Section A Question Set: Corporate Governance

9 According to the requirements of the Sarbanes-Oxley Act, which of the following parties is responsible for establishing procedures to handle complaints regarding irregularities in a publicly traded company's accounting methods, internal controls, or auditing matters? a. The audit committee. b. Executive management. c. The external audit firm. d. The internal audit function.

A

1 Specific corporate governance practices for publicly traded U.S. corporations are mandated by the Uniform Corporate Governance Act. a. True. b. False.

B

12 Specific corporate governance requirements for publicly traded U.S. corporations are considered optional and are left to the discretion of the corporation's board of directors. a. True. b. False.

B

17 The OECD Principles of Corporate Governance are required to be implemented by all corporations in the jurisdictions that have officially adopted them. a. True. b. False.

B

23 Which of the following is not one of the core principles of sound corporate governance? a. Responsibility. b. Fairness. c. Independence. d. Transparency.

C

11 Both the NYSE and NASDAQ have rules requiring listed companies to adopt and disclose a code of conduct for all employees and to report any waivers of the code for directors or officers. a. True. b. False.

A

14 Which of the following parties is responsible for overseeing business operations by assessing the strategy and underlying purpose of management's decisions and actions? a. The board of directors. b. External auditors. c. Industry regulators. d. Shareholders.

A

16 Effective corporate governance is the foundation of fraud risk management. a. True. b. False.

A

2 Which of the following is true regarding a corporation's board of directors? a. All of these are correct. b. The directors represent the middlemen between the shareholders and management. c. The directors are generally elected by the company shareholders. d. The directors oversee business operations by assessing the strategy and underlying purpose of management's decisions and actions.

A

20 An entity's corporate governance structure specifies the distribution of rights and responsibilities among the different participants in the organization and lays down the rules and procedures for organizational decision-making. a. True. b. False.

A

21 Who is responsible for holding the board of directors accountable for proper governance and oversight? a. The shareholders. b. The chairman of the board. c. Executive management. d. The external auditors.

A

26 Ownership of an equity share in a publicly traded company provides an investor with a right to certain information about the corporation and a right to influence the corporation through participation in general shareholder meetings and by voting. a. True. b. False.

A

28 The Treadway Commission made which of the following recommendations to reduce the probability of fraud in financial reports? a. All of these are correct. b. Adequate audit committee resources and authority. c. A mandatory independent audit committee. d. A written charter for the audit committee.

A

29 The Treadway Commission was established with the purpose of defining the responsibility of the auditor in preventing and detecting fraud. a. True. b. False.

A

3 The boards of directors of companies that are listed on the NYSE or NASDAQ must be composed of a majority of independent directors. a. True. b. False.

A

4 According to the OECD Principles of Corporate Governance, an entity's corporate governance framework should: a. All of these are correct. b. Encourage active cooperation between corporations and stakeholders in creating wealth and jobs. c. Ensure the timely and accurate disclosure of all material matters regarding the corporation. d. Ensure equitable treatment of all shareholders, including minority and foreign shareholders.

A

5 Companies with securities listed on the NYSE must have an internal audit function. a. True. b. False.

A

10 The _______________ provide(s) guidance for policy makers in evaluating and improving the legal, regulatory, and institutional framework for corporate governance. a. IIA Standards for the Professional Practice of Internal Auditing. b. IOSCO Principles for Auditor Oversight. c. INTOSAI Code of Ethics. d. OECD Principles of Corporate Governance.

D

27 Which of the following is a responsibility of the audit committee under the Sarbanes-Oxley Act? a. Resolving disputes about financial reporting between the auditors and management. b. Hiring, overseeing, and paying the company's external auditors. c. Pre-approving all audit and non-audit provided by the external auditor. d. All of these are correct.

D

8 Which of the following parties is responsible for directing employees to carry out business activities and managing their performance of those tasks? a. Shareholders. b. External auditors. c. The board of directors. d. Management.

D

13 Good corporate governance practices: a. Define the relationships and expectations of the parties involved. b. All of these are correct. c. Provide clear lines of accountability and reporting. d. Ensure that no single party is capable of making all of the business decisions without influence, input, or approval of other parties.

B

19 Good corporate governance is based on a framework that: a. Is appropriate for the organization's legal and regulatory environment. b. All of these are correct. c. Takes into account the organization's cultural and ethical environment. d. Remains adaptable.

B

22 The Organisation for Economic Co-operation and Development has developed a detailed corporate governance policy that can be effectively applied to all organizations. a. True. b. False.

B

24 Under the Sarbanes-Oxley Act, members of the audit committee can be paid for consulting work done for the company, but only if the transaction is documented and conducted at arm's length. a. True. b. False.

B

25 The Sarbanes-Oxley Act requires that each member of a company's audit committee be independent with respect to the company. Which of the following is not a violation of the independence requirements for audit committee members? a. Serving as the CEO of a subsidiary of the company. b. The receipt of pension benefits from previous employment with the company. c. Ownership of 18 percent of the company's voting stock. d. The receipt of legal consulting fees from the company.

B

7 Under NYSE rules, a listed company's board of directors must have which of the following committees? a. Nominating/corporate governance committee. b. All of these are correct. c. Compensation committee. d. Audit committee.

B

15 The term _______ refers to the oversight responsibilities of different parties for an organization's direction, operations, and performance. a. Corporate compliance. b. Fraud risk assessment. c. Corporate governance. d. Risk management.

C

18 Effective corporate governance practices are most important for which of the following organizations? a. A small souvenir shop in a tourist town that employs four retail clerks, in addition to the store's owners. b. A sole-practitioner dentist's office. c. A financial services company whose stock shares are traded on a public securities exchange. d. An advertising firm with 75 employees and four partners, all of whom actively participate in the business.

C

6 The purpose of corporate governance is to: a. Provide reasonable assurance regarding the organization's compliance with applicable laws and regulations. b. Prevent and detect misstatements, whether caused by errors or fraud. c. Encourage the efficient use of resources and require accountability for the stewardship of those resources. d. Ensure the accuracy and reliability of the organization's financial reports.

C