CHAPTER 1

• Accounting Shenanigans


  Accounting schemes that distort amounts and disclosures in the FS in order to hide financial problems. Synonymous to "window dressing".
• Agency Problem


  A situation that exists when the "agents" of the corporation use their authority for their own benefit and not the benefit of the "principal" or owners.
• Audit Committee


  Committee composed of directors tasked to perform oversight of the financial reporting process, selection of the external auditor, and receipt of audit findings.
• Board of Directors


  The governing body elected by the stockholders that exercise corporate powers.
• Corporate Governance


  System of stewardship and control to guide organizations in fulfilling their long-term obligations toward their stakeholders.
• Corporate Issuer


  A corporation that issues securities such as stocks and bonds to the public.
• Debt Ratio


  A measure of financial soundness computed as total liabilities divided by total assets.
• Energy Derivatives


  Complex financial instruments whose underlying asset is based on energy products.
• Enterprise Risk Management


  A process, effected by an entity's board of directors, management, and other personnel, applied in strategy setting and across the enterprise that is designed to identify potential events that may affect entity, manage risks, and provide reasonable assurance.
• Executive Director


  A director who has executive responsibility of day-to-day operations of a part or the whole of the organization.
• External Auditor


  Independent accounting firm that renders a report or opinion on the financial statements of client-companies.
• Independent Director


  A person who is independent of management and the controlling shareholder, and is free from any business or other relationship which could, or could reasonably be perceived to, materially interfere with his exercise of independent judgment in carrying out his responsibilities as a director.
• Internal Control


  A process, effected by an entity's board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the reliability of financial reporting, the effectiveness and efficiency of operations, and compliance with applicable laws and regulations.
• Management


  A group of officers given authority by the board of directors to implement the policies it has laid down in the conduct of the business of the corporation.
• Nonexecutive Director


  A director who does not perform any work related to the operations of the corporation.
• Off-balance sheet accounting


  The practice of not reflecting an asset and/or a liability on the FS.
• Organisation for Economic Co-operation and Development (OECD)


  Inter-governmental entity founded in 1961 intended to stimulate economic growth through the formulation of policies for "better lives".
• Publicly-listed company


  A company whose shares are traded on the stock market.
• Sarbanes-Oxley Act


  A corporate governance regulation passed in the US requiring the strengthening of corporate governance structures.
• Special-purpose entity


  An entity created for a narrow and specific business objective; for instance, an SPE is created simply for the purpose of obtaining finance.
• Stakeholders


  Any individual, organization, or society at large who can affect and/or be affected by the company's strategies, policies, business decisions, and operations in general.
• Stakeholder Theory


  States that the corporation exists not only for the benefit of the stockholders but also for the benefit and protection of other stakeholders.
• Stockholder Theory


  Theory stating that the corporation exists for the benefit of the shareholders or stockholders.
• Short-termism


  A term that connotes actions of corporate managers intended to increase short-term profits only.
• White knight


  A friendly investor that purchases a target company at a fair price and with the support of existing management and directors.