IFA IFA Corporate Governance & Risk Management 2 — Questions and Answers
Question 1: What does the Sarbanes-Oxley Act (SOX) primarily require of US public companies?
- Annual payment of a minimum dividend to shareholders
- Enhanced financial disclosure requirements and CEO/CFO personal certification of financial statements (Correct answer)
- Mandatory outsourcing of the internal audit function
- Registration of all employees with the SEC
Correct answer: Enhanced financial disclosure requirements and CEO/CFO personal certification of financial statements
SOX requires US public companies to strengthen internal controls, certify the accuracy of financial statements, and establish audit committees, with severe penalties for non-compliance.
Question 2: What is a whistleblower policy in a governance context?
- A policy for reporting late-arriving employees
- A formal mechanism allowing employees to report suspected wrongdoing without fear of retaliation (Correct answer)
- A procedure for filing insurance claims
- A policy for customer complaint handling
Correct answer: A formal mechanism allowing employees to report suspected wrongdoing without fear of retaliation
A whistleblower policy provides protected channels for employees to report unethical, illegal, or fraudulent activities without facing retaliation, supporting governance integrity.
Question 3: What is a 'conflict of interest' in corporate governance?
- A disagreement between two board members about strategy
- A situation where a director's personal interests may compromise their duty to act in the company's best interests (Correct answer)
- A dispute between the company and a regulator
- A disagreement between the CEO and CFO
Correct answer: A situation where a director's personal interests may compromise their duty to act in the company's best interests
A conflict of interest arises when a director or officer has personal financial or other interests that could improperly influence their decisions made on behalf of the company.
Question 4: What is 'tone at the top' in corporate governance?
- The volume of board meeting discussions
- The ethical culture, values, and behaviors modeled and communicated by senior leadership (Correct answer)
- The formal governance policies in the company handbook
- The legal requirements for board composition
Correct answer: The ethical culture, values, and behaviors modeled and communicated by senior leadership
'Tone at the top' refers to the ethical climate established by senior leadership, whose behavior and communication set the standard for integrity and compliance throughout the organization.
Question 5: What purpose does an internal audit function serve in risk management?
- It replaces the external audit and audits the financial statements
- It provides independent assurance that risks are being managed and internal controls are effective (Correct answer)
- It manages the company's investment portfolio
- It prepares the board meeting agenda
Correct answer: It provides independent assurance that risks are being managed and internal controls are effective
Internal audit provides independent, objective assurance and consulting to management and the board that risk management, control, and governance processes are operating effectively.
Question 6: What is a 'risk register' used for in organizational risk management?
- Registering the company with the SEC
- A centralized document recording identified risks, their assessment, ownership, and mitigation actions (Correct answer)
- A register of employee working hours
- A record of insurance premiums paid
Correct answer: A centralized document recording identified risks, their assessment, ownership, and mitigation actions
A risk register is a living document that captures all identified risks, their likelihood, impact, risk owners, current controls, and planned mitigation actions in one place.
IFA IFA Corporate Governance & Risk Management 2
What does the Sarbanes-Oxley Act (SOX) primarily require of US public companies?