Appendix I
The Sarbanes-Oxley Act, Internal Controls, and Management Accounting
Multiple Choice Questions
1. 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 other answers are correct.
2. 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.
App I-1
Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
,3. 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 other answers are correct.
4. 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).
5. Which of the following bodies oversees audits and auditors, and sanctions firms and individuals for
violations of laws and regulations?
A. American Institute of Certified Public Accountants (AICPA).
B. American Accounting Association (AAA).
C. Public Company Accounting Oversight Board (PCAOB).
D. Financial Accounting Standards Board (FASB).
E. Accounting Principles Board (APB).
App I-2
Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
,6. Which of the following is not a provision of (nor an outgrowth of) the Sarbanes-Oxley Act?
A. A public company's annual report must contain a separate disclosure that assesses the
company's internal controls.
B. Management is essentially responsible for establishing and maintaining internal controls.
C. 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.
D. A company must prepare a balance sheet, an income statement, a statement of stockholders'
equity, and a statement of cash flows.
E. A new body, the Public Company Accounting Oversight Board, oversees and investigates the
audits and auditors of public companies.
7. Which of the following statements regarding the Sarbanes-Oxley Act is (are) true?
A. Management must establish and maintain a system of internal controls over financial reporting.
B. Management must periodically assess a company's system of internal controls over financial
reporting.
C. Management must include in the company's annual report a separate report that assesses
internal controls.
D. A company's auditors are required to report on management's assessment of internal controls.
E. All of the other answers are correct.
App I-3
Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
, 8. The provisions of sections 302 and 404 of the Sarbanes-Oxley Act (as originally enacted) have
proved especially troublesome for:
A. Small businesses.
B. Private universities.
C. Cities and municipalities.
D. Healthcare providers.
E. Individual taxpayers.
9. 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:
A. Audit the internal controls over financial reporting.
B. Establish the internal controls over financial reporting.
C. Maintain the internal controls over financial reporting.
D. Evaluate the internal controls over financial reporting.
E. Disclose material weaknesses in the internal controls over financial reporting.
10. Section 404 of the Sarbanes-Oxley Act, Management Assessment of Internal Controls, includes
all of the following except:
A. A statement of management's responsibility for establishing the internal control structure.
B. A waiver of auditor responsibility for assessing management's report on internal controls.
C. An assessment of the effectiveness of internal controls by management.
D. An assessment of the effectiveness of procedures for financial reporting by management.
E. A requirement that management include in its annual report an internal control report.
App I-4
Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
The Sarbanes-Oxley Act, Internal Controls, and Management Accounting
Multiple Choice Questions
1. 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 other answers are correct.
2. 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.
App I-1
Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
,3. 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 other answers are correct.
4. 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).
5. Which of the following bodies oversees audits and auditors, and sanctions firms and individuals for
violations of laws and regulations?
A. American Institute of Certified Public Accountants (AICPA).
B. American Accounting Association (AAA).
C. Public Company Accounting Oversight Board (PCAOB).
D. Financial Accounting Standards Board (FASB).
E. Accounting Principles Board (APB).
App I-2
Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
,6. Which of the following is not a provision of (nor an outgrowth of) the Sarbanes-Oxley Act?
A. A public company's annual report must contain a separate disclosure that assesses the
company's internal controls.
B. Management is essentially responsible for establishing and maintaining internal controls.
C. 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.
D. A company must prepare a balance sheet, an income statement, a statement of stockholders'
equity, and a statement of cash flows.
E. A new body, the Public Company Accounting Oversight Board, oversees and investigates the
audits and auditors of public companies.
7. Which of the following statements regarding the Sarbanes-Oxley Act is (are) true?
A. Management must establish and maintain a system of internal controls over financial reporting.
B. Management must periodically assess a company's system of internal controls over financial
reporting.
C. Management must include in the company's annual report a separate report that assesses
internal controls.
D. A company's auditors are required to report on management's assessment of internal controls.
E. All of the other answers are correct.
App I-3
Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
, 8. The provisions of sections 302 and 404 of the Sarbanes-Oxley Act (as originally enacted) have
proved especially troublesome for:
A. Small businesses.
B. Private universities.
C. Cities and municipalities.
D. Healthcare providers.
E. Individual taxpayers.
9. 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:
A. Audit the internal controls over financial reporting.
B. Establish the internal controls over financial reporting.
C. Maintain the internal controls over financial reporting.
D. Evaluate the internal controls over financial reporting.
E. Disclose material weaknesses in the internal controls over financial reporting.
10. Section 404 of the Sarbanes-Oxley Act, Management Assessment of Internal Controls, includes
all of the following except:
A. A statement of management's responsibility for establishing the internal control structure.
B. A waiver of auditor responsibility for assessing management's report on internal controls.
C. An assessment of the effectiveness of internal controls by management.
D. An assessment of the effectiveness of procedures for financial reporting by management.
E. A requirement that management include in its annual report an internal control report.
App I-4
Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
