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| 4706244597 | Internal environment. | CPA-06480: According to the Committee of Sponsoring Organizations (COSO) of the Treadway Commission, which of the following components of enterprise risk management addresses an entity's assignment of authority and responsibility? | 0 | |
| 4706244598 | foundational elements such as organizational structure, assignment of authority and responsibility, integrity and ethical values, risk management philosophy, commitment to competence and human resource standards, and similar issues that influence the tone of the organization. | The internal environment component of the enterprise risk management (ERM) framework includes: | 1 | |
| 4706244599 | Monitoring. | CPA-06481: According to the Committee of Sponsoring Organizations (COSO) of the Treadway Commission, which of the following components of enterprise risk management addresses an entity's reporting deficiencies? | 2 | |
| 4706244600 | key elements that relate to the ongoing management activities or separate evaluations of the ERM approach adopted by the entity, including addressing reporting deficiencies. | The monitoring component of the enterprise risk management (ERM) framework includes: | 3 | |
| 4706244601 | Monitoring. | CPA-06482: According to the Committee of Sponsoring Organizations (COSO) of the Treadway Commission, which of the following components of the internal control integrated framework addresses an entity's timely reporting of identified internal control deficiencies? | 4 | |
| 4706244602 | the principle that deficiencies should be investigated in ongoing and separate evaluations and that deficiencies should be reported. | The monitoring component of the integrated framework includes: | 5 | |
| 4706244603 | Financial reporting competencies. | CPA-06483: A company that retains a CPA with the appropriate knowledge, skills and abilities to prepare timely and effective financial reporting is applying the ideas from which principle of effective internal control over financial reporting? | 6 | |
| 4706244604 | stronger controls and encourages the company to retain qualified personnel to handle financial reporting. | The financial reporting competencies principle of the control environment component of internal control integrated framework suggests: | 7 | |
| 4706244605 | Board Member-Yes/Independent Auditor-No/Board membership does not impair independence for purposes of audit committee membership (in fact, being a board member is a requirement). The independent auditor is hired and paid by the audit committee and thus is not independent, per the rule above. | CPA-06484: The Sarbanes-Oxley Act of 2002 requires that the members of the audit committee be independent with regard to the issuer. Within the meaning of the law, which of the following corporate officers would be considered independent? Board Member/Independent Auditor | 8 | |
| 4706244606 | members of the issuer's Board of Directors but also must be otherwise independent. | Rule: Audit committee members are to be: | 9 | |
| 4706244607 | 1. Audit committee members may not accept compensation from the issuer for consulting or advisory services. 2. Audit committee members may not be an affiliated person of the issuer (affiliation means a person has the ability to influence financial decisions). | Independence criteria are as follows: | 10 | |
| 4706244608 | If an issuer does not have an audit committee financial expert, the issuer must disclose the reason why the role is not filled. | CPA-06663: According to the Sarbanes-Oxley Act of 2002, which of the following statements is correct regarding an issuer's audit committee financial expert? | 11 | |
| 4706244609 | financial expert, or disclose why that role is not filled. Section 407 requires that the financial expert have an understanding of GAAP and financial statements, be able to assess the application of accounting principles, have comparable experience applying accounting principles to entities that present a similar level of complexity of the issuer, and understand both internal controls and audit committee functions. | Sarbanes-Oxley Section 407 requires that an issuer's audit committee have at least one: | 12 | |
| 4706244610 | Audit committee. | CPA-06739: The Sarbanes-Oxley Act of 2002 was enacted in response to corporate scandals that largely centered on the quality of corporate financial disclosure and highlighted the inadequate oversight of management, auditors and the Board of Directors. The Sarbanes-Oxley Act addresses the problems related to inadequate board oversight by requiring public companies to have an: | 13 | |
| 4706244611 | the appointment, compensation and oversight of the work of the public accounting firm employed by that public company. The separation of audit supervision from the Board of Directors addresses the problem of inadequate board oversight. | Public companies are required to establish an audit committee that is directly responsible for: | 14 | |
| 4706244612 | The existence of financial expert(s) on the audit committee or the reasons why the audit committee does not have a financial expert. | CPA-06740: The Sarbanes-Oxley Act of 2002 requires that one or more members of the audit committee be a financial expert and that the financial reports disclose: | 15 | |
| 4706244613 | the existence of financial expert(s) on the committee or the reasons why the committee does not have a financial expert. | In the financial reports, the issuer must disclose: | 16 | |
| 4706244614 | The enhanced level of financial sophistication of the financial expert can serve as a resource for the audit committee. | CPA-06741: The primary benefit of having a financial expert on a company's audit committee is: | 17 | |
| 4706244615 | the expertise that the board can bring to its oversight function. | The benefits of a financial expert on the audit committee relate to: | 18 | |
| 4706244616 | The Board of Directors would likely evaluate Astor's qualifications to serve on the audit committee and be designated as a financial expert based on mix of knowledge and experience. | CPA-06742: Arnold Astor, CPA, is a local tax practitioner who has been asked to sit on the Board of BigLarge Corporation, a multinational issuer. Astor has never had any involvement either as an employee or as an auditor with publically traded companies but does teach an accounting principles class at the community college. Under the provisions of Sarbanes-Oxley Act of 2002: | 19 | |
| 4706244617 | judgmental issue is typically made by the Board of Directors. The Sarbanes-Oxley Act is silent as to what group has the authority to designate an individual a financial expert but in practice, the board most often makes that decision. The Act provides some guidance but does not prescribe specific qualifications. | Qualification as a financial expert is a: | 20 | |
| 4706244618 | Prompt internal reporting of code provisions and accountability for adherence to the code. | CPA-06743: The Sarbanes-Oxley Act of 2002 requires that the officers of a corporation be held accountable to a code of ethics. According to the Act, codifications of ethical standards should include provisions for all of the following, except: | 21 | |
| 4706244619 | Sarbanes-Oxley Act itself does not have this requirement. | Although the SEC proposed standards for codes of ethics to include both internal reporting of code provisions and accountability for adherence to the code, the: | 22 | |
| 4706244620 | A statement that there are no disagreements between management and the auditor as to the effectiveness of internal controls. | CPA-06744: The Sarbanes-Oxley Act of 2002 requires that the management report on internal control include all of the following, except: | 23 | |
| 4706244621 | management's assumption of responsibility for internal control, management's assessment of internal control effectiveness and a statement that the auditor has reported on management's evaluation. Management does not describe disagreements, if any, between management and the auditor. | Financial statement disclosures include: | 24 | |
| 4706244622 | Means and methods for balancing risk and growth. | CPA-06745: The Sarbanes-Oxley Act of 2002 seeks to improve investor confidence by providing greater transparency for all of the following issues, except: | 25 | |
| 4706244623 | less on strategic operations and more on the financial reporting issues impacted by the audit committee's competence, the ethical behavior of senior officers and the adequacy of internal controls. | The issues surrounding risk and growth are significant to investors and generally addressed by enterprise risk management concepts; however, the Sarbanes-Oxley Act focuses | 26 | |
| 4706244624 | Obtain and Use Information./The principle of obtain and use information is applied when the organization obtains or generates and uses relevant, high-quality information to support the functioning of the control. In this case, management is using the exception report (information) to support the control of monitoring overtime costs. | The Gotham Corporation regularly produces budget vs. actual data for its managers. The company is particularly sensitive to personnel costs, and division variances of greater than five percent for any period are promptly investigated to determine if budgeted postions have not been filled or if there has been extraordinary overtime. Timely exception resolution of this character illustrates the information and communication principles typically associated with: | 27 | |
| 4706244625 | External Communication./The principle of external communications asserts that matters affecting the achievement of financial reporting should be communicated with outside parties. | CPA-06748: The external auditors for the Horace Company assess the achievement of internal control objectives each year and communicate the assessment to management and the Board. Communication by the external auditor illustrates which principle of the information and communication component of the Committee on Sponsoring Organization's Integrated Framework? | 28 | |
| 4706244626 | Private sponsoring organizations. | CPA-06751: The Treadway Commission was established to study factors that lead to fraudulent financial reporting. The Treadway Commission was established by: | 29 | |
| 4706244627 | mid 1980's to study the factors that can lead to fraudulent financial reporting. | The Committee on Sponsoring Organizations (COSO), an independent private sector initiative, was initially established in the | 30 | |
| 4706244628 | James Treadway, Jr., an executive in the private sector. | The COSO is sometimes referred to as the Treadway Commission after its original Chairman, | 31 | |
| 4706244629 | 1.the American Accounting Association (AAA), 2. the American Institute of Certified Public Accountants (AICPA), 3. the Financial Executives Institute (FEI), 4. the Institute of Internal Auditors (IIA), 5. and the Institute of Management Accountants (IMA). | The private "sponsoring organizations" of the Treadway Commission included the five major financial professional associations in the United States: | 32 | |
| 4706244630 | To help businesses assess internal control. | CPA-06752: The Committee on Sponsoring Organizations prepared the Internal Control Integrated Framework: | 33 | |
| 4706244631 | assist organizations in developing comprehensive assessments of internal control effectiveness. The Framework is widely regarded as an appropriate and comprehensive basis to document the assessment of internal controls over financial reporting. | In 1992, the Committee on Sponsoring Organizations (COSO) issued Internal Control - Integrated Framework (the Framework) to: | 34 | |
| 4706244632 | Avoidance/A response to risk that involves the disposal of a business unit, product line, or geographical segment is called risk avoidance. When Able sells all of its businesses in Florida, the company eliminates its exposure to named storms that hit Florida. | CPA-06753: Able Corporation owns numerous businesses along the coast of Florida. The company's management has identified business interruption events as a potential risk resulting from storm damages caused by hurricanes. Management is so fearful of the possibility of storm damage that they elect to divest the company of virtually all properties on the Florida coast. Able's response to potential risks is known as: | 35 | |
| 4706244633 | Sharing./Insuring against losses or entering into joint ventures to address risk is known as risk sharing. | CPA-06754: Able Corporation owns numerous businesses along the coast of Florida. The company's management has identified business interruption events as a potential risk resulting from storm damages caused by hurricanes. The company elects to not only insure its properties but to "buy down" standard deductibles with additional premium. Able's response to potential risks is known as: | 36 | |
| 4706244634 | Reduction./A response to risk that involves the diversification of product offerings rather than elimination of product offerings is called reduction. | CPA-06755: Able Corporation owns numerous businesses along the coast of Florida. The company's management has identified business interruption events as a potential risk resulting from storm damages caused by hurricanes. The company elects to balance its portfolio of risk with property investments on the coast of other states and in Florida's interior. Able's response to potential risks is known as: | 37 | |
| 4706244635 | Acceptance./Self insuring or simply tolerating the full exposure to risk is known as acceptance. | CPA-06756: Able Corporation owns numerous businesses along the coast of Florida. The company's management has identified business interruption events as a potential risk resulting from storm damages caused by hurricanes. The company elects to treat the potential damages from hurricanes as part of their business model. Able's response to potential risks is known as: | 38 | |
| 4706244636 | Event Inventory./When management uses listings of potential events common to a specific industry as a means of identifying risks or opportunities, the method is known as event inventory. | CPA-06757: Barker Healthcare Corporation's management is developing their risk assessment as they review plans to expand their nursing home chain into various states in the southeast. The management team has consulted published industry sources to evaluate both population trends and affluence in the region as a means of evaluating both demand, the ability to pay and the risk that populations may either not seek healthcare or may not be able to afford it. Barker's listing of risks from industry sources is a technique for risk assessment known as a(n): | 39 | |
| 4706244637 | Definitions of common sense approaches to software piracy to ensure that the company is competitive./Codes of conduct likely will not condone exceptions to ethical behavior or the law in the name of competition. | CPA-06758: Kamp Sporting Goods seeks to establish a code of conduct that will communicate the "tone at the top" to all employees. The contents of the code will likely include all of the following, except: | 40 | |
| 4706244638 | CPA-06759: Dollar Bus Company has set an objective to fully comply with published bus schedules to ensure consistent on-time service. The company knows that shorter routes per bus minimize delays caused by unforeseen issues. Shorter routes require a greater investment in the fleet. The company currently achieves an 83% compliance rate with the schedule and does not expect a significant increase or decrease in ridership or revenue as compliance improves to 100% but does see revenues fall off significantly when buses are late more that 20% of time. The company's objective setting would logically develop as follows: | 41 | ||
| 4706244639 | Obtain and Use Information. | CPA-06747: The Gotham Corporation regularly produces budget vs. actual data for its managers. The company is particularly sensitive to personnel costs, and division variances of greater than five percent for any period are promptly investigated to determine if budgeted postions have not been filled or if there has been extraordinary overtime. Timely exception resolution of this character illustrates the information and communication principles typically associated with: | 42 | |
| 4706244640 | the organization obtains or generates and uses relevant, high-quality information to support the functioning of the control. In this case, management is using the exception report (information) to support the control of monitoring overtime costs. | The principle of obtain and use information is applied when: | 43 | |
| 4706244641 | Private sponsoring organizations. | CPA-06751: The Treadway Commission was established to study factors that lead to fraudulent financial reporting. The Treadway Commission was established by: | 44 | |
| 4706244642 | the mid 1980's to study the factors that can lead to fraudulent financial reporting. | The Committee on Sponsoring Organizations (COSO), an independent private sector initiative, was initially established in: | 45 | |
| 4706244643 | the Treadway Commission after its original Chairman, James Treadway, Jr., an executive in the private sector. The private "sponsoring organizations" included the five major financial professional associations in the United States: the American Accounting Association (AAA), the American Institute of Certified Public Accountants (AICPA), the Financial Executives Institute (FEI), the Institute of Internal Auditors (IIA), and the Institute of Management Accountants (IMA). | The COSO is sometimes referred to as: | 46 | |
| 4706244644 | 1. the American Accounting Association (AAA), 2. the American Institute of Certified Public Accountants (AICPA), 3. the Financial Executives Institute (FEI), 4. the Institute of Internal Auditors (IIA), 5. and the Institute of Management Accountants (IMA). | the five major financial professional associations in the United States are: | 47 | |
| 4706244645 | To help businesses assess internal control. | CPA-06752: The Committee on Sponsoring Organizations prepared the Internal Control Integrated Framework: | 48 | |
| 4706244646 | - Integrated Framework (the Framework) to assist organizations in developing comprehensive assessments of internal control effectiveness. The Framework is widely regarded as an appropriate and comprehensive basis to document the assessment of internal controls over financial reporting. | In 1992, the Committee on Sponsoring Organizations (COSO) issued Internal Control | 49 | |
| 4706244647 | Compliance with the bus schedule would be reviewed in relation to the risk of lost ridership within tolerable compliance percentages above 80%./Objectives are aligned with risk appetite, which drives risk tolerance levels. | CPA-06759: Dollar Bus Company has set an objective to fully comply with published bus schedules to ensure consistent on-time service. The company knows that shorter routes per bus minimize delays caused by unforeseen issues. Shorter routes require a greater investment in the fleet. The company currently achieves an 83% compliance rate with the schedule and does not expect a significant increase or decrease in ridership or revenue as compliance improves to 100% but does see revenues fall off significantly when buses are late more that 20% of time. The company's objective setting would logically develop as follows: | 50 | |
| 4706244648 | Product demand may fall if sporting goods become less popular./Although product demand is a legitimate concern, the related objective is associated with staffing levels. The drop in product demand would not be an event identified regarding the objective of hiring staff within certain cost constraints. | CPA-06760: Extra Edge Sporting Goods has set a strategic objective of being in the upper quartile of sporting goods retailers. The company identified a related objective of increasing its sales force by 50 new staff members while maintaining staff cost at .194 cents per sales dollar. Events identified by the management of Extra Edge that might interfere with achievement of their related objective would include all of the following, except: | 51 | |
| 4706244649 | $10 million./Inherent risk is the risk to an entity in the absence of any actions management might take to alter either the risk's likelihood or impact. The $10 million exposure identified in the problem is the risk exposure without management's intervention. | CPA-06761: Management has carefully evaluated the likelihood and impact of events on its foreign operations. In the event of a 3% variation in exchange rate, the impact is estimated at $10 million without any action taken by management and $4 million if the company purchases a hedge instrument. The impact of the inherent risk of changes in foreign currency exchange on achieving company's business objectives is: | 52 | |
| 4706244650 | $ 4 million./The $4 million risk exposure, after management purchases the hedge, is the residual risk. Residual risk is the risk that remains after management responds to the risk. | CPA-06762: Management has carefully evaluated the likelihood and impact of events on its foreign operations. In the event of a 3% variation in exchange rate, the impact is estimated at $10 million without any action taken by management and $4 million if the company purchases a hedge instrument. The impact of the residual risk of changes in foreign currency exchange on achieving company's business objectives is: | 53 | |
| 4706244651 | The components of the enterprise risk management framework./The components of the enterprise risk management framework are the criteria used to evaluate its effectiveness. | CPA-06765: The criteria for evaluating the effectiveness of enterprise risk management are: | 54 | |
| 4706244652 | Human resources practices should be designed to facilitate effective internal control over financial reporting./ The regular evaluation of employees for their competence in financial reporting is an important link between human resources policies and the achievement of financial reporting objectives. | CPA-06770: The Daphne Corporation evaluates employees with responsibilities for financial reporting for fulfillment of those responsibilities for compensation and promotion purposes. The company's policies support the idea that: | 55 | |
| 4706244653 | Offer the opportunity to the corporation and accept it if the corporation rejects it./The business law concept of "duty of loyalty" is a common ethical standard. The director's duty of loyalty requires that the director offer opportunities presented in the market place first to the corporation and only accept them if the corporation rejects it. A land developer might sit on the board of a land development company. If presented with the opportunity to purchase a building or land at a significant discount, the developer would be obligated to offer the opportunity to the corporation first but would not be barred from taking advantage of the opportunity if the corporation had no interest. | CPA-06977: In order to comply with a director's duty of loyalty to a corporation, what action(s) should a director take when presented with a corporate opportunity? | 56 | |
| 4706244654 | ERM can provide absolute assurance with respect to objective categories./ERM provides a framework in which to manage risk within an organization's risk appetite to provide reasonable assurance regarding the achievement of entity objectives. The assertion that ERM can provide absolute assurance with respect to objective categories is not true but, if it were, it would represent a strength and not a weakness. | CPA-06992: Each of the following is a limitation of enterprise risk management (ERM), except: | 57 | |
| 4706244655 | Risk reduction. | CPA-06993: A manufacturing firm identified that it would have difficulty sourcing raw materials locally, so it decided to relocate its production facilities. According to COSO, this decision represents which of the following responses to the risk? | 58 | |
| 4706244656 | risk reduction. | Relocation of production facilities to assure an uninterrupted supply chain (e.g., sourcing raw materials) is an example of | 59 | |
| 4706244657 | avoidance, reduction, sharing and acceptance. | The Committee of Sponsoring Organization's (COSO) Enterprise Risk Management (ERM) framework identifies four methods of responding to risk, including | 60 | |
| 4706244658 | Change identification. | CPA-07013: According to COSO, the use of ongoing and separate evaluations to identify and address changes in internal control effectiveness can best be accomplished in which of the following stages of the monitoring-for-change continuum? | 61 | |
| 4706244659 | control baseline, followed by change identification and change management and concluding with control validation/ update. Change identification considers the risk assessment component of internal control and identifies changes in process or risk and verifies that the design of underlying controls remains effective. Monitoring through the use of ongoing and separate evaluations should consider the ability to identify and address changes in the change identification stage of the monitoring for change continuum. | The COSO identifies four stages of the change continuum beginning with: | 62 | |
| 4706244660 | Experience with internal accounting controls./The financial expert serving on the audit committee of an issuer must have experience with internal controls. The financial expert qualifies through education or past experience as an auditor or finance officer for an issuer of similar complexity. | CPA-07014: Which of the following is necessary to be an audit committee financial expert according to the criteria specified in the Sarbanes-Oxley Act of 2002? | 63 | |
| 4706244661 | The Board of Directors understands and exercises oversight responsibility related to financial reporting and related internal control./Active engagement by an audit committee in representing the Board of Directors relative to all matters of internal and external audits is evidence of the board's understanding of their oversight responsibility over financial reporting. | CPA-06767: As a matter of policy, all correspondence to or from regulatory auditors received by the management of the Barclay Corporation is provided to the Barclay Corporation audit committee and the corporation's full board as needed. In assessing entity wide controls, management might conclude: | 64 | |
| 4706244662 | Sound integrity and ethical values are developed and understood and set the standard of conduct for financial reporting./The existence of a compliance program that includes both ethics training and a hotline for anonymous reporting is evidence of development of ethical values and ensuring that those values are understood and taken seriously. | CPA-06768: Auburndale Corporation has a corporate compliance program that allows employees the option of anonymously reporting violations of laws, rules, regulations, policies or other issues of abuse through a hotline. Reported issues are reviewed by the internal auditor and either immediately forwarded to the CEO or summarized and reported to the CEO each month. The program also provides opportunities to report through supervisory channels and includes a biannual training class that all employees must complete. The corporate compliance program demonstrates that: | 65 | |
| 4706244663 | Sound integrity and ethical values are developed and understood and set the standard of conduct for financial reporting./The existence of a published code of ethics and a periodic acknowledgment that ethical values are understood is evidence of development of ethical values and ensuring that those values are understood and taken seriously. | CPA-06769: The Carlton Corporation publishes an Employee Handbook that contains employee responsibilities for moral behavior including a code of conduct. Each year, employees must acknowledge their receipt of the handbook, their understanding of the code, and if they have any awareness of non-compliance within the company. The policies would indicate: | 66 | |
| 4706244664 | The CFO updates the audit committee on status of internal control./Regular reporting to the audit committee represents reporting of deficiencies, not ongoing monitoring. | CPA-06772: All of the following management activities of the Falco Insurance Group, Inc. are evidence of the ongoing monitoring of internal controls built into the company's system, except: | 67 | |
| 4706244665 | Monitoring./Periodically comparing and updating the mission vision and values of a not-for-profit could best be classified as a monitoring activity. | CPA-06130: A not-for-profit organization periodically conducts focus groups of employees, service beneficiaries and governance board members to reevaluate its mission vision and values to determine the accuracy of the strategic statements to refine them where necessary. This activity relates to which component of internal control? | 68 | |
| 4706244666 | The likelihood and impact of negative events significantly exceeds residual risks. | CPA-06149: Generally, an organization will not operate beyond the limits of their risk appetite. Risk appetite has generally been exceeded when: | 69 | |
| 4706244667 | combined likelihood and impact of negative events significantly exceed residual risk. Residual risk represents the risk that remains after management has taken actions to mitigate negative events. If the likelihood and impact of those negative events significantly exceeds the residual risk, the operation is likely to exceed the organization's risk appetite. | Generally, an organization's risk appetite has been exceeded when the: | 70 | |
| 4706244668 | Information technology objectives./Objectives related to strategy are typically operations and reporting and compliance objectives. Information technology objectives may be a subset of one of these objectives, but is typically not a separate category. | Strategic objectives for the mission and vision of the organization are generally linked to related objectives. All of the following objectives are typically regarded as related objectives, except: | 71 | |
| 4706244669 | Related compliance objective./Establishment of an ethics hotline and related corporate training would most likely be a related compliance objective. Ethics training is sometimes referred to as corporate compliance training. Operational implementation of this character is generally a related objective rather than a strategic objective. | CPA-06156: The Glassman Company completed its annual retreat of board members and senior management and produced a document that links the organization's mission and vision with strategic and related objectives. The document includes a commitment to establish an ethics hotline and assign a corporate officer to conduct ethics training and monitor reports through the hotline. That commitment would most likely be a: | 72 | |
| 4706244670 | Related reporting objective./Establishment of a company-wide uniform chart of accounts would most likely be a related reporting objective. Uniform charts of accounts would promote more efficient reporting. | CPA-06157: The Hartman Conglomerate completed its annual retreat of board members and senior management and produced a document that links the organization's mission and vision with strategic and related objectives. The document includes a commitment to develop a uniform chart of accounts for all divisions of the conglomerate. That commitment would most likely be a: | 73 | |
| 4706244671 | Related operations objective./Conducting focus groups would most likely be a related operating objective. Focus groups would identify the needs of various stakeholders and be used to improve operations. | CPA-06158: The Justco Corporation completed its annual retreat of board members and senior management and produced a document that links the organization's mission and vision with strategic and related objectives. The document includes a commitment to conduct focus groups with customers and suppliers to determine the responsiveness of Justco to the needs of various parties. That commitment would most likely be a: | 74 | |
| 4706244672 | Strategic objective./Broad, company-wide objectives, such as coordinating company-wide resources to produce a service in the top quartile of quality, are strategic, not related. | CPA-06159: The Knight Corporation completed its annual retreat of board members and senior management and produced a document that links the organization's mission and vision with strategic and related objectives. The document includes an objective that the Knight Corporation will rank in the top quartile of quality for its industry. That objective would most likely be a: | 75 | |
| 4706244673 | Strategic objectives, supported by strategies and related objectives./Strategic objectives support the mission and are implemented via various strategies and related objectives. | CPA-06160: Establishing objectives that will support the mission and vision of an organization generally involve supporting the mission with: | 76 | |
| 4706244674 | Rely on information provided by a corporate officer./As a director of the corporation Davis may rely on information provided to him/her by a corporate officer. A corporate director is under no obligation to verify information given to him by management (corporate officers). | CPA-07020: Davis, a director of Active Corp., is entitled to: | 77 | |
| 4706244675 | Valid because the contract is fair to Quick. | CPA-07021: Knox, president of Quick Corp., contracted with Tine Office Supplies, Inc. to supply Quick's stationery on customary terms and at a cost less than that charged by any other supplier. Knox later informed Quick's board of directors that Knox was a majority stockholder in Tine. Quick's contract with Tine is: | 78 | |
| 4706244676 | voidable unless the director makes full disclosure of all of the facts to the disinterested directors or the shareholders, who then approve the transaction, or the director can prove that the transaction was fair to the corporation. The stationery purchase was fair to Quick, since it was purchased at a below-market price. Thus, the contract is valid. | If a corporation enters into a contract and a director has a conflict of interest in the transaction, the contract is: | 79 | |
| 4706244677 | The business judgment rule./ a director acts in good faith and in a manner the director believes is in the best interest of the corporation, and the director exercises the care that a reasonably prudent person would exercise in a similar position, the director is protected against liability for decisions the director makes that turn out poorly for the corporation. This is commonly known as the business judgment rule. | CPA-07022: The principle that protects corporate directors from personal liability for acts performed in good faith on behalf of the corporation is known as: | 80 | |
| 4706244678 | Management from liability for actions that result in corporate losses or damages if the actions are undertaken in good faith and are within both the power of the corporation and the authority of management to make. | CPA-07023: The business judgment rule is a rule that immunizes corporate: | 81 | |
| 4706244679 | liability for decisions made on behalf of the corporation if the director acts in good faith and in a manner that the director believes is in the best interest of the corporation, exercising the care that a reasonably prudent person would exercise in a similar position. The action must also ostensibly be within the power of the corporation to undertake and ostensibly within the authority of management to make. | Under the business judgment rule, a director is protected from: | 82 | |
| 4706244680 | Avoid adverse publicity and damage to the entity's reputation./Avoiding adverse publicity and damage to the entity's reputation is a public relations function, not a function of ERM. | CPA-06450: Which of the following is not a goal of an Enterprise Risk Management Framework (ERM)? | 83 | |
| 4706244681 | Event identification occurs after the development of objectives./Events can only be identified after the organizational objectives are identified. Events will either favorably or unfavorably impact the achievement of objectives. Risks (negative events) are only identifiable within the context of the objectives that they might impede. | CPA-06490: The Enterprise Risk Management Integrated Framework states that an organization must identify events, both positive and negative, as part of its risk management program. Which of the following is true with regard to events? | 84 | |
| 4706244682 | Product demand may fall if sporting goods become less popular./Although product demand is a legitimate concern, the related objective is associated with staffing levels. The drop in product demand would not be an event identified regarding the objective of hiring staff within certain cost constraints. | CPA-06760: Extra Edge Sporting Goods has set a strategic objective of being in the upper quartile of sporting goods retailers. The company identified a related objective of increasing its sales force by 50 new staff members while maintaining staff cost at .194 cents per sales dollar. Events identified by the management of Extra Edge that might interfere with achievement of their related objective would include all of the following, except: | 85 | |
| 4706244683 | $ 4 million./The $4 million risk exposure, after management purchases the hedge, is the residual risk. Residual risk is the risk that remains after management responds to the risk. | CPA-06762: Management has carefully evaluated the likelihood and impact of events on its foreign operations. In the event of a 3% variation in exchange rate, the impact is estimated at $10 million without any action taken by management and $4 million if the company purchases a hedge instrument. The impact of the residual risk of changes in foreign currency exchange on achieving company's business objectives is: | 86 | |
| 4706244684 | Receiving a personal loan from the issuer not in the ordinary course of business./Issuers are generally prohibited from making personal loans to directors or executive officers under the Sarbanes-Oxley Act of 2002. Exceptions exist for loans made in the ordinary course of business. | CPA-06491: Conflict of interest provisions of the Sarbanes-Oxley Act of 2002 generally prohibit the directors or executive officers of an issuer from: | 87 | |
| 4706244685 | Organizational structure./The organizational structure principle says that reporting relationships should not undermine the commitment to effective financial reporting and internal control. Maintaining reporting independence of the internal auditor is one way to apply this principle. | CPA-06492: A company that maintains a strong internal audit function that reports directly to the Board of Directors is applying the ideas from which principle of effective internal control over financial reporting? | 88 | |
| 4706244686 | Human resources. | CPA-06493: A company that routinely performs background checks on its employees to ensure that there is no criminal history is applying the ideas from which principle of effective internal control over financial reporting? | 89 | |
| 4706244687 | fully compatible with effective financial reporting and internal control. Background checks are evidence of the organization's commitment to hire new employees only after they have been thoroughly vetted and shown to be compatible with organizational commitments to competence, ethics, etc. | The human resources principle says that human resources policies and procedures should be: | 90 | |
| 4706244688 | Fined and imprisoned./An individual who knowingly executes or attempts to execute, securities fraud will be fined or imprisoned not more than 25 years or both. | CPA-07084: According to the Sarbanes-Oxley Act of 2002, a chief executive officer or chief financial officer who misrepresents the company's finances may be penalized by being: | 91 | |
| 4706244689 | Monitoring/Monitoring is one of the eight components of COSO's enterprise risk management (ERM) framework. The eight components of the ERM framework are summarized as follows in the mnemonic IS EAR AIM: | CPA-07085: Which of the following items is one of the eight components of COSO's enterprise risk management framework? | 92 | |
| 4706244690 | Internal environment/Setting objectives Event identification/Assessment of risk/Risk response Activities (control)/Information and communication/Monitoring | IS EAR AIM: | 93 | |
| 4706244691 | Change control./Programmer access to development and production represents flawed segregation of duties that creates deficiencies for change control. Change control considers the manner in which management monitors and authorizes changes to a variety of information technology matters including software applications programs. Only authorized individuals should be allowed to move changes into production and the function of making the change should be segregated from the function of putting the change into production. Programmers with access to both programming instructions and live data undermine management's control of data and their ability to verify that all changes have been performed in a manner consistent with their instructions. | CPA-07087: Management of a company has a lack of segregation of duties within the application environment, with programmers having access to development and production. The programmers have the ability to implement application code changes into production without monitoring or a quality assurance function. This is considered a deficiency in which of the following areas? | 94 | |
| 4706244692 | Demonstrating appropriate behavior by example. | CPA-08291: According to COSO, which of the following is the most effective method to transmit a message of ethical behavior throughout an organization? | 95 | |
| 4706244693 | most effective method to transmit a message of ethical behavior throughout an organization. The commitment to ethical behavior begins with the tone at the top, and is best established by management's demonstrated commitment to ethical behavior. | According to the COSO, demonstrating appropriate behavior by example is the: | 96 | |
| 4706244694 | Monitoring. | CPA-08292: Within the COSO Internal Control—Integrated Framework, which of the following components is designed to ensure that internal controls continue to operate effectively? | 97 | |
| 4706244695 | ensure that internal controls continue to operate effectively. Monitoring of internal control effectiveness is done to provide an assessment of the performance of the system of internal control over time. Monitoring is designed to ensure that internal controls operate effectively. | The monitoring component or function of the internal control framework is designed to: | 98 | |
| 4706244696 | Increasing the reliability of financial reporting and compliance with applicable laws and regulations./Increasing the reliability of financial reporting and compliance with applicable laws and regulations is an approach to promoting a management philosophy and style that is congruent with effective financial reporting and control, not monitoring. Monitoring internal control may involve establishing a foundation for monitoring, prioritization of monitoring procedures based on risk to achieve organizational objectives, and assessing reporting results and following up as appropriate with corrective actions. | CPA-08293: According to COSO, an effective approach to monitoring internal control involves each of the following steps, except: | 99 | |
| 4706244697 | To maintain a safe level of carbon dioxide emissions during production./Maintaining safe (mandated by regulation) carbon dioxide emissions during production is a compliance objective. Compliance objectives include adherence to the laws, rules, and regulations associated with operations, including environmental regulations and other laws. | CPA-08315: According to COSO, which of the following is a compliance objective? | 100 | |
| 4706244698 | The director breached a duty of loyalty by usurping a corporate opportunity. | CPA-08341: A member of the board of directors of Central Communications Co. is offered a license by a third party to operate a cellular phone system. The director does not present this offer to the board of directors for approval but informally mentions it to a fellow board member, who does not think it will be a problem. The director buys the license. Which of the following statements is correct regarding the director's actions? | 101 | |
| 4706244699 | loyalty from taking the opportunity without first presenting it to the corporation. Only after the corporation is presented formally with the opportunity and decides not to take it can the director move forward. An informal discussion with a fellow board member is insufficient. | Under the corporate opportunity doctrine, a director presented with a business opportunity that may be of interest to his/her corporation is prohibited through the duty of: | 102 | |
| 4706244700 | Residual risk./Residual risk is defined as the risk that an organization incurs after management takes whatever actions are needed to mitigate the adverse impact of a given event. | CPA-08342: Company management completes event identification and analyzes the risks. The company wishes to assess its risk after management's response to the risk. According to COSO, which of the following types of risk does this situation represent? | 103 | |
| 4706244701 | Change management. | CPA-08343: A company implements an enterprise resource planning application to help improve its financial and operational reporting, while gaining other efficiencies related to sales and inventory management. For the implementation, the company hires an individual specializing in preparing the company for the changes through documenting new policies and procedures and developing new training. This is an example of: | 104 | |
| 4706244702 | change management. Typically, these individuals are outside consultants who specialize in specific aspects of change management and can provide expertise to companies going through significant changes, such as new system implementations. | A situation where a company implements new technology and hires an individual to help document new policies and procedures and develop training is an example of: | 105 | |
| 4706244703 | Process effected by an entity's board of directors, management, and other personnel./It is actually stated in the definition provided by COSO for enterprise risk management (ERM) that it is "a process, effected by an entity's board of directors, management, and other personnel." | CPA-08361: The Enterprise Risk Management-Integrated Framework of the committee of sponsoring organizations (COSO) is best defined as a: | 106 | |
| 4706244704 | A manager within the department./The manager of a given department has a greater understanding of the risks and challenges associated with that department than would any other member of executive leadership. As such, the manager should be the individual tasked with devising and executing risk procedures for that department. | CPA-08362: According to COSO, the position or internal entity that is best suited, as part of the enterprise risk management process, to devise and execute risk procedures for a particular department is: | 107 | |
| 4706244705 | The codes of conduct must be in writing and displayed in public areas, such as a break room./ A code of conduct should be in writing and available to employees who want to read it, but there is no requirement that it must be displayed in public areas. | CPA-08363: Each of the following statements is correct regarding the existence and implementation of codes of conduct, except: | 108 | |
| 4706244706 | Enter into a contract with a vendor of computers for the company./A corporate officer has the authority to enter into contracts (e.g., with computer vendors) and act on behalf of the corporation in the ordinary course of business. | CPA-08522: A company officer who is not a director is authorized to perform which of the following duties? | 109 | |
| 4706244707 | Management override/This example indicates that whatever internal control put in place by the company was overridden by the executive's deliberate misrepresentation to the banker. | CPA-08523: According to COSO, an executive's deliberate misrepresentation to a banker who is considering whether to make a loan to an enterprise is an example of which of the following internal control limitations? | 110 | |
| 4706244708 | They are designed and implemented properly, and their design changes as processes change./Internal controls that are designed and implemented properly, including the ability for their design to adapt as processes change, will have the lowest chance of failure. | CPA-08524: Internal controls are likely to fail for any of the following reasons, except: | 111 | |
| 4706244709 | Implementation of internal controls./The four categories of ERM entity objectives include strategic, operations, reporting, and compliance. Implementation of internal controls is not an entity objective in the ERM framework. | CPA-08541: According to COSO, the four categories of entity objectives in the enterprise risk management framework include each of the following, except: | 112 | |
| 4706244710 | Adhere to fiscal budgets and goals as outlined by the internal audit committee and board of directors./Fiscal budgets and goals are not a factor in setting the "tone at the top" from the leaders of an organization. It is also unlikely that a company's internal audit committee would have responsibility for setting such budgets. | CPA-08542: According to COSO, the proper tone at the top helps a company to do each of the following, except: | 113 | |
| 4706244711 | Approval of high-dollar transactions by supervisors./Monitoring activities involve ongoing or separate evaluations to determine whether the components of internal control are present and functioning properly as well as reporting and correcting deficiencies. The act of approving high-dollar transactions by supervisors is an internal control, not a monitoring activity under the COSO framework. | CPA-08543: According to COSO, each of the following is an example of an appropriate ongoing monitoring activity, except: | 114 | |
| 4706244712 | most effective method to transmit a message of ethical behavior throughout an organization. The commitment to ethical behavior begins with the tone at the top, and is best established by management's demonstrated commitment to ethical behavior. | According to the COSO, demonstrating appropriate behavior by example is the: | 115 |
