Wiley CPAexcel Exam Review 2015 Study Guide (January): Business Environment and Concepts

Appendix C: 2014 Released AICPA Questions for Business Environment and Concepts

1. A member of the board of directors of Central Communications Co. is offered a license by a third party to operate a cellular phone system. The director does not present this offer to the board of directors for approval but informally mentions it to a fellow board member, who does not think it will be a problem. The director buys the license. Which of the following statements is correct regarding the director's actions?

1. The director breached a duty of care by failing to use prudent business judgment.
2. The director breached the duty of due diligence.
3. The director breached a duty of loyalty by usurping a corporate opportunity.
4. The director acted properly in purchasing the license.

1. (c) The requirement is to evaluate the action of the board member. Answer (c) is correct because the director breached a duty of loyalty by usurping a corporate opportunity. Answers (a), (b), and (d) are incorrect because the director breached a duty of loyalty by usurping a corporate opportunity.

2. Company management completes event identification and analyzes the risks. The company wishes to assess its risk after management's response to the risk. According to COSO, which of the following types of risk does this situation represent?

1. Inherent risk.
2. Residual risk.
3. Event risk.
4. Detection risk.

2. (b) The requirement is to identify the type of risk that is described. Answer (b) is correct because the risk after management's ...