CFO CFO Corporate Governance & Compliance 1 — Questions and Answers
Question 1: Which U.S. federal law requires CEOs and CFOs to personally certify the accuracy of financial reports filed with the SEC?
- Dodd-Frank Act
- Sarbanes-Oxley Act (SOX) (Correct answer)
- Securities Exchange Act of 1934
- JOBS Act
Correct answer: Sarbanes-Oxley Act (SOX)
SOX Section 302 and 906 require CEOs and CFOs to certify that financial statements fairly present the company's financial condition.
Question 2: What is the primary role of an audit committee within a company's board of directors?
- Set executive compensation
- Oversee financial reporting and internal controls (Correct answer)
- Approve capital expenditures
- Manage investor relations
Correct answer: Oversee financial reporting and internal controls
The audit committee oversees the integrity of financial reporting, internal controls, and the relationship with external auditors.
Question 3: Under SOX Section 404, what must management annually assess and report on?
- Executive pay ratios
- The effectiveness of internal controls over financial reporting (Correct answer)
- Environmental compliance programs
- Customer data privacy policies
Correct answer: The effectiveness of internal controls over financial reporting
SOX 404 mandates that management assess and report on the effectiveness of the company's internal controls over financial reporting (ICFR).
Question 4: Which governance framework is most widely used to design and evaluate a company's internal control system?
- COSO Framework (Correct answer)
- ISO 9001
- Basel III
- IFRS 15
Correct answer: COSO Framework
The COSO (Committee of Sponsoring Organizations) Internal Control – Integrated Framework is the standard benchmark for internal control design and evaluation.
Question 5: What does 'tone at the top' refer to in corporate governance?
- Marketing messaging approved by the CEO
- The ethical climate set by senior leadership that influences organizational culture (Correct answer)
- Board-level salary benchmarking
- Annual shareholder communication strategy
Correct answer: The ethical climate set by senior leadership that influences organizational culture
Tone at the top describes the ethical leadership style of executives and the board, which shapes the organization's overall culture and compliance behavior.
Question 6: Which of the following best describes a 'material weakness' in internal controls?
- A minor clerical error in financial statements
- A deficiency that results in a reasonable possibility of material misstatement going undetected (Correct answer)
- An employee policy violation with no financial impact
- An outdated IT system with no accounting integration
Correct answer: A deficiency that results in a reasonable possibility of material misstatement going undetected
A material weakness is a significant deficiency (or combination) where there is a reasonable possibility that a material misstatement will not be prevented or detected on a timely basis.
CFO CFO Corporate Governance & Compliance 1
Which U.S. federal law requires CEOs and CFOs to personally certify the accuracy of financial reports filed with the SEC?