AICPA_BEC Study Notes

Chapter1CorporateGovernance●BODcannotactindividually,dulyconstitutedboard(they’reworkingtogether).Notagent●BODdeclaredividend–maybeliableforauthorizedistributioninviolationoflaw●obeythedutyofloyalty1.Servingontheboardofacompetingentity.–prohibition2.OKfordirectorstohavetransactionbusinesswiththecorporation.AndDiscloseallconflictsandbefair3.Corporateopportunitydoctrine●officersactindividually–ordinarycourseofbusiness●officersmayserveasBODbutnotrequiredtobeshareholders●Financialexpert–servesasaresourcefortheauditcommittee(insuretheexpertiseoftheboard)–whoisfinancialexpert–ajudgmentcallbyBOD1.MusthaveexperiencewithI/C,anunderstandingofauditcommitteefunctions2.Qualifiesthrougheducationorpastexperienceasanauditororfiancéofficerforanissuerofsimilarcomplexity.3.TheexpertshouldhaveanunderstandingofGAAP,applicationofGAAP.4.ThereisnorequirementtohavealimitedunderstandingofGAAS.●SOX–2002(theSOXActfocuseslessonstrategicoperations(ERM)andmoreonthefinancialreportingissuesimpactedbytheauditcommittee)1.Corporateresponsibilities■Auditcommittee–independent(required)–nocompensationforconsultingoradvisory¬affiliatedperson■Auditcommitteeisdirectlyresponsiblefortheappointment,compensationandoversightoftheworkofthepublicaccountingfirmemployedbythatpubliccompany.TheseparationofauditsupervisionfromBODaddressestheproblemofinadequateboardoversight.■OfficersCFOandCEOneedtosignreport–I/Calsoconsidereffectiveness■Reportprocedurestoacceptsignificantdeficiencies&anyfraud2.Enhanceddisclosures■Aboutf/s,I/Candoperationoftheauditcommittee■Reportallmaterialcorrectingadjustment■Off-balancetransactions(e.g.,lease/operating,lawsuits,unconsolidatedsubsidiary-equitymethod)■Proformaf/s■Useofspecialpurposeentities(SPE)■Cannotmakepersonalloanstoofficers■Principleshareholders–morethan10%ofanyclass–relatedpartyhavetodisclose■MgtmustassessI/C–andattestedbyauditor(astatementthattheauditorhasattestedandreportedonmanagement’sevaluationofI/C)3.Fraudreporting■Fraudrecord–fineornomorethan20yearsorboth■Auditormustkeeprecordfor5years–otherwisefineornomorethan10yearsorboth■StatuteofLimitationofSecuritiesfraud–nolaterthantheearlierof2yearsafterthediscoveryofthefactsor5yearsaftertheviolation–findornomorethan25yearsorboth●SOXCodeofethics–norequirementforI/C;theSECproposedstandardsforcodesofethicstoincludebothinternalreportingofcodeprovisionsandaccountabilityforadherencetothecode●COSO–independentprivatesector-committeeonsponsoringorganization●I/Cisaprocess–effectedbythosechargedwithgovernance,management,andotherpersonnel–designedtoprovidereasonableassuranceabouttheachievementoftheentity’sobjectives.●Objectives:reliabilityoffinancialreporting,effectivenessandefficiencyofoperation,andcompliancewithapplicablelawsandreg.●Fivefactors–meanstoachieveobjectives(Crime)1.Controlenvironment–toneatthetop■Organizationstructure–nomorethan3layersexistbetweenCFOandreportingstaff■InternalauditorreportdirectlytoCEOandcanaccesstoauditcommittee■BOD–oversightfinancialreportingandI/C2.Riskassessment–F/smisstatedorfraudulent(tworiskstoconsider)3.Informationandcommunicationsystems–timelyandaccurate■Metricusetocomparecurrentperformancetotargetperformance■Communicationwithauditor–externalcommunication;internalcommunication:triggersreporting4.Monitoring–effectives/reportdeficiencies■Internalauditor■Repotstoprocessownersandalsoatleastonelevelofmanagementabovetheprocessowner■Significantdeficiencies–mgt&auditcommittee5.Existingcontrolactivities–controlpoliciesandproceduresandinformationtechnology,tomitigaterisk,thatensureappropriateresponsestoidentifiedrisks●ERM–byCOSOalso(“boarder”basisforcontrolsbeyondjustF/R)●ERM–identifypotentialevents,managerisk,andprovidereasonableassurance●Hasthefollowingobjectives-1.Strategic2.Operation3.Reporting4.Compliance●Component–mustbeinthefollowingorders(ISEARAIM)(顺序要记住)1.Internalenvironment2.Settingstrategy3.EventIdentification4.Assessrisk5.Riskresponse6.Activitiescontrol(themethodsusedtoimplementtheresponsetorisk)7.Informationandcommunication8.Monitoring●EnvironmentMustconsidercommitmenttocompetenceofjobfunction–notunderCOSO(PHASEDC)1.Evaluationofperformancetofinancialreporting-HRfunction2.BODactiveengagementinoversight(regularmeetings,auditcommittee)●Settingstrategy:theentity’sriskappetiteisthebenchmarkforstrategysetting●EventIdentification:knowrisksandopportunities.Includeinternalthings1.Eventinventory–listofpotentialeventscommontospecificindustryorfunctionalareaasameansofidentifyingrisksoropportunities2.eventworkshops-Meetingsofcross-functionalteams●Assessrisks:Inherentrisksandresidualrisks1.Inherentriskistherisktoanentityintheabsenceofanyactionsmanagementmighttaketoalter.■Theriskassessmentcomponentincludesanalyzingrisk,includingtheestablishmentoftheevents’likelihoodandimpact.2.Anorganization’sriskappetitehasbeenexceededwhenthecombinedlikelihoodandimpactofnegativeeventssignificantlyexceedresidualrisk.●Riskresponse–avoid(quitdoinganymore),reduce(investmentportfolio,diversificationofproducts),share(insurance,options/futures),accept(donothing)●Informationqual