Question 1

Which of the following is a criticism of the Sarbanes-Oxley Act?

Accepted Answer

One of the most significant criticisms of the Sarbanes-Oxley Act is that it imposes extraordinary financial costs on the firms; and the costs are apparently even higher than anticipated.

Question 2

Which of the following provisions of the Sarbanes-Oxley Act requires lawyers to report concerns of wrongdoing if not addressed?

Accepted Answer

Section 307 of the Sarbanes-Oxley Act addresses rules of professional responsibility for attorneys and requires lawyers to report concerns of wrongdoing if not addressed.

Question 3

Which of the following gatekeepers guarantee that executives act on behalf of the stockholders' interests?

Accepted Answer

Boards function as intermediaries between a company's stockholders and its executives and should guarantee that executives act on behalf of the stockholders' interests.

Question 4

A ____ exists where a person holds a position of trust that requires that he exercise judgment on behalf of others, but where his personal interests conflict with those of others.

Accepted Answer

The most basic ethical issue facing professional gatekeepers and intermediaries in business contexts involves conflicts of interest. A conflict of interest exists where a person holds a position of trust that requires that she or he exercise judgment on behalf of others, but where her or his personal interests and/or obligations conflict with those of others.

Question 5

Section 406 of the Sarbanes-Oxley Act addresses the:

Accepted Answer

Section 406 of the Sarbanes-Oxley Act deals with the codes of ethics for senior financial officers.

Question 6

Identify the gatekeepers who function as intermediaries between a company's stockholders and its executives.

Accepted Answer

Boards function as intermediaries between a company's stockholders and its executives and should guarantee that executives act on behalf of the stockholders' interests.

Question 7

Which of the following elements of COSO sets the tone or culture of a firm?

Accepted Answer

The element of control environment sets the tone or culture of a firm-"the control environment sets the tone of an organization, influencing the control consciousness of its people."

Question 8

Identify the external mechanism that seeks to ensure ethical corporate governance.

Accepted Answer

The Sarbanes-Oxley Act is an external mechanism that seeks to ensure ethical corporate governance.

Question 9

Which of the following statements is true of the Committee of Sponsoring Organizations?

Accepted Answer

COSO is a voluntary collaboration designed to improve financial reporting through a combination of controls and governance standards called the Internal Control-Integrated Framework. COSO describes "control" as encompassing "those elements of an organization that, taken together, support people in the achievement of the organization's objectives."

Question 10

_____ of the Sarbanes-Oxley Act addresses the disclosure of audit committee financial expert.

Accepted Answer

Section 407 of the Sarbanes-Oxley Act addresses the disclosure of audit committee financial expert (requires that they actually have an expert).

Question 11

Section 307 of the Sarbanes-Oxley Act addresses the:

Accepted Answer

Section 307 of the Sarbanes-Oxley Act deals with rules of professional responsibility for attorneys (requires lawyers to report concerns of wrongdoing if not addressed).

Question 12

Section 201 of the Sarbanes-Oxley Act addresses the:

Accepted Answer

Section 201 of the Sarbanes-Oxley Act addresses services outside the scope of auditors (prohibits various forms of professional services that are determined to be consulting rather than auditing).

Question 13

A professional is said to have _____ if he has a professional and ethical obligation to clients rooted in trust that overrides his personal interests.

Accepted Answer

Conflicts of interest can arise when a person's ethical obligations in her or his professional duties clash with personal interests. Such professionals are said to have fiduciary duties-a professional and ethical obligation-to their clients, duties that override their own personal interests.

Question 14

Which of the following is an internal mechanism that seeks to ensure ethical corporate governance?

Accepted Answer

The Committee of Sponsoring Organizations (COSO) is an internal mechanism that seeks to ensure ethical corporate governance.

Question 15

Which of the following statements is true of the Sarbanes-Oxley Act?

Accepted Answer

Because reliance on corporate boards to police themselves did not seem to be working, Congress passed the Public Accounting Reform and Investor Protection Act of 2002, commonly known as the Sarbanes-Oxley Act, which is enforced by the Securities and Exchange Commission (SEC). It seeks to provide oversight in terms of direct lines of accountability and responsibility.

Question 16

Which of the following statements is true of conflicts of interests?

Accepted Answer

Self-interest can make it difficult for individuals to fulfill their gatekeeper duties. Perhaps legal protection or sanctions ought to be created to shield professionals from conflicts of interests. Critics argue that extraordinary executive compensation and conflicts within the accounting and financial industries have created an environment where the watchdogs have little ability to prevent harm.

Question 17

Which of the following provisions of the Sarbanes-Oxley Act mandates majority of independents on any board and total absence of current or prior business relationships?

Accepted Answer

Section 301 of the Sarbanes-Oxley Act deals with public company audit committees (requires independence), mandating majority of independents on any board (and all on audit committee) and total absence of current or prior business relationships.

Question 18

Section 404 of the Sarbanes-Oxley Act addresses the:

Accepted Answer

Section 404 of the Sarbanes-Oxley Act addresses the management assessment of internal controls. It requires that management file an internal control report with its annual report each year in order to delineate how management has established and maintained effective internal controls over financial reporting.

Question 19

Which of the following elements of COSO refers to policies and procedures that support the cultural issues such as integrity, ethical values, competence, philosophy, and operating style?

Accepted Answer

Control activities of COSO deals with policies and procedures that support the control environment. The control environment refers to cultural issues such as integrity, ethical values, competence, philosophy, and operating style.

Question 20

Which provision of the Sarbanes-Oxley Act prohibits various forms of professional services that are determined to be consulting rather than auditing?

Accepted Answer

Section 201of the Sarbanes-Oxley Act prohibits services outside the scope of auditors-it prohibits various forms of professional services that are determined to be consulting rather than auditing.

Quiz 10: Ethical Decision Making: Corporate Governance, Accounting, and Finance