Multiple Choice Questions 1. All of the following are parts of corporate governance except: a. Oversight of management by the
1. All of the following are parts of corporate governance except:
a. Oversight of management by the board of directors.
b. Established processes to provide accountability to stockholders.
c. Whistle blowing processes.
d. Independent review of financial statements by the SEC.
2. Which of the following would not be correct regarding corporate governance failures that took place in the past two decades?
a. Boards of directors approved stock option plans that did not align management and shareholder objectives.
b. Audit committees met infrequently, often only for an hour at a time.
c. Boards of directors were often dominated by management.
d. Accounting rules became more specific to address the complexities that existed in new transactions.
3. Which of the following is not a Sarbanes-Oxley requirement of audit committees of public companies?
a. The audit committee must be chaired by the chair of the board of directors.
b. Audit committee members must be financially literate.
c. Audit committee members must be outside directors.
d. The audit committee should view itself as the "client" of the external auditor.
4. In which way did the public accounting profession bring about the problems that resulted in Congress passing the Sarbanes-Oxley Act of 2002?
a. Failed to detect egregious frauds.
b. Emphasized generating revenues over audit quality.
c. Viewed helping the clients find an accounting solution to show increased earnings as value-added auditing.
d. All of the above.
5. Which of the following is an inappropriate description of management’s role in preparing financial statements and reports on internal control over financial reporting? Management has the primary responsibility for
a. Determining the scope of internal and external audit activities.
b. Preparing financial statements that are fairly presented in accordance with GAAP.
c. Selecting accounting principles that best portray the economic reality of the organization’s transactions and current state.
d. Developing, implementing, and assessing the internal control processes over financial reporting.
6. An audit committee should do all of the following except:
a. Decide whether to retain or dismiss the outside auditors.
b. Determine whether material fraud ought to be reported in the company's financial statements.
c. Determine the budget for the internal audit department.
d. Appoint, or concur with the appointment of, the Chief Audit Executive (internal audit).
7. Which of the following would not be required to be communicated to the audit committee by the outside auditor?
a. Significant audit adjustments made during the course of the audit.
b. Significant disagreements with management regarding accounting principles.
c. The auditor’s knowledge of management’s consultation with other public accounting firms regarding the proposed treatment of a controversial accounting item.
d. The extent to which the internal auditors assisted in the conduct of the audit.
8. The application of due professional care means that the auditor's work conforms with all of the following except:
a. Current auditing standards as defined by Statements on Auditing Standards.
b. The work that a reasonably prudent auditor would have performed in the same situation.
c. The work that would have been performed by a reasonable person who was not necessarily trained in auditing.
d. The work was at least equal to that which had been performed on the audit engagement during the preceding year.
9. The second standard of field work requires the auditor to do all of the following except:
a. Understand the business and the risks the business faces in pursuing its strategic objectives.
b. Gather sufficient, appropriate audit evidence to provide the basis for an opinion on the financial statements.
c. Perform analytical procedures to identify potential misstatements in the financial statements.
d. Obtain an understanding of internal control and potential weaknesses in controls.
10. The auditor uses the following audit procedure as part of the audit of fixed assets: "take a statistical sample of all additions to property plant and equipment and trace to invoices received from the vendor." Which of the following outcomes would most likely alert the auditor to the possibility of a misstatement of the account balance?
a. Most of the items chosen are small in dollar amount even though the invoices are typical of items that last 3-5 years.
b. About one-third of the items chosen are large dollar items that are traced to journal entries, but there are no underlying purchase documents.
c. About one-fourth of the items are from the same vendor and relate to the equipment purchased for a new factory.
d. Vendor invoices cannot be located for a number of the purchases. However, all the items for which the invoices cannot be found relate to purchases from a related company.
e. All of the above.
f. b and d only.
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
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Question Posted: December 29, 2012 05:48:50