosures

46
Q

What off-balance sheet transactions should financial statements disclose?

A

Operating leases, contingent liabilities, & relationships with unconsolidated subsidiaries

47
Q

Related Party Disclosures

A

Required for persons with direct or indirect ownership of more than 10%

48
Q

Section 404

A

Management assessment of internal controls

49
Q

Financial Expert

A

Financial reports must disclose existence of export or reason why they do not have one

50
Q

How long should auditors of issuers retain workpapers?

A

Seven years from end of fiscal period when audit was conducted

50
Q

How long should auditors of issuers retain workpapers?

A

Seven years from end of fiscal period when audit was conducted

51
Q

Statute of Limitations for Securities Fraud

A

No later than earlier of two years after discovery of facts constituting violation or five years after violation

52
Q

Compensatory Damages for Whistleblowers

A

Reinstatement, back pay with interest, & compensation for special damages

53
Q

What are business processes?

A

Activities performed by organization to achieve specific goal

54
Q

What is business process management?

A

Process that reviews and oversees organization’s approach to business process design & implementation

55
Q

What is business process analysis?

A

Methodology that looks at organization’s business processes to improve effectiveness & efficiency

56
Q

What is business process automation?

A

To identify & automate business processes

57
Q

What are business modeling tools?

A

Effort to graphically depict organizations’ business processes

58
Q

What are management & policy controls?

A

Govern how processes are performed, what safeguards should be adhered to, & how to address & escalate exceptions

59
Q

ARC - segregation of duties

A

Custody of assets
Record keeping
Authorization

60
Q

What are input edit checks?

A

Preventive controls assisting in protecting integrity of information & allowing complete transactions to be submitted

61
Q

What are processing controls?

A

Protect an organization against processed data from being incomplete/inaccurate

62
Q

What are standing data controls?

A

Master files or general data files that contain long-term data that does not change often

63
Q

What are spreadsheet controls?

A

Effective controls over spreadsheets

64
Q

What are supervisory & monitoring controls?

A

Review, monitoring, & oversight of businesses process activities by management

65
Q

What are reconcilations?

A

Review changes in account balances due to business process activities or difference in ledger accounts & value provided by third parties

66
Q

What are verification controls?

A

Preventive controls to verify identity of authorized users

67
Q

What are process narratives?

A

Written documents telling story of process

68
Q

What are data flow diagrams?

A

Document logical flow of data through a process

69
Q

What are flowcharts?

A

Visual representations of how documents & information flow through a process

70
Q

What are system interface diagrams?

A

Demonstrate how users & functions (internal & external) interface with organization’s systems

71
Q

What is risk?

A

Chance of financial loss

72
Q

What is return?

A

Total gain or loss

73
Q

What is risk-indifferent behavior?

A

Increase in level of risk does not increase management’s required rate of return

74
Q

What is risk-averse behavior?

A

Increase in level of risk results in an increase in management’s required rate of return

75
Q

What is risk-seeking behavior?

A

Increase in level of risk results in a decrease in management’s required rate of return

76
Q

What is interest rate/yield risk?

A

Fluctuations in value of instrument in response to changing interest rates

77
Q

What is market/systematic/nondiversifiable risk?

A

Fluctuations in value as result of operating within an economy, factors include war, inflation, international incidents, & political events

78
Q

What is unsystematic/firm-specific/diversifiable risk?

A

Risk associated with random cause & can be eliminated through diversification, attributable towards firm or industry specific events

79
Q

DUNS - risk types

A

Diversifiable risk
Unsystematic risk
Nondiversifiable risk
Systematic risk

80
Q

What is credit risk?

A

Affects borrowers, includes a company’s inability to secure financing or secure credit terms as a result of poor credit ratings

81
Q

What is default risk?

A

Affects lenders, possibility debtors may not repay principal or interest due

82
Q

What is liquidity risk?

A

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
Q

What is price risk?

A

Exposure investors have to a decline in value of securities or portfolios, related to diversifable risk

84
Q

What is transaction exposure?

A

Potential an organization could suffer loss or gain upon settlement of transactions as a result of changes in exchange rates

85
Q

What is economic exposure?

A

Potential that present value of cash flows could increase or decrease as result of exchange rates

86
Q

What is translation exposure?

A

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
Q

What is translation exposure?

A

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

BEC (4 decks)

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