Corporate Governance: Free CFE Practice Questions

Question 1

Within a corporate governance framework, primary oversight of management's fraud risk management program rests with the internal audit function.

False True

Correct Answer: False

A corporate governance framework places oversight of management's fraud risk management program with the board of directors, usually acting through its audit committee. Management owns and operates the program. Internal audit assesses and reports on the program without taking on the oversight or ownership role.

Question 2

In a well-governed organization, the chief audit executive reports functionally to the chief financial officer, with an administrative reporting line to the audit committee.

True False

Correct Answer: False

The reporting lines are reversed. To protect its independence, internal audit reports functionally to the audit committee or board, which oversees its work, and administratively to senior management, typically the chief executive officer. Reporting functionally to the chief financial officer would place internal audit under the executive whose area it most often examines.

Question 3

Within corporate governance, which of the following BEST describes the primary role of the board of directors regarding the organization's internal control system and fraud risk?

Designing and running the controls management uses Evaluating controls and reporting gaps to senior executives Overseeing how management designs and runs controls Testing controls and opining on them to shareholders

Correct Answer: Overseeing how management designs and runs controls

The board of directors holds an oversight role: it sets the tone at the top, monitors management's fraud risk management, and makes sure management designs, implements, and operates effective internal controls.
Designing and running controls is management's responsibility, not the board's. Testing controls and issuing an opinion to shareholders describes the external auditor, who attests to internal control over financial reporting. Evaluating controls and reporting gaps to senior executives describes internal audit, which provides assurance and reports deficiencies to management and the audit committee.
Key concept: division of governance responsibilities, where the board oversees, management owns and operates controls, internal audit evaluates, and external auditors attest.

Corporate Governance

CFE - Corporate Governance Example Questions

Question 1

Question 2

Question 3

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