Module 40: Corporate Governance, Internal Control, and Enterprise Risk Management KEY TERMS Flashcards
Articles of Incorporation
The document filed with the secretary of state to obtain a certificate of incorporation.
Audit committee
The committee of the board of directors that oversees the accounting and financial reporting processes of the company and oversees the audits of the financial statements of the company. The Sarbanes-Oxley Act requires all members to be independent.
Black swan analysis
Evaluating the occurrence of events that had negative effects and were unanticipated or viewed unlikely.
Board of directors
The body charged with running the corporation on behalf of the shareholders.
Business judgment rule
A case law-derived concept that provides that a corporate director may not be held liable for errors in judgment providing the director acted in good faith, loyalty, and due care.
Compensation Committee
The committee of the board of directors that reviews and approves executive compensation, makes recommendations to the board regarding incentive-based compensation, and attempts to align incentives with shareholder objectives and risk appetite. The Dodd-Frank Act requires all members to be independent and provides that in setting compensation, the members may request the company to engage compensation advisors that are independent of management.
Corporate bylaws
Set forth how the directors and/or officers are selected, how meetings are conducted, the types and duties of officers, and the required meetings.
Duty of loyalty
A concept that provides that directors and officers must put the interest of the corporation before their personal interest. Accordingly, if a director is approached with a business opportunity that would be of interest to and benefit the corporation, he or she must offer the opportunity to the corporation before pursing it on his or her own behalf.
Enterprise risk management
A process designed to identify potential events that may affect the organization and manage risk to be within its risk appetite, to provide reasonable assurance regarding the achievement of organizational objectives.
Evaluator
An individual that monitors internal control within an organization
Executive Perquisites
Executive benefits other than compensation, such as retirement, use of corporate assets, golden parachutes, and corporate loans.
Inherent risk
The risk to the organization if management does nothing to alter its likelihood or impact.
Residual risk
The risk of the event after considering management’s response.
Risk appetite
The amount of risk an organization is willing to accept to achieve its objectives.
Risk tolerance
The acceptable variation with respect to achieving a particular objective.
