CEP Auditing Principles & Procedures 3

Question 1

An equity auditor is testing whether Section 16 officers filed Form 4s timely. What is the standard filing deadline after a reportable transaction?

Accepted Answer

Two business days

Answer

Under SEC rules, Section 16 insiders must file Form 4 within two business days of a reportable transaction such as a grant, exercise, or sale.

Question 2

When auditing an ESPP, which condition must be satisfied for the plan to qualify as a Section 423 plan?

Accepted Answer

All employees of the company must be offered equal rights and privileges

Answer

A Section 423 ESPP requires that all employees be granted equal rights and privileges under the plan, though employers may exclude certain categories under IRC rules.

Question 3

An auditor notes that a performance award payout exceeded the plan's per-person annual grant limit. What is the most significant risk?

Accepted Answer

The excess award may not be deductible under the plan's Section 162(m) provisions

Answer

Performance award payouts exceeding the stated per-person limit may jeopardize the deductibility of the excess compensation under Section 162(m).

Question 4

Which sampling method is most appropriate when auditing a large volume of routine option exercises with expected low error rates?

Accepted Answer

Statistical random sampling

Answer

Statistical random sampling provides a defensible, unbiased selection for high-volume, low-complexity transactions and allows auditors to project error rates to the population.

Question 5

A company uses a 10b5-1 plan to allow executives to sell shares. When auditing insider transactions, what key feature must the auditor verify?

Accepted Answer

That the plan was adopted during an open trading window when the insider lacked material non-public information

Answer

A valid 10b5-1 plan must be adopted at a time when the insider did not possess MNPI and during an open trading window to provide an affirmative defense against insider trading claims.

(CEP) Certified Equity Professional Practice Test

(CEP) Certified Equity Professional Practice Test

CEP Auditing Principles & Procedures 3