LOMA 291 Module 4 Exam Questions with All Correct Answers
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Course
LOMA 291
Institution
LOMA 291
LOMA 291 Module 4 Exam Questions with All Correct Answers
What is the purpose of an external audit? - Answer-An external audit provides
An independent professional opinion as to whether a company's financial statements fairly present the company's operations and that they were prepared according...
LOMA 291 Module 4 Exam
Questions with All Correct
Answers
What is the purpose of an external audit? - Answer-An external audit provides
An independent professional opinion as to whether a company's financial statements
fairly present the company's operations and that they were prepared according to a
given set of accounting principles and standards
Suggestions for changes to the company's system of internal control
A report of audit findings
Sarbanes-Oxley Act (SOX) - Answer-The Sarbanes-Oxley Act (SOX) affects corporate
governance and financial reporting for U.S. stock companies. Requirements of
Sarbanes-Oxley include that
A company's CEO and CFO must sign each financial statement and attest to the
accuracy of the information contained in the statement
External auditors are required to be independent to help avoid any potential conflict of
interest
annual statement difference - Answer-the Annual Statement meets the specific
requirements of insurance regulators, whose primary purpose is to safeguard insurer
solvency. The information presented in the Annual Statement shows that an insurer can
take care of its obligations to its customers, even if it stops doing business tomorrow.
annual report difference - Answer-on the other hand, is a broad assessment of a
company's financial performance. It assumes that the company will be in business going
forward and helps users assess a company's profitability—its success in generating
returns for its owners—as well as its financial strength. It is designed for external
stakeholders with an interest in the company's financial performance.
Where Else Do Stakeholders Get Information? - Answer-Stakeholders can turn to a
number of independent sources for financial information about an insurer, including
Investment analysts
Stock brokers and financial advisors
Financial press and consumer advocates
,Rating agencies
Rating agencies provide standardized ratings that indicate an insurance company's -
Answer-Financial strength and financial flexibility
Ability to pay its obligations to customers
Ability to pay its obligations to creditors
why various stakeholders are interested in an insurer's ratings. - Answer-Financial
professionals: Which insurers should I recommend to my clients?
Insurance customers: Which insurer should I trust with my money?
Reinsurers and other business partners: Should we do business with this insurer?
Investors: Is this company's stock a good value?
Of the following insurers operating in the United States, select those that are required
by the SEC to publish an annual report.
a. The Stargazer Insurance Company is a stock company that sells only guaranteed
products such as whole life and fixed annuities.
b. The Triangle Insurance Company is a mutual company that sells both fixed and
variable insurance products.
c. The Horizon Insurance Company is a mutual company that sells only guaranteed
products such as whole life and fixed annuities. - Answer-A & B - The SEC requires an
insurer to publish an annual report if at least one of the following is true: (1) the insurer
is a stock company; (2) the insurer offers variable products. In these examples, Horizon
is the only company that doesn't meet at least one of these requirements.
External audits are performed primarily for the benefit of company management.
a. True
b. False - Answer-B. - External audits are performed primarily for the benefit of
interested third parties, such as stockholders, policyowners, creditors, regulators, and
government authorities, all of which rely on the financial statements published in the
insurer's annual report.
At a typical insurance company, which of the following areas are part of financial
operations? Choose all that apply.
a. Accounting and financial reporting
b. Treasury operations
c. Information technology
d. Investment operations
e. Internal audit - Answer-A, B, D, & E- All of these areas—except for information
technology—are part of a typical insurance company's financial operations. Although
the IT department plays an essential role in maintaining the quality of the data provided
to financial managers, it is not technically part of financial operations.
, Board and Executive Roles
The financial management function - Answer-Provides information to stakeholders
Ensures that financial obligations are met
Ensures compliance with complex financial regulations
Generates adequate returns for the company's owners and customers
Role of the Board of Directors - Answer-- Investment committee: The investment
committee sets Forthright's investment policy and oversees investment operations.
- Audit/risk committee: The audit/risk committee directs Forthright's audit and internal
control function.
The role of the Ceo - Answer-I approve our budget numbers. Then I manage our
resources—in line with budget guidelines and all current laws and regulations.
Technically I'm responsible for directing financial objectives and strategies, but I
delegate most of these responsibilities to senior financial officers.
However, make no mistake, the buck stops here! We are a publicly held company.
Investors, customers, and regulators can, and should, hold me responsible for our
financial results.
The role of the CFO - Answer-As CFO, I report to Grace Avon, our CEO. I work closely
with company directors to develop corporate goals and strategies. I coordinate, monitor,
and direct Forthright's financial activities.
That covers a lot of territory. In the financial world, information quality and accuracy are
critically important—I work closely with IT to make sure we get that right. That
information has to be communicated to company managers and external parties. When
we need to raise funds—that's also my job.
Last, but not least, strong financial controls and measurement tools are absolutely
essential.
Financial Management Operating Units - Answer-Specific job titles and organizational
structures vary according to a company's unique needs, but all insurers must perform
certain core financial functions, as shown below.
An organization chart. Under Financial Operations are Accounting and Financial
Reporting, Treasury Operations, and Investment Operations. Separate is Internal Audit.
An insurance company's investment committee directs the company's internal audit and
control function.
a. True
b. False - Answer-A company's internal audit and control function is directed by the
audit/risk committee. The investment committee sets the company's investment policy
and oversees investment operations.
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