2.04 - SOX Flashcards
2.04 - SOX
According to the Sarbanes-Oxley Act of 2002, the PCAOB has the legal authority to perform each of the following, except:
A) Process, review, and approve the registration of public accounting rms
that audit issuers.
B) Establish auditing, quality control, and independence standards for audits of issuers.
C) Inspect and review selected audit engagements of registered public accounting firms.
D) Prosecute suspected criminal violations by registered public accounting firms.
D) Prosecute suspected criminal violations by registered public accounting firms.
Title I of Sarbanes-Oxley established the PCAOB to register and oversee accounting firms performing audits of issuers.
The PCAOB registers the firms and has the authority to establish standards for how they operate their firms and perform their engagements by issuing quality control, ethical, and auditing standards for registered firms.
The PCAOB does not have the authority to prosecute suspected criminal activities by registered firms.
2.04 - SOX
According to Title II of the Sarbanes Oxley Act (SOX) of 2002, which of the following non-audit services is not
prohibited from being performed for an audit client by a registered public accounting firm?
A) Bookkeeping Services
B) Internal audit services
C) Appraisal or valuation services
D) Tax services
D) Tax services
With very few exceptions, Title II of Sarbanes-Oxley prohibits a registered public accounting firm from performing
any nonattest services for an attest client.
One of the few exceptions is work related to tax compliance, which may be performed
if it is disclosed to the SEC and is pre-approved by the client’s audit committee after it determines that performing such services would not impair the accountant’s independence.
2.04 - SOX
According to Title III of the Sarbanes-Oxley Act of 2002, the CEO and CFO of a public company must explicitly certify in each annual or quarterly report which of the following?
I. That the signing officers
reviewed the report.
II. That the signing officers
cooperated fully with the audit performed by the auditing firm.
III. That the signing officers
have evaluated the effectiveness of internal controls within 90 days prior to the report.
A) I, II, and III.
B) I and III only.
C) I and II only.
D) None of the above.
B) I and III only.
No statement about cooperating with the audit is required.
According to Title III of the Sarbanes-Oxley Act of 2002, the CEO and CFO of a public company must explicitly certify in each annual or quarterly report that…
- they reviewed the report;
- the report does not contain any untrue statement of
material fact or omission of material fact;
-that financial position and results of operations are fairly presented;
- and that the signing officers are responsible for establishing and maintaining effective internal control, have evaluated the effectiveness of
internal control within 90 days prior to the report, - and have presented their conclusions as to the effectiveness of internal
control.
2.04 - SOX
An issuer may hire an employee of a registered public accounting firm
who served on the audit engagement team within the previous year for which of the following positions?
A) CEO
B) Staff accountant
C) Controller
D) CFO
B) Staff accountant
Section 206 of Sarbanes-Oxley indicates that a firm may not provide auditing services for an issuer if the CEO, controller, CFO, CAO, or another person serving in an equivalent capacity was employed at the firm during the one year period
prior to the audit. There is no such restriction for a staff accountant.
2.04 - SOX
When a former partner of a registered public accounting firm who left the firm
two years ago accepts a financial reporting oversight role at an issuer audit client, the independence of the registered public accounting firm is considered impaired unless which of the following is true?
A) The former partner was employed by the registered public accounting firm
for a period of 2 years or
less.
B) The former partner discloses the relationship to the issuer audit client’s board of directors.
C) The former partner has no remaining capital balance in the registered public accounting firm
D) The former partner exerts only limited influence
over the registered public accounting firm’s operations
and financial policies
C) The former partner has no remaining capital balance in the registered public accounting firm
It would be considered a conflict of interest if a firm performs an audit of an issuer if someone with financial reporting oversight responsibility was employed by the firm and participated in any capacity in the audit during the 1-year period
preceding the date of the initiation of the audit. In addition, the former firm member may have no remaining capital balance in
the firm
2.04 - SOX
Audits of which of the following organizations are subject to the Sarbanes-Oxley Act?
I.All public companies
II.Private companies with yearly revenues of $100 million or more.
III. All issuer companies
A) I and III only
B) I only
C) I, II, and III
D) III only
A) I and III only
Audits of all public companies, also known as issuer companies, are subject to the Sarbanes-Oxley Act. Private
company audits are not subject to the Sarbanes-Oxley Act.
2.04 - SOX
Which of the following Boards has the responsibility to regulate CPA firms
that audit public companies?
A) Public Oversight Board.
B) Auditing Standards Board.
C) Public Company Accounting Oversight Board.
D) Accounting Standards Board.
C) Public Company Accounting Oversight Board.
Sarbanes-Oxley established the Public Company Accounting Oversight Board and gave it the responsibility of setting
auditing standards for auditors of public companies, those entities reporting to the SEC, and regulating the registered
CPA firms that perform audits of public companies. The Auditing Standards Board establishes auditing standards for nonpublic entities.
There is no Public Oversight Board that regulates CPAs.
The Financial Accounting Standards Board is responsible for
establishing generally accepted accounting principles for all entities, including public and nonpublic entities, but does not regulate CPA firms.
Choose the correct statement(s) regarding corporate audit committees:
I. Corporate audit committees are responsible for establishing and maintaining effective internal control.
II. As established by the Sarbanes-Oxley Act of 2002, audit committees of issuer companies must be
independent.
III. The audit committee consists of managers assigned from within the company to serve terms that usually last one year.
A) II only
B) I only
C) I and II only
D) I and III only
B) II only
The audit committee is a subcommittee of the board of directors that consists only of directors that are independent of the entity.
Management, not the audit committee, is responsible for the design, implementation, and maintenance of internal
control and the board of directors has oversight responsibility over management.
