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BEC 40

Corporate Governance, IC, ERM

QuestionAnswer
articles of incorporation 1) proposed name of the corporation and address 2.) purpose 3) powers 4.) registered agent 5.)name and address of incoporators 6.) no. authorized shares of stock
shareholders elect board of directors, vote to amend articles of corporations, mergers, acquisitions, receive dividends, subscribe to stock, inspect the books, sue on behalf of the corporation
board of directors 1) determine mission 2) select/ remove CEO 3)amend bylaws4)determine mgmt compensation 5) declare & pay dividends 6) acquisitions and capital structure 7)advise mgmt 8) governance 9) accurate financial reporting 10) risk management
business judgment rule director not liable for errors in judgment providing the director acted in good faith, loyalty, due care
duty of loyalty must but interest of the corporations before there personal interest
executive compensation 1)base salary +bonuses 2) stock option 3) stock grants
base salary+ bonus compensated based on performance ( accounting profit) ; can be manipulated or managed, too much focus on short term profits instead of maximizing the long term growth for SH
stock options incentive to increase the stock price in the short term at the expense of long term value; may encourage mgmt. to take on too much risk
Stock grants 1) Restricted stock- cannot be sold for a specific period 2) performance shares- stock if certain level of performance is met.
Balanced scorecard compensation based on a variety of performance measures
Monitoring 1) Board oversight- independence 2) Dodd- Frank requires disclosure of why/why not chairmain of the board is also a director 3) nominating/corporate governance committee; compensation committee, audit committee
Aduit committee oversight of the external auditor; have a financial expert, certification by the CE/FO that they reviewed the financial reports filed with the SEC and responsible for internal controls ( SOX) ; must be independent for the NASDAQ and NYSE, SOX
COSO objectives 1) reliability of reporting 2)efficiency and effectiveness of operations (3)compliance with applicable laws and regulations
COSO components 1) control environment2) risk assessment3) control activites4) information and communication5) monitoring activities
Control environment commitment to integrity, BOD independence from mgmt., reporting lines and appropriate authorities, competent individuals, accountability for internal control responsibilities
Risk assessment mgmt’s process for identifying, analyzing, and responding to risk
Control activities authrizations and approvals, verifications, physical controls, reconciliations, supervisory controls
Information & communication
Monitoring asesses whether each of the five components are present and functioning. 1) control baseline 2) change identification 3)change management 4) control revalidation/update
Internal control systems fail because 1) not designed properly or implemented properly 2) environmental changes make the controls ineffective 3) the way the controls operate had changed making them ineffective
Classifications of internal controls 1) preventative controls 2) detective controls 3) corrective controls 4) feedback controls 5) feed- forward controls
Enterprise Risk Management ( ERM) 1) identification by mgmt. of events that have negative, positive, or both 2)identifying, assessing, prioritizing risk, determining risk responses, and monitoring risks
Components of ERM 1) internal environment 2) objective setting3) event identification4) risk assessment 5) risk response 6) control activities 7) information and communication 8) monitoring
Created by: tsp7c