Multiple-Choice Questions

1. Which of the following is a problem resulting from the emphasis on earnings?

a. Managers may ignore sales forecasts.

b. Internal controls may deteriorate.

c. Quality of earnings may suffer.

d. Responsibilities of lower-level managers may increase.

2. A publicly-traded firm must have

a. A functioning board of directors.

b. A CFO with significant accounting experience.

c. A specific time each week to meet with employees regarding potential fraud.

d. An ethics committee.

3. The audit committee is

a. Part of the internal audit function.

b. A subset of directors who must be independent.

c. No longer part of corporate governance.

d. Chaired by a CPA.

4. Who is responsible for selecting, hiring, and compensating the external auditors?

a. CEO

b. CFO

c. Audit committee of the BOD

d. All of the above

5. High-quality earnings are those that

a. Fluctuate widely between periods.

b. Provide accurate and reliable information about a firm’s earnings.

c. Exceed $1 per share.

d. Are found in the shareholders’ equity section of the balance sheet.