Test bank accounting information system by turner 05 chapter

The goal of corporate governance, with respect to internal controls and compliance, is to ensure that financial information is accurate and transparent... Even though non-audit services

CONTROLS AND PROCESSES

TURNER / WEICKGENANNT

CHAPTER 5: Corporate Governance and the Sarbanes-Oxley Act

TEST BANK - CHAPTER 5 - TRUE / FALSE

1 Research indicates that companies who stress corporate governance tend to be rewarded with

higher rates of return and a lower cost of capital

2 The high cost related to corporate governance far outweighs any of the related benefits

3 The purpose of corporate governance is to encourage the efficient use of resources and to

require accountability of those resources

4 The various groups whose interests are related to corporate governance will generally have no

conflicts with each other

5 In order to be considered a stakeholder in corporate governance, the participant must be

external

6 The management group tends to have an indirect impact on corporate governance, while the

business community tends to have a direct affect

7 Even though shareholders are identified as internal stakeholders, they are often regarded as

external stakeholders because of the lack of involvement

8 Top management is made up of managers who coordinate a number of different departments

or groups within a company and lead the supervisors in their area of responsibility

9 The management team of a corporation is often divided into three layers – top management,

middle management, and supervisors

10 The external auditors should approach every audit with an optimistic attitude which will help

them to gain more cooperation from the employees within the organization

11 Even though the people and organizations within a community are not directly related to a

corporation, they would still be considered one of the stakeholders

12 Internal auditors should not allow any financial connections to influence the decisions they

make about the company’s financial statements or disclosures

13 Good management oversight involves leaders who are good communicators - responsive to

both those above and below in the chain of command

14 The goal of corporate governance, with respect to internal controls and compliance, is to

ensure that financial information is accurate and transparent

does not require continual monitoring

16 Earnings management tends to have a snowball effect, which means that once it is started, it

is necessary to continue the process in order to avoid a negative result

17 Earnings management is not unethical because it will result in a higher return for the

shareholders

18 Because of its widespread relevance, ethical conduct is often valued as the most important

part of corporate governance

19 Prior to the passage of the Sarbanes-Oxley Act, an auditing firm was prohibited from providing

non-audit services to their clients

20 Before the passage of the Sarbanes-Oxley Act it was common for auditors to perform many

non-audit services for their customers

21 Non-audit services are now prohibited because of the potential to impair the auditor’s

objectivity

22 Even though non-audit services are prohibited by Sarbanes-Oxley, the auditor may perform

income tax services for their audit clients if they are pre-approved by the CEO

23 The auditors report directly to the Board of Directors

24 The Audit Committee is responsible for hiring, firing, and overseeing the audit firm and serving

as the liaison between the audit firm and management

25 In order to remain independent, members of the audit committee must receive compensation

from the company for their service to the company

26 If an officer of a public company fails to certify financial reports or certifies those that are

known to be misleading, the officer may be subject to stiff penalties of up to $1,000,000 and prison term up to 5 years

27 The Sarbanes-Oxley Act contains a section referred to as the “whistle-blower protection”

section that is intended to protect a whistleblower from retaliation by the company or its employees

28 The audit committee is the point of contact on financial matters and serves as the supervisor

of the board of directors

29 Corporate management serves as supervisors to the board of directors

30 Sarbanes-Oxley has resulted in increased levels of responsibility for business leaders at all

levels

31 Even if top managers are intent to do wrong, it is likely that an organization could develop a

set of checks and balances that could completely prevent them from doing so

32 Data mining software has become more important to corporate governance because of its

ability to help signal frauds

33 When managers are faced with decision making in troubled times, it is necessary for them to

protect as many jobs as possible, regardless of the impact on individual shareholders

34 It is not necessary for the audit committee to maintain independence, as long as they are

performing their duties in the proper manner

35 In today’s business environment, there is not a substitute for the integrity and ethics of a

TEST BANK - CHAPTER 5 - MULTIPLE CHOICE

36 Which of the following groups would use factors such as those that affect the supply and

demand of corporate leaders and tend to emphasize the importance of motivating leaders through the use of incentive programs as part of their definition of corporate governance?

38 This group of business would tend to emphasize the role of corporate leaders as providing effective internal controls and accurate records

B Providing high rates of return and low costs of capital

C Building value and creating confidence

D Efficient use of resources

41 The set of values and behaviors in place for the corporate leaders is referred to as:

A Managers

B Board of Directors

C Stakeholders

D Audit Committee

45 The internal stakeholders would not include:

49 Which of the following properly identifies the top management level of the management team?

A Guide the work of a number of employees doing similar tasks within a department or

group

B Coordinate a number of different departments within the company by overseeing

supervisors

C Made up of the company’s president and chief executive officer

D Carry out the day-to-day operations and administrative functions of the company

50 This group of stakeholders help management establish and monitor the internal controls for the company They rotate throughout the company, reviewing policies, procedures, and reports in each area to determine whether or not they are working as planned

A External Auditors

B Internal Auditors

C Audit Committee

D Top Management

51 People and organizations outside the corporation who have a financial interest in the corporation are referred to as:

58 It is necessary that certain stakeholders remain independent related to the corporation’s

financial reporting Which of the following correctly states the stakeholders that should remain independent?

A Internal Auditors, Audit Committee and External Auditors

B Audit Committee and Internal Auditors

C External Auditors and Audit Committee

D Both Internal and External Auditors

59 The system of checks and balances in corporate governance includes several interrelated functions Which of the following is not one of those functions?

D Internal Controls and Compliance

61 Which of the following is not typical relationship in an organization chart?

A Supervisors report to managers

B Managers report to officers

C Managers report to supervisors

D Officers report to the board of directors

62 According to the authors, the downfall of Enron involved poor management oversight, and included the following criticism(s) of the board of directors:

A Board meetings were few and brief

B They did not challenge the company’s aggressive accounting policies

C Board allowed senior executives to be exempted from the company’s policies regarding

conflicts of interest

D All of the above

63 The correctness of the financial information presented is called:

A Accuracy

B Transparency

C Stewardship

D Fiduciary

64 This characteristic of financial information, relates to how clearly the information can be

understood It requires a straightforward, consistent, and timely approach

A Accuracy

B Financial Stewardship

C Fiduciary Duty

D Transparency

65 Companies that emphasize accuracy and transparency:

A Will have internal controls in place to make sure that their financial reports do not

contradict each other

B Will have fewer opportunities for errors or fraud

C Will be more likely to prevent opportunities for wrongdoers to cross the line into fraud

D All of the above

66 A special obligation of trust, especially with respect to the finances of another, is called:

A Financial Stewardship and Fiscal Transparency

B Financial Accuracy and Internal Control

C Fiduciary Duty and Ethical Conduct

D Good Communication and Open Dialogue

70 In order for an environment to thrive where corporate leaders can be good financial stewards:

A Well-defined rules and procedures must be in place for decision making

B It is necessary to consider objectives at the starting point

C Any decision made must be in the best interest of the shareholders

D All of the above

71 The act of manipulating financial information in such a way as to shed more favorable light on the company or its management than is actually warranted is referred to as:

A Financial accountability

B Earnings management

C Income performance

D Financial stewardship

72 Which of the following is not one of the typical earnings management techniques?

A Early revenue recognition

B Falsification of customers

C Creation of non-existent vendors

D Early shipment of products

73 According to the authors, the origin of the corporate governance concept in the United States coincides with:

A The passage of Sarbanes-Oxley Act

B The creation of the Public Company Accounting Oversight Board

C The establishment of the SEC and enactment of the securities laws

D The Treadway Commission and the ultimate creation of COSO

74 The Securities Act of 1933 requires:

A The implementation of a proper climate of internal controls

B The full disclosure of financial information through the filing of registration statements

before the securities can be sold

C Ongoing disclosures for registered companies, in addition to the regulation stock

exchanges, brokers, and dealers

D The legislation enacted to combat deceptive accounting practices by banks and financial

institutions

75 The Securities Exchange Act of 1934 requires:

A The implementation of a proper climate of internal controls

B The full disclosure of financial information through the filing of registration statements

before the securities can be sold

C Ongoing disclosures for registered companies, in addition to the regulation stock

exchanges, brokers, and dealers

D The legislation enacted to combat deceptive accounting practices by banks and financial

institutions

76 The establishment of the SEC and the enactment of securities laws were responses to:

A The stock market crash of 1929 and the Great Depression of the 1930s

B Market pressures during the 1980s

C Increased inflation and cost of capital during the 1970s

D High-profile accounting scandals in the early 2000s

77 This legislation was enacted in an effort to curb the corruption and accounting blunders that had been discovered in connection with the bankruptcies of corporate giants, such as WorldCom

A Securities Exchange Act

B US Patriot Act

C Sarbanes-Oxley Act

D Securities Act

78 The PCAOB was established to carry the provisions of the:

A Sarbanes-Oxley Act

B Securities Act

C US Patriot Act

D Securities Exchange Act

79 The Sarbanes-Oxley Act relates to:

A Private companies and auditors of public companies

B Public companies

C Auditors of public companies and public companies

D Auditors of private companies

80 Auditors of public companies are now prohibited from providing non-audit services to their audit clients as a result of which section of the Sarbanes-Oxley Act:

A Section 201

B Section 301

C Section 302

D Section 401

81 Title II of the Sarbanes-Oxley Act relates to auditor independence and includes items such as:

A Requiring the lead partner on a public company audit to rotate off the engagement each

year

B If an auditor is hired away from the audit firm to take a job with the client, there must be a

cooling off period of three years if the new job is in a key accounting role

C If the auditor’s involvement with the design of the client’s accounting information system

and expands into areas of IT system development, then the auditor is considered to have impaired independence

D Auditors of public companies are now allowed to provide non-audit services to their audit

clients

82 Which of the following is not considered to be a non-audit service?

A Preparation of accounting records and financial statements

B Investment advisory, investment banking, or brokerage services

C External auditing services

D Internal audit outsourcing services

84 This section of the Sarbanes-Oxley Act requires that the CEO, CFO, and other responsible offices

of the company submit a certified statement accompanying each annual and quarterly report acknowledging their responsibility for the contents of the reports and the underlying system of internal controls

applicable governmental rules and regulations

A Section 602

B Section 802

C Section 806

D Section 409

B The board of directors and the audit committee have a lower level of accountability

C Members of upper management have the opportunity to focus on overall financial

information and can leave the details to subordinates

D The jobs of management have been lightened as a result of the certification requirements

93 Which of the following describes a change in internal controls and compliance as a result of the Sarbanes-Oxley Act?

A The corporate associates who are responsible for the development and maintenance of the

accounting information system have become less important

B Although there are new management reporting requirements, the financial reporting has

actually decreased

C The creation of new reporting requirements has created a large amount of extra work for

accountants, IT departments, and executives

D A side effect of compliance with the internal control sections of the Act has resulted in a

decrease in the amount of accounting information

ANSWERS TO TEST BANK – CHAPTER 5 – MULTIPLE CHOICE: