BEC Test 1

Which of the following is the most likely result of imposing tariffs to increase domestic employment? a. A long-run reallocation of workers from export industries to protected domestic industries b. A short-run increase in domestic employment in import industries from export industries c. A decrease in tariff rates of foreign nations d. A decrease in consumer prices in the domestic market

a. A long-run reallocation of workers from export industries to protected domestic industries The imposition of tariffs has the effects of increasing the cost of the good or service on which the tariff is placed and protecting domestic producers of the good or service from foreign competition. The result most likely will be an increase in production by domestic producers of the good/service in the protected domestic industries, creating an increased employment demand in those industries. Concurrently, exports are likely to decline as affected foreign countries retaliate by imposing import tariffs or other restrictions on goods/services of the country that initially imposed tariffs on its goods/services. This will cause a decrease in employment in export industries. Thus, the net effect is most likely to be a movement of domestic workers from export industries to industries protected by the tariff.

Which of the following is most likely to pose a direct risk that the dollar value of a foreign direct investment by a U.S. investor will suffer a loss? a. Appreciation in the value of the dollar against the currency of the country in which the investment is located b. Appreciation in the value of the currency of the country in which the investment is located against the dollar c. Depreciation in the value of the dollar against the currency of the country in which the investment is located d. Hedging the dollar value of the foreign direct investment

a. Appreciation in the value of the dollar against the currency of the country in which the investment is located

According to COSO, what is the first ongoing monitoring step in evaluating the effectiveness of an internal control system? a. Establishing a control baseline. b. Identifying changes in internal control that have taken place. c. Re-evaluating the design and implementation to establish a new baseline. d. Periodically revalidating operations where no known change has occurred.

a. Establishing a control baseline. This is the first step in evaluating the effectiveness of an internal control system.

Which of the following identifies a framework for gauging the attractiveness of the competitive environment of an industry? a. Five forces b. SWOT c. PEST d. Focus

a. Five forces

Assuming that the real rate of interest is the same in both countries, if Country A has a higher nominal interest rate than Country B, then the currency of Country A will likely be selling at a a. Forward discount relative to the currency of Country B. b. Forward premium relative to the currency of Country B. c. Spot discount relative to the currency of Country B. d. Spot premium relative to the currency of Country B.

a. Forward discount relative to the currency of Country B. If the real rates of interest are the same, the country with the higher nominal interest rate is expected to experience a higher rate of inflation. A higher rate of inflation is associated with the devaluing of a currency, so the currency of the country with the higher nominal interest rate (Country A) likely will sell at a forward discount relative to the currency of the other country (Country B).

Th long-term trend in the dollar value of U.S. exports and imports reflects Exports Imports a. Increasing Increasing b. Increasing Decreasing c. Decreasing Increasing d. Decreasing Decreasing

a. Increasing Increasing

According to the COSO ERM framework, which of the following is least likely to impede the independence of a board member? a. Jane was a partner at the accounting firm that conducted the organization's financial statement audit five years ago but has no existing business or contractual relationships with the entity or its key stakeholders currently. b. June has a material consulting contract with the organization related to facilitating marketing and sales promotion. c. Laura is a board member of the organization's major competitor. d. Megan has served on the board for 15 years.

a. Jane was a partner at the accounting firm that conducted the organization's financial statement audit five years ago but has no existing business or contractual relationships with the entity or its key stakeholders currently. The COSO ERM framework does not list former financial statement auditors as having a potential independence impediment regarding board membership. In addition, the absence of a current business or contractual relationship (as is the case here) is a consideration for a board member's independence. Hence, Jane's independence is not impaired, according to the COSO ERM framework.

In the context of PEST analysis, the analysis of labor law would be most likely to fall under which of the PEST categories? a. Political. b. Economic. c. Social. d. Technological.

a. Political The political factors considered in PEST analysis are concerned with the nature of the political environment and the ways and the extent to which a government intervenes in an economy. The political environment includes, among other factors, labor law, environmental law, and other relevant aspects of law.

According to COSO, a primary purpose of monitoring internal control is to verify that the internal control system remains adequate to address changes in a. Risks. b. The law. c. Technology. d. Operating procedures.

a. Risks ! This is the primary purpose of monitoring internal control

Capital markets facilitate the trading of stocks bonds a. Yes Yes b. Yes No c. No Yes d. No No

a. Yes Yes

International trade is measured by a country's Imports Exports a. Yes Yes b. Yes No c. No Yes d. No No

a. Yes Yes

PEST analysis can be used when considering: Domestic locations Foreign locations a. Yes Yes b. Yes No c. No Yes d. No No

a. Yes Yes

A company considers investing $20 million in a foreign company whose local currency is under pressure. The company suspects that the exchange rate may fluctuate soon. The exchange rate at the time of the investment is 2.57 to $1.00. After the investment, the exchange rate changes to 3.15 to $1.00. What is the change in the value of the company's investment in U.S. dollars? a. 18.4% increase. b. 18.4% decrease. c. 22.6% increase. d. 22.6% decrease.

b. 18.4% decrease Correct! The percentage change is computed by first converting the initial investment to its foreign currency value at the date of investment; that is: $20,000,000 × 2.57 = 51,400,000 FC units. Next, the dollar value of the investment is determined after the change in exchange rate; that is: 51,400,000 FC / 3.15 = $16,317.400. Then the percentage change in the dollar value of the investment is determined; that is: $16,317,400 / $20,000,000 = 81.59%. Finally, since the dollar value of the investment after the change is exchange rate is only 81.59% of its prior value, there is a loss of 100.00% - 81.6% = 18.4% (decrease). [Alternative percentage calculation: $20,000,000 - $16,317,400 = $3,682,600 / $20,000,000 = 18.4% (decrease).]

COSO's enterprise risk management framework encompasses each of the following, except a. Enhancing risk response decisions. b. Decreasing inherent risk appetite. c. Improving deployment of capital. d. Seizing opportunities.

b. Decreasing inherent risk appetite. COSO's enterprise risk management framework does not include a goal of decreasing inherent risk appetite. Instead, the organization's realized risk is assessed compared to its desired risk appetite.

According to COSO, the presence of a written code of conduct provides for a control environment that can a. Override an entity's history and culture. b. Encourage teamwork in the pursuit of an entity's objectives. c. Ensure that competent evaluators are implementing and monitoring internal controls. d. Verify that information systems are providing persuasive evidence of the effectiveness of internal controls.

b. Encourage teamwork in the pursuit of an entity's objectives. A code of conduct helps facilitate shared goals and encourages teamwork.

Which of the following statements regarding foreign licensing and foreign franchising, if any, is/are correct? I. Licensors typically remain more involved with a licensee than a franchisor remains involved with a franchisee II. Franchising typically provides greater quality control than does simple licensing a. I only b. II only c. Both I and II d. Neither I nor II

b. II only

Which of the following actions is the acknowledged preventive measure for a period of deflation? a. Increasing interest rates. b. Increasing the money supply. c. Decreasing interest rates. d. Decreasing the money supply.

b. Increasing the money supply. When an economy is in deflation, increasing the money supply (for example, by lowering the reserve requirement or, in most circumstances, lowering the discount/interest rate) will stimulate demand and increase the general price level.

In addition to increasing the demand for lendable funds, government borrowing to finance large deficits has which of the following effects? a. It decreases the rate of inflation. b. It puts upward pressure on interest rates. c. It increases the supply of lendable funds. d. It exerts downward pressure on interest rates.

b. It puts upward pressure on interest rates. Government borrowing to finance large deficits would put upward pressure on interest rates. As a result of government borrowing of large amounts, the demand for available investment funds would increase significantly. In order to attract additional investment funds, borrowers would have to pay a higher rate of interest, causing interest rates to rise.

According to COSO, which of the following components addresses the need to respond in an organized manner to significant changes resulting from international exposure, acquisitions, or executive transitions? a. Control activities b. Risk assessment c. Monitoring activities d. Information and communication

b. Risk assessment Correct! Risk assessment is the process of identifying, analyzing, and managing the risks involved in achieving the organization's objectives. Changes related to international exposure, acquisitions, or executive transitions create risks, which must be assessed, prioritized, and responded to.

Which of the following statements is correct regarding the requirements of the Sarbanes-Oxley Act of 2002 for an issuer's board of directors? a. Each member of the board of directors must be independent from management influence, based on the member's prior and current activities, economic and family relationships, and other factors. b. The board of directors must have an audit committee entirely composed of members who are independent from management influence. c. The majority of members of the board of directors must be independent from management influence. d. The board of directors must have a compensation committee, a nominating committee, and an audit committee, each of which is composed entirely of independent members.

b. The board of directors must have an audit committee entirely composed of members who are independent from management influence. SOX requires that a public company's entire audit committee be independent.

Which of the following is the best description of the effects of poorly implemented risk responses? a. The risk that quality assurance checks fail to detect product defects prior to distribution. b. The risk of incorrect payments to customers impacting the entity's financial results. c. The risk that bank reconciliations fail to identify incorrect payments to customers. d. The risk that demand exceeds production targets which impacts customer service.

b. The risk of incorrect payments to customers impacting the entity's financial results. This is a precisely stated risk related to a poorly implemented risk response (controls on incorrect payments to customers).

The currency or currency of the Eurodollar market (Euromarket) include(s): U.S. Dollar EEU Euro a. Yes Yes b. Yes No c. No Yes d. No No

b. Yes No

This question is based on the following information. Total units of product Average fixed cost Average variable cost Average total cost 6 $15.00 $25.00 $40.00 7 12.86 24.00 36.86 8 11.25 23.50 34.75 9 10.00 23.75 33.75 The marginal cost of producing the ninth unit is a. $23.50 b. $23.75 c. $25.75 d. $33.75

c. $25.75 This answer is correct. Marginal cost is the additional cost of producing one more unit. The amount may be obtained by subtracting the total cost of 9 units from the total cost of 8 units. $25.75 = ($33.75 × 9) - ($34.75 × 8).

A hospital is comparing last year's emergency rescue services expenditures to those from 10 years ago. Last year's expenditures were $100,500. Ten years ago, the expenditures were $72,800. The CPI for last year is 168.5 as compared to 121.3 ten years ago. After adjusting for inflation, what percentage change occurred in expenditures for emergency rescue services? a. 38.0% increase. b. 13.8% increase. c. 0.6% decrease d. 18.1% decrease.

c. 0.6% decrease The percentage change in expenditures for emergency rescue services is a 0.6% (i.e., .006) decrease. The change in the CPI value over the 10 years was 168.5 - 121.3 = 47.2. The percentage change in the CPI was 47.2/121.3 = .38911. Therefore, adjusted for inflation, expenditures 10 years ago would have an adjusted value of $72,800 x 1.38911 = $101,127. Since expenditures in current dollars was $100,500 there was an inflation adjusted decrease of 0.6%, calculated as $100,500 - $101,127 = ($627)/$101,127 = .0062 (or 0.6%) decrease.

Allen has the following schedule of marginal utility for slices of pizza and bottles of beer: Slices of Pizza Marginal Utility Bottles of Beer Marginal Utility 1 100 1 60 2 80 2 50 3 60 3 30 4 50 4 20 If Allen maximizes his total utility by consuming 3 slices of pizza and 3 bottles of beer, which one of the following is the ratio of the price of a slice of pizza to the price of a bottle of beer? a. 1:1 b. 1:2 c. 2:1 d. 2:2

c. 2:1 Since total utility is achieve when 3 slices of pizza and 3 bottles of beer are consumed, the marginal unit per dollar must be equal at those quantities of pizza and beer. For that to be true, the price of a slice of pizza must be twice that of the price of a bottle of beer, as computed by the marginal utility of beer divided into the marginal utility of pizza. That calculation would be 60/30, which is 2:1.

Which of the following, if either, may be a reason a firm elects to outsource production of a subassembly used in its final product? I. To improve quality of subassembly II. To reduce the time needed to have the subassembly available a. I only b. II only c. Both I and II d. Neither I nor II

c. Both I and II

which of the following statements regarding globalization of capital markets, if either, is/are correct? I. Globalization permits reduced investment portfolio risk II. Globalization permits a lower cost of capital a. I only b. II only c. Both I and II d. Neither I nor II

c. Both I and II

Which of the following is not likely to affect the supply of a particular good? a. Changes in government subsidies. b. Changes in technology. c. Changes in consumer income. d. Changes in production costs.

c. Changes in consumer income Changes in consumer income could affect the demand for the good, but not its supply.

Which of the following changes would most effectively halt a period of inflation? a. Decreasing interest rates by a large amount b. Decreasing savings by a small amount c. Increase interest rates by a large amount d. Increase savings by a small amount

c. Increase interest rates by a large amount A large increase in interest rates would increase the cost of business investments and consumer spending on durable goods (homes, cars, etc.), which would decrease demand for those forms of expenditures and thereby reduce demand. Reduced demand would, in turn, tend to stop price level increases (i.e., inflation).

In any competitive market, an equal increase in both demand and supply can be expected to always (This question is CMA adapted) a. Increase both price and market-clearing quantity. b. Decrease both price and market-clearing quantity. c. Increase market-clearing quantity. d. Increase price.

c. Increase market-clearing quantity In a competitive market, the market will always clear at the equilibrium price. If there is an equal increase in both demand and supply, the equilibrium price may increase, decrease, or remain the same. However, there will be more units sold.

A significant decline in the exchange rate of the U.S. dollar generally will have which of the following effects? a. It will hurt all U.S. businesses. b. It will benefit U.S. importers. c. It will benefit U.S. exporters. d. It will benefit all U.S. businesses.

c. It will benefit U.S. exporters. !) A significant decline in the exchange rate of the U.S. dollar generally will benefit U.S. exporters. A decline in the U.S. dollar will make U.S. goods less expensive for foreign buyers, which will help U.S. businesses that export goods

A country reduces its rate of monetary growth. Which of the following is the expected result for the country's economy? a. Higher net exports b. Higher investment c. Lower GDP growth d. Lower interest rates

c. Lower GDP growth A reduction in monetary growth would be expected to increase interest rates as the quantity of money in circulation (supply) is reduced. Higher interest rates will cause a decrease in business investments and consumer purchases of durable goods due to the higher cost of buying on credit. Decreases in business investments and consumer spending on durable goods would be expected to lower GDP growth.

Targeting a niche market always involves which of the following strategies, if either? Cost Leadership Focus a. Yes Yes b. Yes No c. No Yes d. No NO

c. No Yes

Due to 50% store growth year after year, monitoring internal controls at a national retail chain has come under tremendous pressure. According to COSO, which of the following responses would be appropriate under the circumstances to help restore effective monitoring? a. Decreasing the size of the corporate internal audit activities. b. Consolidating the data in the operational reports reviewed by the chief internal auditor. c. Shifting most of the monitoring responsibility to store managers and district managers. d. Having all the managers sign the corporate compliance policy on an annual basis.

c. Shifting most of the monitoring responsibility to store managers and district managers. Given the growth of stores, moving monitoring responsibility to those who are closer to the actual numbers is an effective action to improve effective monitoring.

A company manufactures goods in Esland for sale to consumers in Woostland. Currently, the economy of Esland is booming and imports are rising rapidly. Woostland is experiencing an economic recession and its imports are declining. How will the Esland currency, $E, react with respect to the Woostland currency, $W? a. The $E will remain constant with respect to the $W. b. The $E will increase with respect to the $W. c. The $E will decline with respect to the $W. d. Changes in imports and exports will not affect currency changes.

c. The $E will decline with respect to the $W. In a flexible or floating foreign currency exchange rate system, the equilibrium rate of exchange between currencies is determined by market supply of and demand for each currency. Because Esland's import of goods is rising rapidly, Esland's demand for foreign currencies, including Woostland currency, will increase. Conversely, because Woostland's imports are declining, there is a decreasing demand in Woostland for foreign currencies, including Esland's currency. As a consequence of Esland's relative increased demand for Woostland's currency, more units of Estland's currency will be required to purchase each unit of Woostland currency. Since it takes more units of $E to purchase each unit of $W, the value of $E relative to $W declines.

In a perfect monopoly, which of the following describes the relationship between the marginal revenue curve and the demand curve? a. The marginal revenue curve is the demand curve. b. The marginal revenue curve is above the demand curve and the curves diverge as the quantity increases. c. The marginal revenue curve is below the demand curve and the curves diverge as the quantity increases. d. The marginal revenue curve is below and parallel to the demand curve.

c. The marginal revenue curve is below the demand curve and the curves diverge as the quantity increases. In a perfect monopoly market structure, the marginal revenue curve is below the demand curve and the curves diverge as the quantity increases. The basic reason for the relationship is that, facing a downward-sloping demand curve, the firm must continuously lower its selling price in order to sell more units; therefore, marginal revenue must be below demand.

PEST analysis and SWOT analysis are assessment techniques used in the strategic planning process. Are these forms of analysis primarily concerned with "where" an entity should be located or with "how" an entity should operate? PEST analysis SWOT analysis a. How Where b. How How c. Where How d. Where Where

c. Where How

All of the following are true about international trade except that a. the gains from international trade depend on specialization with comparative advantage b. absolute advantage without comparative advantage does no result in gains from international trade c. absolute advantage is defined as the ability of one nation to produce a product at a relatively lower opportunity cost than another nation d. where there is reciprocal absolute advantage between two countries, specialization will make it possible to produce more of each product

c. absolute advantage is defined as the ability of one nation to produce a product at a relatively lower opportunity cost than another nation

In ERM, ______ focuses on the development of strategy and goals while _____ focuses on the implementation of strategy and variation from plans. a. tolerance; triggers b. key indicators; risk appetite c. risk appetite; tolerance d. internal control; portfolio view of risk

c. risk appetite; tolerance Risk appetite is the amount of risk an organization accepts in pursuit of a strategy and value. Risk appetite is focused on strategy and goals. Tolerance sets the boundaries of acceptable performance; it is related to strategy implementation and variation from plans.

Assume Australia and Brazil each require the units of labor shown below for producing Good A and Good B. Units of Labor Required to Produce Good A Good B Australia 4 2 Brazil 8 1 Assuming neither country has an advantage in the use of any other relevant factors of production, which country should produce Good A and which country should produce Good B? Country that Should Produce Good A Good B A. Brazil Brazil B. Brazil Australia C. Australia Brazil D. Australia Australia a. row A b. row B c. row C d. row D

c. row C Australia should produce Good A and Brazil should produce Good B. The decision as to which country (or other entity) should produce a good (or provide a service) should be based on which country has a comparative advantage. Comparative advantage exists when one country has the ability to produce a good or service at a lower opportunity cost than the opportunity cost of the good or service for another country. In order to produce Good A, Australia has to give up producing only 2 of Good B, while in order to produce Good A, Brazil has to give up producing 8 of Good B. Conversely, in order to produce Good B, Australia has to give up producing .5 (one-half) of a Good A, while in order to produce Good B, Brazil has to give up producing only .125 (one-eighth) of a Good B. Therefore, Australia should produce Good A and Brazil should produce Good B.

Assume a U.S. company purchases shares of a French company for 1,000,000 euros on March 1, Year 1, when the exchange rate was 1 E = $1.10. The investment is classified as available-for-sale by the U.S. company. After holding the shares for eight months, it sold the entire investment in the foreign market for 1,200,000 euros when the exchange rate was 1 E = $1.23. What dollar amount of total investment gain or loss would the U.S. company recognize? a. $26,000 b. $130,000 c. $156,000 d. $376,000

d. $376,000 The total gain recognized is the difference between the dollar value cost of the investment and the dollar value of the proceeds from sale of the investment. The calculation of the total gain would be: Investment cost 1,000,000 E x $1.10 = $1,100,000 Investment proceeds 1,200,000 E x $1.23 = 1,476,000 Total Gain (in dollars) $376,000

Assume that the Gross Domestic Product (GDP) Deflator index is: Year GDP Deflator Year 1 175 Year 2 180 Year 3 184 If nominal GDP for Year 3 is $11,500 billion, which of the following amounts is closest to real GDP for Year 3? a. $11,058 billion. b. $11,275 billion. c. $9,660 billion. d. $6,250 billion.

d. $6,250 billion. Real GDP is determined by adjusting nominal (current dollar) GDP for the effects of inflation, such that current-year GDP is expressed in terms of base period dollars (price level). The Year 3 GDP deflator of 184 shows that the price level has increased by 84% since the base period. The calculation is: 100 - 184 = 84 = .84 100 100 Thus, Year 3 prices are 184% of the base period prices. To get real GDP, nominal GDP is divided by 1.84. Thus, $11,500/1.84 = $6,250 billion. In terms of base period dollars, Year 3 GDP would be $6,250 billion.

Allen buys only beer and pizza. When the price of beer is $2.00 per bottle and the price of pizza is $10.00, Allen maximizes his total utility (satisfaction) by buying 5 beers and 4 pizzas. If the marginal utility of the 5th beer is 100 utils, which one of the following would be the marginal utility of the 4th pizza? a. 40 utils. b. 100 utils. c. 200 utils. d. 500 utils.

d. 500 utils. When total utility is maximized, the marginal utility (MU) of the last dollar spent on each and every item acquired must be the same. Thus, total utility is maximized when: MU of beers/price of beers = MU of pizza/price of pizza. Using the values given: 100 utils/$2.00 = MU of pizza/$10.00. The equation for beers = 100/$2 = 50 utils per dollar. The MU of pizza also must be 50 utils per dollar. Therefore, 50 = MU of pizza × $10 = 500 utils.

Which of the following is not accurate about production differentiation? a. Differentiation can only be perceived by the consumer based on brand name b. Differentiation can be based on service c. Différentiation can be achieved by market segmentation d. Differentiation is always related to the cost of producing the product

d. Differentiation is always related to the cost of producing the product

Kentucky Fried Opossums reports annually on its environmental impact to the Commonwealth of Kentucky. This is an example of: a. Internal, financial reporting. b. Internal, nonfinancial reporting. c. External, financial reporting d. External, nonfinancial reporting

d. External, nonfinancial reporting This answer is correct because this is an external report, and it is nonfinancial. (Environmental impact is not in currency.)

Which of the following items represents a reduction in the balance of payment accounts for the United States? a. Exports of services to residents of foreign nations b. Loans to domestic entities by foreign commercial banks. c. Foreign purchases of assets in the United States d. Import of assets from foreign countries

d. Import of assets from foreign countries Correct! The import of asset from foreign countries would be accomplished by the transfer of capital from the United States to sellers in foreign countries that would decrease the capital accounting, which would reduce the balance of payments for the United States.

In the long run, when a monopolistic firm produces at the quantity that maximizes revenue, will the firm use resources efficiently or inefficiently and will its price be higher or lower than in a competitive environment? Use of Resources Monopoly Price a. Efficient Higher than perfect competition b. Inefficient Lower than perfect competition c. Efficient Lower than perfect competition d. Inefficient Higher than perfect competition

d. Inefficient Higher than perfect competition A monopolistic firm that produces at the quantity that maximizes revenue will use resources inefficiently and will have a higher price than a firm in perfect competition. The inefficient use of resources and the price that is higher than it would be in perfect competition result because the monopolistic firm faces a downward-sloping demand curve.

Covington Financial, a large financial services corporation, has a unit responsible for conducting regular, recurring reviews to prevent and detect fraud. This unit should be part of the ______ function at Covington. a. IT b. HR c. Legal d. Internal audit

d. Internal audit The primary responsibility for conducting regular, recurring reviews to prevent and detect fraud is best located within the internal audit function of an organization.

Which one of the following is least likely an advantage associated with a wholly owned foreign subsidiary? a. Protection of proprietary information. b. Ability to coordinate activities of the subsidiary with other activities. c. Ability to maintain quality control. d. Minimizes capital investment required.

d. Minimizes capital investment required. Minimizing capital investment required is not likely to be an advantage associated with a wholly owned foreign subsidiary. Acquiring or establishing a wholly owned foreign subsidiary typically is a costly and time consuming undertaking. Other forms of international business are likely to require less capital investment than a wholly owned foreign subsidiary.

Riley, Ripley, and RudBack are builders of high-end (i.e., expensive) customized homes. They want to create a report on the risks that they face in their human resources function. Which level of reporting would be appropriate to this goal? a. Portfolio view b. Risk view c. Risk category view d. Risk profile view

d. Risk profile view The risk profile view would be at the level of a specific unit within the entity (i.e., the human resource function).

Which of the following has the highest price elasticity coefficient? a. Milk. b. Macaroni and cheese. c. Bread. d. Ski boats.

d. Ski boats If substitutes for a good are readily available then the demand for the good is more elastic. There are many substitutes for luxury goods

A firm's objectives should meet the requirement of being SMART. Which one of the following sets best identifies the characteristics represented by SMART? a. Suitable, measurable, actionable, relevant, and time-bound b. Specific, measurable, actionable, rewarded, and time-bound c. Sustainable, measurable, attainable, relevant, and time-bound d. Specific, measurable, attainable, relevant, and time-bound

d. Specific, measurable, attainable, relevant, and time-bound

Employees of an entity feel peer pressure to do the right thing; management appropriately deals with signs that problems exist and resolves the issues; and dealings with customers, suppliers, employees, and other parties are based on honesty and fairness. According to COSO, the above scenario is indicative of which of the following? a. Strategic goals b. Operational excellence c. Reporting reliability d. Tone at the top

d. Tone at the Top Remember rat-a-tat-tat (Tat—tone at the top). Tone at the top is critical to internal control; this description evidences a strong tone at the top in this organization.

According to the Sarbanes-Oxley Act of 2002, anyone who knowingly alters, destroys, covers up, or makes a false entry in any record or document with the intent to obstruct or influence the investigation of any matter within the jurisdiction of any department or agency of the United States may be fined and/or imprisoned for up to: a. Five years. b. Ten years. c. Fifteen years. d. Twenty years.

d. Twenty years. This is the maximum punishment for making a false entry with intent to obstruct an investigation.

Match each statement below with the appropriate term that best describes it: I. After considering implemented controls, the desired level of the risk of a major cyber attack is low. II. Before considering controls, the level of risk of a major cyber attack is high. III. After considering implemented controls, the level of the risk of a major cyber attack is medium. a. Internal control; inherent risk; target residual risk b. target residual risk; internal control; inherent risk c. target residual risk; actual residual risk; assessed risk d. target residual risk; inherent risk; actual residual risk

d. target residual risk; inherent risk; actual residual risk Correct! Target residual risk is the desired risk after implementing a response. Statement I is a statement of target residual risk. Inherent risk is the risk, absent actions to change it. Statement II is a statement of inherent risk. Actual residual risk is the risk that remains after responding to it. Statement III is a statement of actual residual risk.