Accounting Information System

Chapter 5
STUDY
PLAY
B
1. Which of the following is not considered a component of corporate governance?
A. Board of Directors Oversight
B. IRS Audits
C. Internal Audits
D. External Audits
C
6. When financial information is presented properly and its correctness is verifiable, it is:
A. Transparent.
B. Compliant.
C. Accurate.
D. Accountable.
D
8. Which of the following is not regarding the requirements for reporting on internal controls under Section 404 of the Sarbanes-Oxley Act of 2002?
A. Management must accept responsibility for the establishment and maintenance of internal controls and provide its assessment of their effectiveness.
B. The independent auditor must issue a report on management's assessment of internal controls.
C. Management must identify the framework used for evaluating its internal controls.
D. Management must achieve a control environment that has no significant deficiencies.
C
9. In the corporate governance chain of command, the audit committee is accountable to:
A. The company's vendors and other creditors.
B. Management and employees.
C. Governing bodies such as the SEC and PCAOB.
D. The external auditors.
C
10. Section 806 of the Sarbanes-Oxley Act is often referred to as the whistle-blower protection provision of the Act because:
A. It offers stock ownership to those who report instances of wrongdoing.
B. It specifies that whistelblowers must be terminated so as to avoid retaliation.
C. It protects whistleblowers' jobs and prohibits retaliation.
D. It provides criminal penalties for the alteration of destruction of documents.
B
11. Which of the following is regarding the post-Sarbanes-Oxley role of the corporate leader?
A. More emphasis is placed on strategic planning and less emphasis on financial information.
B. The corporate leader must be more in tune with IT to provide corporate governance solutions.
C. The corporate leader must be more focused on merger and acquisition targets.
D. The corporate leader tends to be less involved with the board of directors.
D
12A1. This company is well known for its best selling brands such as Jif® peanut butter, but is also recognized in the area of corporate governance:
A. Unilever
B. Johnson and Johnson
C. Kraft Foods
D. Proctor & Gamble Company
C
12A2. P&G's reputation as a leader in corporate governance is based on which of the following?
A. Active and diligent board of directors that provide effective oversign and interactoin with management and investors.
B. Strong in ternal controls protect the company's assets and information, and ensure compliance with applicable regulations, accounting standards, and disclosure requirements
C. Stressing a high rate of return to the stakeholders.
D. A code of conduct sets forth high ethical standards for all employees.
D
16. A system of checks and balances where a company's leadership is held accountable for building shareholder value and creating confidence in the financial reporting process is called:
A. Internal Control
B. Tone at the Top
C. Code of Conduct
D. Corporate Governance
C
21. The group of people who participate in or with the business in a manner that puts them in a position of financial interest or risk, or is otherwise significant to the overall strategies and operations of a business are called:
A. Managers
B. Board of Directors
C. Stakeholders
D. Audit Committee
A
22. The internal stakeholders would not include:
A. Creditors
B. Shareholders
C. Internal Auditors
D. Audit Committee
D
23A1. This group of stakeholders are employees of the corporation who help management establish and monitor internal controls by continuously looking for red flags.
A. Audit Committee
B. Executive Branch
C. Board of Directors
D. Internal Auditors
B
23A2. This group of internal stakeholders carry out the day-to-day operations and administrative functions of the company.
A. Management
B. Employees
C. Board of Directors
D. Executive Branch
A
25. This group of stakeholders is responsible for financial matters, including reporting, controls, and the audit function.
A. Audit Committee
B. External Auditors
C. Board of Directors
D. Internal Auditors
B
27. 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
C
35. 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
C
38. 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
B
44. Within the corporate environment, this term means that management has been entrusted with the power to manage the assets of the corporation, which are owned by the shareholders.
A. Fiscal Transparency
B. Fiduciary
C. Stewardship
D. Accuracy
B
48. 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
B
51. 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
C
52. 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
D
53A2. During the early 2000s, legislation was passed to provide for improved financial systems for the financial services industry. This legislation included:
A. Sarbanes-Oxley Act
B. US Patriot Act
C. Foreign Corrupt Practices Act
D. Security Exchange Act
C
58. 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.
C
D
B
A
A
C
B
C
61. 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.
A. Section 301
B. Section 401
C. Section 302
D. Section 404

61A1. The certified statement, signed by the CEO, CFO, and other responsible offices, indicate their acceptable of the responsibilities. Those responsibilities include:
A. The signing offices have reviewed the report in detail.
B. Based on the officer's knowledge, the financial statements and related disclosures are fairly presented.
C. The signing officers are responsible for the establishment, maintenance, and effectiveness of internal controls.
D. All of the above.

62. This section of the Sarbanes-Oxley Act requires that there be disclosures in periodic reports disclosing any off-balance-sheet transactions, including obligations or arrangements that may impact the financial position of the company.
A. Section 201
B. Section 401
C. Section 906
D. Section 404

63. This section of the Sarbanes-Oxley Act requires management assessment and reporting of the company's internal controls.
A. Section 404
B. Section 409
C. Section 301
D. Section 201

64. This section of the Sarbanes-Oxley Act requires that auditors include, as part of their audit procedures, an attestation to the internal control report prepared by management.
A. Section 404
B. Section 409
C. Section 301
D. Section 201

65. This section of the Sarbanes-Oxley Act requires that all public companies have in place a code of ethics covering its CFO and other key accounting officers. The code must include principles that advocate honesty and morat conduct, fairness in financial reporting, and compliance with applicable governmental rules and regulations.
A. Section 401
B. Section 404
C. Section 406
D. Section 409

66. The section of the Sarbanes-Oxley Act makes it a felony to knowingly alter, destroy, falsify, or conceal any records or documents with the intent to influence an investigation. This provision relates to both the company and its auditors.
A. Section 602
B. Section 802
C. Section 806
D. Section 409
68. This section of the Sarbanes-Oxley Act is referred to as the "whistleblower protection" provision.
A. Section 201
B. Section 306
C. Section 806
D. Section 1102
F
78. 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.
F
80. 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.
T
83A2. The Committee of Sponsoring Organizations was established by five different organizations that are influential in the practice of accounting, including the AICPA and the Financial Executives International.
F
85. Maintaining effective internal controls and ensuring compliance is a six-step process which does not require continual monitoring.
F
88. Because of its widespread relevance, ethical conduct is often valued as the most important part of corporate governance.
F
92. 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.
T
92A1. Auditors who perform non-audit services for their audit clients are likely to be placed in a position to audit their own work.
F
92A3. In order to avoid a conflict of interest, an auditor, who is hired away from the audit firm to take a job with a client, must take a cooling off period of one year, if the new job is in a key accounting role.
F
93. The auditors report directly to the Board of Directors.
T
94. The Audit Committee is responsible for hiring, firing, and overseeing the audit firm and serving as the liaison between the audit firm and management.
F
96. 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.
F
96A3. A reliable system of internal control must include policies and procedures to provide absolute assurance that unauthorized transactions are being prevented or detected.
T
98. The audit committee is the point of contact on financial matters and serves as the supervisor of the board of directors.
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