Question 1

The first decade of the SOX legislation was characterized by controversy.

Accepted Answer

A) True 
 B)False  True

Question 2

The Public Company Accounting Oversight Board (PCAOB) is a 7-member board operating under the auspices of the American Institute of Certified Public Accountants (AICPA).

Accepted Answer

A) True 
 B)False  False

Question 3

Smart Start Company is a hardware supplier to building contractors. At the end of each month, the employee who maintains all of the inventory records takes a physical inventory of the firm's stock. When discrepancies occur between the recorded inventory and the physical count, the employee changes the physical count to agree with the records.
Required: 
A. What problems could arise as a result of Smart Start Company's inventory procedures?
B. How could the internal control system be strengthened to eliminate the potential problems?
C. What are the implications of SOX sections 302 and 404 for the company's internal control issues?

Accepted Answer

The answer of Smart Start Company is a hardware supplier...

Question 4

Even in large companies, few internal controls exist in order to establish greater control of security among limited individuals.

Accepted Answer

A) True 
 B)False

Question 5

Section 404 of the Sarbanes-Oxley Act, Management Assessment of Internal Controls, includes all of the following except:

Accepted Answer

A)  A statement of management's responsibility for establishing the internal control structure. 
B)  A waiver of auditor responsibility for assessing management's report on internal controls. 
C)  An assessment of the effectiveness of internal controls by management. 
D)  An assessment of the effectiveness of procedures for financial reporting by management. 
E)  A requirement that management include in its annual report an internal control report. 
A)  A statement of management's responsibility for establishing the internal control structure. 
B)  A waiver of auditor responsibility for assessing management's report on internal controls. 
C)  An assessment of the effectiveness of internal controls by management. 
D)  An assessment of the effectiveness of procedures for financial reporting by management. 
E)  A requirement that management include in its annual report an internal control report.

Question 6

Which of the following is a typical internal control?

Accepted Answer

A)  The use of password-protected computers and software. 
B)  The requirement that separate individuals authorize cash disbursements and sign checks. 
C)  The use of physical controls over inventories to prevent loss from theft. 
D)  A physical count of inventory at year-end to verify amounts shown on the company's accounting records. 
E)  All of the answers are correct. 
A)  The use of password-protected computers and software. 
B)  The requirement that separate individuals authorize cash disbursements and sign checks. 
C)  The use of physical controls over inventories to prevent loss from theft. 
D)  A physical count of inventory at year-end to verify amounts shown on the company's accounting records. 
E)  All of the answers are correct.

Question 7

The provisions of section 302 of the Sarbanes-Oxley Act (as originally enacted) require the signing officers of a company to do all of the following except:

Accepted Answer

A)  Audit the internal controls over financial reporting. 
B)  Establish the internal controls over financial reporting. 
C)  Maintain the internal controls over financial reporting. 
D)  Evaluate the internal controls over financial reporting. 
E)  Disclose material weaknesses in the internal controls over financial reporting. 
A)  Audit the internal controls over financial reporting. 
B)  Establish the internal controls over financial reporting. 
C)  Maintain the internal controls over financial reporting. 
D)  Evaluate the internal controls over financial reporting. 
E)  Disclose material weaknesses in the internal controls over financial reporting.

Question 8

Most of the Sarbanes-Oxley Act relates primarily to:

Accepted Answer

A)  Corporate governance. 
B)  Financial accounting. 
C)  Auditing. 
D)  Court-invoked penalties for violating the law. 
E)  All of the answers are correct. 
A)  Corporate governance. 
B)  Financial accounting. 
C)  Auditing. 
D)  Court-invoked penalties for violating the law. 
E)  All of the answers are correct.

Question 9

What does it mean to say that the concept of risk exposure may be the key to making SOX sections 302 and 404 more effective?

Accepted Answer

As some critics of SOX have suggested, i

Question 10

The Sarbanes-Oxley Act established the:

Accepted Answer

A)  Securities and Exchange Commission (SE
C) . 
B)  Public Company Accounting Oversight Board (PCAO
B) . 
C)  Financial Accounting Standards Board (FAS
B) . 
D)  Institute of Management Accountants (IM
A) . 
E)  American Accounting Association (AA
A) . 
A)  Securities and Exchange Commission (SE
C) . 
B)  Public Company Accounting Oversight Board (PCAO
B) . 
C)  Financial Accounting Standards Board (FAS
B) . 
D)  Institute of Management Accountants (IM
A) . 
E)  American Accounting Association (AA
A) .

Question 11

The Sarbanes-Oxley Act:

Accepted Answer

A)  arose because of several accounting scandals that rocked the public's confidence in published financial statements. 
B)  was enacted, in part, to bring about reform in companies' financial reporting processes. 
C)  has distinct guidelines for reporting on an organization's internal control practices. 
D)  contains provisions whereby the chief executive officer (CEO) and chief financial officer (CFO) can be held criminally responsible if their firm's financial statements are found to be fraudulent in nature. 
E)  All of the answers are correct. 
A)  arose because of several accounting scandals that rocked the public's confidence in published financial statements. 
B)  was enacted, in part, to bring about reform in companies' financial reporting processes. 
C)  has distinct guidelines for reporting on an organization's internal control practices. 
D)  contains provisions whereby the chief executive officer (CEO) and chief financial officer (CFO) can be held criminally responsible if their firm's financial statements are found to be fraudulent in nature. 
E)  All of the answers are correct.

Question 12

To achieve the objectives of sections 302 and 404 of the Sarbanes-Oxley Act, management and independent auditors should:

Accepted Answer

A)  Disclose the minutia of the internal control structure. 
B)  Conduct a cost-benefit analysis prior to deciding whether or not to adopt these sections. 
C)  Emphasize those areas where the greatest risk of fraud or material misstatement is likely to occur. 
D)  Analyze all financial transactions that are included in the reported financial statements. 
E)  Work together to design the most effective internal control system. 
A)  Disclose the minutia of the internal control structure. 
B)  Conduct a cost-benefit analysis prior to deciding whether or not to adopt these sections. 
C)  Emphasize those areas where the greatest risk of fraud or material misstatement is likely to occur. 
D)  Analyze all financial transactions that are included in the reported financial statements. 
E)  Work together to design the most effective internal control system.

Question 13

Which of the following statements is false concerning computerized accounting systems?

Accepted Answer

A)  Safeguards exist to make sure that controls are working properly. 
B)  There is no need for controls over human operators of computerized systems. 
C)  Computerized accounting systems are not 100% reliable. 
D)  Limits should be placed on who can access a computerized system. 
E)  Many internal control procedures are automated. 
A)  Safeguards exist to make sure that controls are working properly. 
B)  There is no need for controls over human operators of computerized systems. 
C)  Computerized accounting systems are not 100% reliable. 
D)  Limits should be placed on who can access a computerized system. 
E)  Many internal control procedures are automated.

Question 14

Which of the following bodies oversees audits and auditors, and sanctions firms and individuals for violations of laws and regulations?

Accepted Answer

A)  American Institute of Certified Public Accountants (AICP
A) . 
B)  American Accounting Association (AA
A) . 
C)  Public Company Accounting Oversight Board (PCAO
B) . 
D)  Financial Accounting Standards Board (FAS
B) . 
E)  Accounting Principles Board (AP
B) . 
A)  American Institute of Certified Public Accountants (AICP
A) . 
B)  American Accounting Association (AA
A) . 
C)  Public Company Accounting Oversight Board (PCAO
B) . 
D)  Financial Accounting Standards Board (FAS
B) . 
E)  Accounting Principles Board (AP
B) .

Question 15

The provisions of sections 302 and 404 of the Sarbanes-Oxley Act (as originally enacted) have proved especially troublesome for:

Accepted Answer

A)  Small businesses. 
B)  Private universities. 
C)  Cities and municipalities. 
D)  Healthcare providers. 
E)  Individual taxpayers. 
A)  Small businesses. 
B)  Private universities. 
C)  Cities and municipalities. 
D)  Healthcare providers. 
E)  Individual taxpayers.

Question 16

Under section 404 of the Sarbanes-Oxley Act, auditors are required to:

Accepted Answer

A)  Attest to and report on the effectiveness of the client's internal controls. 
B)  Establish and maintain internal controls for audited companies. 
C)  Advise management on its preparation of the Report on Internal Controls. 
D)  Evaluate the company's internal control system periodically throughout the year. 
E)  All of the answers are correct. 
A)  Attest to and report on the effectiveness of the client's internal controls. 
B)  Establish and maintain internal controls for audited companies. 
C)  Advise management on its preparation of the Report on Internal Controls. 
D)  Evaluate the company's internal control system periodically throughout the year. 
E)  All of the answers are correct.

Question 17

Which of the following statements regarding the Sarbanes-Oxley Act is (are) true?

Accepted Answer

A)  Management must establish and maintain a system of internal controls over financial reporting. 
B)  Management must periodically assess a company's system of internal controls over financial reporting. 
C)  Management must include in the company's annual report a separate report that assesses internal controls. 
D)  A company's auditors are required to report on management's assessment of internal controls. 
E)  All of the answers are correct. 
A)  Management must establish and maintain a system of internal controls over financial reporting. 
B)  Management must periodically assess a company's system of internal controls over financial reporting. 
C)  Management must include in the company's annual report a separate report that assesses internal controls. 
D)  A company's auditors are required to report on management's assessment of internal controls. 
E)  All of the answers are correct.

Question 18

Internal controls focus on all of the following except:

Accepted Answer

A)  effectiveness of operations. 
B)  reliability of financial reporting. 
C)  compliance with applicable laws and regulations. 
D)  maximization of profit and cash flows. 
E)  efficiency of operations. 
A)  effectiveness of operations. 
B)  reliability of financial reporting. 
C)  compliance with applicable laws and regulations. 
D)  maximization of profit and cash flows. 
E)  efficiency of operations.

Question 19

Since many internal control procedures are automated, internal software controls are not needed.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is not a provision of (nor an outgrowth of) the Sarbanes-Oxley Act?

Accepted Answer

A)  A public company's annual report must contain a separate disclosure that assesses the company's internal controls. 
B)  Management is essentially responsible for establishing and maintaining internal controls. 
C)  A company's Chief Executive Officer (CEO) and Chief Financial Officer (CFO) can be held criminally responsible if their firm's financial statements are fraudulent. 
D)  A company must prepare a balance sheet, an income statement, a statement of stockholders' equity, and a statement of cash flows. 
E)  A new body, the Public Company Accounting Oversight Board, oversees and investigates the audits and auditors of public companies. 
A)  A public company's annual report must contain a separate disclosure that assesses the company's internal controls. 
B)  Management is essentially responsible for establishing and maintaining internal controls. 
C)  A company's Chief Executive Officer (CEO) and Chief Financial Officer (CFO) can be held criminally responsible if their firm's financial statements are fraudulent. 
D)  A company must prepare a balance sheet, an income statement, a statement of stockholders' equity, and a statement of cash flows. 
E)  A new body, the Public Company Accounting Oversight Board, oversees and investigates the audits and auditors of public companies.

The first decade of the SOX legislation was characterized by controversy.

The Public Company Accounting Oversight Board (PCAOB) is a 7-member board operating under the auspices of the American Institute of Certified Public Accountants (AICPA).

Even in large companies, few internal controls exist in order to establish greater control of security among limited individuals.

Section 404 of the Sarbanes-Oxley Act, Management Assessment of Internal Controls, includes all of the following except:

Which of the following is a typical internal control?

The provisions of section 302 of the Sarbanes-Oxley Act (as originally enacted) require the signing officers of a company to do all of the following except:

Most of the Sarbanes-Oxley Act relates primarily to:

What does it mean to say that the concept of risk exposure may be the key to making SOX sections 302 and 404 more effective?

The Sarbanes-Oxley Act established the:

The Sarbanes-Oxley Act:

To achieve the objectives of sections 302 and 404 of the Sarbanes-Oxley Act, management and independent auditors should:

Which of the following statements is false concerning computerized accounting systems?

Which of the following bodies oversees audits and auditors, and sanctions firms and individuals for violations of laws and regulations?

The provisions of sections 302 and 404 of the Sarbanes-Oxley Act (as originally enacted) have proved especially troublesome for:

Under section 404 of the Sarbanes-Oxley Act, auditors are required to:

Which of the following statements regarding the Sarbanes-Oxley Act is (are) true?

Internal controls focus on all of the following except:

Since many internal control procedures are automated, internal software controls are not needed.

Which of the following is not a provision of (nor an outgrowth of) the Sarbanes-Oxley Act?

The Changing Role of Managerial Accounting in a Dynamic Business Environment

Basic Cost Management Concepts

Product Costing and Cost Accumulation in a Batch Production Environment

Process Costing and Hybrid Product-Costing Systems

Activity-Based Costing and Management

Activity Analysis, Cost Behavior, and Cost Estimation

Cost-Volume-Profit Analysis

Variable Costing and the Costs of Quality and Sustainability

Financial Planning and Analysis: the Master Budget

Standard Costing and Analysis of Direct Costs

Flexible Budgeting and Analysis of Overhead Costs

Responsibility Accounting, Operational Performance Measures, and the Balanced Scorecard

Investment Centers and Transfer Pricing

Decision Making: Relevant Costs and Benefits

Target Costing and Cost Analysis for Pricing Decisions

Capital Expenditure Decisions

Allocation of Support Activity Costs and Joint Costs

Compound Interest and the Concept of Present Value

Inventory Management

Filters

Exam 18: The Sarbanes-Oxley Act, Internal Controls, and Management Accounting

The first decade of the SOX legislation was characterized by controversy.

The Public Company Accounting Oversight Board (PCAOB) is a 7-member board operating under the auspices of the American Institute of Certified Public Accountants (AICPA).

Even in large companies, few internal controls exist in order to establish greater control of security among limited individuals.

Section 404 of the Sarbanes-Oxley Act, Management Assessment of Internal Controls, includes all of the following except:

Which of the following is a typical internal control?

The provisions of section 302 of the Sarbanes-Oxley Act (as originally enacted) require the signing officers of a company to do all of the following except:

Most of the Sarbanes-Oxley Act relates primarily to:

What does it mean to say that the concept of risk exposure may be the key to making SOX sections 302 and 404 more effective?

The Sarbanes-Oxley Act established the:

The Sarbanes-Oxley Act:

To achieve the objectives of sections 302 and 404 of the Sarbanes-Oxley Act, management and independent auditors should:

Which of the following statements is false concerning computerized accounting systems?

Which of the following bodies oversees audits and auditors, and sanctions firms and individuals for violations of laws and regulations?

The provisions of sections 302 and 404 of the Sarbanes-Oxley Act (as originally enacted) have proved especially troublesome for:

Under section 404 of the Sarbanes-Oxley Act, auditors are required to:

Which of the following statements regarding the Sarbanes-Oxley Act is (are) true?

Internal controls focus on all of the following except:

Since many internal control procedures are automated, internal software controls are not needed.

Which of the following is not a provision of (nor an outgrowth of) the Sarbanes-Oxley Act?

The Changing Role of Managerial Accounting in a Dynamic Business Environment

Basic Cost Management Concepts

Product Costing and Cost Accumulation in a Batch Production Environment

Process Costing and Hybrid Product-Costing Systems

Activity-Based Costing and Management

Activity Analysis, Cost Behavior, and Cost Estimation

Cost-Volume-Profit Analysis

Variable Costing and the Costs of Quality and Sustainability

Financial Planning and Analysis: the Master Budget

Standard Costing and Analysis of Direct Costs

Flexible Budgeting and Analysis of Overhead Costs

Responsibility Accounting, Operational Performance Measures, and the Balanced Scorecard

Investment Centers and Transfer Pricing

Decision Making: Relevant Costs and Benefits

Target Costing and Cost Analysis for Pricing Decisions

Capital Expenditure Decisions

Allocation of Support Activity Costs and Joint Costs

Compound Interest and the Concept of Present Value

Inventory Management

Filters