Business Environment & Concepts > Corporate Governance > Rights, Duties, and Authority

Attempting to maximize profit or EPS can lead to short term decision making that may not be optimal in the long run. Maximizing
shareholder wealth is considered the same as maximizing share price.
There exists an agency issue within the corporate form of ownership where shareholders own the corporation but professional
managers run the entity hopefully with the best interests of the shareholders at the forefront. Therefore, maximizing
management compensation is not considered a valid objective for management to attempt to achieve
Risks relevant to financial reporting include external and internal events and circumstances that may occur and adversely affect
an entity's ability to initiate, authorize, record, process, and report financial data consistent with the assertions of management
made in connection with the financial statements
The second standard of field work under General Accepted Auditing Standards (GAAS) requires the independent auditor to
obtain a sufficient understanding of the entity and its environment, including its internal control, to be able to assess the risk of a
material misstatement being present within the financial statements
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined under
Section 13a of SEC 1934 Act
Section 404 of the Sarbanes-Oxley Act requires the independent auditors of public companies to assess and report on the
effectiveness of internal control over the financial reporting process.
The NASDAQ market makes it a requirement that all listed companies have audit committees composed entirely of independent
directors who are also financially literate.
The COSO internal control framework is by far the the most frequently used one. The Control Objectives for Intermation
Technology (COBIT) framework is specifically related to IT governance. Two answer choices do not exist, there are no such
items. COSO is the Committee of Sponsoring Organizations of the Treadway Commission. According to its website, "COSO is
recognized the world over for providing guidance on critical aspects of organizational governance, business ethics, internal
control, enterprise risk management, fraud, and financial reporting
Every transaction must be properly authorized if internal controls are to function adequately. For example, if any person in an
organization has the ability to acquire or expend assets at will, complete chaos would result.
The provision applies to companies that are registered with the Securities and Exchange Commission because they issue some
type of security to the public.
The size of a misstatement that would be judged to be material is a subject matter on which auditors generally do not initiate a
discussion with those in charge with the governance of an audit, although they may respond to such questions (for example from
members of the audit committee). The level of a material misstatements is one of the most important professional judgments
that an independent auditor must make. It is one that the auditor must make without any influence by the audit client
AU 380 requires that such information on disagreements with matters related to the financial statements be communicated to
the audit committee. The independent auditor is hired to audit financial statements prepared by management. Disagreements
(even if eventually resolved) are at the very heart of the audit process and these disagreements should be explained to the audit
committee
The Board of Directors oversees the work of the management team and also helps in policy and strategy decisions. Therefore,
the other answer choices fall under normal duties of the Board. However, changes in the articles of incorporation can literally
change the nature of the corporation, a responsibility that is reserved to the stockholders as a group.
Risk appetite in an ERM system refers to the level of risk an entity is willing to accept in reaching its goals is the correct
distinction between these terms. As defined in the COSO ERM framework, risk appetite is the overall level of risk an entity is
willing to accept in reaching its goals and is related to the organization's overall culture and strategy. In contrast, risk tolerance
refers to a specific level or range of variation that is acceptable in reaching particular objectives. For example, a company might
have a particular range for accuracy of its processes that it deems acceptable, such as 96 98%.
Price risk from investment activity refers to the risk that a security or portfolio of securities will decline in value. The other
statements are true. Price risk can be mitigated through diversification and hedging activities. Credit risk refers to risk of default
by a borrower or issuer of a debt security in which the company has invested. Finally, liquidity risk refers to exposure to loss
resulting from the lack of marketability or liquidity of an investment.
An outside director is a member of the board who is not otherwise employed by or engaged with the organization, and does not
represent any of its stakeholders. A typical example is a director who is president of a firm in a different industry. Outside
directors bring outside experience and perspective to the board. They keep a watchful eye on the inside directors and on the
way the organization is run.