CFS CFS Corporate Governance & Whistleblower Programs 1 — Questions and Answers
Question 1: Under the Sarbanes-Oxley Act (SOX), which section requires CEOs and CFOs to personally certify the accuracy of financial reports?
- Section 302 (Correct answer)
- Section 404
- Section 806
- Section 1107
Correct answer: Section 302
SOX Section 302 requires the CEO and CFO to personally certify that financial statements fairly represent the company's financial condition, creating personal accountability for fraud.
Question 2: Which SOX provision requires management and auditors to assess and report on the effectiveness of internal controls over financial reporting?
- Section 302
- Section 404 (Correct answer)
- Section 301
- Section 806
Correct answer: Section 404
SOX Section 404 mandates that management assess internal controls over financial reporting and that external auditors attest to that assessment, significantly raising accountability.
Question 3: A company's audit committee is primarily responsible for:
- Setting executive compensation packages
- Overseeing financial reporting and the external audit process (Correct answer)
- Approving mergers and acquisitions
- Managing day-to-day operational risk
Correct answer: Overseeing financial reporting and the external audit process
The audit committee, composed of independent board members, oversees financial reporting integrity, the external audit, and the company's internal audit function.
Question 4: What is the primary purpose of a corporate code of conduct?
- To satisfy IRS reporting requirements
- To set behavioral standards and ethical expectations for all employees (Correct answer)
- To define the company's marketing strategy
- To establish employee compensation scales
Correct answer: To set behavioral standards and ethical expectations for all employees
A corporate code of conduct establishes the ethical standards, behaviors, and values expected of all employees, forming the foundation of an anti-fraud culture.
Question 5: Which governance concept describes the responsibility of a board of directors to act in shareholders' best interests?
- Segregation of duties
- Fiduciary duty (Correct answer)
- Due diligence
- Tone at the top
Correct answer: Fiduciary duty
Fiduciary duty obligates board members to act with loyalty and care on behalf of shareholders, prioritizing shareholder interests over personal gain.
Question 6: "Tone at the top" in fraud prevention refers to:
- The decibel level of alarms in the server room
- Senior leadership's demonstrated commitment to ethics and anti-fraud culture (Correct answer)
- The volume of audit reports issued annually
- The number of fraud alerts generated by the IT department
Correct answer: Senior leadership's demonstrated commitment to ethics and anti-fraud culture
Tone at the top describes how senior leadership's attitudes, actions, and communications set the ethical culture of an organization, directly influencing employee behavior.
CFS CFS Corporate Governance & Whistleblower Programs 1
Under the Sarbanes-Oxley Act (SOX), which section requires CEOs and CFOs to personally certify the accuracy of financial reports?