B1: Corporate Governance and Operations Management

Question 1

This component of the enterprise risk management (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.

Answer 1

Internal Environment

Question 2

Which component of the ERM framework includes key elements that relate to the policies and procedures that ensure appropriate responses to identified risks, not to the assignment of authority and responsibility.

Answer 2

Control Activities

Question 3

Which component of the ERM framework includes key elements that relate to the identification, capture and communication of information, not to the assignment of authority and responsibility.

Answer 3

Information and Communication

Question 4

Which component of the enterprise risk management framework includes key elements that relate to the ongoing management activities or separate evaluations of the ERM approach adopted by the entity, not to the assignment of authority and responsibility.

Answer 4

Monitoring

Question 5

Which principle of the control environment component of internal control integrated framework suggests stronger controls and encourages the company retains qualified personnel to handle financial reporting.

Answer 5

Financial Reporting Competencies

Question 6

What is the rule regarding having a financial expert on the audit committee?

Answer 6

You must have atleast one financial expert, and if not, you must disclose why.

Question 7

Who determines if the financial expert to sit on the Audit Committee is qualified?

Answer 7

Board of Directors

Question 8

SOX requires that company management be held to a code of ethics. The code must include provisions for:

Answer 8

• honest/ethical conduct
• accurate/timely disclosure of financial statements
• compliance

Question 9

SOX requires that managements report on internal control include:

Answer 9

• statement on management’s responsibility for internal control
• assessment of internal control effectiveness
• statement that the auditor has reported on management’s evaluation

**Management does not describe disagreements, if any, between management and the auditor.

Question 10

This principle of information and communication of COSOs framework asserts that matters affecting the achievement of financial reporting should be communicated with outside parties.

Answer 10

External Communication

Question 11

Define financial reporting objectives.

Answer 11

The assessment of whether the financial statements reflect the underlying transactions and events in a manner that is fairly stated

Question 12

What is financial reporting risk?

Answer 12

The determination of what might interrupt a company’s ability to present their financial statements in accordance with GAAP is financial reporting risk.

Question 13

Who established the Treadway Commission (COSO)?

Answer 13

Private sponsoring organizations

the American Accounting Association (AAA), the American Institute of Certified Public Accountants (AICPA), the Financial Executives Institute (FEI), the Institute of Internal Auditors (IIA), and the Institute of Management Accountants (IMA).

Question 14

What is risk sharing?

Answer 14

Insuring against risk or entering joint ventures is known as risk sharing.

Question 15

What is risk reduction?

Answer 15

diversification of product offerings rather than elimination of product offerings is called reduction.

(diversify your portfolio)

Question 16

What is risk acceptance?

Answer 16

self insuring or tolerating the risk

Question 17

What is Event Inventory?

Answer 17

When management uses listings of potential events common to a specific industry as a means of identifying risks or opportunities, the method is known as event inventory.

Question 18

What is Inherent Risk?

Answer 18

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.

Question 19

What is Residual Risk?

Answer 19

esidual risk is the risk that remains after management responds to the risk.

Question 20

What are Control Activities?

Answer 20

Control activities are the methods used to implement the response to risk.

Question 21

What are Control Activities?

Answer 21

Control activities are the methods used to implement the response to risk.

Question 22

What is “duty of loyalty”?

Answer 22

duty of loyalty requires that the director offer opportunities presented in the market place first to the corporation and only accept them if the corporation rejects it

A land developer might sit on the board of a land development company. If presented with the opportunity to purchase a building or land at a significant discount, the developer would be obligated to offer the opportunity to the corporation first but would not be barred from taking advantage of the opportunity if the corporation had no interest.

Question 23

What are the four stages of the monitoring-for-change continuum identified by COSO

Answer 23

1. )control baseline
2. ) change identification
3. ) change management
4. ) control validation/ update.

Question 24

What is “change identification”?

Answer 24

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.

Question 25

What is the necessary qualification of an audit committee financial expert?

Answer 25

have experience with internal controls

Question 26

COSO recommends no more than ____ layers between the CFO and those doing the financial reporting.

Answer 26

3

Question 27

What are the classifications of objectives a company can have?

Answer 27

operations, reporting, and compliance objectives

Question 28

What is a “strategic objective”?

Answer 28

Broad, mission driven objectives of a corporation are it’s strategic objectives.

Question 29

If a corporation enters into a contract, and a director has a conflict of interest, the contract is void unless:

Answer 29

he contract is voidable unless the director makes full disclosure of all of the facts to the disinterested directors or the shareholders, who then approve the transaction, or the director can prove that the transaction was fair to the corporation. The stationery purchase was fair to Quick, since it was purchased at a below-market price. Thus, the contract is valid.

Question 30

What is an engineered cost?

Answer 30

An engineered cost bears an observable and known relationship to a quantifiable activity base