Corporate Governance, Internal Control, and ERM

Question 1

Describe Effective Corporate Governance

Answer 1

Effective Corporate Governance involves developing devices to prevent self -service activities on the part of managers of the company.

Question 2

What are some of the devices of Effective Corporate Governance?

Answer 2

Devices

1. Board of Directors should take on an active role of overseeing management and determining management compensation.
2. Establish Independent audit committee.
3. Audit committee should oversee work/ compensation/ internal control
4. The internal audit chief executive should report to this committee.

Question 3

What are some of the qualities of a satisfactory Audit department?

Answer 3

Internal Audit

1. Should have a charter (purpose, authority, responsibility)
2. Should follow the Code of Ethics and International standards for the Professional practice of Internal Auditing
3. Should establish risk based plans to determine audit priorities.
4. Must be competent and objective.
5. Must maintain a system to monitor the disposition of audit results.
6. Avoid conflict of interests
7. Impartial, unbiased attitude

Question 4

What are some of the functions of the Audit Committee?

Answer 4

Audit Committee functions

1. Appoint/ discharge external auditors
2. Approve scope of work of external/ internal auditors
3. Follow Sarbanes- Oxley Act.

Question 5

What are the elements of Relevance?

Answer 5

Predictive Value
Confirming Value
Matieriality

Question 6

What are the elements of Faithful Representation?

Answer 6

Completeness
Neutrality
Free from Error

Question 7

What are the enhancing Qualitative Characteristics of Financial Reporting?

Answer 7

Comparability
Verifiability
Timeliness
Understandability

Question 8

What are the Fair Value Market Assumptions?

Answer 8

1. Asset is sold in its most advantageous market to get the best price possible.
2. Buyer and Seller are not related
3. Buyer and Seller are knowledgeable.
   4, Buyer and seller are able to transact.
4. Buyer and Seller are motivated to buy and sell.

Question 9

Describe the Fair Value Hierarchy

Answer 9

Level 1- Price Quotes/ Market Prices (NYSE/ NASDAQ)
Level 2- Interest Rates/ Prime Rates
Level 3- Unobservable (assumptions/ forecasts)

Question 10

What are the acceptable valuation techniques?

Answer 10

Market Approach
Income Approach (PV)
Cost Approach (Replacement Cost)