CCA Ethics & Corporate Governance Flashcards

Under IMA (Institute of Management Accountants) standards, which standard requires management accountants to disclose all relevant information that could influence users' understanding of reports?

Answer: Credibility

The IMA's credibility standard requires management accountants to communicate information fairly and objectively and disclose all relevant information users might need.

What is 'whistleblowing,' and what protection does the Dodd-Frank Act provide for whistleblowers?

Answer: Reporting suspected securities law violations to the SEC; Dodd-Frank provides anti-retaliation protections and financial awards for qualifying tips

Dodd-Frank's whistleblower program protects individuals who report securities violations to the SEC from employer retaliation and provides financial awards (10–30% of sanctions over $1 million).

What is the 'independence in appearance' requirement for external auditors?

Answer: Reasonable, informed observers must conclude that the auditor's objectivity is not impaired

Independence in appearance means that from the perspective of a reasonable outside observer, the auditor's independence is not compromised — perception matters as much as actual independence.

Under SOX Section 404, management of a public company must:

Answer: Assess and report on the effectiveness of internal control over financial reporting (ICFR)

SOX Section 404(a) requires management to assess ICFR effectiveness using a recognized framework (such as COSO), and 404(b) requires the external auditor to attest to that assessment for large accelerated filers.

Which corporate governance mechanism aligns the interests of executives with those of shareholders?

Answer: Performance-based equity compensation tied to long-term shareholder value metrics

Performance-based equity compensation (stock options, RSUs tied to TSR or EPS) aligns executive incentives with long-term shareholder value creation.

What is a 'related-party transaction,' and why does it require disclosure in financial statements?

Answer: A transaction between a company and an entity with which it has a special relationship (e.g., a subsidiary or executive's family member); disclosed because it may not be arm's length

Related-party transactions may not be conducted at market terms, so GAAP (ASC 850) requires disclosure to ensure users can evaluate whether transactions reflect fair value.