FPT University

BUE 201

CHAPTER 10

1)Which of the following rely on gatekeepers and do not assume their role?

1. 1. Bankers
   2. Auditors
   3. Accountants
   4. Financial analysts

2. Which of the following is not a gatekeeper role?
   1. To ensure that those who enter into the marketplace are playing by the rules.
   2. To ensure that those who enter into the marketplace are conforming to the very conditions that ensure the market functions as it is supposed to function.
   3. To act as intermediaries, acting between the various parties in the market.
   4. To punish the individuals or parties who break the rules of the market.

3. Which of the following is a function of auditors as gatekeepers?
   1. To verify a company's financial statements so that investors' decisions are free from fraud and deception.
   2. To evaluate a company's financial prospects or creditworthiness, so that banks and investors can make informed decisions.
   3. To ensure that decisions and transactions conform to the law.
   4. To function as intermediaries between a company's stockholders and its executives.

4. Identify the gatekeepers who evaluate a company's financial prospects or creditworthiness, so that banks and investors can make informed decisions.
   1. Accountants
   2. Attorneys
   3. Auditors
   4. Analysts

5. Identify the gatekeepers who ensure that decisions and transactions conform to the law.
   1. Accountants
   2. Attorneys
   3. Auditors
   4. Analysts

6. Identify the gatekeepers who function as intermediaries between a company's stockholders and its executives.
   1. Attorneys
   2. Auditors
   3. Board of directors
   4. Analysts

7. Identify the gatekeepers who should guarantee that executives act on behalf of the stockholders' interests.
   1. Attorneys
   2. Board of directors
   3. Auditors
   4. Analysts

8. When professionals have a professional and ethical obligation to their clients, duties that override their own personal interests, they are said to have:
   1. statutory duties.
   2. executive rights.
   3. creditor claims.
   4. fiduciary duties.

9. Which of the following is one of the factors that make it difficult for individuals to fulfill their gatekeeper duties?
   1. Law
   2. Self-interest
   3. Client specifications
   4. Market regulations

10. Changes within the accounting industry arising from the consolidation of major firms and

               of services such as consulting within single firms have virtually institutionalized conflicts of interest.

1. 1. cross-selling
   2. outsourcing
   3. higher taxation
   4. purchasing

11. A large boost in share price—even for the short term—boosts a firm's equity leverage for external expansion. It can also serve as an effective defense to:
    1. hostile takeovers.
    2. government regulations.
    3. executive compensation.
    4. litigation.

12. Identify the correct statement about the Sarbanes-Oxley Act.
    1. It is also known as the Financial Services Modernization Act.
    2. It is enforced by the Financial Accounting Standards Board (FASB).
    3. It was passed because reliance on corporate boards to police themselves did not seem to be working.
    4. This act seeks instead to provide oversight in terms of direct lines of accountability and responsibility.

13. Which of the following provisions of the Sarbanes-Oxley Act prohibits various forms of professional services that are determined to be consulting rather than auditing?
    1. Section 201
    2. Section 301
    3. Section 307
    4. Section 404

14. Section 201 of the Sarbanes-Oxley Act addresses the:
    1. rules of professional responsibility for attorneys.
    2. codes of ethics for senior financial officers.
    3. management assessment of internal controls.
    4. services outside the scope of auditors.

15. Which of the following provisions of the Sarbanes-Oxley Act mandates majority of independents on any board (and all on audit committee) and total absence of current or prior business relationships?

1. 1. Section 407
   2. Section 301
   3. Section 406
   4. Section 307

16. Section 307 of the Sarbanes-Oxley Act addresses the:
    1. rules of professional responsibility for attorneys.
    2. codes of ethics for senior financial officers.
    3. management assessment of internal controls.
    4. services outside the scope of auditors.

17. Which of the following provisions of the Sarbanes-Oxley Act requires lawyers to report concerns of wrongdoing if not addressed?
    1. Section 407
    2. Section 301
    3. Section 406
    4. Section 307

18. Section 404 of the Sarbanes-Oxley Act addresses the:
    1. rules of professional responsibility for attorneys.
    2. codes of ethics for senior financial officers.
    3. management assessment of internal controls.
    4. services outside the scope of auditors.

19. Which of the following provisions of the Sarbanes-Oxley Act requires that management file an internal control report with its annual report each year in order to delineate how management has established and maintained effective internal controls over financial reporting?
    1. Section 201
    2. Section 301
    3. Section 307
    4. Section 404

20. Section 406 of the Sarbanes-Oxley Act addresses the:
    1. rules of professional responsibility for attorneys.
    2. codes of ethics for senior financial officers.
    3. management assessment of internal controls.
    4. services outside the scope of auditors.

21. Section 407 of the Sarbanes-Oxley Act addresses the:
    1. disclosure of audit committee financial expert.
    2. codes of ethics for senior financial officers.
    3. rules of professional responsibility for attorneys.
    4. services outside the scope of auditors.

22. Which of the following statements is true about Committee of Sponsoring Organizations (COSO)?

1. 1. It is an obligatory collaboration designed to improve financial reporting through a combination of controls and governance standards.
   2. It is an external mechanism that seeks to ensure ethical corporate governance.
   3. It describes "control" as encompassing "those elements of an organization that, taken together, support people in the achievement of the organization's objectives."
   4. It was established in 1985 by five of the major professional accounting and finance associations to challenge the Sarbanes-Oxley Act.

23. Which of the following elements of COSO is responsible for influencing the control consciousness of its people?
    1. Ongoing monitoring
    2. Information and communications
    3. Risk assessment
    4. Control environment

24. Which of the following elements of COSO are policies and procedures that support the control environment?
    1. Ongoing monitoring
    2. Information and communications
    3. Control activities
    4. Risk assessment

25. Which of the following elements of COSO is directed at supporting the control environment through fair and truthful transmission of information?
    1. Risk assessment
    2. Information and communications
    3. Control activities
    4. Ongoing monitoring

26. Which of the following elements of COSO provides assessment capabilities and uncovers vulnerabilities?
    1. Risk assessment
    2. Information and communications
    3. Control activities
    4. Ongoing monitoring

27. The duty of care involves the exercise of reasonable care by a board member to ensure that:
    1. they never use information obtained through their position as a board member for personal gain, but instead act in the best interests of the organization.
    2. the corporate executives with whom she or he works carry out their management responsibilities and comply with the law in the best interests of the corporation.
    3. they do not act in a way that is inconsistent with the central goals of the organization.
    4. they give undivided allegiance when making decisions affecting the organization.

28. Which of the following legal duties of board members suggests that a director does not need to be an expert or actually run the company?
    1. Duty of care
    2. Duty of good faith
    3. Duty of candor
    4. Duty of loyalty

29. Identify the duty of obedience that requires board members to be faithful to the organization's mission.
    1. Duty of care
    2. Duty of good faith
    3. Duty of candor
    4. Duty of loyalty

30. Which of the following duties of board members suggests that conflicts of interest are always to be resolved in favor of the corporation?
    1. Duty of care
    2. Duty of good faith
    3. Duty of candor
    4. Duty of loyalty

31. Which of the following legal duties suggests that a board member may never use information obtained through her or his position as a board member for personal gain, but instead must act in the best interests of the organization?
    1. Duty of loyalty
    2. Duty of candor
    3. Duty of good faith
    4. Duty of care

32. According to Bill George, the independent directors should meet regularly in executive sessions to:
    1. be selected based not only on their experience or the role they hold in other firms but also for their value structures.
    2. seek external guidance on executive compensation.
    3. preserve the authenticity and credibility of their communications.
    4. provide oversight and to control management through appropriate governance processes.

33. The                relies on the judgment of accounting professionals in carrying out their duties rather than stipulating specific rules.