IFA Corporate Governance & Risk Management Flashcards

What is the purpose of a remuneration (compensation) committee?

Answer: To set executive pay in a way that is fair, transparent, and aligned with long-term performance

The remuneration committee, typically composed of independent non-executive directors, sets executive pay to align management incentives with shareholder interests and long-term company performance.

What is 'fiduciary duty' as it applies to company directors?

Answer: A legal obligation to act in the best interests of the company and its shareholders, with loyalty and care

Fiduciary duty requires directors to act in the company's best interests with honesty, loyalty, and due care, placing the company's welfare above their own personal interests.

What does the COSO ERM framework provide?

Answer: A comprehensive framework for enterprise risk management integrating strategy, performance, and governance

The COSO ERM framework provides principles and components for organizations to integrate risk management with strategy-setting and performance management across the enterprise.

What is 'business continuity planning' (BCP)?

Answer: A documented strategy to ensure critical business functions continue during and after a disruptive event

BCP ensures an organization can maintain or rapidly resume critical operations following a disruption such as a cyberattack, natural disaster, or system failure.

What does 'segregation of duties' mean in internal control?

Answer: Ensuring no single employee controls all steps of a key transaction to prevent fraud or error

Segregation of duties divides key transaction steps (authorization, recording, custody) among different employees to reduce the risk of undetected fraud or error.

What is a 'material weakness' in internal controls under SOX?

Answer: A significant deficiency where there is a reasonable possibility of material misstatement not being prevented or detected

A material weakness is a deficiency in internal controls over financial reporting where there is a reasonable possibility that a material misstatement could occur and not be caught.