AE10 – GOVERNANCE, BUSINESS ETHICS, RISK MGNT & INTERNAL CONTROL

PRELIM EXAM
RAQUEL ALVAREZ-DE CASTRO, CPA, MBA/MPA

I.Multiple Choice Questions

1. Audit committee activities and responsibilities include which of the following?

a. Selecting the external audit firm.
b. Approving corporate strategy.
c. Reviewing management performance and determining compensation.
d. None of the above.

2. Which of the following audit committee responsibilities has the SEC mandated?
a. Obtaining each year, a report by the internal auditor that addresses the
company’s internal control procedures, any quality control or regulatory
problems, and any relationships that might threaten the independence of the
internal auditor.
b. Discussing in its meetings the company’s earnings press releases, as well as
financial information and earnings guidance provided to analysts
c. Reviewing with the internal auditor any audit problems or difficulties that they
have had with management
d. All of the above
II.Problems
1.Below is a summary of the SEC corporate governance requirements of companies publicly-
listed in the stock exchange. For each requirement, state how it is intended to help to address
the risk of fraud in publicly traded organizations.
a. Boards need to consist of at least 3 independent directors or 1/3 of the board which is
higher
b. Boards need to hold regular executive sessions of independent directors without
management present.
c. Boards must have a / corporate governance committee composed at least 3 of
independent directors
d. The corporate governance committee must have a written character that addresses the
committee’s purpose and responsibilities, and there must be annual performance
evaluation of the committee.
e. Boards must have and audit committee with a minimum of three independent members
 f. The audit committee must have a written charter that addresses the committee’s
purpose and responsibilities, and the committee must produce and audit committee
report; there must also be an annual performance evaluation of the committee

2.Below is a summary of the SEC listing requirements for audit committee responsibilities of
companies listed on this stock exchange. For each requirement, state how it is intended to help
to address the risk of fraud in publicly traded organizations.
a. Obtaining each year, a report by the external auditor that addresses the company’s
internal control procedures, any quality control or regulatory problems, and any
relationships that might threaten the independence of the external auditor
b. Discussing the company’s financial statements with management and the external
auditor
c. Discussing in its meetings the company’s earnings press releases, as well as financial
information and earnings guidance provided to analysts
d. Discussing in its meetings policies with respect to risk assessment and risk management
e. Meeting separately with management, internal auditors, and the external auditor on a
periodic basis
f. Reviewing with the external auditor any audit problems or difficulties that they had with
management
g. Setting clear hiring policies for employees or former employees of the external auditors
h. Reporting regularly to the board of directors

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