Corporation Governance Flashcards
What is Broad of directors duty?
Fiduciary Duties : Act in the best interest of the corporation, act in good faith n ethical.
- Director is entitled to rely on info. prepared by accountant, lawyers, officers, employees, committee…
- Liable to unlawful distribution/ dividends
- Duty of loyalty, disclose all conflict.
- Corporate opportunity doctrine : business opportunities of interest –> serve the corporation first. only take it for himself if the corp decides not to take it.
What is indemnification ?
Corporation are allowed to indemnify directors for expenses for any lawsuit brought against them in corp capacity.
Entity’s objectives divided into 3 categories. What are they?
- Reliability of financial reporting
- Effectiveness and efficiency of operations
- Compliance with applicable laws and regulations.
what is the components of internal control ?
CRIME
C- Control Activities: policy & procedures “Tone at the top”
R- Risk assessment: FS misstated or fraud
I- Information and Communication: timely and accurate?
M-Monitoring: effectiveness ? Deficiencies?
E- Control Environment: Tone at the top “PHRASED”
what is Control Environment component?
PHRASE:
P- Philosophy & operating style of management
H-Human resources
R-Reporting (financial) competencies - training
A-Authority & responsibility (segregation of duties)
S-Structure (organizational): charts, descriptions..
E- Ethical Value & integrity
D- Directors
What Enterprise Risk Management ERM for?
To allow management to effectively deal with uncertainty, evaluate risk acceptance and build value.
In order for component of ERM to be functioning effectively, there can not be material weakness in I/C
What are ERM 4 objectives?
SORC
- Strategic: high level goals: increase shareholder value
- Operations: effectiveness and efficiency
- Reporting
- Compliance wt laws and regulations
What are components of ERM?
I- Internal environment = C in CRIME S-Setting Objectives E-Event identification A-Assessment of risk R- Risk response A- Control Activities I- Information and communication M- Monitoring
Similar to CRIME but broader in scope.
Component of ERM frame work - Internal environment?
PHRASE C
P- Philosophy & operating style of management H- Human resources standard R- Risk appetite/ response A- Authority & responsibility S- Structure (organizational) E- Ethical Value & integrity D- Directors C- Commitment to Competence
Component of ERM frame work - Objective Setting
- Strategic Objectives : mission driven objectives
- Related Objectives:
+Operation Objectives : Efficiency, Effectiveness, Profitability
+ Reporting Objectives: External and internal reporting
+ Compliance Objectives. - Selected Objectives : Align with risk appetite
Component of ERM frame work - Event identification
External: Economic, Natural environment, Political, Social, Technological
Internal : Infrastructure, personnel, Process, Technology.
Negative event = Risk
Positive event = Opportunity
Component of ERM frame work - Risk Assessment?
Inherent Risk
Residual Risk
Component of ERM frame work - Risk response
- Avoidance: Disposal of business unit, product line to avoid risk
- Reduction: Diversity of product offering
- Sharing: Insure against loss or enter a joint ventures to address risk
- Acceptance: self-insuring or tolerate full expose to risk
Non-financial performance measures- external benchmark
Total Productivity ratios (TPRs) : reflect the value of all output relative to value of all input (Labor and material)
(Quantity of output) / (Cost of input)
Partial productivity ratio (PPRs) : all output relative to major categories of input (some, not all)
(Quantity of output) / (Quantity of single input)
How to calculate applied overhead
- Calculated OH rate = Budgeted OH cost / Est cost driver
2. Applied OH = Actual cost driver x OH rate
