Master List of Key Terms
Master List of Key Terms
Corporate accountability reporting
Corporate-issued reports which provide information about the governance, economic, ethical, social, and environmental performance of an entity.
Norms, standards, and behavior existing within a company that are developed over time and are derived from shared values.
Individuals responsible for aligning management interests with those of long-term shareholders and protecting investors from misleading financial information such as directors, auditors, and legal counsel.
The process affected by a set of legislative, regulatory, legal, market mechanisms, listing standards, and best practices with the goal of creating sustainable value for shareholders while protecting the interests of other stakeholders.
The behavior of individuals and the organization’s commitment to conduct their activities in an honorable manner.
Federal sentencing guidelines
Rules that set out a uniform sentencing policy for convicted defendants in the United States federal court system.
Generally Accepted Accounting Principles (GAAP)
The common set of accounting principles, standards, and procedures that companies use to measure, classify, and recognize business transactions and prepare their financial statements.
Rules and regulations that public companies must meet to remain listed and be traded on an individual stock exchange.
Multiple bottom lines (MBL)
Measuring and reporting an organization’s economic, governance, social, ethical, and environmental performance.
Public Company Accounting Oversight Board (PCAOB)
Private-sector, nonprofit corporation, created by the Sarbanes-Oxley Act of 2002, to oversee the auditors of public companies in order to protect the interests of investors and further public interest in the preparation of informative, fair, and independent audit reports.
Sarbanes-Oxley Act of 2002 (SOX)
Bill signed into law by Congress July 30, 2002, that was designed to reinforce corporate accountability and restore investor confidence in public financial reports.
Securities Act of 1933
“Truth in securities” law requiring that investors receive financial and other significant information concerning securities being offered for public sale and prohibiting deceit, misrepresentations, and other fraud in the sale of securities.
Securities Exchange Act of 1934
A federal law to protect investors from receiving misleading financial information.
Securities and Exchange Commission (SEC)
Created by the Securities Exchange Act of 1934 with the mission to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.
The effects of the organization’s activities and behavior on its stakeholders including society, the environment, competitors, suppliers, customers, employees, directors, officers, and other profit-oriented and not-for-profit organizations.
Corporate governance effectiveness
The extent to which the company’s corporate governance is achieving its objectives.
Corporate governance rating
Ratings metrics or systems that gather, analyze, rank, and compare corporate governance practices of public companies.
External governance mechanisms
External operations that are designed to monitor the company’s activities, affairs, and performance to ensure that the interests of management, directors, and officers are aligned with the interests of shareholders and other stakeholders.
Focuses on both shareholder value creation and enhancement and stakeholder value protection.
Internal governance mechanisms
Internal operations that are designed to manage, direct, and monitor corporate activities.
Supervision of management by the board of directors to maintain the best interests of the company and its shareholders.
Typical board structure, best defined as the U.S. board structure where the board of directors appoints management and oversees its activities.
Another term for compensation.
Individual or group who is an owner of the corporation through investment and, traditionally, the primary users of the company’s financial reports.
Concept that the corporation exists for the benefit of shareholders, and therefore, emphasizes shareholder value creation and enhancement as the primary objective of corporations.
Individual or group that has an interest in the decisions, operations, and performance of a company, and who has input in those decisions. Stakeholders include: investors, creditors, suppliers, customers, employees, governments, regulators, standard-setters, competitors, and any other interest groups or users of the organization’s financial reports.
Premise that a company’s success depends on the contributions of investors and other key groups and how well it manages the relationships with those groups which consist of shareholders, creditors, employees, supplies, customers, and communities.
Openness and understandability of the company’s disclosures to both internal and external audiences.
The study and evaluation of decision making by businesses according to moral concepts and judgments.
Code of ethics
A written system of standards for ethical conduct.
Committee of Sponsoring Organizations of the Treadway Commission (COSO)
A U.S. private-sector initiative, formed in 1985 to identify the factors that cause fraudulent financial reporting and to make recommendations to reduce its incidence.
A not-for-profit research organization for businesses that distributes information about management and the marketplace.
Defense Industry Initiatives on Business Ethics and Conduct
Established in 1986 to adopt and implement a set of business ethics and conduct principles.
The process of recognizing ethical issues, considering all alternative courses of action, referring to ethical incentives to guide the best actions, evaluating the consequences of ethical decisions, and proceeding with confidence.
Rewards, punishments, and requirements for behaving ethically or unethically.
The moral principles, workplace factors, gamesmanship, loyalty, peer pressure, and job security that influence one’s ethical decisions and are derived from the organization’s ethical culture.
Audit committee financial expert
Person who has an understanding of generally accepted accounting principles and financial statements; experience applying generally accepted accounting principles; experience preparing or auditing financial statements; experience with internal controls and procedures for financial reporting; and an understanding of audit committee functions.
Business Judgment Rule
Concept in corporation law whereby a court will refuse to review the actions of a corporation’s board of directors in managing the corporation unless there is some allegation of conduct that: (1) violates the directors’: (a) duty of care, (b) duty of loyalty, or (c) duty of good faith; or (2) the decisions of the directors lack a rational basis.
When the company’s CEO holds both the position of chief executive and the chair of the board of directors.
Insurance payable to the directors and officers a company if they get sued for something that happened while they were with that company.
Duty of care
Requires directors to exercise due diligence and prudence in carrying out their oversight function.
Duty of fair disclosures
Requires directors to ensure fair disclosures of the company’s financial reports. Duty of loyalty
Requires directors to act in good faith and refrain from activities that put their own interests ahead of the interests of the company.
Duty of obedience
Requires directors to act within the scope of the powers of the company, as specified in its charter and bylaws or as defined by the laws of the state of incorporation.
As shareholder’s guardians, directors are trustworthy, acting in the best interest of shareholders, and investors in turn have confidence in the directors’ actions.
A director should not having any other relationships with the company other than his or her directorship that may compromise the director’s objectivity and loyalty to the company’s shareholders.
Director position that is utilized in CEO duality situations in order to keep the board objective and independent of management.
National Association of Corporate Directors (NACD)
National nonprofit membership organization dedicated exclusively to serving the corporate governance needs of corporate boards and individual board members.
One-tier board model
Board structure consisting of both inside (executive) directors and outside (nonexecutive) directors with equal authority and influence.
Election of only a portion of the board each year.
Two-tier board model
Director system, consisting of a supervisory board and management board, that establishes different authorities and responsibilities for members of each board.
A committee composed of independent, nonexecutive directors charged with the oversight functions of ensuring responsible corporate governance, a reliable financial reporting process, an effective internal control structure, a credible audit function, an informed whistleblower complaint process, and an appropriate code of business ethics with the purpose of creating long-term shareholder value while protecting the interests of other stakeholders.
Board committee formed to implement and support the oversight function of the board particularly in areas relevant to the design, review, and the implementation of the directors’ and executives’ evaluation and compensation schemes.
Enterprise risk management
A process, effected by an entity’s board of directors, management, and other personnel, applied in strategy setting and to the whole enterprise, designed to identify potential events that may affect the entity, manage risk to be within its risk appetite, and provide reasonable assurance regarding the achievement of entity objectives.
Board committee consisting of both executive and nonexecutive directors established to advise, review, and approve management strategic plans, decisions, and actions in managing the company.
Independent board committee composed of at least three independent directors formed to implement and support the oversight function of the board pertaining to the recommendation, nomination, and election activities of directors.
Independent board committees formed to assist the board in carrying out strategic and oversight functions including financing, budgeting, investment, risk management and mergers and acquisitions.
Board committee composed of both executive and nonexecutive directors charged with advising and approving management strategic plans, decisions, and actions, with members of the board serving only on the governance or other special board committees.
Planning process designed to ensure proper planning for orderly succession to the company’s board and other senior executive positions.
Tone at the top
Defines the corporate culture and promotes ethical conduct, lawful behavior, professional accountability, and personal integrity throughout the organization, led by the CEO with the main goal of creating long-term shareholder value.
Employee, former employee, or member of an organization who reports misconduct to people or entities that have the power to take corrective action.
Chief audit executive (CAE)
Any individual employed as the highest-level internal auditor in an organization or major business segment. The CAE must report either directly or indirectly to a senior management executive or oversight function, such as an audit committee.
Chief risk officer (CRO)
Executive in charge of assessing and planning for potential risks in the various segments of a given business model, such as computer security, compliance, and lawsuits, to minimize the firm’s liability and related management costs.
Corporate development officer (CDO)
Role of an individual with the responsibility, visibility, and accountability for the creation and execution of the transaction strategy throughout all phases of the transaction lifecycle.
Enterprise risk management (ERM)
The methods and processes used to manage risks, identify events, and assess circumstances that can have negative influence on the enterprise’s sustainable performance.
Extensible business reporting language (XBRL)
Language for the electronic communication of business and financial data capturing financial information throughout business information processes that will eventually be reported to shareholders, banks, regulators, and other parties.
Financial Accounting Standards Board (FASB)
The designated organization in the private sector for establishing and improving standards of financial accounting and reporting in the United States.
Institute of Internal Auditors Research Foundation
An international professional association recognized as the internal audit profession’s leader in certification, education, research, and technological guidance.
International Accounting Standards Board (IASB)
Independent, privately funded accounting standard setter committed to developing, in the public interest, a single set of high-quality, understandable, and enforceable global accounting standards that require transparent and comparable information in general purpose financial statements. Founded on April 1, 2001, responsible for setting International Financial Reporting Standards (IFRS).
International Financial Reporting Standards (IFRS)
A set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements.
Joint Committee on Taxation
A committee of the U.S. Congress established under the Internal Revenue Code to investigate the operation, effects, and administration of internal revenue taxes; investigate measures and methods for the simplification of taxes; make reports on the results of those investigations and studies; and make recommendations and review any proposed refund or credit of taxes in excess of $2,000,000.
Other postemployment benefits (OPEB)
Other than pension benefits, OPEB consist primarily of healthcare benefits, and may include other benefits such as life insurance, long-term care, and similar benefits.
Legal method of minimizing or decreasing taxable income and, therefore, tax liability. Tax shelters can range from investments or investment accounts that provide favorable tax treatment, to activities or transactions that lower taxable income. The most common type of tax shelter is an employer-sponsored 401(k) plan.
Accounting and Auditing Enforcement Releases (AAERS)
Releases concerning accounting and auditing enforcement published by the SEC’s Division of Enforcement.
Accounting Regulatory Committee (ARC)
Committee composed of representatives from European Union member states and chaired by the European Commission, providing an opinion on European Commission proposals to adopt (endorse) an international accounting standard as envisaged under Article 3 of the IAS regulation.
Administrative law judges
Professional hearing officer who works for the government to preside over hearings and appeals involving governmental agencies.
American Bar Association (ABA)
The largest voluntary professional association in the world with more than 400,000 members, providing law school accreditation, continuing legal education, information about the law, programs to assist lawyers and judges in their work, and initiatives to improve the legal system for the public.
American Institute of Certified Public Accountants (AICPA)
The CPA professional organization in the United States. The AICPA’s mission is to promote and protect the profession of accounting.
Those who argue that a corporation is not a typical contract subject to extensive government regulation and view the corporation as a concession of the state.
Any period of more than three consecutive trading days during which the ability of at least 50 percent of the participants or beneficiaries of the company’s account plans to trade (purchase, sell, acquire, or transfer) any equity security of the plans is temporarily suspended by the company or by a fiduciary of the plans.
California Public Employees’ Retirement System (CalPERS)
Provides pension fund and other retirement services for 1.4 million California public employees and is the largest pension fund in the United States.
Committee of European Securities Regulators (CESR)
An independent committee of European Securities Regulators, established in 2001, to ensure efficient and effective functioning of the European capital market.
Those who are skeptical of the possibility of grounding morality or political authority in either divine will or some perfectionist ideal of the nature of humanity.
Council of Institutional Investors (CII)
The Council of Institutional Investors is an organization of large public, labor, and corporate pension funds that seeks to address investment issues that affect the size or security of plan assets and to encourage member funds, as major shareholders, to take an active role in protecting plan assets and to help members increase return on their investments as part of their fiduciary obligations.
European Financial Reporting Advisory Group (EFRAG)
The European Financial Reporting Advisory Group is the technical expert group providing technical endorsement advice to the European Commission and the Accounting Regulatory Committee (ARC).
The common set of accounting principles, standards, and procedures that companies use to compile their financial statements. GAAP are a combination of authoritative standards (set by policy boards) and simply the commonly accepted ways of recording and reporting accounting information.
A set of systematic guidelines used by auditors when conducting audits on companies’ finances, ensuring the accuracy, consistency, and verifiability of auditors’ actions and reports.
Government Accounting Standards Board (GASB)
Establishes financial accounting and reporting standards for state and local government entities.
International Accounting Standards Board (IASB)
Independent, privately funded accounting standard setter based in London that establishes accounting standards in providing guidance on how particular types of transactions and other events should be reflected in financial statements.
Investment Protection Principles (IPPs)
Principles established to protect investors by regulating broker dealers and investment managers.
Investor Task Force
Advisory resource that will provide the Financial Accounting Standards Board with sector-specific insight and expertise from the professional investment community on relevant accounting issues.
Office of Risk Assessment
Office established by the SEC to assist the commission in better anticipating, finding, and mitigating areas of significant financial risk and potential fraud.