For each situation, indicate whether it is indicative of poor corporate governance. Explain the reasoning for your assessment. The company is in the financial services sector and has a large number of consumer loans, including mortgages, outstanding. b. The CEO's and CFO's compensation is based on three components: (a) base salary, (b) bonus based on growth in assets and profits, and (c) significant stock options. a c. The audit committee meets semiannually. It is chaired by a retired CFO who knows the company well because she had served as the CFO of division of the firm. The other two members are local community members one is the president of the Chamber of Commerce and the other is a retired executive from a successful local manufacturing firm. d. The company has an internal auditor who reports directly to the CFO and makes an annual report to the audit committee. e. The CEO is a dominating personality - not unusual in this environment. He has been on the job for six months and has decreed that he is streamlining the organization to reduce costs and centralize authority (most of it in him). f. The company has a loan committee. It meets quarterly to approve, on an ex-post basis, all loans over P300 million (top 5% for this institution). g. The previous auditor has resigned because of a dispute regarding the accounting treatment and fair value assessment of some of the loans.
For each situation, indicate whether it is indicative of poor corporate governance. Explain the reasoning for your assessment. The company is in the financial services sector and has a large number of consumer loans, including mortgages, outstanding. b. The CEO's and CFO's compensation is based on three components: (a) base salary, (b) bonus based on growth in assets and profits, and (c) significant stock options. a c. The audit committee meets semiannually. It is chaired by a retired CFO who knows the company well because she had served as the CFO of division of the firm. The other two members are local community members one is the president of the Chamber of Commerce and the other is a retired executive from a successful local manufacturing firm. d. The company has an internal auditor who reports directly to the CFO and makes an annual report to the audit committee. e. The CEO is a dominating personality - not unusual in this environment. He has been on the job for six months and has decreed that he is streamlining the organization to reduce costs and centralize authority (most of it in him). f. The company has a loan committee. It meets quarterly to approve, on an ex-post basis, all loans over P300 million (top 5% for this institution). g. The previous auditor has resigned because of a dispute regarding the accounting treatment and fair value assessment of some of the loans.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Problem 1
For each situation, indicate whether it is indicative of poor corporate
governance. Explain the reasoning for your assessment.
a.
The company is in the financial services sector and has a large number of
consumer loans, including mortgages, outstanding.
b. The CEO's and CFO's compensation is based on three components: (a)
assets and profits, and (c)
base salary, (b) bonus based on growth
significant stock options.
c. The audit committee meets semiannually. It is chaired by a retired CFO
who knows the company well because she had served as the CFO of a
division of the firm. The other two members are local community
members - one is the president of the Chamber of Commerce and the
other is a retired executive from a successful local manufacturing firm.
d. The company has an internal auditor who reports directly to the CFO and
makes an annual report to the audit committee.
e.
The CEO is a dominating personality - not unusual in this environment.
He has been on the job for six months and has decreed that he is
streamlining the organization to reduce costs and centralize authority
(most of it in him).
f.
The company has a loan committee. It meets quarterly to approve, on an
ex-post basis, all loans over P300 million (top 5% for this institution).
g. The previous auditor has resigned because of a dispute regarding the
accounting treatment and fair value assessment of some of the loans.
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