1. The objective of financial reporting is to provide useful information to interested users.

T
2. Financial transparency relates to how well resources are protected and managed by the
company and its management. F
3. Corporate governance is a process by which the owners, but not the creditors, exert
control over the resources of the enterprise. F
4. Management can influence who sits on the board and the audit committee as well as
other governance controls that might be put into place. T
5. The board’s fundamental objective should be to build a system of internal controls that
will ensure the financial statements are free from all error. F
6. An important aspect of governance is the independent judgment of boards about what is
in the best interest of the company and its shareholders. T
7. The external auditor has the primary responsibility for creating a culture of performance
with integrity and ethical behavior within the client’s organization. F
8. Since the board is responsible to protect the interest of the shareholders, independence
is not a necessary attribute for board members. F
9. Companies must strike the right balance in the appointment of independent and non-
independent directors to ensure an appropriate range and mix of expertise, diversity,
and knowledge on the board. T
10. It is effective for a board to take a “check the box” mentality when implementing and
complying with governance mandates and best practices. F
11. Board of directors that did not spend sufficient time or have sufficient expertise to
perform duties led to corporate governance failures. T
12. The audit committee is a subcommittee of the board of directors comprised of
independent outside directors. T
13. The auditor must communicate significant audit adjustments to the audit committee. T
14. Any major disagreement with the auditor has with management should be discussed
with the audit committee. T
15. Managers of organizations are hired by Board of Directors to perform responsibilities
such as the implementation of internal control. T
16. The Sarbanes-Oxley Act prohibits auditors from performing consulting services for their
audit clients. T
17. The Public Company Accounting Oversight Board (PCAOB) set standards for audits of
private and public companies. F
18. An auditor is required to communicate new accounting principles adopted by the
organization to the audit committee. T
19. Audit committees are motivated to make sure the auditors do their job, because poor
performance on the part of the auditors will directly reflect on the performance of the
audit committee members. T
20. The Sarbanes-Oxley Act makes the audit committee the client of the external audit firm.
T
21. The Public Company Accounting Oversight Board has five members, all of which must
be CPAs. F
22. The Public Company Accounting Oversight Board has the power of performing
inspection of public accounting firms to determine their performance and check for
improvements if any. T
23. The Sarbanes-Oxley Act includes provisions requiring the auditor and the management
to certify the financial statements and its disclosures and quality of internal controls. T
24. The Sarbanes-Oxley Act requires that public companies report on internal financial
controls. T
25. The audit committee must be composed of outsiders such as the organization’s attorney
and audit partner. F
26. The nominating committee is a standing committee of the board of directors whose
purpose is to oversee the accounting and financial reporting processes of the company
and the financial statement audits. F
27. When the operating effectively the audit committee may replace the processes
performed by the external auditors. F
28. The audit committee will receive feedback from both internal and external auditors on a
number of issues including the quality of internal controls over financial reporting. T
29. For public companies, the audit committee must be composed of outside directors who
are also financial experts. F
30. The audit committee relies on the internal and external auditors to develop and
communicate objective information needed by the audit committee to effectively perform
its oversight function. T
31. The audit committee typically would not review the Management Discussion and
Analysis section of the annual report filed with the SEC since that section of the report is
the responsibility of management and includes forward looking statements. F
32. The purpose of the audit committee is to oversee all aspects of the financial reporting
process, including preparation and filing of financial statements, internal control over
financial reporting, and related risks. T
33. At least half of the members of an audit committee should be composed of independent
directors. F
34. The audit committee is responsible for ensuring that management designs and
implements sound internal control, which is essential for reliable financial reporting for
any organization. T
35. The chief (internal) audit executive should have direct reporting access to the audit
committee, and the committee should oversee the activities and budget of the internal
audit function. T
36. The audit committee should meet in separate executive sessions with management, the
external auditor, the internal auditor, legal counsel, and other advisors. T
37. The board should not consider limiting the years an individual can serve on the audit
committee since the more an audit committee member understands the company the
more effective that member will be able to perform the required duties. F
38. Corporate governance is a process by which the owners and the creditors of an
organization ___ c. exert control and require accountability
39. Stockholders require accountability from management for ___ d. all of the above
40. The responsibility for operating an enterprise is delegated to the ___ c. management
41. Governance demands accountability back through the system through the ___ a.
shareholders
42. Management of an organization has the responsibility for all of the following except ___
b. engagement of a qualified auditor
43. The board’s fundamental objective should be to ___ c. build long-term sustainable
growth in shareholder value for the corporation
44. The corporate governance responsibilities of management include ___ d. all of the
above
45. All of the following groups have responsibility for ensuring proper corporate governance
except ___ d. all of the above have responsibility
46. Which group is responsible for ensuring that the organization is run according to the
organization’s charter and that there is proper accountability? c. board of directors
47. Specific activities performed by regulatory agencies such as the SEC include the
following except ___ c. auditing the financial statements to express an opinion
48. Specific activities performed by external auditors include(s) ___ b. services such as
audit, tax or consulting
49. Specific activities performed by management include the following except ___ c. hiring
of the external auditors
50. The audit committee’s primary responsibilities related to financial reporting process
include ___ d. all of the above