Question Detail:
1.Each of the following characteristics describes the importance of integrity in decision making except for:
A.Acting out of moral principle
B.Being loyal to one's superior
C.Having the courage to do the right thing
D.Not subordinating professional judgment to others
2.The ancient Greeks thought of the virtues as characteristics of behavior that:
A.Could lead to a good life
B.Make up the "six pillars of character"
C.Support the rights theory
D.All of the above
3.Ethical relativism can best be described as a:
A.Point of view that morality is relative to the norms of one's culture.
B.Concept that holds that integrity should be maintained in the face of pressure by others.
C.An ethical reasoning method that holds one should always act out of self-interest.
D.An ethical reasoning method that holds one should always consider the effect of one's actions on others.
4.When is it appropriate to contact the audit committee about a difference of opinion with the CFO over an accounting or financial reporting manner?
A.If the CFO does not agree to correct the financial statements
B.The CEO supports the CFO and does not agree to correct the financial statements
C.The external auditors support the CEO and do not agree to correct the financial statements
D.The audit committee should always be the first to be informed about such a difference of opinion
5.An internal accountant should always take the following step after exhausting all avenues of appeal within the organization when there is a difference of opinion with top management on an accounting or financial reporting matter:
A.Inform the SEC
B.Terminate employment with the entity
C.Seek legal advice before taking any action
D.All of the above
6.The Public Interest Principle in the AICPA Code of Professional Conduct recognizes:
A.The importance of integrity in decision making
B.The primacy of stakeholder groups
C.The need to be independent of the client
D.The importance of exercising objectivity in decision making
7.Objectivity requires that a CPA should:
A.Maintain a mental attitude of impartiality
B.Maintain a mental attitude of intellectual honesty
C.Be free of conflicts of interest
D.All of the above
8.The Independence Principle in the AICPA Code applies to:
A.All accountants and auditors
B.All CPAs regardless of professional services
C.All CPAs who render attestation services
D.All members of the audit committee
9.A CPA would violate the Due Care Principle if he/she:
A.Undertook a professional engagement without having the requisite background, knowledge and experience.
B.Discloses confidential information about a client.
C.Violates the Public Interest Principle.
D.Performs tax services for an audit client without audit committee approval.
10.Aristotle believed that __________ always preceded the choice of action.
A.Empathy
B.Due Care
C.Deliberation
D.Loyalty
11.The method of ethical reasoning that deals with making decisions after considering the interests of others is:
A.Egoism
B.Enlightened Egoism
C.Utilitarianism
D.Rights Theory
12.The method of ethical reasoning that requires selecting the correct moral rule that produces the greatest benefits over harms is:
A.Act Utilitarianism
B.Rule Utilitarianism
C.Rights Theory
D.Justice
13.Deontology deals with
A.Emphasizes rights of others
B.Consequences of actions
C.Following prescribed virtue characteristics
D.Following the law as an element of ethical behavior
14.The credibility standard in the Statement of Ethical Professional Practice of the IMA requires that an accounting professional should:
A.Communicate information fairly and objectively
B.Disclose all relevant information that might affect the intended user's understanding of the reports, analyses or recommendations
C.Disclose delays or deficiencies in information, timeliness, processing or internal controls in conformance with organization policy and the law
D.All of the above
15.The most important duty of public accounting is to the:
A.Securities Exchange Commission
B.Current stockholders
C.Management
D.Investing public
16.The best restatement of Kant's categorical imperative is:
A.Do to others as you would have everyone do unto you.
B.Consider others needs before you act.
C.That those with a smaller stake should have a smaller say compared to those with a bigger stake.
D.Don't be cruel until someone is cruel to you.
17.Virtue ethics emphasize development of good habits of character. What should be the greatest reward of practicing good habits of character, according to MacIntyre?
A.External rewards
B.Money
C.Internal rewards
D.Authority of rules
18.Kant's categorical imperative principle suggests that:
A.Only equals should be treated equally
B.Everyone should be treated as a free and equal person
C.Everyone should be treated unequally
D.Only the elite are treated equally
19.Greatest good for the greatest number of people is the theory of __________.
A.Rights
B.Deontology
C.Utilitarianism
D.Justice
20.Virtue ethics is
A.Doing what is right
B.One's duty to act in a socially acceptable manner
C.One's ability to meet or exceed their potential
D.What one ought to do when presented with an ethical dilemma
21.The philosophical belief that you should judge the result, not the action (end justifies the means) is?
A.Utilitarianism
B.Deontology
C.Justice
D.Virtue ethics
22.Which theory is based on doing what is right despite the consequences?
A.Deontology
B.Virtue ethics
C.Teleology
D.Egoism
23.Which philosopher believed, "the ends do not justify the means?"
A.Plato
B.Immanuel Kant
C.Socrates
D.Stuart Mill
24."Do that action which will bring about the greatest good for the greatest number of people," is the basic concept of which ethical theory?
A.egoism
B.deontology
C.utilitarianism
D.virtue ethics
25.A difficult choice between two moral principles that are in conflict with one another is known as a/an:
A.ethical behavior
B.gray area
C.ethical dilemma
D.pragmatism
Essay Questions
1.Why do ethicists consider integrity to be the foundation of ethical behavior?
Chapter 02
Accountants' Ethical Decision Process and Professional Judgment
Multiple Choice Questions
1.The failure of Andersen's audit of Enron can be attributed to all of the following except for:
A.Failure to approach the audit with professional skepticism
B.Lack of audit independence
C.Failure to assign a sufficient number of staff to the audit
D.Having a conflict of interests
2.Professional skepticism means:
A.Approaching the audit with an independent attitude
B.Approaching the audit with a questioning mind
C.Being objective in decision making
D.Maintaining one's integrity
3.The cognitive development approach refers to:
A.The thought process followed in one's moral development
B.The method of moral reasoning used in decision making
C.The exercise of professional judgment in decision making
D.All of the above
4.Kohlberg's model can best be described as:
A.The various phases in one's moral development and related levels of moral reasoning
B.A model of ethical action that is based on one's moral development
C.A predictive tool to determine how a person will reason ethically based on one's moral development
D.A model of age-specific levels of moral reasoning
5.The ethical domain in accounting and auditing refers to:
A.The important constituent groups affected by accounting and auditing work
B.The stages of the moral development of accountants and auditors
C.The decision making process followed by accountants and auditors
D.All of the above
6.Rest's "Four Component Model of Morality" can best be described as:
A.A description of the values that influence ethical decision making
B.A model of the relationship between ethical action and one's level of moral development
C.A model of moral judgment based on one's possession of certain virtues of behavior
D.All of the above
7.Each of the following is an element of Rest's model of morality except for:
A.Moral sensitivity
B.One's stage of ethical development
C.Moral motivation
D.One's courage in making decisions
8.The actions of Sherron Watkins in the Enron case appears to reflect each of the following except for:
A.Moral sensitivity
B.Egoism
C.Enlightened egoism
D.Professional skepticism
9.An ethical tone at the top can best be described as:
A.Establishing an ethical culture within an organization
B.Honesty exercised by top management
C.Consistency in decision making
D.Exercising professional skepticism when approaching an audit
10.Thorne's "Integrated Model of Ethical Decision Making" can best be described as:
A.A depiction of a model of moral development
B.A depiction of how the Principles in the AICPA Code of Professional Conduct influences decision making
C.A model of the role of virtue in decision making
D.A model of the role of moral development and virtue in decision making
11.The need to exercise professional skepticism in auditing can be linked to:
A.Maintaining an attitude of independence in decision making
B.Considering and responding to the risk of material misstatement in the financial statements due to fraud
C.Considering and responding to pressures that might be imposed on auditors in decision making
D.All of the above
12.In the development of a scale to measure professional skepticism, Hurtt, Eining and Plumlee identified the following three characteristics of skepticism that deal with examining evidence:
A.A questioning mind, the suspension of judgment, and an independent attitude
B.A questioning mind, the search for knowledge and an independent attitude
C.A questioning mind, the suspension of judgment and the search for knowledge
D.The suspension of judgment, the search for knowledge and an independent attitude
13.In Cherron and Lowe's study of the link between professional skepticism and management accountants, the authors identified the importance of:
A.Understanding the motivation and integrity of evidence providers
B.Understanding the nature of the corporate culture
C.Understanding the way in which decisions are made
D.All of the above
14.The ethical decision making model described in the chapter helps to:
A.Organize the various elements of ethical reasoning and professional judgment
B.Evaluate stakeholder interests using ethical reasoning
C.Identify and select alternative courses of action
D.All of the above
15.The importance of framing the ethical issue in the decision making model is:
A.Identify the stakeholders affected by intended actions
B.Evaluating alternative courses of action using moral reasoning methods
C.Identify the accounting issues present in a case
D.Providing a perspective to apply the decision making model to specific facts of the case
16.Wanda is faced with an ethical dilemma. She knows her supervisor, the CFO, wants to accelerate the recoding of revenue to an earlier period to "make the numbers," but Wanda is convinced this would violate GAAP. If Wanda reasons at stage 4 of Kohlberg's model she is most likely to:
A.Make a decision based on what is in her own best interests
B.Consider the interests of the stakeholders but decide based on what is in her best interests
C.Refuse to record the transaction as desired by the CFO
D.Inform the board of directors of the difference of opinion with the CFO
17.Leroy audits the financial statements of a small business. During the course of his audit he notices that all five members of top management have purchased new BMWs. Given that each manager's salary is less than $100,000 per year, Leroy becomes suspicious about how all five of them were able to buy such an expensive automobile. He decides to double check the bank statements for the year and postings to expense accounts that might indicate improper expenditures. Leroy's actions demonstrate:
A.Professional skepticism
B.Objective decision making
C.Due care
D.All of the above
18.Keesha is the CEO of a publicly-owned company. She was informed by the CFO that the company's earnings were down 30 percent from the prior year due to the recession. The company's stock price has declined by 20 percent. The CFO comes up with a scheme to hide debt and inflate revenues by selling underperforming assets to a special purpose entity affiliated with the company. Keesha is concerned about possible affects on the creditors but ultimately she agrees to the accounting. Keesha is reasoning at:
A.Stage 1
B.Stage 2
C.Stage 3
D.Stage 4
19.Role expectation or approval from others is a motive for doing right is which state of Kohlberg's moral reasoning?
A.Fairness to others
B.Obedience
C.Self-chosen principles
D.Law and order
20.Moral sensitivity can be summarized as
A.Being able to think of others first
B.Being able to identify the best course of action
C.Being able to identify an ethical situation
D.Being able to react quickly
21.What needs to be coupled with moral motivation to act on moral judgment?
A.Courage
B.External pressures
C.Loyalty
D.Internal pressures
22.Kohlberg's model suggests that a person
A.is morally developed early in life and will not change
B.continues to change decision priorities with education and experiences
C.may change up or down one stage upon becoming an adult
D.may only go backwards through the stages upon becoming an adult
23.What should be the first step in decision making when faced with an ethical dilemma?
A.Choose an ethical theory to follow.
B.Discuss with others your options.
C.Get the facts surrounding the problem.
D.Determine consequences.
24.What is the social responsibility of business according to Milton Friedman?
A.Protecting interests of the environment
B.Protecting interests of all stakeholders
C.Protecting interest to increase profits
D.Protecting interests of shareholders
25.Cynthia Cooper's actions in the WorldCom case can be best characterized as demonstrating:
A.Persistence, due care, and independence
B.Persistence, due care and courage
C.Independence, courage, and loyalty
D.Persistence, due care, and loyalty
.
Chapter 03
Corporate Governance and Ethical Management
Multiple Choice Questions
1.A unique aspect of occupational fraud is:
A.The misuse of company assets
B.The falsification of financial statements
C.The failure to disclose full and complete information
D.All of the above
2.The ACFE found that the most way that fraud is first detected is:
A.Internal audit
B.Internal controls
C.External audit
D.Tip
3.Internal control over financial reporting includes each of the following elements except for:
A.Maintaining accurate financial records
B.Providing reasonable assurance that receipts and expenditures are recorded based on proper authorization by management
C.External audit conducted in accordance with generally accepted auditing standards
D.Providing reasonable assurance that the financial statements are prepared in accordance with generally accepted accounting principles
4.The corporate governance system includes each of the following elements except for:
A.Board of directors
B.Internal controls
C.Executive compensation policies
D.Monitoring by top management
5.The Agency Theory can best be described as:
A.The relationship between top management and the board of directors
B.The relationship between the board of directors and shareholders
C.The relationship between top management and the board of directors, and shareholders
D.The relationship between the external auditors and top management
6.Backdating of stock options is unethical because:
A.It favors top executives over other company employees with respect to the number of options
B.It purposefully manipulates the option criteria that determine their value
C.It changes the exercise price on options to benefit top executives
D.All of the above
7.The term disgorgement means:
A.To give up one's meal after eating
B.To return profits earned illegally
C.To return ill-gotten gains
D.To give up one's board position after a fraud incident
8.The fiduciary duty of the board of directors includes all of the following except for:
A.Safeguarding corporate assets
B.Promoting shareholder interests
C.Exercising care in carrying out their responsibilities
D.Representing the interests of all stakeholders
9.The level of care expected of a reasonable person under similar circumstances in meeting one's fiduciary duty is called:
A.Duty of loyalty
B.Duty of care
C.Transparency
D.All of the above
10.Under the Sarbanes-Oxley Act, which of the following bodies must contain members that are 100% independent of management?
A.Board of directors
B.Audit committee
C.Internal auditors
D.All of the above
11.To ensure audit committee independence, the committee should meet separately with each of the following groups except for:
A.Senior executives
B.Internal auditors
C.External auditors
D.The audit committee should meet separately with all of the above
12.Each of the following is a component of internal control under SAS 55 except for:
A.The control environment
B.Risk assessment
C.Control activities
D.Transparency
13.SAS 78 describes internal control as a process, effected by an entity's board of directors, management and other personnel, designed to provide reasonable assurance regarding achievement of:
A.Effectiveness and efficiency of operations
B.Reliability of financial reporting
C.Compliance with applicable laws and regulations
D.All of the above
14.The Institute of Internal Auditors Code of Ethics includes each of the following principles except for:
A.Integrity
B.Objectivity
C.Independence
D.Confidentiality
15.Section 302 of the Sarbanes-Oxley Act requires that management:
A.Assess the company's internal controls
B.Certify the financial statements
C.Disclose all executive compensation
D.All of the above
16.Each of the following is part of the New York Stock Exchange listing requirements except for:
A.All directors must be independent of management
B.Audit committees must consist of at least three members all of whom are independent of management and the entity
C.The audit committee should report regularly to the board of directors
D.Each listed company must have an internal audit function
17.One of the reasons Bernie Madoff was able to pull off the Ponzi scheme for so long was:
A.He was trusted by those who invested with him
B.The SEC failed to act on tips about Madoff's questionable practices
C.The auditors either looked the other way or didn't look too hard to find the fraud
D.All of the above.
18.What is the most important factor in encouraging employees to observe ethical guidelines?
A.Employees perceive the program is compliance based.
B.Employees perceive the program to be stakeholder based.
C.Employees perceive the program to be based on Management needs.
D.Employees perceive the program is values based.
19.The expectation gap is the difference between what the public perceived as the responsibilities of accountants and __________________.
A.What accountants see as their responsibilities
B.What managers see as their responsibilities
C.What clients see as their responsibilities
D.What bankers see as their responsibilities
20.What are the fiduciary obligations of the board of directors?
A.Maximize profits for the company
B.Give excessive executive compensation
C.Safeguard the interests of the company's stakeholders
D.Allow high risk accounting practices
21.What is the agency problem?
A.Managers place corporate goals ahead of personal goals.
B.Managers place personal goals ahead of corporate goals.
C.Managers place social goals ahead of personal goals.
D.Managers place corporate goals ahead of social goals.
22.By which means were most frauds reported or discovered, according to the survey conducted by the ACFE (Association of Certified Fraud Examiners)?
A.Accidental
B.Internal Audit
C.External Audit
D.Tip
23.In an ethical decision making model, the first step is
A.Know how to protect yourself
B.Look at the stakeholders involved
C.Frame the ethical issue
D.Determine all alternative actions
24.The aim of executive compensations is to:
A.Enrich the executive
B.Align the goals of the executive with the workers
C.Align the goals of the executive with the shareholders
D.Enrich the company
25.The Act that enables a whistleblower to receive compensation for blowing the whistle if the claims are deemed to be valid is:
A.The Sarbanes-Oxley Act
B.The Foreign Corrupt Practices Act
C.The Private Securities Litigation Reform Act
D.The Federal False Claims Act
Chapter 04
AICPA Code of Professional Conduct
Multiple Choice Questions
1.The committee that first recommended that the profession institute a voluntary program for peer review was:
A.Metcalf committee
B.Cohen committee
C.The House Subcommittee on Oversight and Investigations
D.Mintz and Morris committee
2.During the investigations by the House Subcommittee on Oversight and Investigations, a question that was raised was:
A.Why was fraud allowed to occur at so many companies
B.Where was the board of directors in all these frauds
C.Where were the auditors
D.Why did the internal controls fail in so many frauds
3.The accounting issues at failed savings and loan institutions included:
A.The failure to provide adequate allowances for loan losses
B.The failure to disclose dubious deals between the S&Ls and some of its major customers
C.The existence of inadequate controls to prevent inadequate allowances and control for dubious deals
D.All of the above
4.One of the Contributions of the Treadway Commission Report and the work of the Committee if Sponsoring Organizations (COSO) was:
A.To establish a voluntary process for peer review
B.To identify red flags that might lead to fraud
C.To identify the tone at the top for management to create an ethical culture
D.All of the above
5.Interpretation 102-4 in the AICPA Code of Professional Conduct calls for differences of opinion between the controller and CFO to be first taken up with:
A.The CEO
B.The board of directors
C.The external auditors
D.The SEC
6.The principle of ethical behavior in the AICPA Code that asks questions directly related to ethical behavior is:
A.Independence
B.Objectivity
C.Integrity
D.Fraud prevention
7.The conceptual framework for the AICPA Independence standards can best be characterized as:
A.A model to prevent fraud from occurring
B.An approach to identify threats to independence
C.An approach to identify fraud risks
D.A model to assist controllers in dealing with differences of opinion with top management on accounting issues
8.Assume the external auditor of a client entity also served on the client's board of directors. What aspect of independence would be violated?
A.The auditor may be exposed to an intimidation threat by the client
B.The auditor is involved in a business relationship with the client
C.The auditor serves in a management decision making position with the client
D.All of the above
9.The due care principle in the AICPA code:
A.Addresses the quality of the individual who performs professional services
B.Addresses the quality of services performed by the CPA
C.Addresses whether the independence standards has been met
D.All of the above
10.The confidentiality standard in the AICPA code provides for exceptions to the rule in:
A.In response to a validly issued court summons
B.To provide information to the CPA's peer reviewers
C.To defend oneself in an ethics investigation
D.All of the above
11.A CPA who informs management of a material misstatement in the financial statements can go to the SEC with his/her concerns if:
A.The CPA informed client of this matter and the client did not inform the SEC within one business day of being informed of the CPA
B.The CPA informed the client of this matter and the client refuses to correct the financial statements
C.The CPA informs the client of this matter and the client fires the CPA
D.All of the above
12.The requirement that there should be reasonable support for a tax return position before a CPA recommends it to a client:
A.Might violate basic ethical standards discussed in chapters 1 and 2
B.Might violate the objectivity standard in the AICPA code
C.Might violate the integrity standard in the AICPA code
D.All of the above
13.The PCAOB rules prohibit auditors from:
A.Providing certain aggressive tax shelters to their public company audit clients
B.Providing tax services to members of the audit client's management who serve in financial reporting oversight roles
C.Providing tax preparation and planning services for public company executives
D.All of the above
14.What is the primary fiduciary responsibility of professional accountants?
A.Stockholders
B.Public interest
C.Client
D.Stakeholders
15.Sarbanes-Oxley Act (SOX) sets new standards for governance that will ultimately impact on which of the following?
A.Foreign companies listed on US exchanges only.
B.SEC registrant companies, including foreign companies listed on US.
C.NYSE listing companies.
D.NASDAQ listing companies.
16.To whom do the accounting codes of professional conduct (either the state board of public accountancy or AICPA) apply?
A.Those CPAs in public accounting only.
B.Those CPAs in industry, government, and education.
C.Those CPAs in public accounting, industry, government, and education.
D.Those CPAs in public accounting, doing auditing and taxation.
17.Why don't auditors prepare financial statements, as well as audit them?
A.It would take away a job from the controller of the company.
B.It would not eliminate errors in the financial statements.
C.It would be a conflict of interest and violates ethical standards.
D.It would streamline the process and be effective.
18.In which of the following is a CPA independent in fact and appearance?
A.The CPA's brother is the controller of the company being audited.
B.The CPA serves on the board of a non-profit with the CFO of the company being audited.
C.The CPA borrowed money for a new car from the CEO of the company being audited.
D.The CPA owes an office building that he leases to the client.
19.Which of the following would be an example of due care?
A.Audit documentation all supplied by the client.
B.Audit documentation is a copy of last year's work papers.
C.Audit documentation with reviews by senior, manager, and partner.
D.Audit documentation with misapplication of GAAP.
20.Which of the following relationships does a CPA not impair independence?
A.Financial relationships
B.Business relationships
C.Family relationships
D.Civic relationships
21.Which of the following is a threat by a client that impairs independence?
A.Low Balling
B.Skepticism
C.Lawsuit
D.Withholding information
22.Which would not have to follow the independence of a CPA, according to Interpretation 101-1?
A.CPA's spouse
B.CPA's spousal equivalent
C.CPA's distant cousin
D.CPA's dependents
23.What is the difference on contingent fees under the PCAOB rules versus the AICPA rules?
A.Both rules allow contingent fees for an audit client if the contingency is based upon findings of government agencies.
B.The AICPA prohibits contingent fees to an audit client.
C.The PCAOB allows contingent fees for non public companies engagements.
D.The PCAOB prohibits contingent fees in tax engagements performed for an audit client.
24.Which is not a permitted form of organization for a CPA practice?
A.Sole proprietorship with name of sole proprietor
B.Limited liability partnership
C.Professional corporation
D.Corporation
25.The concept of not holding an auditor legally responsible for knowing misrepresentations in the financial statements by management is called:
A.Disgorgement
B.Tax avoidance
C.Indemnification
D.Restricted liability
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