Corporate Rights

Question 1

Describe the 3 levels of the corporate pyramid

Answer 1

• Bottom: Shareholders (vote for directors)
• Middle: Directors (select officers)
• Top: Officers (Run day to day

Question 2

Define the SOX “Clawback” Provision

Answer 2

Allows firms to reclaim incentive bonus payments to officers that turn out to have been based on wrongdoing by those officers

Question 3

Proforma financial statements must be reconciled with what?

Answer 3

With comparable GAAP numbers

Question 4

Under the Sarbanes-Oxley Act of 2002, what are the requirements and responsibilities of Audit Committees?

Answer 4

1. ) All directors must be independent;
2. ) New role: select, compensate, fire outside auditor;
3. ) set up whistleblower procedures

Question 5

What does the acronym SOX mean?

Answer 5

Sarbanes-Oxley Act

Question 6

List prohibitions observed by corporate insiders and outside auditors

Answer 6

They must observe the following prohibitions:

• fraudulent influence;
• coercion;
• manipulation;
• and misleading