BEC CPA Exam 3 QUESTIONS WITH
CORRECT ANSWERS [GRADED A+]
Board of Directors primary role - ✔✔to safeguard company assets and
maximize shareholder return
Specific duties: election, removal and supervision of officers;
adoption, amendment and repeal of bylaws;
setting management compensation;
initiating fundamental changes to a corporate structure
Declaration of dividends
Fiduciary duties - must always act in best interest of corporation
BOD Fiduciary duties - ✔✔Right to rely (part of due diligence)
Liability for unlawful distributions/ dividends
©morren2026/2027.Year published 2026.
,Duty of loyalty (no conflicts of interest or must be fully disclosed and
abstain from voting)
Corporate Opportunity doctrine (if opportunity is of interest in company the
BOD cannot take it for himself unless the company does not want it)
Indemnification for BOD - ✔✔Corporations are allowed to compensation
directors for any expenses from a lawsuit brought against them in their
corporate capacity
Except in shareholder derivative suit
Limitation: if made in bad faith or unethical
business judgement rule - ✔✔if decision harms the corporation then they
are not liable if made in good faith
Officers of corporations - ✔✔Individual agents who manage day to day
operatiosn
Selected by directors and can be removed by directors with OR without
cause
©morren2026/2027.Year published 2026.
,Have actual and apparent authority
Fiduciary duties and indemnification same as BOD
May serve as directors but majority of board should be independent
Do NOT have to be shareholders but can be - many receive stock options
as compensation
SARBANES OXLEY ACT OF 2002 - titles - ✔✔CORPORATE
RESPONSIBILITY
Enhanced financial disclosures
Fraud
Enhanced review of periodic disclosures by SEC - ✔✔-Issuers that have
issued material restatements (RISK up)
-Issuers that experience significant volatility in their stock prices (Motivation
for fraud is up)
-Issuers with large market capitalization (Material to market)
©morren2026/2027.Year published 2026.
, -Disparities in price-to-earning ratio
-Operations which significantly affect any material sector of the economy
How long should auditors retain their workpapers - ✔✔7 years
If they do not, you will have a fine, imprisonment of 10 years or both
The Committee on Sponsoring Organizations (COSO) - ✔✔An
independent private sector initiative
Founded my the private sponsoring organizations
Helps companies develop comprehensive assessments of internal control
effectiveness
Used by management, the BOD to obtain initial understanding of what
constitutes an effective system
Used by shareholders to provide confidence in the organization
©morren2026/2027.Year published 2026.
CORRECT ANSWERS [GRADED A+]
Board of Directors primary role - ✔✔to safeguard company assets and
maximize shareholder return
Specific duties: election, removal and supervision of officers;
adoption, amendment and repeal of bylaws;
setting management compensation;
initiating fundamental changes to a corporate structure
Declaration of dividends
Fiduciary duties - must always act in best interest of corporation
BOD Fiduciary duties - ✔✔Right to rely (part of due diligence)
Liability for unlawful distributions/ dividends
©morren2026/2027.Year published 2026.
,Duty of loyalty (no conflicts of interest or must be fully disclosed and
abstain from voting)
Corporate Opportunity doctrine (if opportunity is of interest in company the
BOD cannot take it for himself unless the company does not want it)
Indemnification for BOD - ✔✔Corporations are allowed to compensation
directors for any expenses from a lawsuit brought against them in their
corporate capacity
Except in shareholder derivative suit
Limitation: if made in bad faith or unethical
business judgement rule - ✔✔if decision harms the corporation then they
are not liable if made in good faith
Officers of corporations - ✔✔Individual agents who manage day to day
operatiosn
Selected by directors and can be removed by directors with OR without
cause
©morren2026/2027.Year published 2026.
,Have actual and apparent authority
Fiduciary duties and indemnification same as BOD
May serve as directors but majority of board should be independent
Do NOT have to be shareholders but can be - many receive stock options
as compensation
SARBANES OXLEY ACT OF 2002 - titles - ✔✔CORPORATE
RESPONSIBILITY
Enhanced financial disclosures
Fraud
Enhanced review of periodic disclosures by SEC - ✔✔-Issuers that have
issued material restatements (RISK up)
-Issuers that experience significant volatility in their stock prices (Motivation
for fraud is up)
-Issuers with large market capitalization (Material to market)
©morren2026/2027.Year published 2026.
, -Disparities in price-to-earning ratio
-Operations which significantly affect any material sector of the economy
How long should auditors retain their workpapers - ✔✔7 years
If they do not, you will have a fine, imprisonment of 10 years or both
The Committee on Sponsoring Organizations (COSO) - ✔✔An
independent private sector initiative
Founded my the private sponsoring organizations
Helps companies develop comprehensive assessments of internal control
effectiveness
Used by management, the BOD to obtain initial understanding of what
constitutes an effective system
Used by shareholders to provide confidence in the organization
©morren2026/2027.Year published 2026.
