Major Keys

Question 1

What did the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 help establish?

E.g. What policies were established from these (2) acts?

Answer 1

These acts helped establish:

• Financial Stability Oversight Council; and
• Bureau of Consumer Financial Protection

Question 2

What is the “Clawback” provisions?

Answer 2

A policy defining how to recover performance-based executive compensation after a financial restatement

E.g. Under Dodd-Frank, an issuer (i.e. Public Company) must have a “clawback” policy

Question 3

What are Bylaws?

Answer 3

Documents that:

(1) Govern the internal structure and operation of a corporation
(2) contain specific rules for the management of a business corporation

NOTE: Initial bylaws are adopted by the incorporators or the board.

Question 4

What are the penalties for a CEO and CFO for violating the Sarbanes-Oxley Act of 2002?

Answer 4

1. Forfeiture of bonus or other incentive-based compensation
2. Prohibited from serving as an officer or director
3. Forfeiture of profits received from the sale of the issuer’s stock

Question 5

WHAT is a requirement of issuers (i.e. Public Companies) according to the Sarbanes-Oxley Act of 2002?

Answer 5

An issuer must have an Audit Committee

E.g. Section 301 of the Sarbanes-Oxley Act requires issuers to have an audit committee (with at least 3 Members)

Question 6

WHAT is the purpose of corporate governance?

Answer 6

A. Satisfying the desires of stakeholders

B. Directing the actions of the corporation

C. Helping the corporation effectively and efficiently accomplish their objectives

Question 7

WHAT is the rule under SOX regarding the reporting of violations?

Answer 7

Submissions should be made anonymously; and should be confidential

Question 8

HOW can Senior management best promote an ethical culture within an organization?

Answer 8

BY - Setting an example of ethical conduct

E.g. Setting the “tone at the top”

Question 9

WHAT is the general rule for personal loans to issuer executives under the Sarbanes-Oxley Act of 2002?

Answer 9

Under the Sarbanes-Oxley Act, personal loans from an issuer to its executives are generally PROHIBITED

Question 10

WHAT is an advantage of preferred shareholders over common shareholders?

Answer 10

Preferred shareholders have:

• a contractual right to receive dividends; and distributions before common shareholders

E.g. Preferred Shareholders’ have the right to receive dividends and liquidation distributions first

NOTE: Preferred Shareholders’ usually do NOT have voting rights

Question 11

WHAT are some key responsibilities of a corporation’s officers?

Answer 11

1. Carrying out the entity’s day-to-day operations

NOTE: They may also enter the corporation into legally binding contracts

Question 12

WHAT statements must be included in an annual report under Sarbanes-Oxley Act of 2002?

Answer 12

A Statement that:

1 - Management has taken responsibility for establishing and maintaining an adequate system of internal control over financial reporting

2 - The internal control model used to design and assess the effectiveness of the internal control system

3 - An assessment of whether internal control over financial reporting is effective

4 - An independent public accounting firm that is registered with the PCAOB also has assessed the system

Question 13

WHAT are considered (2) basic corporate documents?

Answer 13

1. Articles of incorporation

2. Certificates of Incorporation

Question 14

WHAT are the MOST important acts of the Shareholders’?

Answer 14

A.) Amending the articles of incorporation

B.) Voting on any matter requiring a general vote

C.) Electing or removing directors

Question 15

WHAT are the required actions of a fiduciary?

Answer 15

To act primarily for the benefit of another person (e.g. a corporation)

E.g. Fiduciary requirements of an officer or director are to:

• Act in corporation’s best interests
• Be Loyal
• Use due diligence in carrying out their responsibilities
• Disclose conflicts of interest

Question 16

What is the Business Judgment Rule?

Answer 16

A rule that protects corporate officers’ or directors from personal liability for honest mistakes of judgment if;

• They acted in good faith
• Was NOT motivated by fraud, conflict of interest, or illegality
• Was NOT grossly negligent

Question 17

WHAT does SOX say about a director’s reliance on information provided by a specialist or an officer?

Answer 17

A director may accept the work of an officer or specialist if;

• The director believes the specialist or officer has relevant competence

Question 18

WHO does the CEO report to?

Answer 18

DIRECTLY to the Board of Directors

Question 19

WHO does the CEO have the authority to select?

Answer 19

The CEO can select the CFO or other executive officers

Question 20

WHO must register with the PCAOB?

Answer 20

Public accounting firms that act as independent auditor’s must register