Corporate Governance

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corporate governance content

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1) financial reporting of public companies. 2) internal controk

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COSO control envirnment

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management operating style relates ethics. and financial reporting. vs human resource policies ( recruit and evaluate the employee)

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compliance program

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q

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enhanced financial disclosure: SOX

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contigency loss that pending law suit was not accrued

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SOX: internal control : repoting

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assumption of responsibility. assessment of effectiveness of I/c

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SOX. code of ethic provisions

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1 full fair accurate disclosure. 2 honesty ethic conduct

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Sox: audit committee financial expert

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a

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COSO

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a

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external communication vs internal communication

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external: the matter that affecting f/s is communicated with outside party. internal: enable archive objective. variance analysis = to suppirt internal control. internal control information

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COSO monitoring

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deficiencies is identified reported investigated on going and separate evaluation

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COSO: ERM ( enterprise risk management)

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1) risk assessment: the determination of likelihood or impact on the event to achieve the objective of company. 2) control activity: response to a risk

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risk sharing ERM

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insuring against loss or do joint venture

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COSO: an operational objective vs a reporting objective

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COSO: an operational objective. ( within budget) vs a reporting objective.( GAAP)

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IPPF: international

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a

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IIA standards

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the chief audit executive to establish a risk based approach to determine audit priorities

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ERM: enterprise risk management

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1. internal environment. 2. objective setting. 3 event identification. 4. risk assessment 5 risk response. 6 control activities. 7 information and communication. 8 monitoring

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audit comittee

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qualification ( competence independence) a financial expert. responsibilities

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disclosure committee

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to management. a standard reporting package

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compensation committee

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make a recommendation to BOD

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NYSE. NASDAQ rules

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independent of directors. 5 yrs for director &:family member for employee of the company. 3 yrs for NASDAQ. 5yrs for audit firm 3 for nasdaq. 3 yrs for receiving $ 120k other than director compensation

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SEC

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responsible for protecting investors

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COSO

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3 principles : operating efficiency. compliance. F/S. 5 component uCRIME

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control environment

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1. mgmt integrity ethical value. 2. philosophy operating style. 3. organization structure. 4 BOD. AUDIT COMMITTEE participation. 5. inter audit function. 6. personnel policies and practice. 7 . external influences 8 includes set of standards. process and structures

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risk assessment. COSO

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risk assessment for financial reporting. risk= change--- new--- restructuring rapid expand----

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control activity

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authorization. contro of transacton is SOD. documents and records. safeguarding. independent check on performance 2) includes polices procedures that mgmt s directives r carried out. routinely perform controls

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information and communication

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identification retention. transfer of information

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monitoring

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ongoing. and separate evaluation of the quality of IC

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assessment of the effectiveness of ICFR ( internal control over financial reporting )

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SOX 404b: express opinion on IC. auditor. plan & perform. to get reasonable assurance whether material weakness exist. 2 one or more material weakness = IC is not effective.

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control deficiency

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the design or operation of control NOT prevent or detect misstatements on a timely basis

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significant deficiency

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a control deficiency or combination of control deficiencies. less severe than a material weakness

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material weakness

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a or combination of significant deficiency. a reasonable possibility that material misstatements of f/s will not be prevented or corrected in a timely badis

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compensating control

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exist then control deficiency is ordinarily not a significant deficiency or material weakness

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strong indicator of mw

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1 fraud by senior mgmt 2 restatement due error or fraud. 3 mw was not detected by IC. 4 ineffective oversight. 5. compensation for mgmt increase. 6 effect in compliance

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ICFR: PCAOB

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1. unqualified. 2. withdrawal or disclaimer . 3 an adverse ; one or more mw. if remediated by year end then UQ. 4 date should be same ICFR = FR

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defective certifications

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COE 1 M or 10 yrs in prison. willful dc : 5M or 20yr

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risk reduction vs risk sharing

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reducrion: relocation compensating or mitigation control. sharing: a joint venture. buying insurance

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risk assessment

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objective setting--- event identification -- risk assessment -- risk response

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threshold triggers

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mgmt predetermined limits

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inherent risk vs residual risk

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inherent: mgmt nothing to do to alter. residual: risk of event after considering mgmt s response

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ERM limitation

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human judgement. mgmt over ride. cost benefit constraint. collusion. change in environment

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ERP : enterprise resource planning

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1 cross functional system. 2 integrated data f all org activities. 3 automates business work together

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ERM 8 component

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IS EAR AIM internal environment. setting objectives. event identification. assessment of risk risk response. activities - control. information and communication. monitoring

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on line analytical processing vs on line transaction processing system

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analytical: allows end users. to retrieve data from a system and perform using statistics and graphics tool. TPS: customer payment or other transaction. EIS: strategic information. in line info storage system: ex list of charges by month

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financial expert on audit committee

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1. experience with internal controls. 2 understanding of GAAP. internal control. audit committee function

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BOD

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fiduciary relationship to the company6

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Materiality misstatements

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auditors judgment not discuss with corporate governance

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EAR vs APR

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a

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auditor. communication w audit committee

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any disagreement ( even solved) on financial statement

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American option vs European option

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american: during a specific period of time. European : at a specified date

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T - bill

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less than 1yr. denomination of $1k. max 5M purchase. T- note : 1 - 10 yr. T - bond 10 + yr

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credit risk

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the default by borrower or issuer of debts security bonds

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price risk

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a security will decline in value

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open ended fund vs closed end fund

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open= mutual fund

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COSO : reporting objectives

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external internal financial non financial reporting objectives

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C/S with cumulative voting rights

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get one vote for each director

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Dodd-Frank Act of 2010: wall street reform and consumer protection

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insider director of BOD : offer employee. major stockholder. disclose why why not the chairperson of the board is also the CEO

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internal audit charter

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purpose. responsibility. authority

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SOX

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requires CEO to disclose all significant internal control deficiency to company's auditor and audit committee

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IIA the institute of internal auditors

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a risk based approach to determine audit priorities

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ERM

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objective: 4 strategic, operating , compliance, reporting. component:8 CRIME plus object setting. event identification. risk respinse

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evaluators

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individuals that monitor controls within a organization]

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a master file vs a transaction file

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master: permanent file. a source of reference. periodically updated

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the role of the system analyst. the information system manager. the control group. a system programmer

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a

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the Dodd-Frank Act of 2010

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all members of the compensation committee of the board of directors be independent

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SOX : internal control

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3: mgmt responsibility on F/S ; evaluate the effectiveness of IS. ; Auditor attested mgmt s evaluation on F/S

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code of ethic provisions by SOX

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disclosure on F/S and honest ethical conduct

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compliance program

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ethical value to hot line & ethical training program

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COSO: information and communication

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consider system that identify info capture process and distribute info supporting the accomplish of the financial reporting

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COSO: risk assessment

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principle related to consider the risk of material misstatements

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ERM: enterprise risk management

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IS EAR AIM: Internal environment. Setting objectives . Event identification. Assessment of risk. Risk response. Activities (control) Information and communication. Monitoring

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SEC & NASDAQ control on board of directors

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directors independence requirements: 5yrs (3yrs)

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risk tolerance vs risk appetite

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tolerance: the acceptable variation

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risk sharing vs reduction

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sharing: sharing the risk with another party: insurance. joint venture. hedging. reduction: reduce its likely hood or impact.

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application programmmer

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should NOT: operating system software; correct data. ; custody of data

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ERM components

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Coso CRIME + setting objective. + event identification. + risk response

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BECKER CG

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Becker CG B1.1: # 2. 4. 5. 12. 15. 26. 28. 29. 34. CG B1.2: # 3. 7. 9.