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Test Bank For International Accounting, 5th Edition

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    1. Award: 10.00 points 2. Award: 10.00 points Even in large companies, few internal controls exist in order to establish greater control of security among limited individuals. True False References True / False Difficulty: 1 Easy Learning Objective: I-01 Understand and discuss the concept of internal controls over financial reporting. Since many internal control procedures are automated, internal software controls are not needed. True False References True / False Difficulty: 1 Easy Learning Objective: I-01 Understand and discuss the concept of internal controls over financial reporting.      

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    3. Award: 10.00 points 4. Award: 10.00 points 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). True False References True / False Difficulty: 1 Easy Learning Objective: I-02 Understand and discuss the role of the PCAOB and the implications of Sarbanes-Oxley Sections 302 and 404. The first decade of the SOX legislation was characterized by controversy. True False References True / False Difficulty: 1 Easy Learning Objective: I-02 Understand and discuss the role of the PCAOB and the implications of Sarbanes-Oxley Sections 302 and 404.      

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    5. Award: 10.00 points The Sarbanes-Oxley Act: arose because of several accounting scandals that rocked the public's confidence in published financial statements. was enacted, in part, to bring about reform in companies' financial reporting processes. has distinct guidelines for reporting on an organization's internal control practices. 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. All of the answers are correct. All of these statements about the Sarbanes-Oxley Act are true. References Multiple Choice Difficulty: 1 Easy Learning Objective: I-01 Understand and discuss the concept of internal controls over financial reporting.      

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    6. Award: 10.00 points 7. Award: 10.00 points Internal controls focus on all of the following except: effectiveness of operations. reliability of financial reporting. compliance with applicable laws and regulations. maximization of profit and cash flows. efficiency of operations. Internal controls do not focus on maximization of profit and cash flows. References Multiple Choice Difficulty: 2 Medium Learning Objective: I-01 Understand and discuss the concept of internal controls over financial reporting. Which of the following is a typical internal control? The use of password-protected computers and software. The requirement that separate individuals authorize cash disbursements and sign checks. The use of physical controls over inventories to prevent loss from theft. A physical count of inventory at year-end to verify amounts shown on the company's accounting records. All of the answers are correct. All of these statements about typical internal controls are true. References Multiple Choice Difficulty: 2 Medium Learning Objective: I-01 Understand and discuss the concept of internal controls over financial reporting.            

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    8. Award: 10.00 points The Sarbanes-Oxley Act established the: Securities and Exchange Commission (SEC). Public Company Accounting Oversight Board (PCAOB). Financial Accounting Standards Board (FASB). Institute of Management Accountants (IMA). American Accounting Association (AAA). SOX established the PCAOB. References Multiple Choice Difficulty: 2 Medium Learning Objective: I-02 Understand and discuss the role of the PCAOB and the implications of Sarbanes-Oxley Sections 302 and 404.      

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    9. Award: 10.00 points Which of the following bodies oversees audits and auditors, and sanctions firms and individuals for violations of laws and regulations? American Institute of Certified Public Accountants (AICPA). American Accounting Association (AAA). Public Company Accounting Oversight Board (PCAOB). Financial Accounting Standards Board (FASB). Accounting Principles Board (APB). The PCAOB oversees audits and auditors and sanctions firms and individuals for law/regulation violations. References Multiple Choice Difficulty: 2 Medium Learning Objective: I-02 Understand and discuss the role of the PCAOB and the implications of Sarbanes-Oxley Sections 302 and 404.      

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    10. Award: 10.00 points Which of the following is not a provision of (nor an outgrowth of) the Sarbanes-Oxley Act? A public company's annual report must contain a separate disclosure that assesses the company's internal controls. Management is responsible for establishing and maintaining internal controls. 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. A company must prepare a balance sheet, an income statement, a statement of stockholders' equity, and a statement of cash flows. A new body, the Public Company Accounting Oversight Board, oversees and investigates the audits and auditors of public companies. A company must prepare a balance sheet, an income statement, a statement of stockholders' equity, and a statement of cash flows is not a provision of SOX. References Multiple Choice Difficulty: 2 Medium Learning Objective: I-02 Understand and discuss the role of the PCAOB and the implications of Sarbanes-Oxley Sections 302 and 404.      

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    11. Award: 10.00 points Which of the following statements regarding the Sarbanes-Oxley Act is (are) true? Management must establish and maintain a system of internal controls over financial reporting. Management must periodically assess a company's system of internal controls over financial reporting. Management must include in the company's annual report a separate report that assesses internal controls. A company's auditors are required to report on management's assessment of internal controls. All of the answers are correct. All of these statements about the Sarbanes-Oxley Act are true. References Multiple Choice Difficulty: 2 Medium Learning Objective: I-02 Understand and discuss the role of the PCAOB and the implications of Sarbanes-Oxley Sections 302 and 404.      

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    12. Award: 10.00 points The provisions of sections 302 and 404 of the Sarbanes-Oxley Act (as originally enacted) have proved especially troublesome for: small businesses. private universities. cities and municipalities. healthcare providers. individual taxpayers. These provisions of SOX have proven to be troublesome for small businesses. References Multiple Choice Difficulty: 2 Medium Learning Objective: I-02 Understand and discuss the role of the PCAOB and the implications of Sarbanes-Oxley Sections 302 and 404.      

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    13. Award: 10.00 points 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: audit the internal controls over financial reporting. establish the internal controls over financial reporting. maintain the internal controls over financial reporting. evaluate the internal controls over financial reporting. disclose material weaknesses in the internal controls over financial reporting. Provisions of Section 302 do not require signing officers of a company to audit the internal controls over financial reporting. References Multiple Choice Difficulty: 2 Medium Learning Objective: I-02 Understand and discuss the role of the PCAOB and the implications of Sarbanes-Oxley Sections 302 and 404.      

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    14. Award: 10.00 points Section 404 of the Sarbanes-Oxley Act, Management Assessment of Internal Controls, includes all of the following except: a statement of management's responsibility for establishing the internal control structure. a waiver of auditor responsibility for assessing management's report on internal controls. an assessment of the effectiveness of internal controls by management. an assessment of the effectiveness of procedures for financial reporting by management. a requirement that management include in its annual report an internal control report. Section 404 does not include a waiver of auditor responsibility for assessing management’s report on internal controls. References Multiple Choice Difficulty: 2 Medium Learning Objective: I-02 Understand and discuss the role of the PCAOB and the implications of Sarbanes-Oxley Sections 302 and 404.      

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    15. Award: 10.00 points To achieve the objectives of sections 302 and 404 of the Sarbanes-Oxley Act, management and independent auditors should: disclose the minutia of the internal control structure. conduct a cost-benefit analysis prior to deciding whether or not to adopt these sections. emphasize those areas where the greatest risk of fraud or material misstatement is likely to occur. analyze all financial transactions that are included in the reported financial statements. work together to design the most effective internal control system. To achieve Section 302 and 404 objectives, managers and independent auditors should emphasize areas where greatest fraud risk or material misstatement is likely to occur. References Multiple Choice Difficulty: 2 Medium Learning Objective: I-02 Understand and discuss the role of the PCAOB and the implications of Sarbanes-Oxley Sections 302 and 404.      

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    16. Award: 10.00 points 17. Award: 10.00 points Most of the Sarbanes-Oxley Act relates primarily to: Corporate governance. Financial accounting. Auditing. Court-invoked penalties for violating the law. All of the answers are correct. All of these statements about the Sarbanes-Oxley Act are true. References Multiple Choice Difficulty: 2 Medium Learning Objective: I-02 Understand and discuss the role of the PCAOB and the implications of Sarbanes-Oxley Sections 302 and 404. Which of the following statements is false concerning computerized accounting systems? Safeguards exist to make sure that controls are working properly. There is no need for controls over human operators of computerized systems. Computerized accounting systems are not 100% reliable. Limits should be placed on who can access a computerized system. Many internal control procedures are automated. It is false that no controls are needed for computerized systems. References Multiple Choice Difficulty: 2 Medium Learning Objective: I-01 Understand and discuss the concept of internal controls over financial reporting.            

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    18. Award: 10.00 points Under section 404 of the Sarbanes-Oxley Act, auditors are required to: attest to and report on the effectiveness of the client's internal controls. establish and maintain internal controls for audited companies. advise management on its preparation of the Report on Internal Controls. evaluate the company's internal control system periodically throughout the year. All of the answers are correct. Auditors are required under Section 404 to attest to and report on the effectiveness of the client’s internal controls. References Multiple Choice Difficulty: 2 Medium Learning Objective: I-02 Understand and discuss the role of the PCAOB and the implications of Sarbanes-Oxley Sections 302 and 404.      

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    19. Award: 10.00 points 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? A. The same employee is responsible for keeping the inventory records and taking the physical inventory count. In addition, when the records and the count do not agree, the employee changes the count, rather than investigating the reasons for the discrepancy. This leaves open the possibility that the employee would steal inventory and conceal the theft by altering both the records and the count. Even without any dishonesty by the employee, this system is not designed to control inventory since it does not encourage resolution of discrepancies between the records and the count. Separation of duties is needed in this system. B. The internal control system could be strengthened in two ways: (1) Assign two different employees the responsibilities for the inventory records and the physical count. With this arrangement, collusion would be required for theft to be concealed. (2) Require that discrepancies between the inventory records and the physical count be investigated and resolved when possible. C. SOX sections 302 and 404 require the company’s management to establish, maintain, and regularly report on the firm’s internal controls. In the process, any flawed internal control procedures would presumably be identified and strengthened. As mentioned in Requirement B, the internal control system could be strengthened in two ways: (1) Assign two different employees the responsibilities for the inventory records and the physical count. With this arrangement, the internal control of separation of duties would be achieved and the chance of collusion would be lessened. (2) Require that discrepancies between the inventory records and the physical count be investigated and resolved when possible. This will lead to more timely and accurate recordkeeping. References Essay Difficulty: 2 Medium Learning Objective: I-02 Understand and discuss the role of the PCAOB and the implications of Sarbanes-Oxley Sections 302 and 404.

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