GOVERNANCE DOF CH1

Accounting shenanigans

Accounting shenanigans

accounting schemes that distort amounts and disclosures in the financial statements in order to hide financial problems and/or to paint a brighter picture of economic performance. It is synonymous with the term "window dressing.

Agency problem

- a situation that exists when the "agents" of the corporation use their authority for their own benefit and not for the benefit of the "principal" or owners.

The term "agents" pertains to corporate managers while "principal" pertains to the shareholders of the company,

agents

pertains to corporate managers while "principal" pertains to the shareholders of the company

Audit committee

- committee composed of directors tasked to perform oversight of the financial reporting process, selection of the external auditor, and receipt of audit findings from both internal and external auditors.

Board of directors

- the governing body elected by the stockholders that exercises the corporate powers of a corporation, conducts all its business and controls its properties.

Corporate governance

- system of stewardship and control to guide organizations in fulfilling their long-term economic, moral, legal, and social obligations toward their stakeholders.

Corporate issuer

- a corporation that issues securities such as stocks and bonds to the public.

Debt ratio

- a measure of financial soundness computed as total liabilities divided by total assets

Energy derivatives

- are complex financial instruments whose underlying asset is based on energy products such as oil, natural gas, or electricity. ________ are traded on a formal exchange such as the Chicago Mercantile Exchange.

Enterprise risk management

a process, effected by an entity's board of directors, management, and other personnel, applied in strategy setting and across the enterprise that is designed to identify potential events that may affect the entity, to manage risks to be within its risk appetite, and to provide reasonable assurance regarding the achievement of entity objectives.

Executive director

- a director who has executive responsibility of day-to-day operations of a part or the whole of the organization,

External auditor

- independent accounting firm that renders a report or opinion on the financial statements of client-companies.

Independent director

- a person who is independent of management and the controlling shareholder, and is free from any business or other relationship which could reasonably be perceived to materially interfere with his/her exercise of independent judgment in carrying out his/her responsibilities as a director.

Internal control

- a process effected by an entity's board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting, and compliance.

Management

- a group of officers given authority by the board of directors to implement the policies it has laid down in the conduct of the business of the corporation.

Nonexecutive director

- a director who does not perform any work related to the operations of the corporation.

Off-balance sheet accounting

- the practice of not reflecting an asset and/or a liability on the financial statements.

Organisation for Economic Co-operation and Development (OECD)

- inter-governmental entity founded in 1961 intended to stimulate economic growth through the formulation of policies for "better lives”.

Publicly-listed company

- a company whose shares of stock are traded in the stock market such as the Philippine Stock Exchange.

Sarbanes-Oxley Act

- a corporate governance regulation passed in the United States requiring the strengthening of corporate governance structures among corporate issuers, stricter regulation of the auditing profession, and assessment of internal controls over financial reporting among others.

Special-purpose entity

- an entity created for a narrow and specific business objective; for instance, an SPE is created simply for the purpose of obtaining finance.

Stakeholders

- any individual, organization, or society at large who can either affect and/or be affected by the company's strategies, policies, business decisions, and operations in general. This includes, among others, customers, creditors, employees, suppliers, investors, as well as the government and community in which it operates.

Stakeholder theory

- states that the corporation exists not only for the benefit of the stockholders but also for the benefit and protection of the other stakeholders such as employees, creditors, suppliers, government, and the society in general.

Stockholder theory

- theory stating that the corporation exists for the benefit of the shareholders or stockholders.

Short-termism

- a term that connotes actions of corporate managers intended to increase short-term profits only.

White knight

- a "friendly" investor that purchases a target company at a fair price and with the support of existing management and directors.