Question 1

Smart Start Company is a hardware supplier to building contractors. At the end of each month, the employee who maintains all of the inventory records takes a physical inventory of the firm's stock. When discrepancies occur between the recorded inventory and the physical count, the employee changes the physical count to agree with the records.
Required: 
A. What problems could arise as a result of Smart Start Company's inventory procedures?
B. How could the internal control system be strengthened to eliminate the potential problems?
C. What are the implications of SOX sections 302 and 404 for the company's internal control issues?

Accepted Answer

The answer of Smart Start Company is a hardware supplier...

Question 2

The Public Company Accounting Oversight Board (PCAOB) is a 7-member board operating under the auspices of the American Institute of Certified Public Accountants (AICPA).

Accepted Answer

A) True 
 B)False  False

Question 3

Section 404 of the Sarbanes-Oxley Act, Management Assessment of Internal Controls, includes all of the following except:

Accepted Answer

A)   A statement of management's responsibility for establishing the internal control structure.
B)   A waiver of auditor responsibility for assessing management's report on internal controls.
C)   An assessment of the effectiveness of internal controls by management.
D)   An assessment of the effectiveness of procedures for financial reporting by management.
E)   A requirement that management include in its annual report an internal control report.

Question 4

Since many internal control procedures are automated, internal software controls are not needed.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is a typical internal control?

Accepted Answer

A)   The use of password-protected computers and software.
B)   The requirement that separate individuals authorize cash disbursements and sign checks.
C)   The use of physical controls over inventories to prevent loss from theft.
D)   A physical count of inventory at year-end to verify amounts shown on the company's accounting records.
E)   All of the answers are correct.

Question 6

The provisions of sections 302 and 404 of the Sarbanes-Oxley Act (as originally enacted)  have proved especially troublesome for:

Accepted Answer

A)   Small businesses.
B)   Private universities.
C)   Cities and municipalities.
D)   Healthcare providers.
E)   Individual taxpayers.

Question 7

The Sarbanes-Oxley Act established the:

Accepted Answer

A)   Securities and Exchange Commission (SE
C)  .
B)   Public Company Accounting Oversight Board (PCAO
B)  .
C)   Financial Accounting Standards Board (FAS
B)  .
D)   Institute of Management Accountants (IM
A)  .
E)   American Accounting Association (AA
A)  .

Question 8

The first decade of the SOX legislation was characterized by controversy.

Accepted Answer

A) True 
 B)False  True

Question 9

To achieve the objectives of sections 302 and 404 of the Sarbanes-Oxley Act, management and independent auditors should:

Accepted Answer

A)   Disclose the minutia of the internal control structure.
B)   Conduct a cost-benefit analysis prior to deciding whether or not to adopt these sections.
C)   Emphasize those areas where the greatest risk of fraud or material misstatement is likely to occur.
D)   Analyze all financial transactions that are included in the reported financial statements.
E)   Work together to design the most effective internal control system.

Question 10

The provisions of section 302 of the Sarbanes-Oxley Act (as originally enacted)  require the signing officers of a company to do all of the following except:

Accepted Answer

A)   Audit the internal controls over financial reporting.
B)   Establish the internal controls over financial reporting.
C)   Maintain the internal controls over financial reporting.
D)   Evaluate the internal controls over financial reporting.
E)   Disclose material weaknesses in the internal controls over financial reporting.

Question 11

Even in large companies, few internal controls exist in order to establish greater control of security among limited individuals.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following bodies oversees audits and auditors, and sanctions firms and individuals for violations of laws and regulations?

Accepted Answer

A)   American Institute of Certified Public Accountants (AICP
A)  .
B)   American Accounting Association (AA
A)  .
C)   Public Company Accounting Oversight Board (PCAO
B)  .
D)   Financial Accounting Standards Board (FAS
B)  .
E)   Accounting Principles Board (AP
B)  .

Question 13

Which of the following is not a provision of (nor an outgrowth of)  the Sarbanes-Oxley Act?

Accepted Answer

A)   A public company's annual report must contain a separate disclosure that assesses the company's internal controls.
B)   Management is essentially responsible for establishing and maintaining internal controls.
C)   A company's Chief Executive Officer (CEO)  and Chief Financial Officer (CFO)  can be held criminally responsible if their firm's financial statements are fraudulent.
D)   A company must prepare a balance sheet, an income statement, a statement of stockholders' equity, and a statement of cash flows.
E)   A new body, the Public Company Accounting Oversight Board, oversees and investigates the audits and auditors of public companies.

Question 14

What does it mean to say that the concept of risk exposure may be the key to making SOX sections 302 and 404 more effective?

Accepted Answer

As some critics of SOX have suggested, i...

Question 15

Which of the following statements regarding the Sarbanes-Oxley Act is (are)  true?

Accepted Answer

A)   Management must establish and maintain a system of internal controls over financial reporting.
B)   Management must periodically assess a company's system of internal controls over financial reporting.
C)   Management must include in the company's annual report a separate report that assesses internal controls.
D)   A company's auditors are required to report on management's assessment of internal controls.
E)   All of the answers are correct.

Question 16

Under section 404 of the Sarbanes-Oxley Act, auditors are required to:

Accepted Answer

A)   Attest to and report on the effectiveness of the client's internal controls.
B)   Establish and maintain internal controls for audited companies.
C)   Advise management on its preparation of the Report on Internal Controls.
D)   Evaluate the company's internal control system periodically throughout the year.
E)   All of the answers are correct.

Question 17

The Sarbanes-Oxley Act:

Accepted Answer

A)   arose because of several accounting scandals that rocked the public's confidence in published financial statements.
B)   was enacted, in part, to bring about reform in companies' financial reporting processes.
C)   has distinct guidelines for reporting on an organization's internal control practices.
D)   contains provisions whereby the chief executive officer (CEO)  and chief financial officer (CFO)  can be held criminally responsible if their firm's financial statements are found to be fraudulent in nature.
E)   All of the answers are correct.

Question 18

Internal controls focus on all of the following except:

Accepted Answer

A)   effectiveness of operations.
B)   reliability of financial reporting.
C)   compliance with applicable laws and regulations.
D)   maximization of profit and cash flows.
E)   efficiency of operations.

Question 19

Which of the following statements is false concerning computerized accounting systems?

Accepted Answer

A)   Safeguards exist to make sure that controls are working properly.
B)   There is no need for controls over human operators of computerized systems.
C)   Computerized accounting systems are not 100% reliable.
D)   Limits should be placed on who can access a computerized system.
E)   Many internal control procedures are automated.

Question 20

Most of the Sarbanes-Oxley Act relates primarily to:

Accepted Answer

A)   Corporate governance.
B)   Financial accounting.
C)   Auditing.
D)   Court-invoked penalties for violating the law.
E)   All of the answers are correct.

Exam 18: The Sarbanes-Oxley Act, Internal Controls, and Management Accounting

Correct Answer
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The Public Company Accounting Oversight Board (PCAOB) is a 7-member board operating under the auspices of the American Institute of Certified Public Accountants (AICPA).

Correct Answer
verified
False

Section 404 of the Sarbanes-Oxley Act, Management Assessment of Internal Controls, includes all of the following except:

Correct Answer
verified

Since many internal control procedures are automated, internal software controls are not needed.

Correct Answer
verified

Which of the following is a typical internal control?

Correct Answer
verified

The provisions of sections 302 and 404 of the Sarbanes-Oxley Act (as originally enacted) have proved especially troublesome for:

Correct Answer
verified

The Sarbanes-Oxley Act established the:

Correct Answer
verified

The first decade of the SOX legislation was characterized by controversy.

Correct Answer
verified
True

To achieve the objectives of sections 302 and 404 of the Sarbanes-Oxley Act, management and independent auditors should:

Correct Answer
verified

The provisions of section 302 of the Sarbanes-Oxley Act (as originally enacted) require the signing officers of a company to do all of the following except:

Correct Answer
verified

Even in large companies, few internal controls exist in order to establish greater control of security among limited individuals.

Correct Answer
verified

Which of the following bodies oversees audits and auditors, and sanctions firms and individuals for violations of laws and regulations?

Correct Answer
verified

Which of the following is not a provision of (nor an outgrowth of) the Sarbanes-Oxley Act?

Correct Answer
verified

What does it mean to say that the concept of risk exposure may be the key to making SOX sections 302 and 404 more effective?

Correct Answer
verified
As some critics of SOX have suggested, i...
View Answer

Which of the following statements regarding the Sarbanes-Oxley Act is (are) true?

Correct Answer
verified

Under section 404 of the Sarbanes-Oxley Act, auditors are required to:

Correct Answer
verified

The Sarbanes-Oxley Act:

Correct Answer
verified

Internal controls focus on all of the following except:

Correct Answer
verified

Which of the following statements is false concerning computerized accounting systems?

Correct Answer
verified

Most of the Sarbanes-Oxley Act relates primarily to:

Correct Answer
verified

Exam 18: The Sarbanes-Oxley Act, Internal Controls, and Management Accounting

Correct Answerverified11eb45ce_1f27_e640_aa1c_f394c190b9b8_TB4095_00

The Public Company Accounting Oversight Board (PCAOB) is a 7-member board operating under the auspices of the American Institute of Certified Public Accountants (AICPA).

Correct AnswerverifiedFalse

Section 404 of the Sarbanes-Oxley Act, Management Assessment of Internal Controls, includes all of the following except:

Correct AnswerverifiedShow Answer

Since many internal control procedures are automated, internal software controls are not needed.

Correct AnswerverifiedShow Answer

Which of the following is a typical internal control?

Correct AnswerverifiedShow Answer

The provisions of sections 302 and 404 of the Sarbanes-Oxley Act (as originally enacted) have proved especially troublesome for:

Correct AnswerverifiedShow Answer

The Sarbanes-Oxley Act established the:

Correct AnswerverifiedShow Answer

The first decade of the SOX legislation was characterized by controversy.

Correct AnswerverifiedTrue

To achieve the objectives of sections 302 and 404 of the Sarbanes-Oxley Act, management and independent auditors should:

Correct AnswerverifiedShow Answer

The provisions of section 302 of the Sarbanes-Oxley Act (as originally enacted) require the signing officers of a company to do all of the following except:

Correct AnswerverifiedShow Answer

Even in large companies, few internal controls exist in order to establish greater control of security among limited individuals.

Correct AnswerverifiedShow Answer

Which of the following bodies oversees audits and auditors, and sanctions firms and individuals for violations of laws and regulations?

Correct AnswerverifiedShow Answer

Which of the following is not a provision of (nor an outgrowth of) the Sarbanes-Oxley Act?

Correct AnswerverifiedShow Answer

What does it mean to say that the concept of risk exposure may be the key to making SOX sections 302 and 404 more effective?

Correct AnswerverifiedAs some critics of SOX have suggested, i...View AnswerShow Answer

Which of the following statements regarding the Sarbanes-Oxley Act is (are) true?

Correct AnswerverifiedShow Answer

Under section 404 of the Sarbanes-Oxley Act, auditors are required to:

Correct AnswerverifiedShow Answer

The Sarbanes-Oxley Act:

Correct AnswerverifiedShow Answer

Internal controls focus on all of the following except:

Correct AnswerverifiedShow Answer

Which of the following statements is false concerning computerized accounting systems?

Correct AnswerverifiedShow Answer

Most of the Sarbanes-Oxley Act relates primarily to:

Correct AnswerverifiedShow Answer

Correct Answer
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False

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True

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Correct Answer
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As some critics of SOX have suggested, i...
View Answer

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