Learning Objective 11-4
1) Which of the following is evidence of a company's positive ethical climate?
A) The company controller leaves work after lunch every Friday to play golf with his friends.
B) The company president has a framed motto on his desk that says: "Winning isn't the most important thing, it's the only thing."
C) The company's annual audit is performed by a firm of independent CPAs which has a purely business relationship with the company.
D) To ensure the statements are prepared properly, the company pays its external auditors extra to prepare its financial statements as well as audit them.
2) Which of the following is evidence of a company's positive ethical climate?
A) The company president's brother-in-law is the company's biggest supplier.
B) The company president has a very, very close personal relationship with his secretary.
C) The aunt of the company president manages the CPA firm that performs the company's annual audit.
D) The company's executives require all new employees to attend an ethics workshop.
3) Which of the following is evidence of a company's positive ethical climate?
A) X Company has a written ethics policy, which all new employees are required to sign.
B) Y Company's president has been indicted for fraud, but the case has not yet gone to trial. In the meantime, it is business as usual.
C) Z Company skipped its annual audit this year because it was too expensive.
D) To ensure the statements are prepared properly, the company pays its external auditors extra to prepare its financial statements as well as audit them.
4) Which of the following is evidence of a company's positive ethical climate?
A) Alpha Company's chief financial officer has a degree in drivers' education.
B) Beta Company has a hotline where anonymous callers can leave information about any fraudulent activity in Beta Company.
C) Gamma Company provides free health insurance only for employees who earn more than $100,000 a year. Hourly workers are not eligible for company health insurance even if they are willing to pay for it themselves. This saves the company a lot of money in employee benefits.
D) To ensure the statements are prepared properly, the company pays its external auditors extra to prepare its financial statements as well as audit them.
5) Corporate governance ________.
A) is required by the SEC in accordance with the 1933 and 1934 securities acts
B) is the process carried out by the board of directors to provide direction and oversight on behalf of the stakeholders
C) is a new concept that arose as a result of the accounting scandals in the early 2000s
D) prevents fraud and ensures financial statements are prepared in accordance with GAAP
6) Which of the following is
NOT
one of the lessons learned from the business failures of the early 2000s?
A) Top management should set the ethical climate of a firm.
B) Overreliance on earnings per share may encourage fraudulent behavior.
C) External auditors should get to know top management well, both personally and professionally, so that they have a strong working relationship.
D) Executive compensations linked to stock performance may result in fraudulent activity.
7) The ethical climate of a company is determined by the external auditors.
8) The ethical climate of a company is determined by the board of governors.
9) The ethical climate of a company is determined by the tone at the top.
10) Corporate governance eliminates the need for internal controls.
11) Describe some of the lessons learned from the business failures of the past decade.