The “agency problem” refers to:

management’s use of a fiduciary agent for stockholders
a large and active institutional investor base acting on behalf of individual investors.
stockholders who allow management to take actions that will benefit management.
the internal audit function reporting to the audit committee of the board instead of to management.

Answer(s): C

To strengthen outside auditor independence with regard to publicly held companies, the Sarbanes- Oxley Act requires that:

employment of staff from companies’ accounting firms be approved in advance by the audit committees.
companies change accounting firms for audit services at least every seven years.
accounting firms supply audit work papers annually to the SEC for their clients.
the lead audit partner and audit review partner be rotated every five years.

Answer(s): D

The combination of difference in condition (DIC) insurance and umbrella insurance:

transfers risk to a company’s captive insurance subsidiary.
replaces the coverage provided by basic property and liability insurance.
supplements the coverage provided by basic property and liability insurance.
provides payments to a company in the event it is unable to pursue a line of business due to an unforeseen event.

Answer(s): C

A company’s credit agreements or loan covenants may require:

minimum ratings for insurance carriers.
high deductible levels and risk retention in order to minimize premium payments.
outsourcing of the claims approval and payment process to an insurance company.
risk management staff to work directly with underwriters to reduce commission payments.

Answer(s): A

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