Corporate Governance Paper 3

(b) The requirement is to identify to whom the chief audit executive should report. Answer (b) is correct because ideally the chief audit executive should report to the chief executive officer. Answers (a) and (c) are incorrect because reporting to financial personnel may compromise the internal auditor’s effectiveness in assessing financial reporting and controls. Answer (d) is incorrect because the external auditors are not part of the organization.

(a) The requirement is identify the approach the chief audit executive should use the setting audit priorities. Answer (a) is correct because a risk-based approach is required. Answers (b), (c), and (d) are incorrect because they do not describe appropriate overall approaches to setting priorities.

(a) The requirement is to identify the two major types of internal audit services as set forth in the Standards for the Professional Practice of Internal Auditing. Answer (a) is correct because the two major types of services include assurance and consulting. Answers (b), (c) and (d) are incorrect because they do not present the two major types of services.

(b) The requirement is to identify the requirement of the International Standards for the Professional Practice of Internal Auditing. Answer (b) is correct because it is a requirement of the standards. Answers (a), (c) and (d) are incorrect because they are not required by the standards.

(b) Answer (b) is correct because independence standards are not a section of the IIA standards. Answers (a), (c) and (d) are incorrect because they are all sections of the IIA standards.

(a) The requirement is to identify the limitation that is often attributed to securities analysts regarding their value as an external monitoring device. Answer (a) is correct because occasionally the analyst’s firm has a vested interest in the welfare of the company. Answer (b) is incorrect because while some analysts may lack competence, it is not a common trait. Answer (c) is incorrect because analysts use all types of information to make evaluations. Answer (d) is incorrect because analysts are not employees of the company.

(d) The requirement is to identify the division of the SEC that reviews corporate filings. Answer (d) is correct because the Division of Corporate Finance reviews filings. Answer (a) is incorrect because the Office of the Chief Accountant advises the SEC on accounting and auditing matters and approves the rules of the PCAOB. Answer (b) is incorrect because the Division of Enforcement assists the SEC in executing its law enforcement function. Answer (c) is incorrect because the Division of Corporate Disclosure is not a division of the SEC.

(b) The requirement is to identify the correct statement regarding a financial expert. Answer (b) is correct because an issuer is required to disclose the names of the financial experts, or the reason that the issuer does not have a financial expert on the audit committee.