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Questions and Answers
What is the term used to describe accounting schemes that distort financial statements?
What is the term used to describe accounting schemes that distort financial statements?
Who are the 'principals' in a corporation?
Who are the 'principals' in a corporation?
What is the primary function of an audit committee?
What is the primary function of an audit committee?
What is the debt ratio a measure of?
What is the debt ratio a measure of?
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What type of financial instruments are traded on the Chicago Mercantile Exchange?
What type of financial instruments are traded on the Chicago Mercantile Exchange?
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What is the goal of enterprise risk management?
What is the goal of enterprise risk management?
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What is the role of the board of directors in a corporation?
What is the role of the board of directors in a corporation?
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What is corporate governance?
What is corporate governance?
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What is the primary responsibility of an executive director?
What is the primary responsibility of an executive director?
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What is the role of an external auditor?
What is the role of an external auditor?
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What is a characteristic of an independent director?
What is a characteristic of an independent director?
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What is the purpose of internal control?
What is the purpose of internal control?
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What is the role of management in an organization?
What is the role of management in an organization?
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What is off-balance sheet accounting?
What is off-balance sheet accounting?
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What is the purpose of the OECD?
What is the purpose of the OECD?
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What is a special-purpose entity?
What is a special-purpose entity?
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Study Notes
Corporate Governance and Financial Concepts
- Accounting shenanigans refer to accounting schemes that distort financial statements to hide financial problems or paint a brighter picture of economic performance, also known as "window dressing."
Agency Problem
- Occurs when corporate managers (agents) use their authority for personal benefit, rather than for the benefit of the shareholders (principals).
CORPORATE GOVERNANCE ROLES
- Audit Committee: composed of directors who oversee the financial reporting process, select external auditors, and receive audit findings.
- Board of Directors: the governing body elected by shareholders that exercises corporate powers, conducts business, and controls properties.
- Executive Director: a director with executive responsibility for day-to-day operations of part or whole of the organization.
- Independent Director: a person independent of management and controlling shareholders, who exercises independent judgment.
- Non-Executive Director: a director not involved in operational work of the corporation.
FINANCIAL CONCEPTS
- Debt Ratio: a measure of financial soundness, computed as total liabilities divided by total assets.
- Energy Derivatives: complex financial instruments based on energy products (e.g., oil, natural gas, electricity), traded on formal exchanges like the Chicago Mercantile Exchange.
- External Auditor: an independent accounting firm that provides a report or opinion on a company's financial statements.
- Internal Control: a process designed to provide reasonable assurance regarding operational, reporting, and compliance objectives.
- Off-Balance Sheet Accounting: not reflecting assets and/or liabilities on financial statements.
- Special-Purpose Entity (SPE): an entity created for a narrow and specific business objective, such as obtaining finance.
OTHER CONCEPTS
- Corporate Governance: a system of stewardship and control that guides organizations in fulfilling their long-term obligations to stakeholders.
- Corporate Issuer: a corporation that issues securities (e.g., stocks, bonds) to the public.
- Enterprise Risk Management: a process to identify potential events, manage risks, and provide reasonable assurance regarding entity objectives.
- Organisation for Economic Co-operation and Development (OECD): an inter-governmental entity promoting economic growth through policy formulation.
- Publicly-Listed Company: a company whose shares are traded on a stock market (e.g., Philippine Stock Exchange).
- Sarbanes-Oxley Act: a corporate governance regulation that strengthens corporate governance structures, regulates auditing, and assesses internal controls over financial reporting.
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Description
Quiz on accounting schemes that distort financial statements and the agency problem where corporate managers prioritize their own interests over the owners'.