Corporate Governance

Question 1

Enhanced Financial Disclosure

Answer 1

Enhanced financial disclosure includes contingent obligations such as pending lawsuits where the loss has not been accrued.

Question 2

Sarbanes-Oxley Act

Answer 2

Sarbanes-Oxley Act requires that the management report on internal control include a statement that the independent auditor has attested and reported on management’s evaluation of internal controls.

Question 3

Qualifications to Serve On the Audit Committee

Answer 3

the Board of Directors would likely evaluate qualifications to serve on the audit committee and would likely evaluate qualifications needed to be designated the financial expert based on mix of knowledge and experience. The Sarbanes-Oxley Act is silent as to what group has the authority to designate an individual a financial expert but, in practice, the Board of Directors most often makes that decision.

Question 4

Controlled Environment (1)

Answer 4

according to the committee of sponsoring organizations (COSO), which in the control environment, management’s operating style relates to work ethic and to general overall commitment to effective financial reporting. The COSO framework is considered the standard for assessing good internal control over financial reporting.

Question 5

Controlled Environment (2)

Answer 5

within the committee of sponsoring organizations (COSO) framework of control environment, recruitment of employees is a human resource function, as a retention and evaluation of employees. Within the COSO framework of control environment, management is operating style relates to work if it and commitment to effective financial reporting than employee recruitment, retention, and evaluation. The regular evaluation of employees is a human resource functions as it relates to policies and achieving financial reporting objectives.

Question 6

Published Code of Ethics

Answer 6

the existence of a published code of ethics and a periodic acknowledgment that ethical values are understood his evidence of a development of ethical values and a commitment to ensuring that those values are understood and taken seriously.

Question 7

Compliance Program

Answer 7

the existence of a compliance program that includes both ethics training and a hotline for anonymous reporting of evidence of the development of ethical values and ensuring that those values are understood and taken seriously

Question 8

Board of Directors (1)

Answer 8

active engagement by the audit committee and representing the Board of Director’s relative to all matters of internal and external audits is evidence of the board’s understanding of its oversight responsibility over financial reporting

Question 9

External Communication

Answer 9

external communications anticipate that matters affecting the achievement of financial reporting are communicating with outside parties

Question 10

Internal Control Information

Answer 10

internal control information is needed to facilitate the function of control components and is identified, captured, used, and distributed in a timely manner that enables personnel to fulfill their responsibilities. Internal control communications anticipate that communications and ankle and support understanding and execution of internal control objectives, processes, and individual responsibilities.

Question 11

Variance Analysis

Answer 11

variance analysis specifically supports internal control information, not financial reporting, internal communications, or external communications generally.

Question 12

Risk Assessment

Answer 12

according to the COSO framework, risk assessment involved the determination of likelihood and impact of events on the achievement of objectives. Control activities are the methods used to implement the response to risk. Sometimes the control activity is also, effectively, the risk response.

Question 13

Inherent Risk

Answer 13

inherent risk is the risk to an entity in the absence of any action management might take to alter either the risk’s likeliness or impact. Risk responses are developed to deal with inherent risk.

Question 14

Residual Risk

Answer 14

residual risk is the risk that still remains after management responses to the risk and the control activities are in place.

Question 15

Operational Objective

Answer 15

according to the committee of sponsoring organizations, maintaining adequate staff key over time and benefit costs within budget is an operational objective. In addition, maintaining direct labor cost variances within published guidelines is an operational objective. Maintaining accounting principles that conform to US GAAP is reporting objectives rather than an operational objective.

Question 16

Enterprise Risk Management (ERM)

Answer 16

the control activities component of the enterprise risk management (ERM) framework includes key elements that relate to the policies and procedures that ensure appropriate spices to identified risks, not to ethical values. The internal environment components (rather than the control activities component) of the ERM framework includes foundational elements such as organizational structure, assessment of authority and responsibility, integrity and ethical values, risk management philosophy, commitment to competence and human resources standards, and similar issues that influence the tone of the organization.

Question 17

International Professional Practice Framework

Answer 17

the international professional practice framework organizes the authoritative guidance published by the Institute of internal auditors into two categories mandatory guidelines and endorsed/strongly recommended guidance.

Question 18

Code of Ethics

Answer 18

the code of ethics, issued as part of the international professional practice framework (IPPF) for internal auditing, price principles and rules of conduct under 4 headings:
– Integrity
– Objectivity
– Confidentiality
– Competence

Question 19

Internal Controls 5 Components (COSO)

Answer 19

according to COSO, a company's internal controls are measured by five interrelated components, which include the – Control Environment
– Risk Assessment
– Information and Communication
– Control Activities
– Monitoring