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Test answers for Sarbanes Oxley Act Test 2016

(80) Last updated: January 27
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80 NOT Answered Yet Test Questions:

(hold on, will be updated soon)
1. What is the requirement regarding code of ethics for companies under SOX?

Answers:

• Companies must have a code of ethics

• Code of ethics should be loosely followed

• Companies must have an elaborate code of ethics

• Companies must disclose if they have adopted a code of ethics

2. What was the main reason behind the act to be drafted?

Answers:

• Accounting scandals in the United States unraveled and created financial ruin for several companies

• It was scheduled to happen every 50 years

• Stock market crash

• Inflation problem

3. Why are whistleblowers protected under law now?

Answers:

• Due to public outcry

• To help the economy

• Out of good faith

• Often times only company insiders will be the ones who know about illegal activities in a company, and the fear of retaliation must be removed through legal protection

4. What is the new maximum prison term for executives who impede an official investigation?

Answers:

• 5 years

• 20 years

• 100 years

• Life in prison

5. What is the first step in implementing Sarbanes Oxley compliance?

Answers:

• Having executives sign off that the firm is compliant

• Having an audit completed

• Creating proper documentation of accounting and other departments processes

• Going public

6. What is COBIT?

Answers:

• Control Objectives for Information and Related Technology

• Software used in documentation

• Name of the main audit firm

• Control of Best Internal Transactions

7. What is a commonly used acronym for Sarbanes Oxley Act?

Answers:

• SOA

• SOB

• SOX

• SAD

8. What is meant by "top down" testing?

Answers:

• Starting with low level procedures

• Starting with processes which have no risk

• Starting with the highest priority key controls for testing

• Starting with the financial statements

9. What is the best way to ensure that the documentation is complete?

Answers:

• Ask employees to do a good job

• Have an accountability partner who reviews the documenters work

• Hire an outside firm

• Assume everything is correct

10. How can companies accelerate their documentation process?

Answers:

• Assigning one employee to the task

• Purchasing "canned" lists which help cover generalized processes

• Spread it out over a year

• Have a secretary do all the documentation

11. What ban has been placed on directors of a company during a pension fund blackout period?

Answers:

• They can not retire

• They can not operate the company

• They can not buy or sell the company stock

• They can not come to work

12. What is the requirement for procedures and listing all risk factors and mitigating factors?

Answers:

• There is no obligation to list either

• Risk factors must be listed but mitigating factors are not necessary

• Mitigating factors must be listed but not risk factors

• All procedures have risks and they must be listed along with the mitigating factor

13. Which of the following high profile companies was one of the cornerstones of the financial fraud problems?

Answers:

• AT&T

• WorldCom

• Dell

• Microsoft

14. What is a SAS 70 report?

Answers:

• A final report the company puts out

• The auditors report

• An audited financial statement

• A report from an outside vendor, attesting to their compliance as well with SOX

15. What is the main goal of the act regarding the public?

Answers:

• To increase stock prices

• To regain investor confidence in companies and their financial reporting

• To stop the market from crashing

• To encourage investors to invest over seas

16. What is the documentation requirement for off balance sheet transactions?

Answers:

• There is no requirement if not on a financial statement

• They must be written down but not disclosed

• As long as management knows of them no documentation is required

• Companies must disclose any transactions that may have a material effect on the company in the future

17. What is the best method for an auditor to gain an understanding of a company's procedures?

Answers:

• Walk throughs

• Talk to management

• Talk to secretaries

• Do the job themselves

18. What was the original compliance deadline date for companies?

Answers:

• December 31, 2010

• December 31, 2007

• December 31, 1998

• May 28, 2008

19. What is meant by "compliance"?

Answers:

• Complying with the SEC

• Complying with the IRS

• Complying with local taxing authorities

• Complying with all aspects of the Sarbanes Oxley Act

20. What has to be done in the documentation for Section 404?

Answers:

• The documentation must be done in a special program

• All company procedures must be written, along with both risk factors and mitigating risk factors in place

• The documentation has to be presented in at least 2 languages

• The documentation must name who is responsible for specific acts

21. What must a legal firm which learns of a corporate client's illegal activities do under SOX?

Answers:

• Nothing

• Help the company hide the illegal activity

• Tell the IRS of the wrong doing

• Alert the SEC to the wrong doing before withdrawing from the client

22. What would an auditor look for and test on a financial statement?

Answers:

• That balances are accurate and reflect the transactions performed by the company

• That the company made money

• That the company is performing close to budget

• That key ratios are accurate

23. What purpose does performing walkthroughs serve?

Answers:

• Allow the auditor to meet people

• Allow the auditor to experience documented procedures himself

• Allow the auditor to do the job himself

• Allow the auditor time to access how capable management is

24. What is a primary debatable issue regarding the act and its effect on United States based companies compared to other countries?

Answers:

• It makes them more ethical than before

• It makes the stock market more fluid

• It adds a burden to them, both cost and regulatory

• It doesn't stop fraud

25. What is testing for "design effectiveness"?

Answers:

• Testing if documentation is done completely and accurately

• When the auditor tests if internal controls are truly working

• Testing if financial statements meet GAAP requirements

• Testing if the documenters know how to create flow charts

26. What does an auditor do?

Answers:

• Maintains the accounting records

• Performs the tax returns for a company

• Helps cover up potential issues

• Verifies the accuracy of the accounting records

27. What is the disclosure requirement for company management regarding any transactions involving their personal holdings in the company?

Answers:

• They do not need to be disclosed

• They must be disclosed within 7 days

• The firm can chose to disclose or not to disclose

• They must be disclosed within 2 days

28. What does SOX state regarding personal loans from the company to executives?

Answers:

• They are forbidden

• They can make them freely

• They must pay them back within 10 years

• They can do them, but other employees should not be aware of it

29. On an average how long does it take to document a procedure?

Answers:

• 10 minutes

• 1 -2 days

• 1 month

• 1 year

30. What have some firms looking to avoid the SOX regulations done?

Answers:

• Not hire auditors

• List their company on exchanges in other countries such as London

• File a complaint with the SEC

• Merge with other companies

31. Why are risk factors listed in documentation?

Answers:

• To show the company has done its due diligence

• To force the company to look at procedures and see potential for problems

• To help employees avoid errors in their work

• To help management see where employees are most safe

32. What are the minimum requirements under section 302 of SOX?

Answers:

• No sales of securities during a 1 year period

• Everyone must take a class on SOX

• Accounting personnel must have security clearance

• Written procedures, management supervision, process for review

33. How are companies able to manage the documentation process effectively?

Answers:

• By hiring people outside the company to document procedures

• By having a special project team who oversees the documentation process and keeps the company on track

• By not doing it

34. How do independent auditors test the claims of management?

Answers:

• Interviews with the management team

• Interviews with personnel

• Having them take a lie detector test

• Testing transactions to see if they were performed in the same way as the company has documented them

35. What is one way a company can become non compliant with SOX?

Answers:

• Document new procedures

• Have an audit firm review their processes

• Issue extravagant bonuses to directors

• Hire new employees

36. What is the annual requirement of a company under SOX?

Answers:

• None, it is a one time implementation

• They must maintain profitability

• They must fire 10% of their staff each year

• They must maintain and update documentation, and pass annual audits

37. What method may an auditor use to gain confidence in the company's documentation regarding procedures?

Answers:

• Redo the paperwork himself

• Observe personnel performing the task

• Interview secretaries

38. What was the magnitude of financial losses due to accounting fraud before the act?

Answers:

• Thousands

• Hundreds

• Millions

• Billions

39. What is a major criticism of documentation?

Answers:

• It wastes paper

• It is costly and time consuming

• It gives people a written procedure

• It makes the firm easier to audit

40. What is the level of crime when management knowingly signs off on compliance documents it knows to be incorrect and misleading?

Answers:

• Criminal

• Civil

• Global

• Domestic

41. What must annual reports contain in order to be compliant with section 404?

Answers:

• Profit and loss statement

• Management discussion and analysis

• An assessment of the effectiveness of the company's internal control structure

• Auditor attestation

42. What is COBIT akin to from the Accounting world?

Answers:

• SEC

• GAAP

• IRS

• Tax Law

43. What is the general implementation process for SOX in order?

Answers:

• Sign off, Audit, Corrections, Documentation

• Audit, Sign off, Corrections, Documentation

• Documentation, Sign off, Audit, Corrections

• Documentation, Audit, Corrections, Sign off

44. What is a whistleblower?

Answers:

• An employee who alerts authorities to potential illegal activity in a company

• A team leader in the firm

• The police

45. What is the PCAOB?

Answers:

• Private Company Act Oversight Board

• Public Company Accounting Oversight Board

• Private Control Accounting Oversight Board

• Public Corporation Act of Betrayal

46. Which agency was created because of the act?

Answers:

• Public Company Accounting Oversights Board

• The Internal Revenue Service

• The Securities and Exchange Commission

• The Institute for International Accounting

47. Who is held responsible at the corporate level once SOX has been signed off by the auditors?

Answers:

• Accounting staff

• Mid level managers

• Secretaries and record keepers

• Corporate officers

48. What do COBIT standards indicate?

Answers:

• Best practices for Accounting processes

• Best practices for management processes

• How to document processes

• Best practices for IT processes and models to assist in improving them

49. Which departments are required to be involved in documentation for SOX?

Answers:

• Only executive offices

• Accounting only

• Human resources and accounting

• All departments which impact accounting and record keeping

50. What is corporate fraud?

Answers:

• When an employee is convicted of performing personal fraud

• When one company defrauds another

• Selling stock of the company

• When fraud is conducted by a corporation or people who can act on behalf of the corporation

51. Where did the name Sarbanes Oxley come from?

Answers:

• 2 lawyers who helped draft the act

• Senator Paul Sarbanes and Representative Michael Oxley sponsored the act

• 2 Companies who committed fraud which inspired the act

• Random choice

52. What is one of the primary, overall objectives of SOX regulations?

Answers:

• Become competitive in the global market

• Create value in the stock market

• Make management more accountable

• Stop small companies from becoming larger

53. What is the penalty awarded to senior management for non compliance with SOX?

Answers:

• Simple corrective actions

• Large fines

• Small fines

• Prison sentences

54. What are the requirements of section 404 of SOX?

Answers:

• Corporate officers must take an oath

• Record keeping, Compliance, Prevention & Detection

• Securities must be traded on a major exchange

• Companies can not delist from stock exchanges

55. What method of documentation is required under SOX?

Answers:

• Drawings of processes

• Only flow charts are necessary

• Flowcharts along with reports of business processes

• Written documentation only

56. What is the often criticized part of the act?

Answers:

• It created more corporate fraud

• It won't help at all

• The cost-benefit of implementing Sarbanes Oxley

• It encourages good ethics

57. Who issues the COBIT standards?

Answers:

• The Securities and Exchange Commission

• Internal Revenue Service

• The IT Governance Institute

• PCAOB

58. Why is it important to document all of the internal controls of the IT department?

Answers:

• To make them follow their own written rules

• To gain auditor confidence

• To mitigate tax obligations

• All the company data is handled by IT, and if it is not handled correctly it could lead to erroneous reporting

59. What separation would be required between a company and its audit firm?

Answers:

• The audit firm can do taxes for the company

• The SOX audit firm can not do accounting services for the company

• The auditors must remain anonymous

• The corporate officers can not leave the company during an audit

60. What is the SEC?

Answers:

• Senior Executive Commission

• Securities and Exchange Commission

• Securities Executive Control

• Senior Executive Control

61. Which of the following would be classified as an "issuer" under SOX?

Answers:

• A private company

• A sole proprietor

• An LLC

• A publicly traded company

62. What does the board of directors do for a company?

Answers:

• Help prepare tax returns

• Oversee the operations and provide corporate direction

• Perform routine day to day finance activities

• Sell stocks of the company

63. What are "financial disclosures"?

Answers:

• Information of how the firm could have made more money

• Information included after financial statements which discuss additional information related to the financial numbers

• Information about the taxes on the firm

• Information about the budget

64. What is another name for the Sarbanes Oxley Act?

Answers:

• Public Company Accounting Reform and Investor Protection Act

• The Tax Law Reform Act

• Self Regulation Act for Corporations

• Public Company Penalty Act

65. What makes for a "significant deficiency"?

Answers:

• More than a remote likelihood that a more than inconsequential misstatement will occur on the financial statements

• When a process is documented

• When a process has no risk factors

• When there is no chance of a material misstatement on the financial statements

66. What is it meant to be accountable?

Answers:

• To do accounting work

• To be responsible for an action

• To hire others to do a job

• To file taxes on time

67. What service can an audit firm still provide to a corporate client when engaged as auditors?

Answers:

• Accounting services

• Tax services

• Consulting services

• Management services

68. What is the auditors role in a section 404 audit?

Answers:

• Assume that the management tells them the truth

• Create the documentation themselves

• Assume the firm is committing a fraud

• Test transactions, verify management's assessments, evaluate testing done by others

69. What makes for a "material weakness"?

Answers:

• When an officer does not know of a process

• More than a remote likelihood that a misstatement will not be prevented or detected

• When a firm introduces a new procedure

• When a firm hasn't documented its processes

70. How does an auditor gain confidence about a company's operating effectiveness?

Answers:

• Read press releases

• Review the financial reports

• Interview company personnel

71. What is one of the purposes of extensive documentation of accounting records and policies?

Answers:

• To create work for employees

• To make management accountable for the company's actions

• To make companies serious about their processes

• To give something for the auditors to look at

72. What is meant by the "internet bubble"?

Answers:

• Companies which provide internet services

• Companies which provide services over the internet

• Stocks of internet based companies which are sound investments

• When stocks of internet based companies rise rapidly, then quickly fall in value

73. What is a question an auditor may ask himself regarding a client's balance sheet?

Answers:

• Has the company done its best to stay profitable?

• Has the company hired any new employees?

• Has the company sold any divisions?

• Has the company included all loans in the loans payable account?

74. What are management's responsibilities with respect to a 404 audit?

Answers:

• It must design all processes

• It must be involved in all documentation

• It must try to avoid 404 audit at all costs

• Learn about the system of internal controls in place, evaluate their effectiveness, prepare a written report annually regarding their effectiveness

75. What is one of the purposes of section 404 of the Sarbanes Oxley act?

Answers:

• Requires that management and auditors should officially certify that controls are in place

• Requires that firms become compliant by a specific date

• Requires specific forms of documentation

• Increase awareness company wide

76. What is the most commonly used software for SOX flow chart documentation?

Answers:

• Visio

• Word

• Power Point

• Excel

77. What is meant by "404"?

Answers:

• It is the number of subsections in the act

• It is the "assessment of internal control" section of the act

• It is the executive sign off section of the act

• The portion of the act that names the fraudulent companies of the past

78. What are mitigating factors in documentation?

Answers:

• Listing how risks can be increased

• Listing how risks are avoided

• Listing how revenues can be decreased

• Listing how revenues can be increased

79. Which U.S. President signed the act into effect?

Answers:

• Barack Obama

• Abraham Lincoln

• George Bush

• Bill Clinton

80. What is the time requirement for auditors to save and retain all audit related records?

Answers:

• 7 years

• 10 years

• 20 years

• Until the company goes bankrupt