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WorksheetsFinal Examination - AE 10
Total questions: 60
Worksheet time: 3600secs
Conflicts of interest for multinational corporations do not include ___.
the interests of sovereign governments may be different
multinational managers live in different time zones
some conflicts may exist within multinational subsidiaries
multinational companies may conflict with local laws
Corporate governance is often narrowly defined as the prudent exercise of ownership rights toward the goal of increased ___.
shareholder value
profit
asset turnover
profit margin on sales
The political, regulatory, technological, and economic forces radically changing the global competitive environment include ___.
the collapse of communism
the privatization of state-owned enterprises around the world
a wave of mergers, leveraged buyouts, and takeovers
all of the above
Reasons for management to focus on stockholder wealth maximization include ___.
stockholders are the owners of the company
stockholders provide the risk capital that protects the welfare of other constituents
a high stock price provides the best defense against a hostile takeover
all of the above
I. The board of directors is elected by shareholders and is responsible for hiring the appropriate management to operate the daily company operations.
II. Companies with a well-defined corporate governance structure are more likely to restate their earnings than companies with no corporate governance structure.
Statement 1 is true
Statement 2 is true
Both Statements are false
Both Statements are true
I. Corporate governance regulations will continue to be a leading discussion among policy makers, stakeholders, and corporate activists even as changes are made.
II. All stakeholders are provided with incentives and opportunities to reward corporations for good performance and discipline them for poor performance
Statement 1 is true
Statement 2 is true
Both Statements are false
Both Statements are true
Conflicts of interest among corporate governance participants are referred to as an:
“Anything you can do, I can do better” problem.
Alignment problem.
Agency problem.
There are no conflicts of interest among corporate governance participants
Which of the following would be an example of a corporate gatekeeper?
Independent and competent board of directors.
Independent and competent external auditor.
Objective and competent legal counsel or financial advisor.
All of the above would be an example of a corporate gatekeeper
Effective corporate governance does all of the following except:
Ensure corporate accountability.
Enhance the integrity and efficiency of the capital market.
Eliminate the prospect of fraud within an organization.
Enhance the reliability and quality of public financial information.
The goal of corporate governance and business ethics education is to:
Teach students their professional accountability and to uphold their personal integrity to society.
Change the way in which ethics is taught to students.
Create more ethics standards by which corporate professionals must operate.
Increase the workload for accounting students.
I. An important principle of effective corporate governance is its transparency of not only financial information, but also operations and structures
II. There is no universally accepted definition of corporate governance primarily because its concept is not well defined, it covers various distinct economic phenomena, and it is often described from the shareholders’ view
Statement 1 is true
Statement 2 is true
Both Statements are false
Both Statements are true
I. The oversight function is granted to the board of directors with the fiduciary duty of overseeing management in the best interests of the company and its shareholders
II. Transparency means that the company is not hiding relevant information, and disclosures are fair, accurate, reliable, and understandable by average stakeholders.
Statement 1 is true
Statement 2 is true
Both Statements are false
Both Statements are true
Which of the following statements is not true concerning corporate governance mechanisms?
The effectiveness of corporate governance mechanisms also depends on the costbenefit trade-offs among these mechanisms.
Corporate governance mechanisms create effective systems of checks and balances.
Internal and external mechanisms work best when used independently of the other.
None of the above are true statements
Which of the following statements best describes the compliance function?
The compliance function is composed of a set of laws, regulations, rules, and standards established by state and federal legislators which are followed only when beneficial.
Compliance is following your internal bylaws and regulations.
The compliance function is composed of a set of laws, regulations, rules, and 23 standards established by state and federal legislators which must be followed regardless of the cost.
Compliance is a nuisance that deters from the company’s main goal of making money.
Which of the following would be considered the least effective and appropriate best practice of a public company?
Executive compensation programs should be designed and implemented to ensure alignment of interest with the long-term interests of shareowners.
The CEO and chairperson of the board should be the same individual to allow for the congruence of management and director interests.
The board of a publicly owned corporation should have a substantial degree of independence from management.
The board does not impose term limits, as this could unnecessarily interfere with the continuity, diversity, developed experience and knowledge, and long-term outlook the board must have.
Corporate governance reports are recommended to include all of the following disclosures except:
The company’s vision, strategies, and missions in creating stakeholder value.
The board of director’s composition, independence, involvements, functions, and evaluation.
Competitive trade secrets and research reports.
The company’s financial, economic, social, and environmental indicators.
I. An appropriate code of ethics is the backbone of effective corporate governance.
II. Individuals should follow specific principles rather than what is right while facing ethical challenges.
Statement 1 is true
Statement 2 is true
Both Statements are false
Both Statements are true
. I. Codes of business ethics and conduct can be effective substitutes for moral principles, character, and culture of individuals and organizations.
II. . Individual-based incentives relate to personal integrity and are the primary driver of ethical behavior.
Statement 1 is true
Statement 2 is true
Both Statements are false
Both Statements are true
Which of the following is not a factor that can lead to companies misrepresenting their financial position?
Performance is below their industry’s average performance.
Performance is significantly above their own past performance.
The company has an established and well-defined code of corporate ethics.
Their CEO receives a high proportion of total compensation as stock options
. The increasing trend toward more involvement of the board of directors in the company’s ethics program is influenced by:
Consequences of reported financial scandals.
Auditors of low-profile companies.
Development of corporate governance reforms in promoting ethical conduct.
Both (a) and (c).
Companies need ethics and business programs in order to effectively and 31 efficiently perform which of the following functions?
Diversify personnel services.
Satisfy the expectations of the public and their stakeholders.
Comply with applicable laws, regulations, rules, standards, and guidelines.
All of the above.
I. According to the SEC, the established code of ethics best describes the company’s policies and procedures for internal reporting of code violations.
II. Ethics in the workplace is more important in the emerging corporate governance reforms.
Statement 1 is true
Statement 2 is true
Both Statements are false
Both Statements are true
I. The board of directors for all public companies must have at least three members.
II. A permanent or rotating lead director is used as an alternative to separating the CEO and chairperson positions.
Statement 1 is true
Statement 2 is true
Both Statements are false
Both Statements are true
. I. Decision management duties are the responsibility of management and are the ratification and monitoring of strategies.
II. All public companies are required to have a board of directors but are not required to have a chairperson
Statement 1 is true
Statement 2 is true
Both Statements are false
Both Statements are true
The primary responsibilities of the board of directors include all but which of the following:
Define the company’s mission and goals.
Establish or approve strategic plans and decisions to achieve these goals.
Appoint senior executives to manage the company in accordance with the established strategies, plans, policies, and procedures.
Make managerial decisions that will increase the company’s stock price.
I. A special committee of independent directors may be formed to conduct an independent investigation if director and officer wrongdoings are alleged.
II. Key features of an effective succession planning process include that the majority of directors are independent and do not have financial or personal ties to management.
Statement 1 is true
Statement 2 is true
Both Statements are false
Both Statements are true
I. In a situation when the company’s CEO is also serving as the chair of the board of directors, an outside directors’ committee can be formed to maintain the board’s independence.
II. A whistleblower program is one designed to allow individuals to safely and confidentially inform the audit committee and board of directors of potential financial malfeasance.
Statement 1 is true
Statement 2 is true
Both Statements are false
Both Statements are true
. I. The values which an individual uses to interpret whether any particular action or behavior is considered legal or illegal is called ethics.
II. The collective values of a business organization that can be used to evaluate whether the behaviors of the organization’s collective members are considered acceptable and appropriate is called business ethics.
Statement 1 is true
Statement 2 is true
Both Statements are false
Both Statements are true
if the ethical use of corporate funds amounts to justifying their use in terms of business purposes, then that should exclude,
Benevolence
Respect to spending decisions
Managers using their discretion unaccountably
Corporate responsibility
What is social responsibility?
An ethical ideology that an organization or individual has an obligation to act to benefit society.
A way of conducting business through balancing the behavior of a company with the expectations of society.
A duty everyone has to perform so as to maintain a balance between the economy and the ecosystem.
All of these answer
As an organizational manager, what is the best way to encourage ethical behaviour in your employees?
Hide difficulty decisions from employees
Have strict rules in place
Ignore unethical behaviour
Lead by example
Risk management is concerned with
the identification and treatment of loss exposures.
the management of speculative risks only.
the management of pure risks that are uninsurable.
the purchase of insurance only.
All of the following are risk management objectives prior to the occurrence of loss EXCEPT
analysis of the cost of different techniques for handling losses.
continuing operations after a loss.
reduction of anxiety.
meeting externally imposed obligations.
Sources of information that can be used by a risk manager to identify pure loss exposures include all of the following EXCEPT
risk analysis questionnaires.
currency exchange rates.
physical inspections.
past losses
Loss severity is defined as the
probable size of the losses which may occur during some period.
probable number of losses which may occur during some period.
probability that any particular piece of property may be totally destroyed.
probability that a liability judgment may exceed a firmʹs net worth.
Loss frequency is defined as the
probable size of the losses that may occur during some period.
probable number of losses that may occur during some period.
probability that any particular piece of property may be totally destroyed.
probability that a liability judgment may exceed a firmʹs net worth.
All of the following statements about avoidance are true EXCEPT
Certain loss exposures are never acquired.
Certain loss exposures may be abandoned.
The chance of loss for certain loss exposures may be reduced to zero.
It can be used for any loss exposure facing a firm.
Which of the following conditions is (are) appropriate for using retention?
I. Losses are difficult to predict.
II. The worst possible loss is not serious.
I only
II only
both I and II
neither I nor II
Which of the following statements about retention levels is (are) true?
I. A common rule of thumb is that a firmʹs maximum retention can be equal to 100 percent of itsearnings before taxes.
II. A financially strong firm can have a higher retention level than a firm whose financial position is weak.
I only
II only
both I and II
neither I nor II
A restaurant owner leased a meeting room at the restaurant to a second party. The lease specified that the second party, not the restaurant owner, would be responsible for any liability arising out of the use of the meeting room, and that the restaurant owner would be ʺheld harmlessʺ for any damages. The restaurant ownerʹs use of the hold-harmless agreement is an example of
retention.
self-insurance.
insurance.
noninsurance transfer.
All of the following are disadvantages of using insurance in a risk management program EXCEPT
There is an opportunity cost because premiums must be paid in advance.
Considerable time and effort must be spent selecting and negotiating coverages.
It results in considerable fluctuations in earnings after a loss occurs.
Attitudes toward loss control may become lax when losses are insured.
Low-frequency, low-severity loss exposures are best handled by
avoidance.
retention.
insurance.
noninsurance transfer.
All of the following statements about the administration of a risk management program are true EXCEPT
The risk manager is an important part of a firmʹs management team.
A risk management policy statement can be used to educate top executives about the risk management process.
If a risk management program is properly designed, periodic review of the program is unnecessary.
In order to properly identify loss exposures, the risk manager needs the cooperation of other departments
Acme Company has three identical manufacturing plants, one on the Texas Gulf Coast, one insouthern Alabama, and one in Florida. Each plant is valued at $50 million. Acmeʹs risk manager is concerned about the damage which could be caused by a single hurricane. The risk manager believes there is an extremely low probability that a single hurricane could destroy two or all three plants because they are located so far apart. What is the maximum probable loss associated with a single hurricane?
$0 million
$50 million
$100 million
$150 million
Parker Department Stores has been hurt in recent months by a large increase in shoplifting losses. Parkerʹs risk manager concluded that while the frequency of shoplifting losses was high, the severity is still relatively low. What is (are) the appropriate risk management technique(s) to apply to this problem?
Retention
loss control and retention
transfer through insurance
avoidance
Ryan decided to review his personal risk management program. His car is 10 years old, and he would receive little money from his insurer if the car was damaged or destroyed. Ryan decided to drop the physical damage insurance on the car. From a risk management perspective, dropping the physical damage insurance on the car is best described as
increasing the use of avoidance in the risk management program.
increasing the use of noninsurance transfer in the risk management program.
increasing the use of retention in the risk management program.
increasing the use of risk control in the risk management program.
The objective of the ordinary examination by the independent auditor is the expression of an opinion on
the fairness of the financial statements.
the accuracy of the financial statements.
the accuracy of the annual report.
the balance sheet and income statement.
Which of the following is the auditor least likely to do when aware of an illegal act?
Discuss the matter with the client’s legal counsel.
Obtain evidence about the potential effect of the illegal act on the financial statements.
Contact the local law enforcement officials regarding potential criminal wrongdoing.
Consider the impact of the illegal act on the relationship with the company’s management.
. I. Internal control is concerned only with the reliability of financial information.
II. Well-designed internal control will prevent all fraud by top management.
Statement 1 is true
Statement 2 is true
Both Statements are false
Both Statements are true
I. Incompatible duties exist when an employee is in a position to perpetrate and conceal errorsor fraud.
II. The relatively low number of types of transactions incurred by small firms makes the segregation of duties impossible.
Statement 1 is true
Statement 2 is true
Both Statements are false
Both Statements are true
I. Both the SEC and the PCAOB require management to use the COSO framework for assessing internal control adequacy.
II. The external auditor is responsible for establishing and maintaining the
internal control system.
Statement 1 is true
Statement 2 is true
Both Statements are false
Both Statements are true
Which of the following is not a limitation of the internal control system?
errors are made due to employee fatigue
fraud occurs because of collusion between two employees
the industry is inherently risky
management instructs the bookkeeper to make fraudulent journal
entries
. I. A key modifying assumption in internal control is that the internal control system is the responsibility of management.
II. Application controls apply to a wide range of exposures that threaten the integrity of all programs processed within the computer environment.
Statement 1 is true
Statement 2 is true
Both Statements are false
Both Statements are true
Which of the following is not an element of the internal control environment?
management philosophy and operating style
organizational structure of the firm
well-designed documents and records
the functioning of the board of directors and the audit committee
Which of the following suggests a weakness in the internal control environment?
the firm has an up-to-date organizational chart
monthly reports comparing actual performance to budget are distributed to managers
performance evaluations are prepared every three years
the audit committee meets quarterly with the external auditors
Which of the following indicates a strong internal control environment?
the internal audit group reports to the audit committee of the board of
directors
there is no segregation of duties between organization functions
there are questions about the integrity of management
adverse business conditions exist in the industry
According to COSO, an effective accounting system performs all of the following except
identifies and records all valid financial transactions
records financial transactions in the appropriate accounting period
separates the duties of data entry and report generation
records all financial transactions promptly
When duties cannot be segregated, the most important internal control procedure is
supervision
independent verification
access controls
accounting records
Internal control system have limitations. These include all of the following except
possibility of honest error
circumvention
management override
stability of systems
Management can expect various benefits to follow from implementing a system of
strong internal control. Which of the following benefits is least likely to occur?
reduced cost of an external audit.
prevents employee collusion to commit fraud.
availability of reliable data for decision-making purposes.
some assurance that important documents and records are protected.
