CERTIFIED MANAGEMENT ACCOUNTANT (CMA) -
PART 1
SECTION E – Internal Controls (Weightage 15%)
S.No Questions Answers
1. What is corporate governance? Corporate governance includes all of the means by which
businesses are directed and controlled, including the rules,
regulations, processes, customs, policies, procedures,
institutions, and laws that affect the way the business is
administered.
Corporate governance spells out the rules and procedures
to be followed in making decisions for the corporation.
2. Who is responsible Corporate governance is the joint responsibility of the
for corporate governance? board of directors and management.
3. What are the responsibilities of The board of directors of a company is responsible for
the board of directors? ensuring that the company is operated in the best
interest of the shareholders, who are the owners of the
company.
Thus, the members of the board of directors represent the
owners of the company. The board’s responsibility is to
provide governance, guidance and oversight to the
management of the company. The board has the following
specific responsibilities:
Selecting and overseeing management.
Because it elects the company’s management, the
board determines what it expects from
management in terms of integrity and ethics and
it confirms its expectations in its oversight
activities.
The board has authority in key decisions and plays
a role in top-level strategic objective-setting and
strategic planning.
Because of its oversight responsibility, the board
is closely involved with the company’s internal
control activities.
Board members need to be familiar with the
company’s activities and environment, and they
need to commit the time required to fulfill their
board responsibilities, even though they may be
outside, independent directors.
Board members should investigate any issues they
consider important. They must be willing to ask
the tough questions and to question
management’s activities.
Because board members are responsible for
questioning and scrutinizing management’s
From the Desk of Muhammad Zain – Founder of Zain Academy Page 127 of 154
, CERTIFIED MANAGEMENT ACCOUNTANT (CMA) -
PART 1
activities, it is important that the board have
members who are independent of the company.
4. What are the responsibilities of The responsibilities of the CEO are determined by the
the Chief Executive Officer (CEO)? corporation’s board of directors. A CEO’s responsibilities
and authority can be extensive, or they can be very
limited, depending upon how much authority and
responsibility the board of directors delegates to the CEO.
A CEO should not serve as chairman of the board of
directors. Since the board’s responsibilities include
monitoring the CEO, the CEO should not serve as Chairman
of the Board, because that creates a conflict of interest.
The CEO would be leading the body that would be
monitoring the CEO.
5. What is the COSO definition “Internal control is a process, effected by an entity’s board
of internal control? of directors, management, and other personnel, designed
to provide reasonable assurance regarding the
achievement of objectives relating to operations,
reporting, and compliance.”
6. Internal control provides reasonable 1) Operations
assurance about achievement of 2) Reporting
objectives 3) Compliance
in what three areas?
7. Who is responsible for The board of directors oversees the IC system.
internal controls? The CEO is responsible for the IC system and the “tone at
the top.”
Senior managers delegate responsibility for
establishment of internal control policies and procedures.
Financial officers and their staffs are central to the
exercise of control.
Internal auditors play a monitoring role.
Virtually all employees are involved in internal control.
8. What are the two main provisions of 1. Anti-bribery provision. Under the FCPA, it is illegal
the Foreign Corrupt Practices Act for any company or anyone acting on behalf of a
(FCPA)? company to bribe any foreign official in order to
obtain or retain business. In addition, a firm, or an
individual acting on behalf of a firm, will be held
criminally liable if it makes payments to a third
party with the knowledge that those payments
will be used by the third party as bribes.
2. Internal control provision. The fundamental
premise of the internal-control requirements of
the FCPA is that effective internal control acts as a
deterrent to illegal payments. Therefore, under
the Foreign Corrupt Practices Act corporate
management is required to maintain books,
From the Desk of Muhammad Zain – Founder of Zain Academy Page 128 of 154
, CERTIFIED MANAGEMENT ACCOUNTANT (CMA) -
PART 1
records, and accounts that accurately and fairly
reflect transactions and to develop and maintain a
system of internal accounting control.
9. What is internal audit's primary role? Internal audit’s primary role is assessing internal controls
over the reliability of financial reporting, the effectiveness
and efficiency of operations, and the organization’s
compliance with applicable laws and regulations.
According to IIA (Institute of Internal Auditors) Internal
Auditing Standard 2110, this includes assessing and
making appropriate recommendations for improving the
governance process in the following areas:
Promoting appropriate ethics and values within
the organization.
Ensuring effective organizational performance,
management and accountability.
Communicating risk and control information to
appropriate areas of the organization.
Coordinating the activities of and communicating
information among the board, external and
internal auditors, and management.
10. What is internal control? Internal control is a process that is carried out by an
entity’s board of directors, management and other
personnel that is designed to provide reasonable
assurance that the company’s objectives relating to
operations, reporting, and compliance will be achieved.
1. Operations objectives relate to the effectiveness
and efficiency of operations, or the extent to
which the company’s basic business objectives are
being achieved and its resources are being used
effectively and efficiently. Operations objectives
include operational and financial performance
goals and safeguarding of assets against loss.
2. Reporting objectives include internal and
external financial and non-financial reporting.
Reporting objectives include reliability, timeliness,
transparency, or other requirements as set forth
by regulators, recognized standard setters, or the
entity’s policies.
3. Compliance objectives relate to the
organization’s compliance with applicable laws
and regulations, encompassing all laws and
regulations to which the company is subject.
From the Desk of Muhammad Zain – Founder of Zain Academy Page 129 of 154
PART 1
SECTION E – Internal Controls (Weightage 15%)
S.No Questions Answers
1. What is corporate governance? Corporate governance includes all of the means by which
businesses are directed and controlled, including the rules,
regulations, processes, customs, policies, procedures,
institutions, and laws that affect the way the business is
administered.
Corporate governance spells out the rules and procedures
to be followed in making decisions for the corporation.
2. Who is responsible Corporate governance is the joint responsibility of the
for corporate governance? board of directors and management.
3. What are the responsibilities of The board of directors of a company is responsible for
the board of directors? ensuring that the company is operated in the best
interest of the shareholders, who are the owners of the
company.
Thus, the members of the board of directors represent the
owners of the company. The board’s responsibility is to
provide governance, guidance and oversight to the
management of the company. The board has the following
specific responsibilities:
Selecting and overseeing management.
Because it elects the company’s management, the
board determines what it expects from
management in terms of integrity and ethics and
it confirms its expectations in its oversight
activities.
The board has authority in key decisions and plays
a role in top-level strategic objective-setting and
strategic planning.
Because of its oversight responsibility, the board
is closely involved with the company’s internal
control activities.
Board members need to be familiar with the
company’s activities and environment, and they
need to commit the time required to fulfill their
board responsibilities, even though they may be
outside, independent directors.
Board members should investigate any issues they
consider important. They must be willing to ask
the tough questions and to question
management’s activities.
Because board members are responsible for
questioning and scrutinizing management’s
From the Desk of Muhammad Zain – Founder of Zain Academy Page 127 of 154
, CERTIFIED MANAGEMENT ACCOUNTANT (CMA) -
PART 1
activities, it is important that the board have
members who are independent of the company.
4. What are the responsibilities of The responsibilities of the CEO are determined by the
the Chief Executive Officer (CEO)? corporation’s board of directors. A CEO’s responsibilities
and authority can be extensive, or they can be very
limited, depending upon how much authority and
responsibility the board of directors delegates to the CEO.
A CEO should not serve as chairman of the board of
directors. Since the board’s responsibilities include
monitoring the CEO, the CEO should not serve as Chairman
of the Board, because that creates a conflict of interest.
The CEO would be leading the body that would be
monitoring the CEO.
5. What is the COSO definition “Internal control is a process, effected by an entity’s board
of internal control? of directors, management, and other personnel, designed
to provide reasonable assurance regarding the
achievement of objectives relating to operations,
reporting, and compliance.”
6. Internal control provides reasonable 1) Operations
assurance about achievement of 2) Reporting
objectives 3) Compliance
in what three areas?
7. Who is responsible for The board of directors oversees the IC system.
internal controls? The CEO is responsible for the IC system and the “tone at
the top.”
Senior managers delegate responsibility for
establishment of internal control policies and procedures.
Financial officers and their staffs are central to the
exercise of control.
Internal auditors play a monitoring role.
Virtually all employees are involved in internal control.
8. What are the two main provisions of 1. Anti-bribery provision. Under the FCPA, it is illegal
the Foreign Corrupt Practices Act for any company or anyone acting on behalf of a
(FCPA)? company to bribe any foreign official in order to
obtain or retain business. In addition, a firm, or an
individual acting on behalf of a firm, will be held
criminally liable if it makes payments to a third
party with the knowledge that those payments
will be used by the third party as bribes.
2. Internal control provision. The fundamental
premise of the internal-control requirements of
the FCPA is that effective internal control acts as a
deterrent to illegal payments. Therefore, under
the Foreign Corrupt Practices Act corporate
management is required to maintain books,
From the Desk of Muhammad Zain – Founder of Zain Academy Page 128 of 154
, CERTIFIED MANAGEMENT ACCOUNTANT (CMA) -
PART 1
records, and accounts that accurately and fairly
reflect transactions and to develop and maintain a
system of internal accounting control.
9. What is internal audit's primary role? Internal audit’s primary role is assessing internal controls
over the reliability of financial reporting, the effectiveness
and efficiency of operations, and the organization’s
compliance with applicable laws and regulations.
According to IIA (Institute of Internal Auditors) Internal
Auditing Standard 2110, this includes assessing and
making appropriate recommendations for improving the
governance process in the following areas:
Promoting appropriate ethics and values within
the organization.
Ensuring effective organizational performance,
management and accountability.
Communicating risk and control information to
appropriate areas of the organization.
Coordinating the activities of and communicating
information among the board, external and
internal auditors, and management.
10. What is internal control? Internal control is a process that is carried out by an
entity’s board of directors, management and other
personnel that is designed to provide reasonable
assurance that the company’s objectives relating to
operations, reporting, and compliance will be achieved.
1. Operations objectives relate to the effectiveness
and efficiency of operations, or the extent to
which the company’s basic business objectives are
being achieved and its resources are being used
effectively and efficiently. Operations objectives
include operational and financial performance
goals and safeguarding of assets against loss.
2. Reporting objectives include internal and
external financial and non-financial reporting.
Reporting objectives include reliability, timeliness,
transparency, or other requirements as set forth
by regulators, recognized standard setters, or the
entity’s policies.
3. Compliance objectives relate to the
organization’s compliance with applicable laws
and regulations, encompassing all laws and
regulations to which the company is subject.
From the Desk of Muhammad Zain – Founder of Zain Academy Page 129 of 154
