M3-Sarbanes-Oxley Act of 2002 Flashcards
Audit committee members must be members of the public company’s board of directors and may receive compensation for their service on the board. However, they cannot accept compensation from the public company or be affiliated with it in any other way. Thus, an audit committee member may receive compensation for serving as director, but not for being the company’s president. Receipt of a president’s salary would destroy independence. (true or false)
true
Sarbanes-Oxley requires that an issuer’s audit committee have at least one financial expert, or disclose why that role is not filled. (true or false)
true
The financial expert must have an understanding of GAAP and financial statements, be able to assess the application of accounting principles, have comparable experience applying accounting principles to entities that present a similar level of complexity of the issuer, and understand both internal controls and audit committee functions.
Audit committee members are to be members of the issuer’s Board of Directors but also must be otherwise independent. Independence criteria are as follows:
- Audit committee members may not accept compensation from the issuer for consulting or advisory services
- Audit committee members may not be an affiliated person of the issuer (affiliation means a person has the ability to influence financial decisions).
If an independent auditor is hired and paid by the audit committee, it is thus not independent. It has to be a board member.
Public companies are required to establish an audit committee that 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 Board of Directors addresses the problem of inadequate board oversight. (true or false)
true
Issuers are generally prohibited from making personal loans to directors or executive officers under the Sarbanes-Oxley Act of 2002. Exceptions exist for loans made in the ordinary course of business. (true or false)
true
The financial expert serving on the audit committee of an issuer must have experience with internal controls. The financial expert qualifies through education or past experience as an auditor or finance officer for an issuer of similar complexity. (true or false)
true
Financial statement disclosures include management’s assumption of responsibility for internal control, management’s assessment of internal control effectiveness and a statement that the auditor has reported on management’s evaluation. (true or false)
true
Management does not describe disagreements, if any, between management and the auditor.
If a corporation enters into a contract and a director has a conflict of interest in the transaction, the 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. (true or false)
true
An individual who knowingly executes or attempts to execute securities fraud will be fined or imprisoned not more than 20 years or both. (true or false)
true
A code of conduct should be in writing and available to employees who want to read it, but there is no requirement that it must be displayed in public areas. (true or false)
true
Congress, through the Sarbanes-Oxley Act of 2002, created the PCAOB to oversee public company and broker/dealer audits. (true or false)
true
A written code of conduct helps management set the tone for the organization; its existence promotes (among other things) honest/ethical conduct, teamwork, compliance, and appropriate disclosure. (true or false)
true
