1/12 Flashcards
Which of the following is correct regarding the requirements of Sar Box for an issuer’s board of directors?
- Board must have an audit committee composed entirely of members who are independent from management
- Board must have a compensation committee, nominating committee and audit committee each composed of independent members
- Majority of members must be independent from management influence
- Each member must be independent from management influence, based on prior and current activities, economic and family relationships, other factors
Board of directors must have an audit committee entirely composed of members who are independent from management influence.
COSO Enterprise risk management framework, SOAR mnemonic
Strategies, evaluate alternatives
Objectives, formulate business
Analyze, business context
Risk, define appetitie
The committee on sponsoring organizations prepared the internal control integrated framework:
to help businesses assess internal control
all correspondence to/from regulatory auditors received by management is provided to audit committee and board as needed. Conclusion?
Board of directors understands and exercises responsibility related to financial reporting and internal control.
A manufacturer monitors foreign country’s political events. According to COSO which principle
Accept, monitoring without taking action.
All of the following activities are evidence of the monitoring built into the company’s system except:
- CEO and CFO are required to verify all major disbursements
- CFO reviews changes in liability reserve
- CEO and CFO review monthly gross margin and operating maring
- CFO updates audit committee on status of internal control.
Updating audit committee on status of internal control is reporting of deficiencies, not ongoing monitoring
Calc for weighted average cost of capital
- Cost of Eq 20%
- Cost of Debt 8%
- Tax Rate 40%
- Debt to Eq. .8
Total value is 1.8 (This is due to D/E ratio being .8, implying for every $1 of eq there is .8 debt)
- .8/1.8 = .4444
- 1/1.8 = .5556
= .5556 * .2 + .4444 * (.08 * (1-.4)) = .1325
Sarbanes-Oxley requires that one or more members of the audit committee be a financial expert and that the financial reports disclose
The existence of financial expert on the audit committee or the reasons why the audit committee does not have one.
Able owns numerous businesses along the Florida coast. The company identifies a potential risk resulting from storm damage caused by hurricanes. The company elects to diversify by buying property investments on the coasts of other states and Florida’s interior. The response is
Reduction. The response is diversification rather than elimination.
When a customer calls Steve takes down their last name and later finds the customer in his records. Recently there was a problem because Steve had two customers with the same last name and sent the bill to the wrong customer. What control could have prevented this issue?
Closed-loop verification. Steve would pull up the customer info during the sales call and verify with customer.
Managers that anticipate greater return for greater risk are referred to as having what attitude toward risk?
Risk averse. They demand more return as risk increases.
Which of the following sets of duties would not be performed by a single individual?
-Approving sales returns and depositing customer checks in the bank.
-Custody of signed checks and maintaining depreciation schedules
-Preparing customer statements and maintaining ap sub ledger
-Posting AP transactions and entering additions and terminations to payroll
Approving sales returns and depositing customer checks in the bank.
According to COSO, each of the following is an example of an appropriate monitoring activity, except
-Approval of high-dollar transactions by supervisors.
-Comparisons of information from various sources within the company.
-Periodic analysis of variances between expectations and actual results.
-Follow-up of customer and vendor complaints regarding amounts due and owed.
Approval of high-dollar transactions by supervisors.
Monitoring involves evaluations of internal control. Approval of transactions is part of internal control.
According to Sarbanes-Oxley of 2002, each of the following is a corporate responsibility requirement, except
-Audit committee chair must certify the quarterly report presents fairly
-Audit committee is responsible for the appointment, compensation, and oversight of the registered accounting firm.
-Audit committee must establish whistle-blowing mechanisms within the issuer.
-Each audit committee member must be independent.
The audit committee must certify the quarterly report.
The CEO and CFO must certify quarterly report.
Enterprise risk management as defined by COSO ERM is
a process, effected by an entity’s board of directors, management and other personnel, applied in strategy setting and across the enterprise, designed to identify potential events that may affect the entity and manage risk to be within its risk appetite, to provide reasonable assurance regarding the achievement of entity objectives.
