Corporate Governance - Rights, Duties, Responsibilities, Authority, Ethics of Directors, and Officers - Financial and None Financial Reporting Flashcards
SOX act requires all FS include:
All material off-balance sheet liabilities, obligations (including contingent liabilities), arrangements, transactions, and relationships of the issuer with unconsolidated entities that may have a material effect on the financial condition, changes in financial condition, results of operations, liquidity, capital expenditures, or resources must be reported on financial statements. This will help the user understand the full scope of the firm’s financial obligations.
According to the Sarbanes-Oxley Act of 2002, a chief executive officer or chief financial officer who misrepresents the company’s finances may be penalized by being:
Both fined and imprisoned. The Sarbanes-Oxley Act has no authority to remove individuals from corporate office. That is a responsibility of the corporate board of directors or the stockholders.
How long must an accountant maintain workpapers on an audit performed?
7 years.
Section 103 of the Sarbanes-Oxley Act requires an auditor of an issuer of securities to maintain all audit or review workpapers for at least seven years from the end of the fiscal period in which the audit or review was completed.
Regarding the requirements of the Sarbanes-Oxley Act, officers of a company are not permitted to:
Move the activities of the organization outside of the United States to avoid complying with the Sarbanes-Oxley Act.
The Sarbanes-Oxley Act changed the way financial reports are treated. What section of the act requires the CEO to review the financial statements?
Section 302 of the Sarbanes-Oxley Act requires that CEOs and CFOs certify the accuracy of the financial statements and the reliability of internal controls prior to the statements being signed.
A member of the board of directors of Central Communications Co. is offered a license by a third party to operate a cellular phone system. The director does not present this offer to the board of directors for approval but informally mentions it to a fellow board member, who does not think it will be a problem. The director buys the license. Which of the following statements is correct regarding the director’s actions?
The director breached a duty of loyalty by usurping a corporate opportunity. “The director breached a duty of loyalty by usurping a corporate opportunity” is correct because the director put personal interests ahead of corporate interest.
Duty of Care
Legal obligation requiring the use of reasonable care in actions that might result in harm to others.
Duty of Due Diligence
A fiduciary obligation to seek proper information related to making a good decision.
Duty of Loyalty
A fiduciary obligation to place the interest of the corporation above personal interests.
The Sarbanes-Oxley Act requires financial issuers to publish what kind of information?
The scope and capabilities of the internal control structure.
Section 404 of the Sarbanes-Oxley Act requires issuers of annual reports to use an internal control framework that meets all of the SEC’s requirements (such as COSO). This section was created to provide investors with reasonable assurance that material unauthorized transactions or the improper use of assets will be prevented or detected in a timely manner. Issuers must include the scope and capabilities of the internal control system and include procedures for financial reporting in their annual reports.
