CFC CFC Corporate Governance & Ethics 1 — Questions and Answers
Question 1: The Sarbanes-Oxley Act (SOX) Section 302 requires that the CEO and CFO of a public company do which of the following?
- Personally certify the accuracy of financial reports filed with the SEC (Correct answer)
- File quarterly tax returns with the IRS
- Disclose all insider trades within 10 business days
- Maintain a minimum equity stake in the company
Correct answer: Personally certify the accuracy of financial reports filed with the SEC
SOX Section 302 requires the CEO and CFO to personally certify that periodic financial reports filed with the SEC fairly present the company's financial condition and that they have evaluated the effectiveness of disclosure controls.
Question 2: Under the Sarbanes-Oxley Act, which section requires management to assess and report on the effectiveness of internal controls over financial reporting?
- Section 404 (Correct answer)
- Section 302
- Section 802
- Section 201
Correct answer: Section 404
SOX Section 404 mandates that management assess the effectiveness of ICFR and that the external auditor attest to management's assessment for accelerated filers.
Question 3: Which of the following best describes the fiduciary duty of a corporate board of directors?
- Acting in the best interests of shareholders with loyalty and care (Correct answer)
- Maximizing short-term quarterly earnings per share
- Complying with all government regulations
- Approving all management compensation packages
Correct answer: Acting in the best interests of shareholders with loyalty and care
Board members owe fiduciary duties — primarily the duty of care and duty of loyalty — requiring them to act in good faith and in the best interests of the corporation and its shareholders.
Question 4: What is the primary role of an audit committee within a corporate board?
- Overseeing financial reporting, internal controls, and the external audit process (Correct answer)
- Setting executive compensation and bonus structures
- Approving capital expenditure budgets
- Managing investor relations and shareholder communications
Correct answer: Overseeing financial reporting, internal controls, and the external audit process
The audit committee is responsible for overseeing the integrity of financial reporting, monitoring internal control systems, and managing the relationship with external and internal auditors.
Question 5: Under the Foreign Corrupt Practices Act (FCPA), US companies are prohibited from doing which of the following?
- Bribing foreign government officials to obtain or retain business (Correct answer)
- Competing with foreign state-owned enterprises
- Investing in countries with trade sanctions
- Hiring foreign nationals as financial controllers
Correct answer: Bribing foreign government officials to obtain or retain business
The FCPA prohibits US companies and their agents from making corrupt payments to foreign government officials to obtain or retain business contracts.
Question 6: Which governance framework provides principles for board accountability, transparency, and shareholder rights, most widely adopted by US public companies?
- SEC disclosure requirements and NYSE/Nasdaq listing standards (Correct answer)
- International Financial Reporting Standards (IFRS)
- ISO 31000 Risk Management Standard
- Dodd-Frank Wall Street Reform Act
Correct answer: SEC disclosure requirements and NYSE/Nasdaq listing standards
US public companies primarily comply with SEC disclosure requirements and NYSE or Nasdaq listing standards, which set specific requirements for board independence, committee structures, and shareholder rights.
CFC CFC Corporate Governance & Ethics 1
The Sarbanes-Oxley Act (SOX) Section 302 requires that the CEO and CFO of a public company do which of the following?