B1 - Corporate Governance

Question 1

(Prev.Corr) According 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?

Choices: Monitoring, Control Activities, Information&Communication, Internal Environment

Answer 1

Internal Environment - The internal environment component of the ERM framework includes foundational elements such as organizational structure, assignment of authority and responsibility, integrity and ethical values, risk management philosophy, commitment to competence and human resource standards, and similar issues that influence the tone of the organization.

Question 2

According to COSO, which of the following components of enterprise risk management addresses an entity’s reporting and identified internal control deficiencies?

Choices: Monitoring, Event Identification, Internal Environment, Control Activities

Answer 2

Monitoring - The monitoring component of ERM framework includes key elements that relate to the ongoing management activities or separate evaluations of the ERM approach adopted by the entity, including addressing reporting deficiencies

Question 3

A 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?

Answer 3

Financial Reporting Competencies - These competencies suggest stronger controls and encourages the company to retain qualified personnel to handle financial reporting

Question 4

SOX requires that members of the audit committee be independent with regard to the issuer. Within the meaning of the law, which corporate officers would be considered independent? (Board Member and/or Independent Auditor)

Answer 4

Board Member - Yes
Auditor - NO

RULE: Audit committee members are to be members of the issuer’s Board of Directors but also must be otherwise independent.

Independence criteria:

• Aud. Comm. Memb may not accept compensation from teh issuer for consulting or advisory services
• ACM may not be an affiliated person of the issuer (affiliation means a person has the ability to influence financial decisions)

Question 5

SOX addresses problems related to inadequate board oversight by requiring public companies to have an

Answer 5

AUDIT COMMITTEE
Which is directly responsible for the appointment, compensation, and oversight of the work of the public accounting firm employed by that public company. The separation of audit supervision from the BOD addresses the problem of inadequate board oversight

Question 6

The external auditors ofor the horace company assess the achievement of internal control objectives each year and communicate the assessment ot manage,ent 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?
Chices: External Communication, Internal Control Information, Internal communication, Financial Reporting Information

Answer 6

EXTERNAL COMMUNICATION
The principal of external communications asserts that matters affecting the achievement of financial reporting should be communicated with outside parties.

Question 7

Who founded the treadway commission? (AKA COSO)

Answer 7

private sponsoring organizations (AAA, AICPA, FEI, IIA, IMA)

Question 8

The committee on sponsoring organizations prepared the internal control integrated framework

Answer 8

to help businesses assess internal control

Question 9

Able corp owns numerous businesses along the coast of florida. the company’s management has identified business interuption 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 wiht additional premium. Able’s response to potential risks is known as

Answer 9

Sharing

Insuring against losses or entering into joint ventures to address risk is known as sharing

Question 10

Management 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 $10million 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:

Answer 10

$10 million
Inherent risk is the risk to an entity in the absence of any actions management might take to alter either the risk’s likelihood or impact. The $10 million exposure identified in teh problem is the risk exposure without management’s intervention.

Question 11

Management 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 $10million 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:

Answer 11

$4 million
The $4 million risk exposure, after management purchases the hedge, is the residual risk. Residual risk is the risk that remains after management responds to the risk.

Question 12

Control activities are most closely related to

Answer 12

risk responses
control activities are the methods used to implement the response to risk. Sometimes the control activity is also, effectively, the risk response.

Question 13

According 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?
Choices: Control revalidation/update, change identification, control baseline, change management

Answer 13

Change Identification
Change identification considers the risk assessment component of internal control and identifies changes in process or risk and verifies that the design of underlying controls remains effective. Monitoring through the use of ongoing and separate evaluations should consider the ability to identify and address changes in teh change identification stage of the monitoring for change continuum.

Question 14

Corbin Corp is evaluating the sample sizes associated with periodic tests of the existece of a fleet of taxis. Cash receipts associated w/ 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:

a. Review cash and fixed assets on a periodic basis, not on a daily basis
b. review cash and fixed assets on an ongoing basis
c. review fixed assets on an ongoing basis and cash on a less frequent periodic basis
d. review cash on an ongoing basis and fixed assets on aless frequent periodic basis

Answer 14

d. the monitoring of internal control effectiveness is performed based on the significance of the risk being controlled. Cash has more risk than vehicles and thus needs to be monitored more frequently.

Question 15

Generally, an organization will not operate beyond the limits of their risk appetite. Risk appetite has generally been exceeded when….

Answer 15

The likelihood and impact of negative events significantly exceed residual risks.

Question 16

The glassman company completed its annual retreat of board members and senior management and produced a document that links the organization’s mission and vision w/ 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 teh hotline. That commitment would most likely be a:

Answer 16

Related compliance objective
Ethics training is sometimes referred to as corporate compliance training. Operational implementation of this character is generally a related objective ratehr than a strategic objective.

Question 17

The ERM 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?

Answer 17

Event identification occurs after the development of objectives.

Events will either favorably or unfavorably impact the achievement of objectives. Risks (negative events) are only identifiable within the context of the objectives that they might impede.