Exam (elaborations)
Managerial Accounting Creating Value in a Dynamic Business Environment 11Th Edition By Hilton - Test Bank
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- Accounting and Finance
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- Accounting And Finance
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,Appendix I - The Sarbanes-Oxley Act, Internal Controls, and ManagementAccounting
Appendix I
The Sarbanes-Oxley Act, Internal Controls, and Management Accounting
Answer Key
True / False Questions
1. Even in large companies, few internal controls exist in order to establish greater control of
security among limited individuals.
FALSE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Research
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 1
Feedback True: Even in large companies there are thousands of procedures that can properly be viewed as internal controls, including a
range of diverse activities such as approvals, authorizations, verifications, reconciliations, reviews involving most individuals within the
company.
Feedback False: Correct! Even in large companies there are thousands of procedures that can properly be viewed as internal controls,
including a range of diverse activities such as approvals, authorizations, verifications, reconciliations, reviews involving most individuals
within the company.
2. Since many internal control procedures are automated, internal software controls are not needed.
FALSE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Research
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 1
Feedback True: Despite the fact that many internal control procedures are automated, companies need internal control safeguards to ensure
that the software is working properly and doing what it is supposed to do.
Feedback False: Correct! Despite the fact that many internal control procedures are automated, companies need internal control safeguards
to ensure that the software is working properly and doing what it is supposed to do.
3. 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).
FALSE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Research
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 2
Feedback True: The PCAOB is a 5-member board operating under the auspices of the SEC.
Feedback False: Correct! The PCAOB is a 5-member board operating under the auspices of the SEC.
I-1
,Appendix I - The Sarbanes-Oxley Act, Internal Controls, and Management
Accounting
4. The first decade of the SOX legislation was characterized by controversy.
TRUE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Research
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 2
Feedback True: Correct! It is true that the first decade of SOX legislation was characterized by controversy.
Feedback False: It is true that the first decade of SOX legislation was characterized by controversy.
Multiple Choice Questions
5. The Sarbanes-Oxley Act:
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.
AACSB: Ethics
AICPA BB: Legal
AICPA FN: Risk Analysis
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 1
Feedback A: While this is a true statement about SOX, there is a better answer choice listed.
Feedback B: While this is a true statement about SOX, there is a better answer choice listed.
Feedback C: While this is a true statement about SOX, there is a better answer choice listed.
Feedback D: While this is a true statement about SOX, there is a better answer choice listed.
Feedback E: Correct! All of these statements about the Sarbanes-Oxley Act are true.
6. Internal controls focus on all of the following except:
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.
AACSB: Ethics
AICPA BB: Industry
AICPA FN: Risk Analysis
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 1
Feedback A: Internal controls focus on this factor.
Feedback B: Internal controls focus on this factor.
Feedback C: Internal controls focus on this factor.
I-2
, Appendix I - The Sarbanes-Oxley Act, Internal Controls, and Management
Accounting
Feedback D: Correct! Internal controls do not focus on maximization of profit and cash flows.
Feedback E: Internal controls focus on this factor.
7. Which of the following is a typical internal control?
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.
AACSB: Ethics
AICPA BB: Industry
AICPA FN: Risk Analysis
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 1
Feedback A: While this is a true statement about typical internal controls, there is a better answer choice listed.
Feedback B: While this is a true statement about typical internal controls, there is a better answer choice listed.
Feedback C: While this is a true statement about typical internal controls, there is a better answer choice listed.
Feedback D: While this is a true statement about typical internal controls, there is a better answer choice listed.
Feedback E: Correct! All of these statements about typical internal controls are true.
8. The Sarbanes-Oxley Act established the:
A. Securities and Exchange Commission (SEC).
B. Public Company Accounting Oversight Board (PCAOB).
C. Financial Accounting Standards Board (FASB).
D. Institute of Management Accountants (IMA).
E. American Accounting Association (AAA).
AACSB: Ethics
AICPA BB: Legal
AICPA FN: Research
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 2
Feedback A: This is not the correct organization.
Feedback B: Correct! SOX established the PCAOB.
Feedback C: This is not the correct organization.
Feedback D: This is not the correct organization.
Feedback E: This is not the correct organization.
I-3
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