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Gleim BEC > Study Unit 1 > Flashcards

Study Unit 1 Flashcards

1
Q

Articles of incorporation include

A 
corporation name
# shares authorized
street address of corporation's initial registered office
name of registered agent @ office
name & address of each incorporator
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2
Q

Additional provision aoi may include

A

purpose & power of corp
internal mgt
subject matter allowed to be addressed in the bylaws

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3
Q

bylaws

A

provision for managing the business

states authorirty of officers/directors, selection process, term length, pay, how to decide to issue new stock

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4
Q

Shareholders

A
  • required to hold annual meeting, need special meetings for important issues (mergers, etc.)
  • @ annual meeting may amend aoi, vote, elect/remove officers
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5
Q

BOD

A
  • select/remove officers
  • decisions wrt capital structure
  • add/amend/repeal bylaws
  • initiate changes (m&a)
  • decide to declare/distribute dividends
  • set mgt comp
  • coordinate audit activities
  • evaluate & manage risk
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6
Q

Fiduciary duty

A

Directors owe fiduciary duty
fiduciary- legal duty to act for benefit of corp, held to higher std of care
fiduciary duty req directors & officers to be
-act in corp best interest, be loyal, use due diligence wrt responsibilities, disclose conflicts of interest

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7
Q

Officers

A

resp for day to day ops
CEO selected by & report to BOD
CEO selects other execs; officers are agents (fiduciary duty)

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8
Q

internal auditors

A

IA assess make recomm for improving governance to achieve

  • promote ethics & values
  • ensure effective org performance mgt & accountability
  • communicate risk & ctrl info
  • coordinate activities/info among BOD, ext/int auditors, mgt
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9
Q

Audit committee

A
  • address complaints wrt acctg & audit
  • receive reports about acctg policies, material alt treatments, effects of at disclosures, treatments preferred by ext auditors
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10
Q

Section 302

A

-f/s free from material misstatements
-responsible for IC & evaluate for effectiveness
-inform audit committee & auditors of significant ctrl def, fraud (material or not)
-significant changes were (or weren’t) made wrt IC (including corrective ctrl)
intentional violations can result in forfeiting bonus/incentive based compensation

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11
Q

Section 404

A

report contains statement by CEO/CFO that includes

  • mgt takes responsibility for establish/maintain system of IC
  • name of IC model used to design/assess effectiveness (COSO)
  • evaluate IC effectiveness
  • statement pubic acctg firm registered w/ PCAOB
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12
Q

Section 407

A

each audit committee must have financial expert if not, disclose reason
financial experts must
-know GAAP & F/S
-experience in prep of F/S of comparable issuers & application of principles wrt acctg estimates, etc.
-experience w/ internal acctg ctrls
-understand audit committee functions

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13
Q

Section 906

A

corp responsibility for financial reports
certify filings into U.S. Code
criminal penalties for unkwnowing & knowing noncompliance for filing
-knowing- fines up to $5M and/or up to 20 yrs in prison
-unknowing- fines up to $1M and/or up to 10 yrs in prison

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14
Q

Whistleblowers

A

SOX & Dodd-Frank, SEC may pay for info other than from audit or investigation

  • may sue retaliating employers
  • claims asserted for up to 180 days
  • trial by jury allowed
  • rights & remedies can’t be waived (i.e. employment contract)
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15
Q

Internal Control & it’s objectives

A
  • has 3 classes of objectives (ORC)
  • ongoing
  • effected by all ppl in org
  • provide only reasonable assurance
  • adaptable to entity’s structure
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16
Q

Operations (mission)

A

-improving financial perf, productivity, quality, innovation, customer satisfaction
-includes safeguarding assets (assist in risk assessment; avoid waste/inefficiency)
Pitch Perfect is quality comedy (P P I Q C)

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17
Q

Reporting

A
  • timely, reliable info needed for DM & stakeholders

- relate to financial/nonfinancial & internal/external reporting

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18
Q

Compliance

A

subject to laws/regs that have minimum stds of conduct

-compliance with internal policies/procedures is an operational objective

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19
Q

Control Environment

A
  • Integrity & ethical values (tone @ top, stds of conduct, perf eval, correct deviations)
  • oversight (operates independently)
  • establ of structures, reporting lines, authorities & resp (design, assign, limit authority)
  • commitment to attract, develop, retain competent indiv
  • org holds indiv accountable
20
Q

Risk Assessment

A

assessment of risk & need to manage org change
principles
specifies objectives to ID & assess objectives
ID & analyze risk,
assess fraud risk,
ID & assess changes that affect IC

21
Q

Risk Assessment objectives

A

operations- mgt choice, risk tolerance, op & financial perf goals, basis for committing resources
ext f.reporting- comply w/ stds, materiality, reflect activities
ext nonf reporting- comply w/ stds/frameworks, consider preclusion, reflect activities
internal reporting- mgt choices, precision, reflect activies
compliance- ext laws/regs, risk tolerance

22
Q

Control Activities

A

policies, procedures ensure mgt directive carried out.
applied @ various level
preventive or detective, segregation of duties

23
Q

3 principles of control activities

A

select/develop c.a. to mitigate risk
select/develop general c.a. over tech to support achievement of objectives
deploys c.a. thru policies that establish expectations & procedures that put policies into action

24
Q

Information & Communication

A

enable org to obtain info to maintain accountability, measure & review perf

3 principles

  • relevant, quality info (ext & int)
  • internally communicates info
  • communicates with external parties
25
Q

Monitoring

A

process assesses quality of IC perf over time to ensure controls continue to meet needs of org
2 principles
-develops & performs ongoing/sep (both) to determine if components IC are present & functioning
-evaluates & communicates ctrl deficiencies

26
Q

3 components for COSO

A 
establish foundation for monitoring
-tone @ top
-org structure
-baseline for IC effectiveness
Design/execute monitoring procedures based on risks to achieve org obj
-prioritize risk
-ID ctrl
-ID persuasive info
-implement monitoring procedures
assess/report results & include follow up on corrective action
-prioritize findings
-report results
-follow up
27
Q

Control Baseline

A

starting point

supported understanding of current system’s design & operation

28
Q

Change ID

A

IDs & addresses changes needed

29
Q

Change management

A

evaluates design & implementation of changes (establishes new baseline)

30
Q

Control revalidation

A

update periodically

revalidates proper operation of system at a time when no known changes occurred

31
Q

COSO Cube

A

The rows are the 5 components of IC (CRIME), with the slices representing the 3 objectives (ORC), and the columns representing the 4 parts of org structure (Entity level, division, operating unit, function)

32
Q

BOD & Its committees responsibility

A

oversight role
integrity, ethics
need to be objective, have industry knowledge

33
Q

Senior MGT

A

CEO- tone @ the top

responsible for design & op of IC

34
Q

Internal Auditors

A

consulting & advisory role

evaluates adequacy & effectiveness of IC wrt risks in oversight, ops, Info sys

35
Q

ERM

A

extends COSO to enterprise risk mgt
way to integrate & coordinate all risk mgt activities
emphasis on objectives & establ ways to evaluate ERM effectiveness

36
Q

Risk mgt

A

Id potential events

manage risk to be w/in risk appetite (degree of willingness of sr mgt to accept risk)

37
Q

ERM helps mgt to

A

reach objectives
prevent loss of reputation & resources
report effectively
comply with laws & regs

38
Q

ERM capabilities

A

consideration of risk appetite & strategy
risk response decisions (avoid, reduce, share, accept)
reduction of op surprise/losses
multiple & cross enterprise risk (integrated response to multiple risks)
response to opps (mgt respond quickly thru ID potential events)
Deployment of capital

39
Q

Risk & opportunity

A

risk- potential negative impact

opportunities- potential positive impact (offset risks)

40
Q

ERM objectives

A

Operations- effectiveness/efficiency
Reporting- reliability
Compliance- adherence to laws/regs
Strategic- align w/ & support mission

Strategic & ops affected by ext events
Report & compliance are w/in entity’s control

41
Q

Components of COSO ERM

A

Control activities, risk assessment, info & comm, monitoring, control env, risk response, objective setting, internal environment

42
Q

Risk response
objective setting
internal environment

A

risk response-consistent w/ risk tolerance & appetite
obj setting- must be complete before events can be ID’d; ensures process established & align w/ mission & appetite
internal- reflects mgt philosophy, appetite, integrity, ethics, overall env

43
Q

COSO ERM cube

A

4 objectives (ORCS), 8 interrelated components (CRIME ROI) & org units (Entity level, division, business unit, subsidiary) on the other side

apply approach to each intersection of 3 elements (control activities for reporting objectives at the division level)

44
Q

Present & functioning fairly

A

no material weakness

risk w/in appetite

45
Q

Strategies for risk response

A

avoidance- get rid of the risk
retentition- accept (self-insurance)
reduction- lowers level of risk (mitigate)
share- transfer some loss potential to another party (insurance)

46
Q

Risk MGT process

A 
ID risk
Assess risk
Prioritize risk
Formulate response
Monitor response

Gleim BEC (14 decks)

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