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1According to COSO, an effective approach to monitoring internal control involves each of the following steps, except: a
- A.Designing and executing monitoring procedures that are prioritized based on risks to achieve organizational objectives.
- B.Assessing and reporting the results, including following up on corrective action where necessary.
- CEstablishing a foundation for monitoring
- D.Increasing the reliability of financial reporting and compliance with applicable laws and regulations.
2A member of the board of directors of Central Communications Co. is offered a license by a third party to operate a cellular phone system. The director does not present this offer to the board of directors for approval but informally mentions it to a fellow board member, who does not think it will be a problem. The director buys the license. Which of the following statements is correct regarding the director's actions?
- A.The director breached a duty of care by failing to use prudent business judgment.
- B.The director breached the duty of due diligence.
- C.The director breached a duty of loyalty by usurping a corporate opportunity.
- DThe director acted properly in purchasing the license.
3The Enterprise Risk Management-Integrated Framework of the committee of sponsoring organizations (COSO) is best defined as a: a.
- ASerial process in which one component affects only the next component.
- B.Process that replaces the COSO internal control framework.
- C.Process effected by an entity's board of directors, management, and other personnel.
- D.Process that takes a control-based approach to an organization.
4According to the Committee of Sponsoring Organizations (COSO) of the Treadway Commission, which of the following components of enterprise risk management addresses an entity's assignment of authority and responsibility?
- AMonitoring.
- BInformation and communication.
- CControl activities.
- DInternal environment.
5According to the Committee of Sponsoring Organizations (COSO) of the Treadway Commission, which of the following components of enterprise risk management addresses an entity's reporting deficiencies?
- AControl activities.
- BEvent identification.
- CMonitoring
- DInternal environment.
6According to the Committee of Sponsoring Organizations (COSO) of the Treadway Commission, which of the following components of the internal control integrated framework addresses an entity's timely reporting of identified internal control deficiencies?
- AMonitoring.
- BControl environment.
- CInformation and communication.
- DControl activities.
7A company that retains a CPA with the appropriate knowledge, skills and abilities to prepare timely and effective financial reporting is applying the ideas from which principle of effective internal control over financial reporting?
- AIntegrity and ethical values
- BFinancial reporting competencies.
- CManagement philosophy and operating style.
- DAccountability.
8According to the Sarbanes-Oxley Act of 2002, which of the following statements is correct regarding an issuer's audit committee financial expert?
- AThe issuer must fill the role with an individual who has experience in the issuer's industry
- BThe audit committee financial expert must be the issuer's audit committee chairperson to enhance internal control.
- CIf an issuer does not have an audit committee financial expert, the issuer must disclose the reason why the role is not filled.
- DThe issuer's current outside CPA firm's audit partner must be the audit committee financial expert.
9The Sarbanes-Oxley Act of 2002 was enacted in response to corporate scandals that largely centered on the quality of corporate financial disclosure and highlighted the inadequate oversight of management, auditors and the Board of Directors. The Sarbanes-Oxley Act addresses the problems related to inadequate board oversight by requiring public companies to have an:
- AIndependent Board of Directors.
- BAudit committee.
- CInternal auditor.
- DAnnual audit for all issuers.
10The Sarbanes-Oxley Act of 2002 requires that one or more members of the audit committee be a financial expert and that the financial reports disclose
- AThe name of the Board member(s) serving as financial expert(s).
- B.The existence of financial expert(s) on the audit committee or the reasons why the audit committee does not have a financial expert
- CCertification of independence of the financial expert.
- DConfirmation of the audit opinion by the financial expert.
11The primary benefit of having a financial expert on a company's audit committee is:
- AThe financial expert certifies compliance with SEC requirements and thereby reduces audit fees.
- BThe enhanced level of financial sophistication of the financial expert can serve as a resource for the audit committee.
- CThe financial expert checks the auditor's work and verifies the appropriateness of the audit opinion
- DThe expert designation conveys a higher level of due diligence on the expert and shields audit committee members and the corporation from most liabilities.
12Arnold Astor, CPA, is a local tax practitioner who has been asked to sit on the Board of BigLarge Corporation, a multinational issuer. Astor has never had any involvement either as an employee or as an auditor with publically traded companies but does teach an accounting principles class at the community college. Under the provisions of Sarbanes-Oxley Act of 2002:
- AThe Board of Directors would likely evaluate Astor's qualifications to serve on the audit committee and be designated as a financial expert based on mix of knowledge and experience.
- BAstor qualifies as a financial expert based on achievement of a CPA certificate.
- CAstor must petition the SEC for a waiver of prior experience requirements to be considered a financial expert.
- DThe audit committee would immediately certify Astor's qualifications as a financial expert based on his CPA license and academic experience with GAAP and experience with internal control.
13The Sarbanes-Oxley Act of 2002 requires that the officers of a corporation be held accountable to a code of ethics. According to the Act, codifications of ethical standards should include provisions for all of the following, except:
- AFull, fair, accurate, and timely disclosure in periodic financial statements.
- BPrompt internal reporting of code provisions and accountability for adherence to the code.
- CCompliance with laws, rules and regulations.
- DHonest and ethical conduct.
14The Sarbanes-Oxley Act of 2002 requires that the management report on internal control include all of the following, except:
- AA statement of management's responsibilities for establishing and maintaining adequate internal controls.
- BA statement that there are no disagreements between management and the auditor as to the effectiveness of internal controls.
- CA statement that the auditor has attested and reported on management's evaluation of internal controls.
- DA conclusion about the effectiveness of the company's internal controls.
15The Sarbanes-Oxley Act of 2002 seeks to improve investor confidence by providing greater transparency for all of the following issues, except:
- AMeans and methods for balancing risk and growth.
- BAdequacy of internal controls.
- CCompetency of audit committees.
- DCompliance of senior officers with a code of ethics
16The Gotham Corporation regularly produces budget vs. actual data for its managers. The company is particularly sensitive to personnel costs, and division variances of greater than five percent for any period are promptly investigated to determine if budgeted postions have not been filled or if there has been extraordinary overtime. Timely exception resolution of this character illustrates the information and communication principles typically associated with:
- AInternal Communication.
- BObtain and Use Information.
- CFinancial Reporting Information.
- DExternal Communication.
17The external auditors for the Horace Company assess the achievement of internal control objectives each year and communicate the assessment to management and the Board. Communication by the external auditor illustrates which principle of the information and communication component of the Committee on Sponsoring Organization's Integrated Framework?
- AInternal Control Information.
- BFinancial Reporting Information.
- CInternal Communication.
- DExternal Communication
18The Treadway Commission was established to study factors that lead to fraudulent financial reporting. The Treadway Commission was established by:
- ASarbanes-Oxley Act of 2002.
- BTreadway Foundation.
- CPrivate sponsoring organizations.
- DSecurities and Exchange Commission.
19The Committee on Sponsoring Organizations prepared the Internal Control Integrated Framework:
- ATo compliment the overarching concepts of the enterprise risk management framework.
- BTo help businesses assess internal control.
- CAs part of the Congressional task force known as the Treadway Commission.
- DTo respond to the internal control assessment requirements of the Sarbanes-Oxley Act of 2002
20Able Corporation owns numerous businesses along the coast of Florida. The company's management has identified business interruption events as a potential risk resulting from storm damages caused by hurricanes. Management is so fearful of the possibility of storm damage that they elect to divest the company of virtually all properties on the Florida coast. Able's response to potential risks is known as:
- ASharing.
- BAcceptance.
- CAvoidance.
- DReduction.
21Able Corporation owns numerous businesses along the coast of Florida. The company's management has identified business interruption events as a potential risk resulting from storm damages caused by hurricanes. The company elects to not only insure its properties but to "buy down" standard deductibles with additional premium. Able's response to potential risks is known as:
- AReduction.
- BSharing
- CAvoidance.
- DAcceptance.
22Able Corporation owns numerous businesses along the coast of Florida. The company's management has identified business interruption events as a potential risk resulting from storm damages caused by hurricanes. The company elects to balance its portfolio of risk with property investments on the coast of other states and in Florida's interior. Able's response to potential risks is known as:
- AAvoidance.
- BReduction.
- CSharing.
- DAcceptance
23Able Corporation owns numerous businesses along the coast of Florida. The company's management has identified business interruption events as a potential risk resulting from storm damages caused by hurricanes. The company elects to treat the potential damages from hurricanes as part of their business model. Able's response to potential risks is known as:
- AAcceptance
- BReduction.
- CSharing
- DAvoidance.
24Barker Healthcare Corporation's management is developing their risk assessment as they review plans to expand their nursing home chain into various states in the southeast. The management team has consulted published industry sources to evaluate both population trends and affluence in the region as a means of evaluating both demand, the ability to pay and the risk that populations may either not seek healthcare or may not be able to afford it. Barker's listing of risks from industry sources is a technique for risk assessment known as a(n):
- AQuestionnaire/Survey.
- BFacilitated workshop
- CProcess Flow Analysis.
- DEvent Inventory.
25Kamp Sporting Goods seeks to establish a code of conduct that will communicate the "tone at the top" to all employees. The contents of the code will likely include all of the following, except:
- AProhibitions or limits on gifts and gratuities or establishes required reporting.
- BDefinitions of common sense approaches to software piracy to ensure that the company is competitive.
- CProhibitions against conflicts of interest and self dealing.
- D.Descriptions of the organization's commitment to compliance and confidentiality.
26Management has carefully evaluated the likelihood and impact of events on its foreign operations. In the event of a 3% variation in exchange rate, the impact is estimated at $10 million without any action taken by management and $4 million if the company purchases a hedge instrument. The impact of the inherent risk of changes in foreign currency exchange on achieving company's business objectives is:
- A$ 6 million.
- B$10 million.
- C$ 4 million
- D$14 million.
27Management has carefully evaluated the likelihood and impact of events on its foreign operations. In the event of a 3% variation in exchange rate, the impact is estimated at $10 million without any action taken by management and $4 million if the company purchases a hedge instrument. The impact of the residual risk of changes in foreign currency exchange on achieving company's business objectives is
- A$10 million.
- B$14 million.
- C$ 4 million.
- D$ 6 million.
28Control activities are most closely related to:
- ARisk responses.
- BResidual risks.
- CRisk assessments.
- DInherent risks.
29For the components of Enterprise Risk Management to be functioning effectively, there cannot be:
- AExtraordinary losses.
- BMaterial weaknesses in internal control.
- COperating losses in the last three fiscal periods.
- DReliance on unconsolidated subsidiaries.
30The criteria for evaluating the effectiveness of enterprise risk management are:
- AThe components of the enterprise risk management framework.
- BThe key elements supporting the components of the enterprise risk management framework.
- CThe principles supporting the components of the internal control integrated framework.
- DThe components of the internal control integrated framework.
31According to COSO, which of the following components of enterprise risk management addresses an entity's integrity and ethical values?
- AInternal environment.
- BRisk assessment.
- CControl activities.
- DInformation and communication.
32The Daphne Corporation evaluates employees with responsibilities for financial reporting for fulfillment of those responsibilities for compensation and promotion purposes. The company's policies support the idea that:
- AManagement's philosophy and operating style support achieving effective internal control over financial reporting.
- BManagement and employees are assigned appropriate levels of authority and responsibility to facilitate effective internal control over financial reporting.
- CHuman resources practices should be designed to facilitate effective internal control over financial reporting.
- DThe company's organizational structure supports effective internal control over financial reporting
33In order to comply with a director's duty of loyalty to a corporation, what action(s) should a director take when presented with a corporate opportunity?
- AOffer the opportunity to the corporation and accept it if the corporation rejects it.
- BAccept the opportunity and not offer it to the corporation.
- CReject the opportunity and not offer it to the corporation.
- D.Accept the opportunity and disclose the acceptance to the corporation.
34Each of the following is a limitation of enterprise risk management (ERM), except:
- AERM can provide absolute assurance with respect to objective categories.
- BERM deals with risk, which relates to the future and is inherently uncertain.
- CERM operates at different levels with respect to different objectives.
- DERM is as effective as the people responsible for its functioning.
35A manufacturing firm identified that it would have difficulty sourcing raw materials locally, so it decided to relocate its production facilities. According to COSO, this decision represents which of the following responses to the risk?
- A.Prospect theory.
- BRisk acceptance.
- CRisk sharing.
- DRisk reduction.
36According to COSO, the use of ongoing and separate evaluations to identify and address changes in internal control effectiveness can best be accomplished in which of the following stages of the monitoring-for-change continuum?
- AControl baseline.
- BChange management.
- CControl revalidation/update.
- DChange identification.
37Which of the following is necessary to be an audit committee financial expert according to the criteria specified in the Sarbanes-Oxley Act of 2002?
- AExperience in the preparation of tax returns.
- BExperience with internal accounting controls.
- CA limited understanding of generally accepted auditing standards
- DEducation and experience as a certified financial planner.
38Which of the following positions best describes the nature of the Board of Directors of XYZ Co.'s relationship to the company?
- AFiduciary.
- BExecutive.
- CAgent.
- DRepresentative
39As a matter of policy, all correspondence to or from regulatory auditors received by the management of the Barclay Corporation is provided to the Barclay Corporation audit committee and the corporation's full board as needed. In assessing entity wide controls, management might conclude:
- AManagement's philosophy and operating style support achieving effective internal control over financial reporting.
- BThe Board of Directors understands and exercises oversight responsibility related to financial reporting and related internal control.
- CThe company's organization structure supports effective internal control over financial reporting.
- DManagement and employees are assigned appropriate levels of authority and responsibility to facilitate effective internal control over financial reporting.
40Auburndale Corporation has a corporate compliance program that allows employees the option of anonymously reporting violations of laws, rules, regulations, policies or other issues of abuse through a hotline. Reported issues are reviewed by the internal auditor and either immediately forwarded to the CEO or summarized and reported to the CEO each month. The program also provides opportunities to report through supervisory channels and includes a biannual training class that all employees must complete. The corporate compliance program demonstrates that:
- ASound integrity and ethical values are developed and understood and set the standard of conduct for financial reporting.
- BManagement and employees are assigned appropriate levels of authority and responsibility to facilitate effective internal control over financial reporting.
- CManagement's philosophy and operating style support achieving effective internal control over financial reporting.
- DThe Board of Directors understands and exercises oversight responsibility related to financial reporting and related internal control.
41The Carlton Corporation publishes an Employee Handbook that contains employee responsibilities for moral behavior including a code of conduct. Each year, employees must acknowledge their receipt of the handbook, their understanding of the code, and if they have any awareness of non-compliance within the company. The policies would indicate:
- AManagement and employees are assigned appropriate levels of authority and responsibility to facilitate effective internal control over financial reporting.
- B.Sound integrity and ethical values are developed and understood and set the standard of conduct for financial reporting.
- CManagement's philosophy and operating style support achieving effective internal control over financial reporting.
- DHuman resources practices are designed and implemented to facilitate effective internal control over financial reporting
42All of the following management activities of the Falco Insurance Group, Inc. are evidence of the ongoing monitoring of internal controls built into the company's system, exce
- AThe CFO reviews changes in liability reserves in excess of a specified threshold
- BThe CEO and CFO review monthly disaggregated gross margin and operating margin data by line of coverage.
- CThe CFO updates the audit committee on status of internal control.
- DThe CEO and CFO are required to formally verify that all major disbursements such as for claims and reinsurance premiums fully comply with the planned program of insurance
43Corbin Corporation is evaluating the sample sizes associated with periodic tests of the existence of a fleet of taxis. Cash receipts associated with fares deposited daily are periodically reconciled to both the fares charged and the taxi's odometer readings. With respect to monitoring controls over cash vs. vehicles, Corbin will likely:
- AReview cash and fixed assets on an ongoing basis.
- BReview fixed assets on an ongoing basis and cash on a less frequent periodic basis.
- CReview cash on an ongoing basis and fixed assets on a less frequent periodic bas
- DReview cash and fixed assets on a periodic basis, not on a daily basis
44A not-for-profit organization periodically conducts focus groups of employees, service beneficiaries and governance board members to reevaluate its mission vision and values to determine the accuracy of the strategic statements to refine them where necessary. This activity relates to which component of internal control?
- AControl activities.
- BRisk assessment.
- CInformation and communication.
- DMonitoring.
45Generally, an organization will not operate beyond the limits of their risk appetite. Risk appetite has generally been exceeded when:
- AThe likelihood and impact of positive events is significantly below residual risk
- BThe likelihood and impact of negative events significantly exceeds residual risks.
- CThe likelihood and impact of positive events is within the residual risk.
- DThe likelihood and impact of negative events exceed residual risks.
46Strategic objectives for the mission and vision of the organization are generally linked to related objectives. All of the following objectives are typically regarded as related objectives, except:
- AInformation technology objectives.
- B.Operations objectives.
- CCompliance objectives
- DReporting objectives
47The Glassman Company completed its annual retreat of board members and senior management and produced a document that links the organization’s mission and vision with strategic and related objectives. The document includes a commitment to establish an ethics hotline and assign a corporate officer to conduct ethics training and monitor reports through the hotline. That commitment would most likely be a:
- ARelated operations objective.
- BRelated compliance objective.
- CStrategic objective.
- D.Related reporting objective.
48The Hartman Conglomerate completed its annual retreat of board members and senior management and produced a document that links the organization’s mission and vision with strategic and related objectives. The document includes a commitment to develop a uniform chart of accounts for all divisions of the conglomerate. That commitment would most likely be a:
- AStrategic objective.
- BRelated reporting objective.
- CRelated operations objective.
- DRelated compliance objective.
49The Justco Corporation completed its annual retreat of board members and senior management and produced a document that links the organization’s mission and vision with strategic and related objectives. The document includes a commitment to conduct focus groups with customers and suppliers to determine the responsiveness of Justco to the needs of various parties. That commitment would most likely be a:
- ARelated compliance objective.
- BRelated reporting objective.
- CRelated operations objective.
- DStrategic objective.
50The Knight Corporation completed its annual retreat of board members and senior management and produced a document that links the organization’s mission and vision with strategic and related objectives. The document includes an objective that the Knight Corporation will rank in the top quartile of quality for its industry. That objective would most likely be a:
- ARelated reporting objective.
- BRelated operations objective.
- CRelated compliance objective.
- DStrategic objective.
51Establishing objectives that will support the mission and vision of an organization generally involve supporting the mission with
- AStrategy supported by strategic and related objectives.
- BStrategic objectives, supported by strategies and related objectives.
- CRelated objectives.
- DStrategy.
52Davis, a director of Active Corp., is entitled to:
- AServe on the board of a competing business.
- BUnilaterally grant a corporate loan to one of Active's shareholders.
- CTake sole advantage of a business opportunity that would benefit Active.
- DRely on information provided by a corporate officer.
53Knox, president of Quick Corp., contracted with Tine Office Supplies, Inc. to supply Quick's stationery on customary terms and at a cost less than that charged by any other supplier. Knox later informed Quick's board of directors that Knox was a majority stockholder in Tine. Quick's contract with Tine is:
- AValid because the contract is fair to Quick.
- BVoid because of Knox's self-dealing.
- CVoid because the disclosure was made after execution of the contract.
- DValid because of Knox's full disclosure.
54The principle that protects corporate directors from personal liability for acts performed in good faith on behalf of the corporation is known as:
- AThe responsible person doctrine
- BThe business judgment rule.
- CThe full disclosure rule.
- DThe clean hands doctrine.
55The business judgment rule is a rule that immunizes corporate:
- AManagement from liability for actions that result in corporate losses or damages if the actions are undertaken in good faith and are within both the power of the corporation and the authority of management to make.
- BManagement from liability for actions that result in corporate losses or damages if the actions are undertaken in good faith but are not within the power of the corporation or the authority of management to make
56Which of the following is not a goal of an Enterprise Risk Management Framework (ERM)?
- AProvide reasonable assurance that company objectives and goals are achieved and problems and surprises are minimized.
- BAchieve financial and performance targets
- CAvoid adverse publicity and damage to the entity's reputation.
- DAssess risks continuously and identify the steps to take and resources to allocate to overcome or mitigate risk.
57The Enterprise Risk Management Integrated Framework states that an organization must identify events, both positive and negative, as part of its risk management program. Which of the following is true with regard to events?
- AEvents serve as the basis for establishing objectives and thus occur simultaneously with development of objectives.
- BEvent identification occurs prior to development of objectives.
- CEnterprise risk management is entirely focused on risks and ignores opportunities.
- DEvent identification occurs after the development of objectives.
58Conflict of interest provisions of the Sarbanes-Oxley Act of 2002 generally prohibit the directors or executive officers of an issuer from:
- AReceiving a personal loan from the issuer not in the ordinary course of business.
- BReceiving perquisite compensation.
59A company that maintains a strong internal audit function that reports directly to the Board of Directors is applying the ideas from which principle of effective internal control over financial reporting?
- AOrganizational structure
- BHuman resources.
- C.Authority and responsibility
- DBoard of Directors
60A company that routinely performs background checks on its employees to ensure that there is no criminal history is applying the ideas from which principle of effective internal control over financial reporting?
- AManagement's philosophy and operating style.
- BFinancial reporting competencies.
- CHuman resources
- DIntegrity and ethical values.
61According to the Sarbanes-Oxley Act of 2002, a chief executive officer or chief financial officer who misrepresents the company's finances may be penalized by being:
- AFined and imprisoned.
- BRemoved from the corporate office and fined.
62Which of the following items is one of the eight components of COSO's enterprise risk management framework?
- AMonitoring.
- BReporting
- COperations.
- DCompliance.
63Management of a company has a lack of segregation of duties within the application environment, with programmers having access to development and production. The programmers have the ability to implement application code changes into production without monitoring or a quality assurance function. This is considered a deficiency in which of the following areas?
- AManagement override.
- BChange control.
- CData integrity.
- DComputer operations.
64According to COSO, which of the following is the most effective method to transmit a message of ethical behavior throughout an organization?
- ADemonstrating appropriate behavior by example.
- BSpecifying the competence levels for every job in an organization and translating those levels to requisite knowledge and skills.
- CRemoving pressures to meet unrealistic targets, particularly for short-term results.
- DStrengthening internal audit's ability to deter and report improper behavior.
65Within the COSO Internal Control—Integrated Framework, which of the following components is designed to ensure that internal controls continue to operate effectively?
- AMonitoring.
- BControl environment.
66Company management completes event identification and analyzes the risks. The company wishes to assess its risk after management's response to the risk. According to COSO, which of the following types of risk does this situation represent?
- ADetection risk
- BResidual risk.
- CEvent risk
- D.Inherent risk.
67A company implements an enterprise resource planning application to help improve its financial and operational reporting, while gaining other efficiencies related to sales and inventory management. For the implementation, the company hires an individual specializing in preparing the company for the changes through documenting new policies and procedures and developing new training. This is an example of:
- ASegregation of duties.
- BChange management.
- CAn economic event.
- DA social event
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- 2 B1 Quiz on B1 Question, created by Harpratap Singh on 21/04/2015.
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- Harpratap Singh
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