Corporate Governance

Question 1

CEOs and CFOs of a corp include certifications that:
1. the signing of officers have reviewed the reports
2. the signing officers are evaluating the internal controls within 90 days and reporting their findings
3. all deficiencies in internal controls are being reported
4. negative impacts on internal controls are being reported and corrected
5. the financials do not contain untrue statements or material misstatements
6. the FS present fairly the financial condition of the company.
What requires these items?

Answer 1

Sarbanes-Oxley Act of 2002, Section 302

Question 2

Are officers permitted to reincorporated the activities of a company to attempt to avoid the requirements of SOX, Section 302?

Answer 2

No

Question 3

Are companies permitted to move activities outside of the US to attempt to avoid the SOX, Section 302 requirements?

Answer 3

No

Question 4

What was the SOX act written to enhance?

Answer 4

transparency of a company and hold its officers more accountable. It also helps expedite the disclosure of corporate info to the public

Question 5

Does the SOX, Sec 302 allow an external auditor to simultaneously perform both auditing and management consulting services?

Answer 5

no. This reduces the potential that the audit firm will try to appease a firm’s management (by engaging in a weaker audit) in order to help generate more profitable consulting arrangements

Question 6

Does the SOX, Sec 302 allow an external auditor to simultaneously perform both auditing and management consulting services?

Answer 6

no. This reduces the potential that the audit firm will try to appease a firm’s management (by engaging in a weaker audit) in order to help generate more profitable consulting arrangements

Question 7

What 3 considerations are made when formulating a governance framework?

Answer 7

1. nature of the organization’s business
2. the policies and procedures for the organization’s planning and business strategy
3. the structure of the organization, I.E. highly centralized vs a distribution of power

Question 8

What are the 7 factors of an internal control environment according to COSO?

Answer 8

1. commitment to integrity, ethical values and competence
2. mgmt.’s philosophy, operating style, and risk appetite
3. organizational structure
4. the audit committee of the board of directors
5. methods of assigning authority and responsibility
6. HR policies and practices
7. external influences

Question 9

What is “risk appetite”?

Answer 9

It is how much risk the company is willing to accept.

Question 10

What 5 questions are asked to assess management’s philosophy, operating style and risk appetite?

Answer 10

1. does mgmt. assess risk and awards as part of their decision-making process or do they take undue risks to achieve their objectives?
2. is the company’s risk appetite in alignment with company strategy?
3. does mgmt. manipulate performance measures to make them more favorable?
4. does mgmt. demand ethical behavior or do they pressure employees to achieve results regardless of the methods?
5. does mgmt. have the attitude that the ends justify the means?

Question 11

What 5 questions are asked to assess management’s philosophy, operating style and risk appetite?

Answer 11

1. does mgmt. assess risk and awards as part of their decision-making process or do they take undue risks to achieve their objectives?
2. is the company’s risk appetite in alignment with company strategy?
3. does mgmt. manipulate performance measures to make them more favorable?
4. does mgmt. demand ethical behavior or do they pressure employees to achieve results regardless of the methods?
5. does mgmt. have the attitude that the ends justify the means?

Question 12

An organizational structure defines what 3 things?

Answer 12

1. lines of authority
2. responsibility
3. reporting

Question 13

What are the 6 aspects of an organizational structure?

Answer 13

1. what the company’s overall framework is for planning, directing and controlling its operations
2. how a co defines lines of authority and responsibility
3. whether authority is centralized or decentralized
4. how responsibility is assigned for specific tasks
5. how the allocation of responsibility affects mgmt.’s information requirements
6. how the accounting and information system functions are organized

Question 14

All publicly held company’s are required to have an audit committee made up of an outside board of directors that oversee what 5 things?

Answer 14

1. its internal control structure
2. its financial reporting process
3. its compliance with laws, regulations and standards
4. the hiring, compensating and work of external and internal auditors
5. independent reviews of mgmt. to evaluate their integrity and to increase the investing public’s confidence in the accuracy of the company’s financial reporting process

Question 15

High-level corp executives should make individual departments or individuals responsible for specific business objective or processes and then hold them accountable. What 5 ways can they do this?

Answer 15

1. formal job descriptions
2. a formal code of conduct that covers ethical behavior standards, conflicts of interest, acceptable business practices, and regulatory requirements
3. a written policy and procedures manual
4. employee training programs
5. operating plans, schedules and budgets

Question 16

A written policy and procedures manual should contain what 5 things?

Answer 16

1.

Question 17

A written policy and procedures manual contains what 5 things?

Answer 17

Policy and procedures that:

1. explains proper business practices
2. documents how transactions and errors are to be processed and handled
3. contains the chart of accounts
4. contains example copies of forms and documents
5. can be used to train new and existing employees

Question 18

What are the 11 appropriate policies and procedures for mgmt. employees?

Answer 18

1. hire employees based on how well they meet written job requirements
2. check resume and reference letters and perform background checks when evaluation job applicant qualifications
3. promote employees based on merit and performance
4. train the members of the organization
5. establish formal compensation, job incentive, career advancement and working condition policies
6. enforce mandatory annual vacations and assign employees’ job to others during absence
7. require all employees, suppliers and contractors to sign and abide by a confidentiality agreement
8. rotate sensitive duties among all key employees
9. prosecute hackers and fraud perpetrators
10. purchase fidelity bond insurance for all key employees
11. remove discharged or disgruntled employees from sensitive jobs and deny them access to the information system to prevent retaliation.

Question 19

What are the 11 appropriate policies and procedures for mgmt. employees?

Answer 19

1. hire employees based on how well they meet written job requirements
2. check resume and reference letters and perform background checks when evaluation job applicant qualifications
3. promote employees based on merit and performance
4. train the members of the organization
5. establish formal compensation, job incentive, career advancement and working condition policies
6. enforce mandatory annual vacations and assign employees’ job to others during absence
7. require all employees, suppliers and contractors to sign and abide by a confidentiality agreement
8. rotate sensitive duties among all key employees
9. prosecute hackers and fraud perpetrators
10. purchase fidelity bond insurance for all key employees
11. remove discharged or disgruntled employees from sensitive jobs and deny them access to the information system to prevent retaliation.

Question 20

What are 2 external influences?

Answer 20

1. requirements imposed by the stock exchanges, FASB, SEC and PCAOB
2. regulatory agency requirements such as those for banks, utilities and insurance companies

Question 21

What is the responsibility of internal auditors as required by the International Standards for the Professional Practice of Internal Auditing?

Answer 21

To assist the organization in maintaining effective controls by evaluating their effectiveness and efficiency and by promoting continuous improvement

Question 22

The internal audit activity must evaluate the adequacy and effectiveness of control in responding to risks within the organization’s governance, operations, and information systems regarding what 4 things?

Answer 22

1. reliability and integrity of financial and operational information
2. effectiveness and efficiency of operations and programs
3. safeguarding of assets
4. compliance with laws, regulations, policies, procedures and contracts

Question 23

The Control Self-Assessment (CSA) framework helps improve the efficiency and effectiveness of what?

Answer 23

financial statements

Question 24

What are the 2 most effective ways to perform a control self-assessment (CSA) to facilitate team meetings and surveys?

Answer 24

1. team meetings usually contain 6-15 employees who are personally involved with the internal controls being evaluated
2. the survey asks for data regarding controls, risks, and processes being used by the employees. This method better preserves anonymity