Corporate Governance Flashcards
7 cards from real CFE practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Corporate Governance flashcards as text
Which of the following BEST describes 'clawback' provisions in executive compensation plans?
Answer: Requirements that executives return previously paid compensation if fraud is discovered
Clawback provisions allow a company to recover incentive compensation paid to executives when it is later determined to have been based on fraudulent or restated financial results.
A related-party transaction must typically be disclosed and approved because it creates a risk of:
Answer: Conflict of interest that could harm the company for a director or officer's personal benefit
Related-party transactions involve parties with pre-existing relationships with the company and carry inherent conflict-of-interest risk that could result in unfavorable deal terms.
The Caremark standard holds that a board can be liable for fraud losses if it:
Answer: Failed to establish any system to monitor legal compliance
Under the Caremark doctrine, directors face liability if they utterly failed to implement information and reporting systems to detect illegal conduct.
Which practice BEST demonstrates that a board is exercising effective oversight of management-prepared financial information?
Answer: Meeting privately with the external auditor without management present
Private (executive) sessions between the audit committee and external auditors without management present allow candid communication about management's integrity and reporting quality.
Which of the following represents an example of 'tunneling' in a corporate governance context?
Answer: A controlling shareholder transferring corporate assets to entities they privately own
Tunneling refers to controlling shareholders extracting company value for personal benefit, often to the detriment of minority shareholders.
When evaluating an anti-fraud program, the ACFE recommends that a hotline be managed by:
Answer: An independent third party to encourage reporting
Third-party-managed hotlines increase employee confidence in anonymity and independence, leading to higher reporting rates.
Which of the following best illustrates the concept of 'regulatory capture' as it relates to corporate governance?
Answer: A regulator becoming so aligned with the industry it oversees that it no longer serves the public interest
Regulatory capture occurs when the regulating agency advances the interests of the regulated industry rather than the public, weakening external governance controls.