AFP AFP Financial Regulations and Compliance 2 — Questions and Answers
Question 1: What is the primary purpose of segregation of duties in treasury operations?
- To prevent fraud by ensuring no single person controls all steps of a transaction (Correct answer)
- To maximize processing speed
- To reduce staffing costs
- To meet tax reporting requirements
Correct answer: To prevent fraud by ensuring no single person controls all steps of a transaction
Segregation of duties divides transaction initiation, authorization, and reconciliation among different staff members to prevent and detect fraud.
Question 2: Under U.S. GAAP (ASC 815), how are cash flow hedges reported in the financial statements?
- Effective portion in other comprehensive income; ineffective portion in earnings (Correct answer)
- Entirely in net income
- Entirely in other comprehensive income
- Off-balance-sheet with no financial statement impact
Correct answer: Effective portion in other comprehensive income; ineffective portion in earnings
ASC 815 requires the effective portion of a cash flow hedge to be deferred in OCI until the hedged transaction affects earnings, while ineffectiveness goes directly to income.
Question 3: Which regulatory body oversees the trading of interest rate swaps on Swap Execution Facilities (SEFs) in the U.S.?
- Commodity Futures Trading Commission (CFTC) (Correct answer)
- Securities and Exchange Commission (SEC)
- Federal Reserve
- OCC
Correct answer: Commodity Futures Trading Commission (CFTC)
The CFTC has jurisdiction over interest rate and credit default swaps traded on SEFs under the Dodd-Frank framework.
Question 4: What is a Suspicious Activity Report (SAR) in the context of BSA/AML compliance?
- A report filed with FinCEN when a financial institution suspects money laundering or fraud (Correct answer)
- A quarterly earnings report filed with the SEC
- A customer complaint log submitted to the CFPB
- An annual audit report prepared for the board
Correct answer: A report filed with FinCEN when a financial institution suspects money laundering or fraud
Financial institutions must file SARs with FinCEN when transactions or activity suggest possible money laundering, fraud, or other financial crimes.
Question 5: What does the term 'know your customer' (KYC) mean in treasury compliance?
- Verifying the identity and assessing the risk profile of counterparties (Correct answer)
- Conducting customer satisfaction surveys
- Monitoring customer payment terms for delinquency
- Negotiating credit limits with banking partners
Correct answer: Verifying the identity and assessing the risk profile of counterparties
KYC requires organizations to verify counterparty identities and assess their risk profiles to comply with AML and financial crime regulations.
Question 6: Which regulation requires public companies to disclose material non-public information simultaneously to all investors?
- Regulation FD (Fair Disclosure) (Correct answer)
- Regulation AB
- Regulation T
- Regulation S-X
Correct answer: Regulation FD (Fair Disclosure)
Reg FD requires that when a public company discloses material non-public information to select parties, it must simultaneously disclose it to the public.
AFP AFP Financial Regulations and Compliance 2
What is the primary purpose of segregation of duties in treasury operations?