Cpa Bec - Corporate Governance

Front 1

Why do we need corporate governance

Back 1

to overcome agency problem

Front 2

Who has marjor control over mgmt?

Back 2

External auditors
Internal auditors
Credit rating agency
SEC
IRS
attorneys
Internal control system
security analyst
creditors

Front 3

Objective of Internal control

Back 3

1. Financial information reliability
2. Operating efficiency and effectiveness
3. compliance with law

Front 4

Components of Internal Control (5)

Back 4

1. control environment
2. assessment of risk
3. control activities
4. information and communication
4. monitoring

Front 5

Limitations of internal control

Back 5

1. Mgmt can override
2. segeration can be circumvented by collusion
3. can breakdown due to bad judgement
4. can can not excced benefit

Front 6

What does Enterprise Risk Mgmt do?

Back 6

A process designed to identify potential events that may affect the organization and manage risk to be within it's risk appetite and provide resonable assurance regarding achieving objectives

Front 7

What is Risk Appetite

Back 7

the amount of risk an organization will accpet to acheive it's objectives

Front 8

What are the 8 componentes of Risk Mgmt

Back 8

1. Control environment
2. Objective setting
3. Risk identification
4. Risk assessment
5. Risk respone
6. Control activities
7. Information and communication
8. Monitoring

Front 9

Evaluator

Back 9

Individual that monitors internal control within an organization
Must be competent and objective

Front 10

Inherent Risk

Back 10

Risk to the organization if managment does nothing to alter it's likelihood or impact

Front 11

Risidual Risk

Back 11

The risk of the event after considering mgmt resonse

Front 12

Risk tolerance

Back 12

the acceptable variation with respect to achieving a particular objective

Front 13

Articles of incorporation includes (6)

Back 13

1. Name and initial address
2. Purpose
3. Power
4. name of registered agent
5. Name and address of incorporators
6. # of authorized shares and types of stocks

Front 14

By laws includes

Back 14

1. How are officers elected
2. HOw meetings are conducted
3. Types and duties of officers
4. required meetings
5. process of bylaw amendment

Front 15

Monitoring devices for mgmt behavior

Back 15

1. board of directors
2. external auditors
3. internal auditors
4. credit analyst and agencies
5. attorneys
6. IRS
7. SESC

Front 16

Board of directors are responsible for (10)

Back 16

1. Mission of the company
2. Selection and removal of CEO
3. Amending by laws
4. Mgmt compensation
5. Declaration and payment of dividend
6. acquisition and cap structure
7. Advising mgmt
8. governance oversight and assisst auditors
9. accurate financial reporting
10. Risk managment

Front 17

Board of directors must be:

Back 17

Competent
Majority independent
not part of mgmt
Dont receive significant benefits other than compensation
Adequetely trained
have no power to bind the compnay

Front 18

Business Judgement Rule

Back 18

Corporate directors may not be held liable for errors in judgement providing the director acted in good faith, loyalty and due care

Front 19

what is duty of loyalty

Back 19

puttling corporate interest before personal when offered any opportunities

Front 20

Who is an Inside directors

Back 20

If a director also is an employee or a major shareholder

Front 21

Dodd-Frank act of 2010 says:

Back 21

Must disclose why chairman of the board of not CEO
All members of compensation committee and audit committee must be independent

Front 22

Committees of the board

Back 22

Corporate governance
Audit Committee
Compensation Committee

Front 23

The nominating/Corp. governance committee does what?

Back 23

1. Oversees boards organization including assignments
2. Determines director qualification training
3. Develops corp. governance principals
4. Oversee CEO succession

Front 24

Function of Audit Committee

Back 24

1. appointment, compensation and ovesight of external auditor
2. resolution of disagreement between auditor and management

Front 25

Financial expert must do:

Back 25

1. Understand GAAP and Fin Statement
2. Experienced in preparing and analysing and evaluation of Fin Statement
3. Understand Internal Control
4. Understand procerdue of Fin. Reporting
5. understand audit committee function

Front 26

Per Section 302 of SOX: Financial Officer responsible for

Back 26

1. Maintain internal control
2. Disclose all significant interal control deficiencies to the compnay's auditor and audit committee

Front 27

Compensation Commitee

Back 27

1. All members must be independant
2. Review adn aprpove CEO compensation
3. Makes recommendation to board with respect to incentive and equity based compensation
4. attempt to align incentive with shareholder objective and risk appetite

Front 28

Director are not independant if:

Back 28

1. has been an employee in the last 5 years (3 years for NASDAQ)
2. If family memnber is an officer in the last 5 eyars
3. If were external auditor in the last 5 eyars
4. Receives >$120K
5. Receives significant revenue from the corporation

Front 29

Types of Internal audit services

Back 29

1. Assurance
2. Consulting

Front 30

Types of Internal Audit Standards

Back 30

1. Attribute Standards - related to characteristics of audit
2. Performance Standards - Quality of Internal Audit activities

Front 31

External Auditors duties includes

Back 31

Audit in accordance of PCAOB

Assures Fin Stmt are accurate

Mgmt not engaging in fraud

Front 32

Mgmt Responsibilities per SOX 404

Back 32

1. Establish adequest internal control over financial reporting
2. Assessment over effectiveness of Internal Control
3. External auditors to attests to mgmt's report

Front 33

What are significant audit finding

Back 33

1. Auditors view on qualitative aspect of significant accounting practices

2. Significant difficulties encountered during audit

3. disagreement with management

4. Other finding that are significant and relevent

5. uncorrected material misstatements

Front 34

What are the SEC divisions?

Back 34

1. Division of cor finance

2. Division of enforcement

3. Office of the chief accountant

Front 35

SEC division of Cor Finance does what?

Back 35

1. Review document filed by companies

2. Checks to see if compnaies are meeting disclosure requirements

3. Seeks to improve quality of disclusures

Front 36

SOX 906 requirement of Corp govornance

Back 36

Requires CEO and CFO to clarify accurance and thuthfullness of periodic financial reports filed with SEC

Front 37

Common Shareholder's Right

Back 37

1. Right to vote in election of directors
2. Right to vote in decision to disolve the corporation
3. Other fundamental changes in corporation
4. Right to inspect books and records

Front 38

What are the 7 control environment components (ICHAMBO)

Back 38

1. Integrity and Eithcal values
2. Committments to competance
3. Human resource policies
4. Assignment of responsibilities
5. Management philosophay and style
6. Board of director or audit committee
7. Organizational structure

Front 39

Control Activities include

Back 39

1. Performance Review
2. Information processing control
a. General control
b. application control
i. Input control
ii. Processign control
iii. output control
c. Physical control
d. Segregation of duty

Front 40

What is application control?

Back 40

1. Input control
2. Porcessing control
3. Output control

Front 41

Segregation of Duty

Back 41

Different people are responsible for:
1. authorizing transaction
2. Recording transaction
3. Maintaining custody of assets

Front 42

Effective information and communication must be

Back 42

1. identify and record all valid transactions
2. describe trans. timely
3. measure value of transaction
4. Record in the proper period
5. Properly present and disclose
6. comminicate responsibilities to employees

Front 43

Internal Controls fail because

Back 43

1. not designed or implemented properly
2. change in environment make it ineffective
3. the way control operates may change

Front 44

Interal control change control continuum

Back 44

1. Control baseline
2. change identification
3. change management
4. congtrol revalidation/update

Front 45

Interal Control change management

Back 45

1. Change request
2. Change analysis
3. Chagne decision
4. Change planning, implementation and tracking

Front 46

Characteristics of key controsl

Back 46

1. the failure could materially effect areas objective other controsl would not be expected to detect failure timely

2. their operating may prevent or detect other failure b/f they hadn and opportunity to become material to organization's objectives

Front 47

SOS 404 requirements around Internal Control

Back 47

1. Statements of mgmt's responsiblity of establishing Internal Control
2. Framework used by mgmt to assess effectiveness of Interal Control
3. Internal Control over Financial Statements
4. Auditors attestation on mgmt's report

Front 48

What does ERM (enterprise risk management) do?

Back 48

1. align risk appetite with strategy
2. enhance risk response
3. Reduces operational surpises and losses
4. Identifies and manages cross enterprise risk
5. Provide integrated response to multiple risk
6. help seize opportuntiy
7. Improve deployment of capital

Front 49

Risk/Event identification techniques

Back 49

1. Event inventory
2. Internal analysis
3. Escalation of threshold trigger
4. Facilitated workshop
5. process flow analysis
6. Leading event indicator
7. Loss events data methodologies

Front 50

Risk assesment methods

Back 50

Probabilistic model: range and events and their resulting impact with the likelihood of those events base of certain assumption. i.e. Value at risk, Cash flow risk, earnings risk

Front 51

Nonprobabilistic Model

Back 51

uses subjective assumptions in estimating ther impact of event without quantifying an assoicated likelihood
1. sensivitiy mesaure
2. stress test
3. scenarios ananlysis

Front 52

4 types of Risk Responses

Back 52

1. Avoidance - exit activity
2. Recuction - reduce impact
3. Sharing - hedging, outsourcing
4. Acceptance - doing nothing

Front 53

Limitations of ERM

Back 53

1. Risk relates to uncertain future
2. Provides risk related to objectives but cant' assure that objectives will be achieved
3. cant' assure about objective categoreis
4. Subject to mgmt's override