Accounting Ethics Chapter 3 HW PROBLEMS

The level of care expected of a reasonable person under similar circumstances in meeting one's fiduciary duty is called: a. Fairness b. Duty of care c. Duty of loyalty d. Transparency

Duty of care

Section 404 of the Sarbanes-Oxley Act requires a. A report of the company's internal control over financial reporting b. Code of ethics requirements for senior officers c. The principle executive to certify that they have reviewed the financial statements d. The establishment of procedures to accept employee complaints

A report of the company's internal control over financial reporting

The 2010 Dodd-Frank Act includes additional incentives for whistleblowers. What is the act's effect on whistleblowing by accountants? a. No accountant, internal or external, whether by job title or certification may receive a reward. b. Internal auditors who whistle-blow may not receive a reward. c. All accountants who whistle-blow are protected against retaliation, but may not receive a reward. d. A CPA may report a violation of a public accounting firm's performance in an audit.

A CPA may report a violation of a public accounting firm's performance in an audit.

Fraud can be defined as: a. A deliberate misrepresentation to gain an advantage over another party b. A cover-up of a mistake made in the financial statements c. An error in preparing financial statements d. All of the above

A deliberate misrepresentation to gain an advantage over another party

The primary ethical issue in United Thermostatic Controls is: a. Misappropriation of corporate assets b. Accelerating the recording of revenue into an earlier period c. Delaying the recording of expenses into a later period d. Failure to fully disclose all information

Accelerating the recording of revenue into an earlier period

The business judgment rule refers to: a. Decision making under uncertainty b. Honesty of purpose and caring c. Acting with due care and good faith d. Faithfulness to one's obligations and duties

Acting with due care and good faith

Jodie Fisher's allegations of sexual harassment are made believable due to Mark Hurd's: a. Conflict of interests b. Misuse of company assets c. Inaccurate expense reports d. All of the above

All of the above

The stakeholder view emphasizes the obligations of management to: a. The shareholders and creditors b. The board of directors c. All parties impacted by corporate decisions in a significant way d. The shareholders

All parties impacted by corporate decisions in a significant way

An ethical corporate culture includes: a. Zero tolerance for individual and collective mistakes b. An explicit statement of values. c. A focus on results over process d. A culture of do what I say, not what I do

An explicit statement of values.

The SEC has increased focus on identifying and penalizing misstatements in public company financials. What is one method that the SEC is using to identify companies, CEOs, and CFOs that are misstating financial statements? a. Utilizing the company's ethics code to spot misstatements. b. Analyzing whether the CFO has implemented adequate internal controls and safeguards over the financial reporting function. c. Analyzing patterns of internal control problems even absent a restatement of the financials. d. Utilizing the whistleblower provisions of the Dodd-Frank Act to provide a hot line.

Analyzing patterns of internal control problems even absent a restatement of the financials.

What is the significance of the Menendez v Halliburton, Inc.? a. Menendez was awarded his position back at Halliburton, but the actions of Halliburton were retaliatory. b. The SEC agreed with Menendez about the bill and hold method; Halliburton restated their financial statements and paid penalties. c. Halliburton was able to preserve and show that their bill and hold method was in accordance with GAAP. d. Appeals court panel ruled that Menendez (an internal accountant) had been retaliated against for blowing the whistle.

Appeals court panel ruled that Menendez (an internal accountant) had been retaliated against for blowing the whistle.

According to the ACFE survey, the most common type of occupational fraud scheme is: a. Corruption b. Asset misappropriation c. Illegal gratuities d. Fraudulent billing

Asset misappropriation

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. Board of supervisors

Audit committee

What non GAAP accounting method did Tony Menendez cite in blowing the whistle on Halliburton? a. Releasing cookie jar reserves to smooth income b. Recording sales that lack economic substance c. Bill and hold revenue recognition d. Failing to write off impaired assets

Bill and hold revenue recognition

In the Loyalty to the Boss case, what is the primary ethical issue? a. Bill and hold revenue recognition b. Recording sales that lack economic substance c. Capitalizing expenses as inventory d. Releasing cookie jar reserves to smooth income

Capitalizing expenses as inventory

Section 302 of the Sarbanes-Oxley Act requires that management: a. Disclose all executive compensation b. Certify the financial statements c. Assess the company's internal controls d. Blow the whistle on corporate wrongdoing

Certify the financial statements

The 2016 State of Compliance Study of PwC indicates that: a. Compliance officers should never be part of the management team b. Compliance and ethics functions have become more visible with their Board of Directors and senior leaders c. Compliance officers always are part of the internal audit group d. A compliance officer works with the external auditors to ensure accurate and reliable financial reporting

Compliance and ethics functions have become more visible with their Board of Directors and senior leaders

Which of the following is NOT an underlying trait of character of an effective leader identified by Johnson? a. Reverence b. Temperance c. Compassion d. Confidence

Confidence

The relationship between the shareholders, directors, and management of a company, as defined by the corporate charter, bylaws, formal policy and rule of law is known as: a. Corporate governance. b. Corporate responsibility. c. Code of ethics. d. Corporate leadership.

Corporate governance.

The Olympus case was unique from a corporate governance perspective because it deals with: a. Cultural differences between U.S. and non-U.S. companies b. A company that consistently overrides its internal controls and commits fraud c. Cultural differences between Japanese management and western style of managementCorrect d. A board of directors that was completely under the influence of the CEO

Cultural differences between Japanese management and western style of managementCorrect

The role of a leader in an organization is to: a. Develop the principles and strategic initiatives to guide ethical action b. Determine organizational climate and define norms c. Enforce violations of code rules of conduct d. Establish principles and standards of behavior that guide business decisions

Determine organizational climate and define norms

The reporting requirements for fraud are detailed in Section 10A of the Securities Exchange Act of 1934. Which of the following steps are NOT part of a prescribed process that should be followed in deciding whether to report fraud? a. Determine whether appropriate remedial action has been taken. b. Determine whether the violations have a material effect, quantitatively or qualitatively, on the financial statements. c. Determine whether reporting to the SEC is necessary. d. Determine who is responsible for the fraud.

Determine who is responsible for the fraud.

Which of the following is NOT an element of internal control over financial reporting? a. Providing reasonable assurance that receipts and expenditures are recorded based on proper authorization by management b. Maintaining accurate financial records c. Providing reasonable assurance that the financial statements are prepared in accordance with generally accepted accounting principles d. Developing a code of conduct and whistle-blowing procedures

Developing a code of conduct and whistle-blowing procedures

Under certain situations, internal accountants are eligible to become Dodd-Frank whistleblowers. Which of the following is not one of those situations? a. Disclosure to the SEC is needed to prevent "substantial injury" to the financial interest of an entity or its investors b. Disclosure to the SEC is needed to prevent "substantial injury" to the audit firm c. The whistleblower has first reported the violation internally and at least 120 days have passed with no action d. The whistleblower "reasonably believes" the entity is impeding investigation of the misconduct

Disclosure to the SEC is needed to prevent "substantial injury" to the audit firm

Which of the following is NOT an ethical or legal responsibility of officers and directors? a. Duty of Care b. Duty of Good Faith c. Duty of Fair Pay d. Duty of Loyalty

Duty of Fair Pay

The Full Disclosure: The Case of a Morally Challenged AP clerk involves the issue of: a. Embezzling money by processing fictitious invoices b. Lowering the rate of rebates to increase operating income c. Falsifying utility rates to decrease expenses d. Lowering the rate of return on utility sales

Embezzling money by processing fictitious invoices

The 2013 Ethics Resource Center National Business Ethics Survey indicates each of the following results with respect to how employees view the ethics and ethical practices of organizations they work for except: a. Falsifying expense reports is declining b. Ethical cultures are weaker c. Misconduct at work has declined over the years d. Whistleblowing percentages are unchanged

Ethical cultures are weaker

What are the five elements of the framework for understanding ethical decision making in business? a. Individual factors; organizational factors; opportunity; moral character; and business ethics intentions, behavior, and evaluations. b. Ethical issue intensity; individual factors; organizational factors; opportunity; and business ethics intentions, behavior, and evaluations. c. Ethical issue sensitivity; individual factors; organizational factors; opportunity; and business ethics intentions and evaluations. d. Organizational factors; opportunity; moral judgment; individual values; and business ethics intentions, behavior, and evaluations.

Ethical issue intensity; individual factors; organizational factors; opportunity; and business ethics intentions, behavior, and evaluations.

In the Pinto case, Ford relied on which approaches to ethical reasoning to decide on a course of action with respect to the faulty gas tank placement: a. Enlightened egoism and rights theory b. Justice and rights theory c. Egoism and utilitarianism d. Ethical legalism and utilitarianism

Ethical legalism and utilitarianism

Which of the following was the most frequent anti-fraud control identified in the 2014 ACFE Global Fraud Survey? a. Internal audit department b. External audit of financial statements c. External audit of internal controls over financial reporting d. Management certification of financial statements

External audit of financial statements

Which of the following was not a finding of the ACFE Report to the Nation on Occupational Fraud? a. Fraud is more likely to be detected by tips than any other way b. External auditors discover about 15 percent of the frauds c. Asset misappropriation schemes was the most common type of occupational fraud d. Frauds lasted a medium of 16 months before detection

External auditors discover about 15 percent of the frauds

An ethical climate is enhanced by all of the following except: a. Supportive environment b. Openness and transparency c. A values driven organization d. Fear of retaliation

Fear of retaliation

A strong and effective internal control environment can be enhanced by: a. Having the external auditors report to the audit committee b. Financial statements that present fairly financial position and results of operations c. Giving the internal auditors direct and unrestricted access to the audit committee d. Having the internal auditors report to the external auditors

Giving the internal auditors direct and unrestricted access to the audit committee

Which of the following is not an element of an ethical corporate culture? a. Setting a proper tone at the top b. Establishing strong internal controls c. Having an effective external audit d. Having an effective internal audit function

Having an effective external audit

The ethical dissonance model looks at the ethical fit of the organizational and individual values. The optimal fit for an individual with high individual ethics would be: a. High-High b. Low-Low c. Low-High d. High-Low

High-High

In the Parable of Sadhu case, Bowen T. McCoy's friend Stephen summed up the dilemma by saying: a. I feel that what happened with the sadhu is a good example of the breakdown between ethics in different cultures b. I feel that what happened with the sadhu is a good example of the breakdown between the individual and corporate ethics c. People tend to inevitably act in their own best interest d. All of the above

I feel that what happened with the sadhu is a good example of the breakdown between the individual and corporate ethics

Which of the following is not a component of the Framework for Understanding Ethical Decision Making in Business? a. Individual and organizational factors b. Ethical issue intensity c. Business ethics intentions, behaviors, and evaluations d. Internal controls

Internal controls

What was the result of the annual inventory audit of the inventory shrinkage and improper accounting at Walmart? a. Inventory shrinkage decreased by 90 percent b. Inventory shrinkage doubled year-over-year c. Inventory shrinkage increased by 90 percent d. There was no change in inventory shrinkage

Inventory shrinkage decreased by 90 percent

A unique aspect of Johnson & Johnson's Credo is that it: a. It encourages employees to interpret the values of the company b. It establishes general guidelines for ethical behavior when the code's ethics rules are unclear c. It is an aspirational statement rather than the typical "thou shalt not" form of a code of ethics d. It follows an agency approach to decision making

It is an aspirational statement rather than the typical "thou shalt not" form of a code of ethics

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 changes the exercise date on options to benefit top executives c. It changes the exercise price on options to benefit top executives d. It purposefully manipulates the option criteria that determine their value

It purposefully manipulates the option criteria that determine their value

According to the ACFE Global Fraud Study, which of the following was the most common behavioral indicator of fraud? a. Refusal to take vacations b. Living beyond means c. Addiction problems d. Financial difficulties

Living beyond means

Which of the following is least likely to be used by a manager to set the right tone to foster ethical leadership? a. Make decisions that are universal b. Consider the implications of one's actions on themselves c. Make decisions that do not harm others d. Reflect before deciding

Make decisions that do not harm others

Has SOX accomplished its intended goal of reliable financial reporting by public companies? a. Maybe, as very few defendants have been charged with false certification, and fewer still have been convicted. b. Maybe, as laws are needed but they serve as only a minimum standard of ethical conduct and may not lead to ethical conduct. c. No, as the SEC has unsuccessfully sought to collected disgorgement of bonuses and other compensations of officers. d. Yes, as the CEO and CFO are certifying that financial statements contain no material misstatements.

Maybe, as laws are needed but they serve as only a minimum standard of ethical conduct and may not lead to ethical conduct.

As a manager in her firm, Lucy concerns herself with the effectiveness of internal controls. Her main focus is how efficient and effective the company's internal controls are over time. Which component of internal control is Lucy engaging in? a. Control environment b. Control activities c. Monitoring d. Risk assessment

Monitoring

Which of the following is NOT an element of the corporate governance system? a. Internal controls b. Board of directors c. Monitoring by top management d. Executive compensation policies

Monitoring by top management

The Ethical Dissonance Model helps to evaluate: a. Whether the organization has a whistle-blowing process b. Whether the organization has ethical leadership c. Whether the organization's ethics aligns with individual ethics d. Whether the organization sets an ethical tone at the top

Whether the organization's ethics aligns with individual ethics

With respect to the importance of moral issues in business, Thomas Jones posited that: a. Moral issues of low intensity are more pronounced because they are difficult to identify b. Moral issues of high intensity are subtler and difficult to evaluate c. Moral issues of high and low intensity have equal effects on decision making d. Moral issues of high intensity are more pronounced than those of low intensity

Moral issues of high intensity are more pronounced than those of low intensity

The difference between occupational and financial statement fraud is: a. Financial statement fraud always starts with non-executive decisions b. Financial statement fraud occurs either by accident or deliberation c. Occupational fraud is generally committed by external auditors d. Occupational fraud is generally committed by employees

Occupational fraud is generally committed by employees

A common ethical problem where there is an unrealistic expectation to meet expected results and the ends justifies the means can be best described as: a. Fear of reprisal b. Weak board of directors c. Pressure to maintain the numbers d. Loyalty to the boss

Pressure to maintain the numbers

Organizational ethics can be thought of as: a. Rules of conduct that establish legal requirements for businesses b. Standards of reporting ethical violations c. Descriptions of how ethics occurs at a company d. Principles and standards of behavior that guide business decisions

Principles and standards of behavior that guide business decisions

With respect to whistleblowing, the Sarbanes-Oxley Act: a. Confers legal protection on the board of directors for fraudulent actions by management b. Confers legal protection on managers who reported wrongdoing by top executives c. Protects employees of publicly traded companies who provide evidence in fraud cases d. Protects auditors who blow the whistle to the SEC

Protects employees of publicly traded companies who provide evidence in fraud cases

Proper tone at the top includes all of the following except: a. Rarely enforcing the code of conduct b. Modeling the company's values c. Regularly reminding employees of the importance of ethical behavior d. Communicating compliance and ethics messaging to employees

Rarely enforcing the code of conduct

An example of revenue overstatement is: a. Manipulating reserves b. Deferring revenue c. Recording gross, rather than net, revenue d. Reporting cost of sales as a non-operating expense

Recording gross, rather than net, revenue

Which of the following is not a fraud method to overstate revenues? a. Recording revenues of other companies by acting as a middleman b. Recording future sales in the current period c. Recording sales based on F.O.B. shipping point d. Recording sales of products that are out on consignment

Recording sales based on F.O.B. shipping point

Examples of improper asset valuation includes all of the following except: a. Manipulating reserves b. Changing the useful life of assets c. Recording sales that never took place d. Manipulating estimates of fair market value

Recording sales that never took place

Compensation of executives has soared over the last forty plus years to more than 271 times the pay for average workers. Remedies to rein in executive compensation include all but: a. Restrictions by the law as to the maximum total compensation allowable b. More diligent board oversight of compensation packages c. Say on pay provisions d. Clawbacks of compensation when it can be shown executives knew of fraud

Restrictions by the law as to the maximum total compensation allowable

The key fraud issue in the Franklin Industries Whistleblowing Case is: a. Retaliation for reporting an embezzlement fraud b. Recording revenues too soon led to fraudulent statements c. Fraudulent financial statements were covered-up d. Corporate culture pressured an employee to go along with fraud

Retaliation for reporting an embezzlement fraud

Strong corporate governance relies on a strong board of directors. Which of the following would be a strong candidate to be a board director for XYZ, Inc.? a. Community member who receives annual large consulting contracts from XYZ. b. Retired controller of a Fortune 500 company. c. Community member who has already served on the board for 15 years. d. Investor who has a multi-million-dollar joint venture with the CEO and CFO.

Retired controller of a Fortune 500 company.

Which of the following is NOT one of the audit committee's responsibilities? a. Review whistleblowing and compliance processes b. Review and monitor the effectiveness of the external audit process c. Review all financial reporting judgments d. Monitor the integrity of the financial statements

Review all financial reporting judgments

Which of the following is NOT a component of an effective internal control environment in COSO Internal Control - Integrated Framework? a. Control activities b. The control environment c. Information and communication d. Risk abatement

Risk abatement

What is the main fiduciary duty of the board of directors? a. Safeguard the interests of corporation and its shareholders b. Allow high risk accounting practices c. Monitor executive compensation d. Maximize profits for the company

Safeguard the interests of corporation and its shareholders

Which of the following is not considered a behavioral indicator of fraud? a. Satisfaction with pay b. Financial difficulties c. Refusal to take vacations d. An unwillingness to share duties

Satisfaction with pay

External auditor communications with the audit committee include each of the following except: a. Matters related to why certain accounting policies are considered critical b. Significant unusual transactions c. Shareholder returns d. Significant estimates made by management

Shareholder returns

To ensure audit committee independence, the committee should meet separately with each of the following groups except: a. Shareholders b. External auditors c. Internal auditors d. Senior executives

Shareholders

Trust in business is important because: a. Stakeholders rely on management to produce shareholder return b. Management needs to feel confident that employees will carry out organizational objectives c. Management needs to feel confident that those with relationships with the organization do what they say d. Stakeholders need to feel confident that relationships with organizations will be consistent and reliable

Stakeholders need to feel confident that relationships with organizations will be consistent and reliable

Corporate governance structures and relationships are shaped by internal and external mechanisms. Which of the following is an external mechanism? a. All directors must be independent of management b. State and federal statues require a baseline corporate governance system c. Audit committees must consist of at least three members all of whom are independent of management and the entity d. Each listed company must have an internal audit function

State and federal statues require a baseline corporate governance system

DeGeorge thinks that "corporations have a moral obligation not to harm." Which of the following would be one of his criteria for morally permitted whistleblowing? a. The employee must first report wrongdoing to the external auditor before going public. b. The employee must reasonably believe that going public will not create the necessary change to protect the public and is worth the risk to oneself. c. Documented evidence exists that would convince a reasonable and impartial observer that one's view of the situation is correct but that serious harm is unlikely to occur. d. The employee should report a firm's actions that will do serious and considerable harm to others to her supervisor, and keep reporting all the way up to board until the actions are corrected.

The employee should report a firm's actions that will do serious and considerable harm to others to her supervisor, and keep reporting all the way up to board until the actions are corrected.

Section 301 of the Sarbanes-Oxley Act requires a. Code of ethics requirements for senior officers b. The principle executive to certify that they have reviewed the financial statements c. A report of the company's internal control over financial reporting d. The establishment of procedures to accept employee complaints

The establishment of procedures to accept employee complaints

A unique aspect of occupational fraud is: a. The failure to disclose full and complete information b. The failure to resolve conflicts of interest c. The misuse of company assets d. The falsification of financial statements

The misuse of company assets

The ACFE found that the most common way that fraud is first detected is: a. Internal audit b. Tip c. Internal controls d. External audit

Tip

In the business world, the term disgorgement means: a. To return profits earned illegally b. To give up one's meal after eating c. To give up one's board position after a fraud incident d. To return ill-gotten gains

To return ill-gotten gains

What is the ethical issue in the Rite Aid Inventory Surplus Fraud case? a. The internal auditor found and blew the whistle on the surplus inventory sales and kickback cover-up. b. Rite-Aid had a comprehensive corporate governance system that complied with all the requirements of Sarbanes-Oxley. c. Vice Presidents of the company were involved in a material, nine year surplus inventory sales and kickback scheme. d. The surplus inventory sales and kickback involved collusion between two officers of the company. When Foster wanted to stop the scheme, he was blackmailed in continuing the fraud.

Vice Presidents of the company were involved in a material, nine year surplus inventory sales and kickback scheme.

Research by Miceli and Near indicates that: a. Whistleblowers always blow the whistle because of altruistic reasons b. Whistleblowers hope their speaking out achieves the correction of an organization wrongdoing c. Whistleblowers hope those who violate the rules are prosecuted d. Whistleblowers are motivated to report under Dodd-Frank to receive an award

Whistleblowers hope their speaking out achieves the correction of an organization wrongdoing

The seven signs of a pending ethical collapse include all but: a. Whistleblowing hotline b. Bigger than life CEO c. Conflicts of interest overlooked d. Pressure to make numbers

Whistleblowing hotline

A troubling result of the 2013 National Business Ethics Survey is: a. No change in the likelihood to report misconduct b. Decline in pressure to compromise ethics c. a high percentage of misconduct is conducted by management d. Decreased witnessing of misconduct in the workplace

a high percentage of misconduct is conducted by management

The Clawback rule allows: a. protection for whistleblowers from retaliation b. compensation for whistleblowers c. protections for CEOs who act in good faith d. recovering compensation from CEOs who engage in financial statement misconduct

recovering compensation from CEOs who engage in financial statement misconduct