Quizzes and Midterms

• Corporate Governance

  The framework of rules, systems and processes in the corporation that governs the performance by the Board of Directors and Management of their respective duties and responsibilities to the stockholders
• Statement 1. Corporate management focuses on the tools required to operate the business
• Statement 2. Corporate governance is situated at a higher level of direction that ensures that the company is managed in the interests of its shareholders
• Both statements are true
• Corporate governance

  The responsibility of Board of Directors
• Ways in which management may not act in the firm's (shareholders') best interest

  • Interlocking directorates
• Management

  The body given the authority by the Board of Directors to implement the policies it has laid down in the conduct of the business of the corporation
• Internal Control

  The system established by the Board of Directors and Management for the accomplishment of the corporation's objectives, the efficient operation of its business, the reliability of its financial reporting, and faithful compliance with applicable laws, regulations and internal rules
• Nomination committee

  A subcommittee of the board and should generally comprise independent non-executive directors. Its role is to make recommendations to the board on all new board appointments
• Agency Theory

  Under this theory, one party delegates work to another party. In a corporate scenario, the principal is the shareholder and the agent the directors/managers. This theory relates to the costs involved in this principal–agent relationship, including the costs of aligning the two sets of interests because of their conflicting interests
• The Three Lines of Defense model includes three groups (or lines) involved in effective risk management, except: Functions that evaluate the Board
• Statement 1. Operational management serves as the first line of defense because controls are designed into systems and processes under the guidance of operational management
• Statement 2. Operational management is responsible for maintaining effective internal controls and for executing risk and control procedures on a day-to-day basis
• Statement 1. Internal audit has a key role in the corporate governance structure to assure on the effective management of risk
• Statement 2. The board delegates to the CEO and senior management primary ownership and responsibility for operating risk management and control
• Statement 1. The use of the three lines of defense to understand the system of internal control and risk management is regarded as an automatic guarantee of success
• Statement 2. In the 3rd line of defense, internal auditors provide the governing body and senior management with comprehensive assurance based on the highest level of independence and objectivity within the organization
• Statement 1 is false, statement 2 is true
• Typical functions in the second line of defense include the following, except: Ownership, responsibility and accountability for directly assessing, controlling and mitigating risks
• Audit committees are most likely to participate in the approval of: The appointment of the chief audit executive
• Statement 1. The corporate governance framework should promote transparent and efficient markets, be consistent with the rule of law and clearly articulate the division of responsibilities among different supervisory, regulatory and enforcement authorities
• As a constituent of corporate governance, the management's role

  • To act on the direction of the BoD
  • To provide requisite information to the BoD for decision making
  • To implement and monitor control systems
• Which of the following best describes the role of Continuous Controls Monitoring (CCM) at each line of defense

  • Effectively monitor internal controls at the first and second lines of defense
  • Allow the third line of defense to be confident in its assurance role
  • Create a remediation process that minimizes the impact of a control breakdown
  • Provide evidence of due diligence for external auditors and regulators
• Which of the following represents the best governance structure

  • Responsibility for risk
  • Oversight role
  • Advisory role
• Which of the following are the key responsibilities that make up the governance process

  • Complies with society's legal and regulatory rules
  • Satisfies the generally accepted business norms, ethical precepts, and social expectations of society
  • Provides overall benefit to society and enhances the interests of the specific stakeholders in both the long -and short-term
• Statement 1. The Chairman of the Board is responsible for the day-to-day running of the company
• Statement 2. The CEO is responsible for overseeing the board of directors
• Both statements are false
• Statement 1. Debt holders actively monitor management to ensure that companies are meeting debt conditions and that they won't default
• Statement 2. Shareholders should take governance factors into account and consider the riskiness of a company's business model as part of their investment decision-making
• The two major components of governance

  • Strategic direction
  • Oversight
• Good corporate governance should comply with the following systems

  • Regulatory System
  • Legal system
  • Financial reporting system
  • Judiciary system
• Which of the following activities undertaken by the internal auditor might be in conflict with the standard of independence? Product development team leader
• Statement 1. Compensation of top executives can be used to tie the interests of the executives to those of shareholders
• Statement 2. With regard to compensation of top executives, variable performance packages are preferred, i. e., if they perform well, they are rewarded; if they perform poorly, they are not rewarded or they are fired
• Risk Management

  A process to identify, assess, manage, and control potential events or situations to provide reasonable assurance regarding the achievement of the organization's objectives
• Reasonable assurance

  The cost of an internal control should be less than the benefit it provides
• Statement 1. Risk assessment consists of identifying relevant risks, analyzing the extent of exposure to those risks, and managing risks by proposing effective control procedures
• Statement 2. Risk tolerance is the specific maximum risk that an organization is willing to take regarding each relevant risk
• Enterprise risk management framework is geared to achieving an entity's objectives, set forth in four categories, except: Information and communication- Relevant information is identified, captured, and communicated in a form and timeframe that enable people to carry out their responsibilities