Deck 2: Corporate Governance and Audits

Question 1

It is effective for a board to take a "check the box" mentality when implementing and complying with governance mandates and best practices.

Answer 1

False

Question 2

The auditor must communicate significant audit adjustments to the audit committee.

Answer 2

True

Question 3

The external auditor has the primary responsibility for creating a culture of performance with integrity and ethical behavior within the client's organization.

Answer 3

False

Question 4

The Public Company Accounting Oversight Board (PCAOB)set standards for audits of private and public companies.

Question 5

Since the board is responsible to protect the interest of the shareholders,independence is not a necessary attribute for board members.

Question 6

Any major disagreement the auditor has with management should be discussed with the audit committee.

Question 7

The audit committee is a subcommittee of the board of directors comprised of independent outside directors.

Question 8

Governance failures over the past decade were primarily limited to the United States.

Question 9

The Sarbanes-Oxley Act prohibits auditors from performing consulting services for their audit clients.

Question 10

The board's fundamental objective should be to build a system of internal controls that will ensure the financial statements are free from all error.

Question 11

Management can influence who sits on the board and the audit committee as well as other governance controls that might be put into place.

Question 12

The first decade of the twenty-first century has seen more changes in corporate governance than at any time since the Great Depression.

Question 13

Corporate governance is a process by which the owners,but not the creditors,exert control over the resources of the enterprise.

Question 14

Board of directors that did not spend sufficient time or have sufficient expertise to perform duties led to corporate governance failures.

Question 15

A commission sponsored by the New York Stock Exchange issued a report in 2010 indicating that successful governance depends heavily upon honest,competent,and industrious managers.

Question 16

Companies must strike the right balance in the appointment of independent and non-independent directors to ensure an appropriate range and mix of expertise,diversity,and knowledge on the board.

Question 17

Financial transparency relates to how well resources are protected and managed by the company and its management.

Question 18

An important aspect of governance is the independentjudgment of boards about what is in the best interests of the company and its shareholders.

Question 19

Managers of organizations are hired by Boards of Directors to perform responsibilities such as the implementation of internal control.

Question 20

The objective of financial reporting is to provide useful information to interested users.

Question 21

The Sarbanes-Oxley Act requires partners or managers significantly participating in audits to rotate off the engagement every five years.

Question 22

The nominating committee is a standing committee of the board of directors whose purpose is to oversee the accounting and financial reporting processes of the company and the financial statement audits.

Question 23

Audit committees are motivated to make sure the auditors do their job,because poor performance on the part of the auditors will directly reflect on the performance of the audit committee members.

Question 24

When operating effectively the audit committee may replace the processes performed by the external auditors.

Question 25

A survey of audit committee members conducted by KPMG in 2010 indicated that,on average,companies hold 12 audit committee meetings annually.

Question 26

The audit committee relies on the internal and external auditors to develop and communicate objective information needed by the audit committee to effectively perform its oversight functions.

Question 27

Management of companies should have the ability to hire and fire the external auditor.

Question 28

In order to safeguard independence of the firm,partners and managers of public accounting firms must go through a cooling off period prior to taking a high level position of employment with a public client company.

Question 29

The audit committee should have the authority to hire and fire the external auditors.

Question 30

The Sarbanes-Oxley Act requires that public companies report on internal financial controls.

Question 31

The Public Company Accounting Oversight Board has five members,all of which must be CPAs.

Question 32

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 replaces the requirements of the Sarbanes-Oxley Act of 2002 for financial sector companies.

Question 33

The audit committee typically would not review the Management Discussion and Analysis section of the annual report filed with the SEC since that section of the report is the responsibility of management and includes forward looking statements.

Question 34

An auditor is required to communicate new accounting principles adopted by the organization to the audit committee.

Question 35

The Sarbanes-Oxley Act makes the audit committee the client of the external audit firm.

Question 36

The Public Company Accounting Oversight Board has the power of performing inspection of public accounting firms to determine their performance and check for improvements if any.

Question 37

The Sarbanes-Oxley Act includes provisions requiring the auditor and the management to certify the financial statements and its disclosures and quality of internal controls.

Question 38

For public companies,the audit committee must be composed of outside directors who are also all financial experts.

Question 39

The audit committee must be composed of outsiders such as the organization's attorney and audit partner.

Question 40

The audit committee will receive feedback from both the internal and external auditors on a number of issues including the quality of internal controls over financial reporting.

Question 41

The audit committee should meet in separate executive sessions with management,the external auditor,the internal auditor,legal counsel,and other advisors.

Question 42

The audit committee is responsible for ensuring that management designs and implements sound internal control,which is essential for reliable financial reporting for any organization.

Question 43

Stockholders require accountability from management for:

A)financial performance
B)financial transparency
C)quality of internal controls
D)all of the above

Question 44

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 was enacted in response to the financial crisis of 2008 and 2009 and included the following corporate governance requirement(s):

A)Mandates enhanced stock exchange listing standards on compensation committee independence
B)Requires the external auditors report to the audit committee
C)Mandates that at least one member of the audit committee be a financial expert
D)All of the above

Question 45

The board should not consider limiting the number of years an individual can serve on the audit committee since the more an audit committee member understands the company the more effective that member will be able to perform the required duties.

Question 46

At least half of the members of an audit committee should be composed of independent directors.

Question 47

The American Institute of Certified Public Accountants no longer retains the right to set audit standards for public companies as the Securities Exchange Commission has relinquished such power.

Question 48

The audit committee has oversight responsibilities for:

A)outside reporting.
B)internal auditing.
C)external auditing.
D)all of the above.

Question 49

The Public Company Accounting Oversight Board obtains its authority to set audit standards for public companies from the U.S.Congress.

Question 50

Corporate governance is a process by which the owners and creditors of an organization

A)exert control.
B)require accountability.
C)exert control and require accountability.
D)neither exert control nor require accountability.

Question 51

According to SAS 61,auditors are required to inform the audit committee of any significant audit adjustments discovered during the engagement.

Question 52

The audit committee must be assured that the auditor is free of any restrictions and has not been influenced by management during the course of the audit.

Question 53

Governance demands accountability back through the system to the:

A)shareholders
B)audit committee
C)management
D)all of the above

Question 54

The purpose of the audit committee is to oversee all aspects of the financial reporting process,including preparation and filing of financial statements,internal control over financial reporting,and related risks.

Question 55

The audit client of the CPA firm is:

A)management.
B)the SEC.
C)the audit committee.
D)the stockholders.

Question 56

Recent academic research shows that companies with good corporate governance have higher return on equity than other companies.

Question 57

Section 304 of the Sarbanes-Oxley Act requires executives to forfeit any bonus or incentive-based pay or profits (including stock options)from the sale of stock received in the twelve months prior to an earnings restatement.This is often referred to as:

A)claw back provision
B)give back provision
C)restatement provision
D)fraud provision

Question 58

The chief (internal)audit executive should have direct reporting access to the audit committee,and the committee should oversee the activities and budget of the internal audit function.

Question 59

The responsibility for operating an enterprise is delegated to the:

A)auditor.
B)audit committee.
C)management.
D)board of directors.

Question 60

Which of the following should be communicated by the auditor to the audit committee?

A)auditor's responsibilities under GAAP.
B)all significant audit adjustments.
C)significant accounting policies.
D)all are required communications.

Question 61

It is expected that the external auditor report the following to the audit committee except:

A)critical accounting policies and practices used by management
B)materiality methodology and thresholds used by the auditor
C)material alternative GAAP treatments that have been discussed with management
D)material written communications between the auditor and management

Question 62

Specific activities performed by regulatory agencies such as the SEC include the following except:

A)reviewing of filings
B)interacting with the FASB in setting accounting standards
C)auditing the financial statements to express an opinion
D)all of the above are performed

Question 63

Management of an organization has the responsibility for all of the following except:

A)accounting principles used in financial reporting
B)engagement of a qualified auditor
C)internal control over financial reporting
D)financial statements and disclosures

Question 64

The Sarbanes-Oxley Act of 2002 requires management of public companies to:

A)certify the accuracy of financial statements.
B)establish a corporate code of conduct.
C)take accountability for restated earnings.
D)all of the above

Question 65

The Public Oversight Board issued a report citing concerns with the audit process.These concerns included all of the following except:

A)analytical procedures were being used inappropriately to replace direct tests of account balances
B)audit documentation,especially related to the planning of the audit,was not in compliance with professional standards
C)auditors were ignoring warning signals of fraud and other problems
D)all of the above were cited

Question 66

Specific activities performed by management include the following except:

A)formulating strategy and risk management
B)implementing effective internal controls
C)hiring of the external auditors
D)all of the above are performed

Question 67

The PCAOB has the authority to do all of the following except:

A)perform peer reviews on public accounting firms
B)establish quality control standards for auditors of public companies
C)take responsibility for an organization's financial statements
D)set audit standards

Question 68

An audit committee must be comprised of outside directors and at least one outside financial expert.Which of the following is considered an outside director?

A)A director who is not a member of management and has no other relationship to the organization.
B)A consultant to the organization who works as an honorary member of the board.
C)A director who is also a member of management and has no other relationship to the company.
D)A director who is a CPA and CIO of an affiliated organization.

Question 69

Which of the following members of the board of directors of McKeever Corporation is most qualified serve on McKeever's audit committee?

A)Jon Adams,internal auditor of McKeever Corporation
B)Megan Wiley,attorney to McKeever Corporation
C)Karen Jones,consultant to McKeever Corporation
D)None of the above should serve on the audit committee of McKeever Corporation

Question 70

The board's fundamental objective should be to:

A)ensure the financial statements are free from all error
B)ensure management's interests are properly reflected in the strategy of the company
C)build long-term sustainable growth in shareholder value for the corporation
D)none of the above

Question 71

Governance failures over the past decade related to the external auditor included all of the following except:

A)failure of the external audio to implement proper internal controls in the financial systems of their clients
B)promotion of personnel based on ability to sell non-audit products
C)replacement of direct tests of accounting balances with inquiries,risk analysis,and analytics
D)all of the above are failures

Question 72

Governance failures over the past decade related to the stockholders included all of the following except:

A)focus on short-term prices
B)failure to perform long-term growth analysis
C)abdication of most responsibilities to management and analysts as long as stock price increased
D)all of the above are failures

Question 73

Which of the following board of directors of Robbins Corporation should not serve on the audit committee?

A)John Williams,professor at the University of Kalamazoo
B)Tyrone Marks,treasurer of Robbins Corporation
C)Stacy Bobbitt,member of the board of directors of the First National Bank and Trust
D)Jill Cemoss,chairman of the board of Big Brothers and Sisters,a non-profit organization

Question 74

Which group is responsible for ensuring that the organization is run according to the organization's charter and that there is proper accountability?

A)regulatory agencies such as the SEC
B)external auditors
C)board of directors
D)internal auditors

Question 75

Which one of the following will provide auditing standards of public companies?

A)GAO
B)AICPA
C)GAAP
D)PCAOB

Question 76

All of the following groups have responsibility for ensuring proper corporate governance except:

A)stockholders
B)board of directors
C)regulatory agencies
D)all of the above have responsibility

Question 77

A commission sponsored by the New York Stock Exchange issued a report in 2010 indicating that successful governance depends heavily upon:

A)honest managers
B)competent managers
C)industrious managers
D)all of the above

Question 78

The audit committee's primary responsibilities related to the financial reporting process include:

A)providing oversight of the accounting and financial reporting processes
B)appointing,compensating,and overseeing the external auditor
C)ensuring that the board establishes a whistleblower program
D)all of the above

Question 79

Specific activities performed by external auditors include(s):

A)preparation of client financial statements in conformity with GAAP
B)services such as audit,tax or consulting
C)creating and specifying independence standards
D)all of the above are performed

Question 80

The corporate governance responsibilities of management include:

A)establishing risk management processes
B)establishing proper internal controls
C)requiring high ethical standards
D)all of the above