BUS 424 MC, Accounting Ethics Midterm #1 Questions, Accounting Ethics Midterm #2 Questions, Ch. 1 Ethics, CH. 6 QUIZ ETHICS, Ch. 2 Cognitive Processes and Ethical Decision Making in Accounting, Ch. 7 Accounting Ethics, Accounting Ethics Final Exam Re...

Privity

Inferred contractual relationship that enables the third parties to sue CPAs

In the case of Equity Funding, the audit client

Inflated its earnings by recording fictitious sales of insurance policies

What is the basis for ethics in accounting?

Integrity -means acting on principle -traces back to socrates, plato and aristotle -is the foundational virtue of ancient greek philosophy of virtue helps withstand pressures to subordinate judgment - a must have for accountants

What are the problems with implementation of Enlightened Egoism?

Interests of Others are subservient to self-interest -Ethnocentric

As a result of Scott London's actions to give inside tips about two audit clients, KPMG took each of the following actions except for

Issued a modified audit opinion on the clients financial statements because of the adverse actions of London

What are the problems with implementation of Egoism?

It fails to consider the interest of others addicted by the decision -ethnocentric aka what is in it for me?

In his evaluation of Kidder's model, Johnson points out that: It is not easy to determine who has responsibility for solving a problem A time constraint prevents making timely decisions Decisions lead to action We cannot apply lessons learned in one dilemma to future problems

It is not easy to determine who has responsibility for solving a problem

d

James Rest's model of ethical action involves four components inherent to the ethical decision-making process. Which of the following relates to a person's moral judgment? A. Interpreting a situation as a moral dilemma B. Willingness to place ethical values ahead of non-ethical values C. Intention to act ethically aligning to his values D. Outcome of one's prescriptive reasoning

Who is associated with Utilitarianism?

Jeremy Bentham and John Stuart Mills

Who is associated with Justice?

John Rawls

Tax shelters

Marketing of tax shelters must have a valid purpose, such as helping clients legally pay minimum taxes

How does Gilligan evaluate the solution to Heinz's dilemma? Women think saving a life is more important than keeping the law. Men think keeping the law is more important than saving a life. Men tend to think in terms of justice, and women in terms of caring. Men misunderstand and women understand.

Men tend to think in terms of justice, and women in terms of caring

In reference to Rest's four-component Model of Morality, which component reflects an individual's willingness to place ethical values ahead of non-ethical values that relate to self-interest? Moral Character Moral Motivation Moral Sympathy Moral Judgment

Moral Motivation

Universability is not the same as

Universality -Not that we would all agree on a rule if it was moral but rather we need to be able to will that it be made universal

63. When applying Utilitarianism to judge actions, what is the only thing that matters?

C. Consequences

41. Jason is the fastest worker on the audit of a company for the firm Zits LLP. Other Zits workers take twice as long to complete the equivalent amount of work as Jason. One day Jason is approached by the other workers and is asked to slow down

"You are exceeding the time budget for the audit and making the rest of us look bad," said one staff member. The best thing for Jason to do is: C. Ignore what is being asked and go about his work as he has always done

Audit Committee requirement and roles

- Audit committee must be composed of independent members only - Oversees F/S and controls - Oversees hiring of external auditors - Must meet with senior executives and auditors - Review company's whistleblower processes & compliance program. - Consider whether the company's disclosures provide investors with the information needed to understand the state of the business.

AICPA Code - Conceptual Framework for Members in public practice

- If a rule Interpretation doesn't exist for a particular relationship or circumstance, - Must evaluate whether an informed individual party can conclude that there is a threat to the member's compliance that is not an acceptable level.

What are cultural dimensions that can explain similarities and differences in cultures worldwide?

- individualism -power distance -uncertainty avoidance -masculinity -long term orientation

What is ethics?

-Accepted standards of behavior -Practices of those in a profession -Laws -Expectations of society

Rule-Utilitarian

-Bases behavior on rules designed to promote the greatest utility -Maxs intrinsic value

Act-Utilitarian

-Examines the specific action itself versus the rule -Sets aside the rule only if increase in net utility to all stakeholders

Auditors need to give " " assurance

1) "Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement." - From Auditor's Responsibility Paragraph 2) Similar to preponderance evidence in civil court cases

Ethical dilemmas of external auditor (Beekman case)

1) Acceptance of the partner's negotiation to be seen as a good team player and to make him happy 2) Review rationale for the negotiated resolution for an ethical approach

3 Types of Mgmt assetions

1) Account & balance 2) Transactions & Events 3) Presentation & Disclosure in F/S

6 things to report to California Board of Accountancy within 30 days

1) Acts discreditable 2) Any restatements or related disclosures 3) Civil actions award/settlement over $30,000 4) Any notice of formal investigation by SEC/PCAOB and their designees 5) Any SEC notice requesting a Wells submission

PCAOB & AICPAs roles

1) Adopts standards for public companies (P) or private companies (A) (auditing, attestation, quality control, ethics and independence) 2) Oversees and disciplines CPA firms through investigations

Common threats (for both external and internal accountants)

1) Adverse interest (ex - legal proceeding with client) 2) Advocacy (ex - promoting client's interest) 3) Familiarity (ex - friend or relative with a client) 4) Management participation 5) Self-interest 6) Self-review 7) Undue influence

Auditor responsibilities after report date for new audit evidence - what to do if action is needed

1) Advise client to disclose the information and/or restate the F.S. or include in about to be released subsequent period F.S. & tell SEC. 2) If client refuses, Auditor should (even though fired since): a. Notify each board of director member of refusal and planned auditor actions b. Notify Client That Auditor's Report Should No Longer Be Associated With the F.S. c. Notify SEC & Each Party Known to be Relying on the F.S. that the Audit Report Should No Longer be Relied Upon.

AICPA Code of Professional Conduct applies to whom?

1) All CPAs 2) However, a. Some rules only apply to members in public practice b. Some rules only apply to certain types of engagements

Independence Rule - applies to whom?

1) Applies to all attest engagements for either private or public companies 2) If not addressed in the Code, evaluation is necessary

Independence issues (government audit)

1) Are identified threats to independence acceptable? a. Judged by ability to perform without being influenced b. Whether expose can lead the third party to conclude that the audit was compromised

Independence (government non-audit); services that impair independence and therefore no use of safeguards

1) Assuming management responsibilities 2) Preparing accounting records and financial statements 3) Internal audit assistance 4) Internal control monitoring 5) Nontax disbursement 6) Benefit plan administration 7) Investment—Advisory or management 8) Corporate finance - Consulting or advisory 9) Executive or employee personnel matters 10) Business risk consulting 11) IT services 12) Valuation services

5 things 3rd parties must prove in lawsuit (common law)

1) Auditor was negligent 2) They sustained a loss 3) 3rd party relied on the financial statements. 4) Financial statements were either misleading or had misstatement, which is the proximate cause for the loss. 5) Privity exists (as defined by state precedent or law) - Less burden of proof if filed by the federal govt.

4 things clients must prove in lawsuit (common law)

1) CPA accepted duty to exercise due professional care; level of care should be included in the engagement letter 2) Breach of duty (through negligence) 3) Client suffered a loss 4) Loss resulted from CPA's negligence or can be linked to the CPA's negligence of either not detecting errors or fraud in the information provided by the client or in errors made by the CPA.

Contingent fees rule

1) Cannot accept if a CPA firm performs any of the following a. Audit or review of F/S b. Compilation of F/S AND 3rd party's use of it c. Examination of prospective F/S 2) Cannot accept for tax preparation 3) PCAOB prohibits all contingent fees related to taxes for public company audit clients

4 Key Constituent Groups of CPAs

1) Client organization (hires and pays for accounting & auditing services) 2) CPA Firm 3) Accounting Profession & Regulatory Bodies (SEC, PCAOB) 4) General Public (existing & future investors, lenders who rely on the CPA's work)

3 plaintiffs that sue auditors

1) Clients; breach of contract or negligence 2) 3rd party users (investors & financial institutions); negligence 3) Government & taxpayers; violation of security laws because of negligence

Basis for legal liability of auditors

1) Common law; to clients and the third parties; arises from break of contact (client), fraud, negligence; varies by state to state, unlike statutory; based on cases that set precedents or UCC 2) Statutory law; securities laws; civil or criminal; important ones include Securities Act of 1933 and 1934, RICO,

Credibility

1) Communicate fairly and objectively 2) Disclose all material information 3) Disclose all delays and deficiencies

Enron's other problems

1) Cut-throat work environment 2) Executive compensation based on reported revenue and earnings

AICPA Conceptual Framework for independence

1) Does the Code provide explanation? 2) If not, address the threat 3) Whether it compromises professional judgment 4) Whether safeguards can mitigate the threat --> If no to 3) and 4), impaired independence

Acts discreditable rule

1) Don't act in ways that discredit the profession 2) Examples include a. Not returning client prepared records (records prepared by CPA can be withheld until fee is paid)

Responsibility

1) Due professional care or due diligence 2) Accountability

Caring

1) Empathetic 2) Consider impacts on other people

Ethics for California license CPAs - differences 1) Employment after audit engagement 2) Commission or referral fees 3) Contingent fees 4) Confidentiality

1) Employment after audit engagement is prohibited for a member who: a. Exercised significant judgement b. Accepted a position with significant authority over accounting or financial reporting 2) Commissions or referral fees a. No commission or referral unless in conjunction with a CPA client service b. Different disclosure process 3) Contingent fees a. No acceptance of contingent fees if CPA performs attest services for the client 4) Confidentiality a.No disclosure of names if it leads to disclosure of confidential information

Reasons for F/S Restatement

1) Error or fraud in previous year's accounting or financial reporting 2) Restatement is always better than leaving it because material definition is vague and can cause lawsuit 3) Past unethical reporting can help investors measure future reporting risks from mgmt.

AICPA CPC Principles - Responsibilities

1) Exercise sensitive professional and moral judgments in all their activities 2) Cooperate with each other (CPAs) 3) Improve the art of accounting 4) Maintain the public's confidence

5 assetions in Account & Balance

1) Existence (validity) — assets, liabilities and equity balances exist. (balance sheet related) 2) Rights and Obligations — the entity legally controls rights to its assets and its liabilities faithfully represent its obligations. 3) Completeness — all balances that should have been recorded have been recorded. 4) Valuation and Allocation — balances that are included in the financial statements are appropriately valued and allocation adjustments are appropriately recorded.

Corporate Governance (members)

1) For public, board of directors 2) Audit committee is composed of independent members only (SOX requirement) 3) For private, management

2 types of fraud by AICPA

1) Fraudulent financial reporting 2) Theft of assets

Source of ethics for government auditors

1) From GAO (Government Accountability Office) 2) Government Auditing Standards 3) Applies to local/state/federal govt' and non-profit organizations that receive significant federal assistance 4) Similar to AICPA regarding independence (mind & appearance)

Independence impairment - non-close relatives

1) Generally no impairment 2) Although if an uncle raised a covered member, a reasonable person may conclude that there was an impairment.

Turstworthiness

1) Honest; truth and full disclosure 2) Integrity; morale values 3) Reliable; commitments 4) Loyalty; protection of confidential info

3 requirements for companies with restatements

1) How the restatement was discovered. 2) Why the restatement occurred. 3) Corrective actions to prevent future misstatements.

Corporate Integrity Agreements (CIA)

1) If a fraud is found with health providers, they sign this in exchange of no exclusion from Medicare and Medicaid 2) Agreement to implement better controls and policies

Independence impairment: Past due fees

1) If fees were 1 year past due, the CPA firm is not independent 2) Payment by promissory note does not count

Auditor responsibilities after report date for omitted required audit procedures are found

1) If the Omitted Procedures were important in supporting the previously reported opinion, AND parties are currently, or likely to be, relying on the audit report, auditors must do the following: a. Attempt to perform the procedures or alternate ones. b. If results alter original conclusions, treat as discovery of new facts and take similar notification action to that on previous slide. c. If unable to perform, consult attorney as to actions to satisfy responsibilities to client, SEC and persons relying on the auditor's report. 2) In subsequent audit, assessment of other compensating audit tests must be designed

Independence impairment: trust/estate

1) Impaired if, was trustee or executor, AND one of the following a. Has the authority to make investment decisions b. More than 10% of client's outstanding securities or other ownership interests. c. More than 10& of client's total assets

Independence impairment: securities ownership together

1) Impaired if: a) Partner or professional employee, immediate family, any groups of such TOGETHER own 5% of an attest client's securities

Independence impairment: simultaneous employment with client

1) Impaired if: an employee of CPA firm who is simultaneously employed or associated with the client, EXCEPT for a. Adjunct faculty member of an educational institution, with restrictions or safeguards b. Volunteers to be a board member of non-profit organization c. Applies to both attestation AND engagement period

Independence impairment - close relatives (parents, siblings, nondependent children)

1) Impaired when immediately close relatives are a. In key positions with the client b. Own a share of stock

Independence impairment - immediate family (spouse and dependents)

1) Impaired when immediately family members are a. In key positions with the client b. Participation in employee benefit plans c. Share of stock

Independence impairment: cooperative arrangements

1) Impaired, unless ALL of the following are met a. Separate agreements that do not create rights or obligations between the firm and client b. Neither assumes responsibility c. Neither has authority to act as the other's agent

SOX's impacts on business ethics

1) Implementation of control procedures for better prevention of frauds 2) Corporate governance 3) Hot Lines (internal, external, regulatory) 4) Code of Ethics for reminding and training 5) More accountability (CEO & CFO must certify F/S and internal controls) 6) Increased ability to detect fraud internally and externally 7) External auditors checked by PCAOB

Independence impairment: Non-independence of network firm

1) Independence impairment rules apply the same way

Independence impairment: Litigation with attest client

1) Independence is impaired if a. After litigation starts, client alleges deficiencies in audit work b. After litigation starts, CPA is alleging fraud c . Client expressed intention to sue, and when it is probably 2) Not impaired if litigation is immaterial

Independence impairment: Considering future employment

1) Independence is impaired if a covered member a. Reports such consideration to a CPA firm 2) Safeguards are required if employee is hired into a key position

Independence impairment: Past employment

1) Independence is impaired if a covered member a. Reviews his or her own work from his time at the client job while holding a key position b. Failed to dissociate from the client

Independence impairment - Covered member

1) Individuals in attestation engagements, irrespective of functional classification (tax or consulting); excludes clerical individuals 2) In the position to influence attestation; ex) Supervisors, senior levels in the CPA firms, consultants, quality control participators 3) Partner or manager who provides more than 10 hours of nonattest services to attest client within any fiscal year 4) A partner that the lead engagement partner practices in connection 5) The firm, including its employee benefit plan 6) Any entity controlled by 1-5

Confidentiality

1) Inform all parties about an appropriate use of confidential information 2) Refrain from using info for unethical reaons

Auditor's responsibilities for fraud detection

1) Inherent/fraud risk assessment by obtaining info 2) The information includes company, its environment, discussion among team members, inquiries, and analytical procedures 3) HOWEVER, auditor has no direct responsibilities to prevent client fraud; only be able to discuss about fraud prevention with management and BOD 4) Based on assessment, perform the audit with professional skepticism and gain reasonable assurance that no fraud is occurring

Institute of Internal Auditors - Code of Ethics

1) Integrity 2) Objectivity 3) Confidentiality 4) Competency

Rule-based vs. Principle-based

1) International standards (accounting, audit, ethics) are more principle-based, which means more professional judgment and ethical decision making needed for compliance - However, enforcement difficulties due to little guidance on specific standards 2) U.S. standards are rule-based, which means more detailed guidance and less judgment - However, Provides a way of avoiding the intended rules

Client risk (Beekman case)

1) Is client risk that audit adjustment has impact on Board Composition & net profit vs net loss) important? - YES: for risk assessment - NO: The CPA firm needs present fairly with reasonable assurance to satisfy other stakeholders as well; the client risk is not from audit, but from the company's poor performance

IASB (International Accounting Standards Board)

1) Issues International Financial Reporting Standards (IFRS) 2) SEC accepts IFRS for foreign companies that issue securities in US markets 3) Similar to U.S. GAAP but more principles-based 4) Convergence in process

Ethical dilemmas of accountants (Anna case)

1) Job loss 2) Reduced profession reputation due to silence 3) Good relationship with coworkers 4) Corporate policies 5) Accounting standards & ethics - Evaluation of alternatives is a sound ethical decision making process

False Claims Act

1) Liability on any person or organization that defrauds the the government 2) Generally federal government contractors or indirect subcontractors 3) Concealment of overcharges 4) Today, mostly healthcare related or sale of goods/services at inflated services for substandard material services

Independence impairment: Loan

1) Loans impair independence except for: a. Mortgages, secured loans, immaterial unsecured loans b. Automobile loans collateralized by the automobile c. Loans fully collateralized by the cash surrender value of an insurance policy or cash deposits at the same lending institution. d. Aggregate outstanding balance of 10,000 or less e. Normal lending terms and kept current

Auditor risks under two securities laws

1) Loss, misleading F/S, and reliance must be proven by plaintiff 2) Not for 1933 Act that is mainly concerned with original purchasers (secondary purchasers, such as from stock exchanges, can also use the law, if within one year) --> Therefore, CPAs are in higher risk --> More protection as they buy directly from a client, which is a usual source of misstatement 3) More burden of proof for plaintiff under 1934 that is concerned with secondary purchases --> Must prove auditor's scienter (intent to deceive)

AICPA CPC Principles - Objectivity & Independence

1) Maintain objectivity 2) Be impartial and free of conflicts of interest 3) Be independent in fact AND in appearance when providing auditing and other attestation services 4) CPA's objectivity must not be impacted or be not be perceived by others as likely to have been impaired

Integrity

1) Mitigate conflicts of interest 2) No prejudice that could influence judgment 3) Don't do anything that discredits the profession

4 benefits of corporate governance

1) More confidence, less risk 2) Business operates fairly and transparently 3) Management is held accountable 4) Sustainability (profitability/growth) is ensured

3 examples of gross negligence

1) Multiple & significant noncompliance with standards 2) Ignoring multiple red flags 3) No professional skepticism

Tax advocacy - 2 guidelines

1) Must have reasonable basis for a tax position of the client 2) Realistic possibility of being upheld at the court

Ethics for California licensed CPAs - additional requirement

1) Must pass an ethics exam 2) Ethics training 3) 10 college units of ethics study

Commissions and referral fees rule

1) No commissions for anything from an client for which the CPA firm performs F/S engagements 2) For permitted commission fees and referral, disclose

PCAOB Independence rules - fees and tax

1) No contingent fees for audit client 2) No confidential or aggressive tax position transactions 3) No personal tax services for those in financial reporting oversight role or immediate family 4) Audit Committee's pre-approval is necessary for non-prohibited non-audit services on internal control on F/S 5) Annual confirmation of independence in writing

Confidential client information rule and exceptions

1) No disclosure without consent of the client, EXCEPT a. Legal subpoena or summons b. Adherence to laws or regulations c. Peer review/investigation d. Defense e. Internal whistle blowing 2) For the exceptions, no consent is necessary

Advertising/solicitation rule

1) No misleading ad 2) Solicitation cannot be harassment

Enron's impacts on SOX

1) No providing internal audit services for audit clients 2) Off-balance sheet financing activities must be disclosed in the notes 3) Related party transactions must be disclosed in the notes

Independence impairment: Non-attest services

1) Non-attest services that influcne independence include any roles of management responsibilities, bookkeeping, payroll, disbursement, preparation of source documents 2) The keys are a. No management functions b. No self-review risks (they end up reviewing it)

AICPA CPC Principles - Due care

1) Observe technical and ethical standards 2) Continually improve competence 3) Perform to the best of the member's ability

Ethical conflicts

1) Obstacles to do appropriate actions due to internal or external pressures 2) Conflicts in applying relevant professional or legal standards

5 assertions in Presentation and Disclosure

1) Occurrence — the transactions and disclosures have actually occurred (Income statement related) 2) Rights and Obligations — the transactions and disclosures pertain to the entity. 3) Completeness — all disclosures have been included in the financial statements. 4) Classification — financial statements are clear and appropriately presented. 5) Accuracy and Valuation — information is disclosed at the appropriate amounts.

5 assertions in Transactions and Events

1) Occurrence — the transactions recorded have actually taken place (Income statement related) 2) Completeness — all transactions that should have been recorded have been recorded. 3) Accuracy — the transactions were recorded at the appropriate amounts. 4) Cutoff — the transactions have been recorded in the correct accounting period. 5) Classification — the transactions have been recorded in the appropriate caption.

2 levels of negligence

1) Ordinary; violation of legal duty to practice an ordinarily prudent level of due care 2) Gross; reckless lack of professionalism 3) Determined by professional standards and witnesses

IESBA (International Ethics Standards Board for Accountants)

1) Part of IFAC 2) Board established to set international ethical standards for accountants & auditors; "Code of Ethics for Professional Accountants"; similar to AICPA code but with fewer restrictions on independence; in other words, more principle-based than rule-based

IAASB (International Auditing & Assurance Standards Board)

1) Part of IFAC 2) Board established to set international financial statement audit/assurance standards

AICPA CPC Principles - Integrity

1) Perform with the highest sense of integrity 2) Be honest and candid within the constraints of client confidentiality

Independence -3 periods

1) Planning and fieldwork 2) Opinion 3) Engagement letter is signed --> Begins at the earliest of these 3 actions; end by formal notice by CPA or client --> CPA should be put in a position to audit their own work when they were previously employed by the client.

Fraud triangle

1) Pressure/incentive 2) Opportunity; lax internal control; access 3) Low moral values/rationalization; ex - fear of losing job --> All three must exist for fraud to occur

SEC & PCAOB Independence Rules

1) Prior approval of non-audit, non-prohibited services by audit committee 2) Partner rotation 3) No partner compensation for obtaining non-audit work 4) 1-year gap between audit and working at the same client's positions - Applies to public companies only

Competence

1) Professional duties in compliance with laws and standards 2) Professional expertise by continually developing skills and knowledge 3) Provide information that is accurate, clear, concise, and timely 4) Recognize professional limitations

Why auditors are liable?

1) Professional obligations to the public 2) According to AICPA Code of Professional Conduct

Foreign Corrupt Practices Act (FCPA)

1) Prohibits payments made by SEC-filing entities to foreign govt' officials and intermediaries 2) There must be internal controls to prevent them 3) Acceptable payments only with government agencies; examples include permits, licenses, visas, paper processing, police protection, providing utilities 4) Overseen by Dept of Justice and SEC 5) Auditors are rarely at risk under FCPA

Earnings management

1) Purposeful intervention in the external reporting process with the intent of obtaining some private gain 2) Unacceptable when it is primarily done to deceive 3) Acceptable when it involves "operating decisions" to smooth actual performance; economic cost must exist 4) Operating decision include use of discounts at year end or expansion into new market

Enron's financial reporting problems

1) Rather than booking the revenue on LT contracts of gas bank , they recognized immediately like a marketable security 2) Estimated revenue from a new project (India) was recognized before it was actually on market 3) SPE created to pay for non-producing asset of Enron - Initially it was okay; transfer of risk to SPE existed - But, financial institutions became concerned with SPE's ability to repay - Enron began to back loans with Enron stocks - No transfer of risk --> must be consolidated, but it wasn't 4) Failure to disclose related party relationship between Enron and SPEs 5) Weak internal controls

7 Shenanigans of F/S by Schilit (4): inflow related

1) Recording revenue too soon or of questionable quality 2) Recording bogus/fictitious revenue 3) Boosting income with one-time gains by sale of assets - ex) Use proceeds from the sale to lower operating costs instead of recording it as non-operating income 4) Shifting current revenue to a later period - ex 1) Over-estimated allowance for uncollectibles - ex 2) Over-estimated sales returns

Auditor's Reporting after finding fraud or noncompliance (w/ laws)

1) Report all (immaterial, material, direct) to management or at least to a supervisor of the perpetrator 2) If consequential, also BOD 3) No responsibility to report to law enforcement, unless a. SEC regulated AND no adequate fixes

Ethics and audit

1) Requires professional skepticism and integrity 2) Must not let irrelevant factors influence the professional judgment

4 pillars of corporate governance

1) Responsibility 2) Accountability 3) Fairness 4) Transparency

Expectations of CPAs

1) Serve the public 2) Complex body of knowledge 3) Standards for admission and retention (licensing and CPE) 4) Need for public confidence

AICPA CPC Principles - Public Trust

1) Serve the public interest, or the collective well-being of community 2) Honor the public trust 3) Demonstrate commitment to professionalism

F/S restatement trends

1) Sharp increase from 2000-2006 due to fraud in early years and SOX implementation 2) Got better since 2007 due to SOX, internal control improvement, certifications requirements, and more scrutiny by CPA firms

AICPA CPC Principles - Scope & Nature of services

1) Should observe the CPC 2) In other words, CPAs should not provide service for which they are not competent for.

Citizenship

1) Take actions that benefit society 2) Be a good citizen; obey the laws, volunteer, etc.

Whistle-blower in ethics

1) The most common way fraud is detected is from tip of insiders, commonly referred to as whistle blowers 2) SOX protects whistle-blowers by: a. Prohibits discharge, demotion, discrimination, threatens or other harmful action to employee. b. Employee can file a compliant with Secretary of Labor (delegated to OSHA). c. Remedies for employee include reinstatement, back pay, litigation costs and attorney fees.

How is fraud detected?

1) Tips - About 40 - 50% 2) Since 2010, management review 2nd - 15% 3) Internal (14%) & External Auditors (4%) 4) Accidental - 7%

Fairness

1) Treat others fairly 2) No emotional interference

Respect

1) Treat others with dignity and fairness 2) Civility, courtesy, decency, tolerance, and acceptance

3 common law criteria for determining privity

1) Ultramares; known third party beneficiary; liability to identified third parties (Company B will use the statement) 2) Restatement of Torts; known class of intended 3rd party users; liability to intended third parties (Banks) 3) Rosenblum; liability to all third parties that auditors can reasonably foresee

4 Types of auditing opinions

1) Unqualified/Unmodified (clean or standard opinion) 2) Unqualified/Unmodified with explanatory 3) Qualified; 1 or 2 material noncompliances with GAAP or material shortcoming; the client refused to allow auditor to perform certain audit procedures 4) Adverse; F/S do not fairly present the financial position 5) Disclaimer; insufficient evidence to give opinion due to audit scope limitations

3 Step Process for evaluation of independence impairment

1) When did it occur? 2) What was the relationship? 3) Who in the firm is involved?

Independence impairment: joint closely held investment

1) With client

Prior year tax return errors - what to do?

1. Advise clients of consequences and recommend corrections 2. No contact with IRS without permission of the client 3. Consider withdrawing from engagement if no correction is made or no subsequent returns can be prepared with the corrections

SEC Independence rules - prohibited non-audit services

1. Bookkeeping 2. Financial info system design 3. Valuation 4. Actuarial 5. Internal audit 6. Management functions and HR 7. Investment adviser 8. Legal / certain tax services

The main focus of the Con-Way case is the company's:

1. Bribery of Philippine customs officials 2. Payments to foreign officials at state-owned airlines doing business in the Philippines 3. Failure to properly record and disclose illicit payments to Philippine customs officials and officials at . state-owned airlines doing business in the Philippines

IMA (Institute of Management Accountants) Standards

1. Competence 2. Confidentiality 3. Integrity 4. Credibility

Integrity and objectivity Rule - 5 topics in interpretation

1. Conflicts of interest 2. Gifts & Entertainment; evaluation of reasonableness is crucial) 3. Preparing & reporting info; misrepresenting or subordination of one's judgement is nono 4. Client advocacy; related to tax and consulting services; will they threaten integrity/objectivity on other engagements? 5. Use of 3rd party service providers; the use must be disclosed to the client

Ethical Judgments of Deontology

1. Considers the rights of stakeholders and related duties to them 2. Values inputs not results 3. Treats people as an end and not merely as a means to an end 4. Universality Perspective: Would I want others to act in a similar manner for similar reasons in this situation -if the maxim or rule in not capable of being universalized , then it is unacceptable (My rights = your duties) Golden Rule

Types of Business Fraud

1. Corruption (Bribes, kickbacks) - Can be acceptable in different cultures 2. Misappropriation or Theft of assets 3. Fraudulent financial reporting

Clawback provisions under Dodd-Frank differ from those under SOX because:

1. Dodd-Frank requirement extends to current or former executive officers versus CEO only under SOX. 2. Dodd-Frank is a three-year period versus the one-year period under SOX. 3. Dodd-Frank applies to any restatement as a result of material noncompliance with financial reporting requirements versus restatements caused by fraud or misconduct under SOX.

What are the three types of teleology?

1. Egoism 2. Enlightened Egoism 3. Utilitarianism

IMA (Institute of Management Accountants) Principles

1. Honesty 2. Fairness 3. Objectivity 4. Responsibility

Primary Ethical Issues in business

1. Honesty; lies in general; resume and immaterial supplies 2. Fairness 3. Conflicts of Interest; disclosure as a good prevention 4. Discrimination; treat everyone with equal respect 5. Information Technology; data privacy 6. Fraud

Evaluation steps

1. Identity threats 2. Evaluate the significance of threats 3. Identify and apply safeguards.

Pfizer was investigated by the SEC for violating the FCPA because it allegedly

1. Made improper payments to foreign officials to obtain regulatory and formulary approvals 2. Made improper payments to foreign officials to obtain sales 3. Made improper payments to foreign officials to obtain increased prescriptions for the company's pharmaceutical products

4 Components

1. Moral Sensitivity 2. Moral Judgment 3. Moral Motivation 4. Moral Character

Business Stakeholders

1. Owners/Shareholders (existing & potential) (stock value) 2. Creditors/Suppliers (credit or investment); Vendors and suppliers grant credit based on financial data provided directly or from credit rating agencies who use published or available financial data. 3. Employees (jobs, pensions); investment in 401K plan2 4. Customers (products, private info) 5. Society at large (environment, products) 6. Government Agencies (IRS, SEC, EPA, Funding)

AICPA - Principles

1. Responsibilities 2. Public Trust 3. Integrity 4. Objectivity & Independence; required only for attest-type engagements 5. Due Care 6. Scope & Nature of Services

What are the two parts of deontology?

1. Rights Theory 2. Justice

Distinguish among "should consider," "consider," "evaluate," "determine"

1. Should consider: presumptively required (used with specific procedures or actions) 2. Consider: required to think about several matters 3. Evaluate: required to assess and weigh significance 4. Determine: required to make a conclusion

What four key constituents groups does the ethical domain for accountants and auditors involve?

1. The client organization that hires and pays for accounting services 2. The accounting firm that employs the practitioner 3. The accounting profession (SEC) (PCAOB) 4. The general public -responsibilities to each of these groups may conflict

Josephson's Six Pillars of Character

1. Trustworthiness 2. Respect 3. Responsibility 4. Fairness 5. Caring 6. Citizenship

The defendant-auditors in the Anjoorian case argued, in their defense, that:

1.To be found guilty to third parties, the court must find that an accountant had contemplated a specific transaction for which the financial statement will be used and that no such transaction was contemplated 2.They had no liability to third party shareholders 3.The plaintiff's theory of damages is speculative and against public policy

b

22. Thomas Jones's research looked at the characteristics of a moral issue to develop the moral intensity model. The model includes six dimensions. Which of the following are NOT included in those dimensions? A. Concentration and probability of effect B. Social Consensus C. Proximity and magnitude of consequences D. Reasoning and values-based decision-making

d

31. Rosie is the external auditor of Texas Two Steps, a privately-owned dance company in Texas. Rosie believes the owner of the company is skimming cash off the top. She approaches the owner who explains that the money will be replaced in the following month after he refinances his house. Rosie accepts the owner's explanation but reclassifies the expenditure as a receivable of the company from the owner. Rosie's reasoning best reflects: A. Stage 1 B. Stage 2 C. Stage 3 D. Stage 4

7 Shenanigans of F/S by Schilit (3): outflow related

5) Failure to record liabilities or improperly reduce them - ex 1) Failure to record expenses and related Liabilities when future obligations remain - ex 2) Releasing questionable reserves into income 6) Shifting future expenses to the current period as a special charge to smooth net income - ex 1) Accelerate discretionary expenses such as repairs and maintenance 7) Shifting current expenses to a later or earlier period - ex 1) Capitalize when you shouldn't and expense it over time - ex 2) Failure to write down/off impaired assets

12. The best definition of a financial restatement is: A A company, either voluntarily or under prompting by its auditors or regulators, revises its public . financialinformationthatwaspreviouslyreported B A company, either voluntarily or under prompting by its auditors or regulators, revises its public . financialinformationforthecurrentperiod C. An adjustment of financial information due to an error correction D. All are part of the definition

A A company, either voluntarily or under prompting by its auditors or regulators, revises its public . financial information that was previously reported

c

A client asks his accountant to ignore a mistake which overstated the accounts receivable account. The accountant decides that the accounts receivable account has to be corrected to state the correct amount. Which stage of Kohlberg' Stages of Moral Development is the accounting reasoning? A. Stage 2 B. Stage 3 C. Stage 4 D. Stage 5

c

A criticism of the Kohlberg model is that it: A. Suggests that people continue to change their decision priorities over time. B. Considers development of moral reasoning necessary to be a moral person. C. Makes deontological ethics superior to other ethical perspectives. D. Considers all complexities of decision-making and behavior.

"Disgorgement" with respect to legal rulings refers to

A defendant being forced to at least partially repay fraudulently gained money

Under section 302 of the Sarbanes-Oxley Act of 2002, the financial statement certifying officials must include in their certification that

A list of all deficiencies in the internal controls and information on any fraud that involves employees who are involved with internal activities has been created

Rest's "Four Component Model of Morality" can best be described as: -A model of moral development based on one's thought process -A model of the relationship between ethical action and one's level of moral development -A model of moral judgment based on one's possession of certain virtues of behavior -An approach to ethical decision making based on prescribed steps in making ethical decisions

A model of the relationship between ethical action and one's

Thorne's "Integrated Model of Ethical Decision Making" can best be described as: -A depiction of a model of moral development -A depiction of how the Principles in the AICPA Code of Professional Conduct influences decision making -A model of the role of virtue in decision making -A model of the role of moral development and virtue in decision making-

A model of the role of moral development and virtue in decision making

A privity relationship means that

A party has a contractual obligation

How are business ethics defined?

A widely accepted definition of business ethics does not exist

25. The method of ethical reasoning that evaluates actions in terms of harms and benefits is:

A. Act Utilitarianism

27. The Rights Theory incorporates all of the following elements except for:

A. Act based on the consequences of one's actions on others

37. Sally is the only student from a foreign country in an Auditing class. On the day of the midterm exam, Sally asks the teacher whether she could use a dictionary to translate English words to her native tongue so she can better understand the questions. What do you think the instructor should do if she follows the ethical principle of justice?

A. Allow Sally to use the dictionary since she is at a disadvantage

17. Empathy entails all of the following characteristics of behavior except for:

A. Being loyal to one's friends

35. Under the IMA's standards of ethical practice, an accounting professional can consider informing authorities or individuals not employed by the organization when an ethical dilemma occurs about an accounting or financial reporting matter that remains unresolved if he/she:

A. Believes there is a clear violation of the law.

2. Jane finds a material misstatement while auditing a client's accounts receivables. Her senior tells her to ignore the misstatement so that the client does not get upset. Jane wants to be viewed as a team player in order to advance in the firm. So Jane follows her senior's instructions and ignores the misstatement. Which ethical theory did Jane use to make her decision?

A. Egoism

14. The SEC Advisory Committee on Improvements in Financial Reporting identified each of the following as a view of equity and credit analysts about investor's views on materiality and financial statement restatements except for: A. Bright line rules are useful in making materiality judgments B. Bright line rules are not really useful in making materiality judgments C. The disclosure provided on restatements is not adequate D One of the major costs of restatements is the amount of time between the restatement announcement and the final resolution of the restatement

A. Bright line rules are useful in making materiality judgments

81. In the Capitalization versus Expensing case the main ethical issue is whether Gloria Hernandez should

A. Capitalize or expense $1 million of expenditures

The ethical dilemma for Brenda in "The Tax Return" case can best be described as a: A. Conflict between loyalty to one's supervisor and doing the right thing B. Conflict between reporting an item of taxable income and ignoring it C. Lack of independence due to ties to the client entity D. Lack of due care in not spotting improper tax accounting

A. Conflict between loyalty to one's supervisor and doing the right thing

29. Teleology deals with

A. Consequences of actions

6. The ancient Greeks thought of the virtues as characteristics of behavior that:

A. Could lead to a good life

6. Which of the following author(s) link earnings management to choices made in determining earnings that may comprise aggressive, but acceptable, accounting estimates and judgments, as compared to fraudulent practices that are clearly intended to deceive others? A. Dechow and Skinner B. Healy and Wahlen C. Schipper D. Thomas E. McKee

A. Dechow and Skinner

Which of the following authors(s) contend(s) "earnings management can be acceptable if linked to the choice of alternative accounting principles and estimates that report higher earnings than other methods might report given the circumstances. Only outright fraud is an unacceptable earnings management action."? A. Dechow and Skinner B. Healy and Wahlen C. Schipper D. Thomas E. McKee

A. Dechow and Skinner

62. Which theory is based on doing what is right despite the consequences?

A. Deontology

11. SAS No. 107 identifies the following aspects of disclosure amounts deemed to be material except for: A. Disclosing an item in one year but not in the next year B. Qualitative aspects of the disclosure C. Quantitative significance of the disclosure D. Professional judgment

A. Disclosing an item in one year but not in the next year

30. The main difference between a discretionary and nondiscretionary accrual is: A. Discretionary accruals are items that management has full control over B. Discretionary accruals are based on changes in the fundamental performance of the firm C. Discretionary accruals arise from transactions considered normal for the firm D. Discretionary accruals always lead to an increase in earnings

A. Discretionary accruals are items that management has full control over

45. The best restatement of Kant's categorical imperative is:

A. Do to others as you would have everyone do unto you

58. Virtue ethics is

A. Doing what is right

24. The method of ethical reasoning that does not deal with making decisions after considering the interests of others is:

A. Egoism

30. Deontology deals with

A. Emphasizes rights of others

The Restatement (Second) of Torts Approach A. Expands an accountant's legal liability to third parties identified by the client as intended recipients of work B. Limits an accountant's legal liability to only those parties with which it has a privity relationship C. Limits an accountant's legal liability to only those parties that have been named by the client D. Expands an accountant's legal liability to all possible users of the audited financial statements

A. Expands an accountant's legal liability to third parties identified by the client as intended recipients of work

75. When an employee is given a job evaluation, he has a right to expect

A. Fair, but honest evaluations

Role expectation or approval from others is a motive for doing right in which stage of Kohlberg's moral reasoning? A. Fairness to others B. Obedience C. Social contract D. Law and order

A. Fairness to others

18. Which of the following was not true according to the Enron case? A. Fastow developed the concept of buying up oil and gas companies to establish SPEs BFastow worked to structure ventures that met the conditions under GAAP to keep the partnership . activities off Enron's books and on the separate books of the partnership C Fastow created SPEs that borrowed money from banks and transferred it to Enron in a sale of an . operating asset no longer need by Enron D The SPE created by Fastow enabled Enron to keep debt off its books while benefiting from transfer and . use of the cash borrowed by the SPE

A. Fastow developed the concept of buying up oil and gas companies to establish SPEs

In stage 1 of Kohlberg's model, ethical reasoning is motivated by: A. Fear of punishment B. Satisfaction of one's needs C. Following the law D. Acting based on universal ethical principles

A. Fear of punishment

In the Gateway Hospital case, Kristen's best argument to counter the reasons and rationalizations Troy might give for requesting an extra days' reimbursement is? A. Her loyalty is to the hospital and not Troy. B. Her ethical obligation is ensuring that employees do not get reimbursed for unsubstantiated expenditures. C. Troy did not stay the extra day for which he is requesting reimbursement. D. All of the above.

A. Her loyalty is to the hospital and not Troy.

8. Who said "the ethics issue might possibly be mitigated by clearly disclosing aggressive accounting assumptions in the financial statement disclosures?" A. Hopwood et al B. Thomas E. McKee C. Arthur Levitt D. Belverd Needles

A. Hopwood et al

Cognitive dissonance creates a problem that can be described as: A. Inconsistency between thoughts and beliefs and our intended actions B. Consistency between thoughts and beliefs and our intended actions C. Reducing the importance of the beliefs and attitudes on our actions D. Acquiring new information that outweighs the dissonant beliefs

A. Inconsistency between thoughts and beliefs and our intended actions

13. An internal accountant should always consider taking each the following steps 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 except for D. All of the above

A. Inform the SEC B. Terminate employment with the entity C. Seek legal advice before taking any action D. All of the above

33. Debbie and Steve are discussing a lecture given by their ethics professor after class one day. The professor said that misstatements of earnings are always unethical. Debbie agrees with this situation but Steve does not. What statement might Steve make to best support his point of view? A. It depends on whether the misstatements were made deliberately B. It depends on whether a user relied on the financial statements C. It depends on whether the statements lead to a modified or unmodified opinion D. All are valid statements for Steve to support his point of view

A. It depends on whether the misstatements were made deliberately

In his evaluation of Kidder's model, Johnson points out that: A. It is not easy to determine who has responsibility for solving a problem B. A time constraint prevents making timely decisions C. Decisions lead to action D. We cannot apply lessons learned in one dilemma to future problems

A. It is not easy to determine who has responsibility for solving a problem

3. Which technique was used by both WorldCom and Waste Management to manage earnings? A. Manipulating asset net valuation amounts to minimize operating expenses for a period B. Accelerating the recording of revenue into an earlier period C. Delaying needed repairs to a later period D. All of these were used

A. Manipulating asset net valuation amounts to minimize operating expenses for a period

Auditors are responsible to detect and correct errors when they are: A. Material B. Material or immaterial C. Due to an illegal act D. Management fails to correct for the error

A. Material

8. Ethical relativism can best be described as a:

A. Point of view that morality is relative to the norms of one's culture.

35. The Solway case looks at the accounting issue of: A. Recording of accruals to manage earnings B. Recording of asset impairments to manage earnings C. Premature revenue recognition D. Setting up SPEs

A. Recording of accruals to manage earnings

25. All of the following are examples of "Boosting Income with One-Time Gains" except for: A. Recording sales that lack economic substance B. Boosting profits by selling undervalued assets C. Including investment income or gains as part of revenue D. Including investment income or gains as a reduction in operating expenses

A. Recording sales that lack economic substance

69. Thomas Jefferson's writing in the preamble of the Declarations of Independence is a perfect example of what theory?

A. Rights Theory

55. Utilitarian philosophers are divided into two types: act utilitarian and

A. Rule utilitarian

17. Which of the following earnings management techniques were not used in the Lucent Technologies, Inc.'s case? A. Shifting Current Revenue to a later period B. Boosting income with one-time gains C. Recording revenue too soon or of questionable quality D. Shifting current expenses to a later or earlier period

A. Shifting Current Revenue to a later period

80. The main issue in the Reneging on a Promise case is:

A. Should the student who accepted an offer from one CPA firm back off from that promise in order to accept the offer of another firm deemed more preferable to the student.

Which of the following is not a consideration in determining a measure of materiality? A. Strong internal control B. Five percent of net income C. Risks of material misstatements due to fraud D. Risks of illegal acts

A. Strong internal control

49. The cultural value of Individualism reflects

A. The degree a society reinforces individual or collective achievement

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. The rules of conduct in the AICPA Code of Professional Conduct

A. The important constituent groups affected by accounting and auditing work

All of the following proof can be used in an auditor's defense against third party lawsuits for fraud except for: A. The third party was not in contractual privity B. The auditor did not have a duty to the third party C. The third party was negligent D. The third party did not suffer a loss

A. The third party was not in contractual privity

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. The approach to giving voice to one's values

A. The thought process followed in one's moral development

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

A. The various phases in one's moral development and related levels of moral reasoning

The Foreign Corrupt Practices Act (FCPA) forbids which kind of bribery: A. U.S. business payments to foreign government/official to be awarded a major contract B. U.S. business payments to a foreign customs official to ensure off-loading of merchandise C. U.S. business payments to U.S. government official to be awarded a major contract D. All of the above

A. U.S. business payments to foreign government/official to be awarded a major contract

22. A CPA would violate the Due Care Principle if he/she:

A. Undertook a professional engagement without having the requisite background, knowledge and experience.

51. The country with the highest Uncertainty Avoidance is

A. United States

In the Doing Good by Being Good case discussed in the chapter, Becca needs to counter Matt's reasons and rationalizations for which of the following actions? A. Using donated funds to the Accounting Club for personal purposes. B. Taking money from the Accounting Club's operating account without approval. C. Taking money from the Accounting Club's petty cash fund without approval. D. Using donated funds to the Accounting Club to help victims of a hurricane.

A. Using donated funds to the Accounting Club for personal purposes.

59. The philosophical belief that you should judge the result, not the action (end justifies the means) is?

A. Utilitarianism

42. Steve is deep in debt due to a gambling problem. He is the bookkeeper for a family-owned business, Cal Poly Greenery. The company has only three employees - Steve, the husband, and the wife. All three have been friends for many years. One day the loan shark who lent Steve $20,000 comes knocking at his door asking for repayment of the loan. Steve convinces the loan shark to give him another day. The following day Steve writes a check on the company's books to himself for $20,000. Since he reconciles the bank accounts and prepares the financial statements, Steve knows it's unlikely the owners will ever know about what he has done. From an ethical perspective, Steve has D. All of the above

A. Violated the trust placed in him by the owners B. Risked his reputation if the owners find out C. Compromised his integrity D. All of the above

65. Aristotle defined __________ as a trait of character manifested in habitual action.

A. Virtue

The "Milton Manufacturing" case illustrates: A. What can go wrong when a company sets a policy that potentially harms one area of its operations. B. How the failure to exercise professional skepticism can cloud objective judgment. C. The pressure that can be placed on accountants by top management. D. What can go wrong when fraudulent accounting is dictated by top management.

A. What can go wrong when a company sets a policy that potentially harms one area of its operations.

In using the GVV framework, questions to pose for dealing with the opposing points of view include all of the following except: A. What is the way to appeal all parties? B. What is at stake for the key parties? C. What is your most powerful and persuasive response you need to address? D. What levers can you to influence others?

A. What is the way to appeal all parties?

83. In the Faulty Budget case, the primary ethical issue can be stated as:

A. Whether an accountant should admit to a mistake once he has discovered it

The philosophical methods of moral reasoning suggest that once we have ascertained the facts, we should ask ourselves certain questions when trying to resolve a moral issue. Which of the following is NOT one of those questions? A. Which course of action maximizes my net benefits? B. Which course of action develops moral virtues? C. Which course of action advances the common good? D. What benefits and what harms will each course of action produce and which alternative will lead to the best overall consequences?

A. Which course of action maximizes my net benefits?

Assume you were assigned a term paper and decided to surf the web to identify a provider of papers for a fee. You chose what you thought was the best paper available. With respect to Rest's model of morality it can be said that: A. Your actions lack moral sensitivity B. Your actions are based on moral judgments C. You are making judgments based on expectations of your peer group D. You have made a decision based on a harms-benefit analysis

A. Your actions lack moral sensitivity

73. Many critics say the biggest fault with deontological theories is

A. no clear way to resolve conflicts between moral duties

29. Inherent risk refers to: A.The possibility that a material misstatement will occur within the reporting company's accounting information system B The possibility that a material misstatement that has occurred will not be detected on a timely basis by . the company's control system C. The possibility that a material misstatement that has occurred will not be caught be the independent auditor's testing D. The possibility that a material misstatement will occur in the financial statements

A.The possibility that a material misstatement will occur within the reporting company's accounting information system

20. What was the original motivation by FASB on SPEs? A.To establish a mechanism to encourage companies to invest in needed assets while keeping related debt of its books B. To keep the large amount of debt off the books C. To sell non-producing assets to the SPE D. To select which assets to sell to the SPEs affecting the gain

A.To establish a mechanism to encourage companies to invest in needed assets while keeping related debt of its books

Corporate governance (definition)

According to AICPA definition 1) Those charged with governance 2) Has responsibility for overseeing the strategic direction and the obligations (related to accountability) of the entity 3) Oversees financial reporting process

When courts find accountants liable for constructive fraud, the implication is that

Accountants may be liable for fraud even when they had no knowledge of deceit

In stage 3 of Kohlberg's model, ethical reasoning is motivated by: Satisfaction of one's needs Acting in the best interests of others Upholding the rights, values, and legal contracts of society Acting based on universal principles

Acting in the best interests of others

William Crain

Addresses whether different cultures socialize their children differently, thereby teaching them different moral beliefs

Prescriptive Reasoning

An individual's ethical cognition of what "ideally" ought to be done to resolve an ethical dilemma -reflects his cognitive understanding of an ethical situation as measure by his level of moral development

The ethical conflict Alex is facing in the FDA Liability Concerns can be best characterized as: Alex and Michael can't convince Gregory of the extent of the problem caused by the listeria identified by the FDA. Alex wants to do the right thing by consumers of his salad oil products but Michael objects based on his cost benefit analysis. Alex and Michael want to make the plant seem as profitable as possible so the firm can do an IPO and cash out their shares but Gregory wants to inform the FDA of the extent of the listeria problem. Gregory and Michael are using cost-benefit analysis to pay fines and do the minimum for the FDA while Alex wants to comply fully.

Alex wants to do the right thing by consumers of his salad oil products but Michael objects based on his cost benefit analysis.

Individuals who reason at stage 6 incorporate ethical reasoning based on: The morality of law and duty to the social order A rational calculation of benefits and harms to society Universal ethical principles All of the above

All of the above

John Locke

All people are born equal and education can free people from the subjugation of tyranny -government has a moral obligation to guarantee that individuals always retained sovereignty over their own rights

The Rosenblum case ruling was of concern to the accounting profession because it implied that

All possible third party users of financial statements must be anticipated

The major purpose of the amended Federal Sentencing Guidelines is to:

Allow federal judges to mitigate any sentence imposed on a company according to a mathematical formula

Thomas Hobbes

An early advocate of deontological ethics -natural life of mankind is solitary, nasty, brutish and short -Leviathan her argued that man's natural state is antisocial and moral rules are created to avoid chaos

With respect to the director duty of good faith, former Delaware Chancery Court Chief Justice Veasey defined good faith as

An honesty of purpose that leads to caring for the well-being of one's constituents

Moral Character

An individual's intention to act ethically and her ethical actions may not be aligned because of a lack of ethical character

Moral Motivation

An individual's willingness to place ethical values ahead of nonethical values hat relate to self interest (wealth, power, fame)

Level 1- Pre-conventional

An uncomplicated response to moral problems -choices are made based on the wants of the individual decision maker (egoism); self-centered

Reliability

Following through with ones promises/commitments

The ethical standards for CPAs are in line with whose virtues?

Aristotle -both involve integrity

a

Assume you were assigned a term paper and decided to surf the web to identify a provider of papers for a fee. You chose what you thought was the best paper available. With respect to Rest's model of morality it can be said that: A. Your actions lack moral sensitivity B. Your actions are based on moral judgments C. You are making judgments based on expectations of your peer group D. You have made a decision based on a harms-benefit analysis

Auditor responsibilities after report date for new audit evidence - 4 step evaluation

Auditor action is required unless he/she can conclude (document) that information: 1) Is unreliable or 2) Did NOT exist at the audit report date or 3) Would NOT have effected audit report or 4) No Persons who would attach importance to the information are currently, or likely to be, relying on the previously audited F.S. (elapsed time and subsequent audited reports - quarterly ones)

27. Congress passed the "Sarbanes-Oxley Act" on July 30, 2002. Which of the following is NOT true? A. All companies are required to include in their annual reports a report of management on the company's internal control over financial reporting. B. New audit standards include a prohibition against independent auditors providing many non-audit services and mandatory audit engagement partner rotation. C. Only U.S. companies are subject to the disclosure requirements of the Act. D. All public companies must change auditors every ten years.

B New audit standards include a prohibition against independent auditors providing many non-audit . services and mandatory audit engagement partner rotation.

Rest's "Four Component Model of Morality" can best be described as: A. A model of moral development based on one's thought process 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. An approach to ethical decision making based on prescribed steps in making ethical decisions

B. A model of the relationship between ethical action and one's level of moral development

Which of the following is not true of "reasonable assurance"? A. Exercise of due care B. Absolute guarantee C. Appearance of independence D. Followed GAAS

B. Absolute guarantee

In stage 3 of Kohlberg's model, ethical reasoning is motivated by: A. Satisfaction of one's needs B. Acting in the best interests of others C. Upholding the rights, values, and legal contracts of society D. Acting based on universal principles

B. Acting in the best interests of others

The ethical conflict Alex is facing in the FDA Liability Concerns can be best characterized as: A. Alex and Michael can't convince Gregory of the extent of the problem caused by the listeria identified by the FDA. B. Alex wants to do the right thing by consumers of his salad oil products but Michael objects based on his cost benefit analysis. C. Alex and Michael want to make the plant seem as profitable as possible so the firm can do an IPO and cash out their shares but Gregory wants to inform the FDA of the extent of the listeria problem. D. Gregory and Michael are using cost-benefit analysis to pay fines and do the minimum for the FDA while Alex wants to comply fully.

B. Alex wants to do the right thing by consumers of his salad oil products but Michael objects based on his cost benefit analysis.

The Rosenblum case ruling was of concern to the accounting profession because it implied that A. Full joint and several liability would be reinstated B. All possible third party users of financial statements must be anticipated. C. The concept of contractual privity would no longer be important D. Financial liability would occur when scienter was a factor

B. All possible third party users of financial statements must be anticipated.

4. Each of the following characteristics describes the importance of integrity in decision making except for:

B. Being loyal to one's superior

78. In the NYC Subway Death case, the reason that no bystanders helped Ki-Suck Han was probably due to:

B. Bystander effect and moral blindness

Cognitive Dissonance

How we think we should behave is different that how we decide to behave -coined by Leon Festinger

The auditors' responsibility to communicate findings with respect to fraud can best be summarized as: A. Communicate to the audit committee both material and immaterial amounts of fraud B. Communicate to the audit committee both material and immaterial amounts of fraud that are detected C. Communicate to the SEC material amounts of fraud D. Communicate to the SEC both material and immaterial amounts of fraud that are detected

B. Communicate to the audit committee both material and immaterial amounts of fraud that are detected

2. Which of the following is NOT a motivation to manage earnings? A Companies try to meet or beat Wall Street earnings projections in order to grow market capitalization . and increase the value of stock options B. Companies try to accelerate as much revenue as possible into early periods regardless of the effects on later periods C. To smooth net income over time D. To maximize compensation including bonuses

B. Companies try to accelerate as much revenue as possible into early periods regardless of the effects on later periods

11. An accountant who blows the whistle on financial wrongdoing by his/her employer by going outside the entity violates:

B. Confidentiality

38. George is in the middle of a high stakes poker game when he notices what he thinks is cheating by another player. It appears to George that this player took a card from his lap and switched it with a card that he was dealt. If George is a utilitarian thinker, he should:

B. Consider what might happen if he accuses the player of cheating and he is wrong

Which of the following summarizes the essence of field work standards of GAAS? A. Quality of professionals that perform an audit B. Criteria for judging the quality of audit work C. Whether the auditor was independent in conducting the audit D. Whether the auditor reviewed the client's financial statements for adherence to GAAP

B. Criteria for judging the quality of audit work

57. The motive of "duty" is most associated with

B. Deontology

34. The credibility standard in the Statement of Ethical Professional Practice of the IMA requires that an accounting professional should: D. All of the above 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

13. The SEC requires stealth restatements to be A. Disclosed only in periodic reports. B. Disclosed only in an 8-K report or amended 10-K/A or 10-Q/A. C. Increased to more 50 % of restatements. D. Disclosed in ten business days after determination of need for restatement.

B. Disclosed only in an 8-K report or amended 10-K/A or 10-Q/A.

54. Kant's categorical imperative principle suggests that:

B. Everyone should be treated as a free and equal person

The difference between an error in the financial statements as compared to fraud is: A. An error is always an intentional act designed to deceive another party B. Fraud is always an intentional act designed to deceive another party C. An error always leads to a qualification of the auditors' opinion D. Fraudulent financial reporting is always material in amount

B. Fraud is always an intentional act designed to deceive another party

5. Which of the following author(s) focus(es) on "management's intent to deceive the stakeholders by using accounting devices to positively influence reported earnings."? A. Dechow and Skinner B. Healy and Wahlen C. Schipper D. Thomas E. McKee

B. Healy and Wahlen

Which of the following is an element of the introductory paragraph of an auditor's report? A. Identifies the type of opinion the auditor is giving B. Identifies the management's responsibilities for the statements C. Identifies audit testing and procedures used D. Identifies the generally accepted auditing standards followed in conducting the audit

B. Identifies the management's responsibilities for the statements

36. Eddie paid an $8 restaurant check with a $10 bill. The waitress gave him $12 back. The most ethical action for Eddie is to:

B. Inform the waitress of her overpayment

1. What is the common characteristic of Aristotle's virtues and ethical standards for CPAs?

B. Integrity

In reference to Rest's four-component Model of Morality, which component reflects an individual's willingness to place ethical values ahead of non-ethical values that relate to self-interest? A. Moral Character B. Moral Motivation C. Moral Sympathy D. Moral Judgment

B. Moral Motivation

24. "Cookie jar reserves" can best be described as: A Buying a lot of chocolate chip cookies, storing them for when you have a hunger attack, and then . releasing them into your stomach. B. Overstating or understating allowances and reversing amounts in the future to smooth out net income over time. C. Accelerating the recording of revenues into an earlier year than is warranted. D. Delaying the recording of expenses to a later year to boost income in the current year.

B. Overstating or understating allowances and reversing amounts in the future to smooth out net income over time.

Cynthia Cooper's actions in the WorldCom case can be best characterized as demonstrating: A. Courage and expediency B. Persistence and courage C. Courage and loyalty D. Persistence and loyalty

B. Persistence and courage

The Securities and Exchange Act of 1934 A. Limits the financial liability of independent auditors except in the case of gross negligence B. Requires the filing of audited annual statements and reviewed quarterly statements C. Regulates the initial offering financial statements of securities D. Regulates which services may be performed for a publicly-traded company by an audit firm

B. Requires the filing of audited annual statements and reviewed quarterly statements

26. The method of ethical reasoning that requires selecting the correct moral rule that produces the greatest benefits over harms is:

B. Rule Utilitarianism

36. The accounting shenanigan used in the Dell Computer case can best be described as: A. Recording revenue from exclusivity payments too soon or of questionable quality B. Shifting current revenue from exclusivity payments to a later period C. Shifting future expenses to the current period as a special charge D. Shifting current expenses to a later period

B. Shifting current revenue from exclusivity payments to a later period

47. The most likely rationalization a student might use to justify cheating on an exam is:

B. Situational ethics

Gabby has just left a meeting with the partner in charge of an audit engagement and was told to ignore the typical year-end accrual entries because earnings are below financial analysts' earnings expectations. Gabby knows this is wrong and wants to act on her values but she does not want to lose her job. What is the best thing for Gabby to do in this situation if she chooses to voice her values? A. Quit the firm B. Speak with the managing partner of the firm C. Inform the SEC of the difference D. All of the above

B. Speak with the managing partner of the firm

Which of the following statements best describes System 2 thinking? A. System 2 operates automatically and quickly, with little or no effort and no sense of voluntary control B. System 2 allocates attention to the effortful mental activities that demand it, including complex computations C. An example System 2 thinking is detecting that one object is more distant than another D. An example of System 2 thinking is effortlessly originating impressions and feelings about an event

B. System 2 allocates attention to the effortful mental activities that demand it, including complex computations

12. When is it appropriate to contact the audit committee about a difference of opinion with the CFO over an accounting or financial reporting manner?

B. The CEO supports the CFO and does not agree to correct the financial statements

In Thomas Jones' model of moral intensity it can be said about accounting that: A. There is a link between the stage of moral development and ethical reasoning B. The link between social consensus and ethical decision making exists because accounting is a community with shared values and beliefs C. The link between probability of effect and ethical decision making exists because in accounting the rights of stakeholders are considered D. There is a link between moral judgment and moral action

B. The link between social consensus and ethical decision making exists because accounting is a community with shared values and beliefs

Under which of the following set of circumstances might the auditors disclaim an opinion? A. The financial statements contain a departure from generally accepted accounting principles, the effect of which is material B. There is a client scope restriction that precludes the auditors' compliance with generally accepted auditing standards C. There has been a material change between periods in the method of the application of accounting principles D. Differences with management that lead to trust issues on the part of the auditor

B. There is a client scope restriction that precludes the auditors' compliance with generally accepted auditing standards

The purpose of the fraud triangle is to identify: A. The causes of when the audit opinion should be qualified. B. To identify the causes of when there may be intentional misstatements or omissions of amounts or disclosures in the financial statements. C. To identify the causes of when there is a lack of independence in performing an audit. D. All of the above.

B. To identify the causes of when there may be intentional misstatements or omissions of amounts or disclosures in the financial statements.

The ethical dilemma for Ricardo in the Juggyfroot case can best be described as: A. Whether to go along with Fred and Ethel's accounting for the loss in value on marketable securities. B. Whether to let his failure to object to inappropriate accounting in the prior year influence whether he goes along with inappropriate accounting in the current year. C. Whether to quit the firm because of the pressure placed on him by his boss to go along with inappropriate accounting. D. Whether to blow the whistle on the inappropriate accounting sanctioned by the firm.

B. Whether to let his failure to object to inappropriate accounting in the prior year influence whether he goes along with inappropriate accounting in the current year

40. The former CEO of Vivendi Universal, Jean-Marie Messier, used as his defense in the case that: A. His actions were protected by attorney-client privilege B. While some of his actions may have turned out to be wrong, there never was an intent to defraud C While some of his actions may have turned out to be wrong, he did the best that he could to save the . company for certain bankruptcy D. He adhere to the business judgment rule and met his fiduciary obligations

B. While some of his actions may have turned out to be wrong, there never was an intent to defraud

16. Which of the following was not pointed to by the SEC as a motivation for fraud in the Xerox's case? A. Xerox misled investors by polishing its reputation on Wall Street and to boost the company's stock price. B. Xerox top management overrode the internal control to manipulate earnings. C Xerox failed to disclose GAAP violations that led to acceleration in the recognition of approximately . $3 billion in equipment revenues. DXerox recognized a greater amount of revenue on leases in early years than warranted and didn't break . out revenues that should have been deferred and recognized in future years.

B. Xerox top management overrode the internal control to manipulate earnings.

3. Which of the following situations would be considered ethical?

B. You accidentally back into a car at Wal-Mart and leave your information for them to call

67. Assume you are taking an exam and you see that your friend is cheating. Your professor does not notice it. What should you do if you are trustworthy person?

B. You tell your professor immediately.

66. According to Kant, individuals may be treated as:

B. an end and never as a means only

The comply or explain principle refers to: A.Certification of financial statements by CEOs and CFOs B.Explain any gaps between existing corporate governance practices and recommendations by authoritative bodies/pronouncements C.Explain any gaps between existing corporate governance practices and IFRS requirements D.Certification of corporate governance practices by CEOS and CFOs

B.Explain any gaps between existing corporate governance practices and recommendations by authoritative bodies/pronouncements

34. The swap transactions used in the Solutions Network case to manage earnings can best be described as: A. Going to a swap meet and capitalizing purchases instead of expensing them immediately against swap revenue B.Recording revenue on software systems transactions in an earlier period than when obligated to buy the same in a later period C. Using a cookie jar reserve to delay the recording of revenue into a later period D. Recording as operating revenue on onetime gains from the sale of underperforming assets

B.Recording revenue on software systems transactions in an earlier period than when obligated to buy the same in a later period

Trustworthiness

Being honest, acting with integrity, being reliable and exercising loyalty in dealing with others

An example from the book of someone who may have experienced cognitive dissonance is: Joe Paterno Cynthia Cooper Betty Vinson Richard Scrushy

Betty Vinson

In the case of SEC v. Halliburton & KBR, the SEC charged Halliburton & KBR with

Bribing Nigerian government officials in order to obtain construction contracts

What are the problems with implementation of Utilitarianism?

Can be difficult to assign values to harms and benefits -Distributes the wealth -Doesn't recognize the rights of minority

19. Which of the following partnership that Enron created eventually lead to its demise? A. JEDI B. Cactus C. Chewco D. Ironman

C. Chewco

28. "Earnings management either ignores or does not consider the rights of the investors and creditors to receive accurate, reliable and transparent financial statements." This statement is from: A. A virtue perspective B. A utilitarian perspective C. A rights perspective D. A materiality perspective

C. A rights perspective

21. The Independence Principle in the AICPA Code applies to:

C. All CPAs who render attestation services

7. Each of the following elements make up an integral part of what is meant by "ethics" except for:

C. Always following the law

The first step for an auditor who concludes an illegal act exists is to: A. Bring the matter to the attention of the audit committee B. Bring the matter to the attention of the SEC C.Assess the impact of the illegal act on the financial statements D.Assess the impact of the illegal act on the auditor's opinion

C. Assess the impact of the illegal act on the financial statements

An example from the book of someone who may have experienced cognitive dissonance is: A. Joe Paterno B. Cynthia Cooper C. Betty Vinson D. Richard Scrushy

C. Betty Vinson

What is an important part in making an ethical choice, according to Kidder? A. Knowledge B. Loyalty C. Courage D. Trustworthiness

C. Courage

39. The North Face case deals with materiality and how auditors employ that metric in an audit. The following are all true except: A. North Face accounted for barter transactions with full normal margin recognized. B. Crawford devised the 1997 barter transaction so that it was just beneath material threshold. C. Crawford followed the GAAP methods that Deloitte suggested. D. Deloitte proposed an adjusting entry for the 1997 barter transaction, but "passed" it as immaterial.

C. Crawford followed the GAAP methods that Deloitte suggested.

23. Aristotle believed that __________ always preceded the choice of action

C. Deliberation

1. If a company is managing its earnings, which of the ethical theories are they most likely following? A. Rights B. Fairness C. Egoism D. Virtue

C. Egoism

60. When making a donation at the local Goodwill, Martha tells the clerk that her old computer is in perfect working order when she knows it is not, just so she can deduct more on her taxes. Which theory best describes Martha's behavior?

C. Egoism

Which of the following characteristics is NOT part of the behavioral approach, Giving Voice to Values? A. Used post-decision-making B. Capacity to express one's values C. Employs traditional philosophical reasoning D. Counteracts reasons and rationalizations

C. Employs traditional philosophical reasoning

32. You work for a company that always pushes the envelope with respect to reporting revenues and expenses. You often disagree with the company because its approach to reporting these amounts cannot be justified from a GAAP perspective. You are upset and are considering whether this is a company that has a culture you want to be part of. Which of the following best characterizes the ethical issues of concern? A. Rights Theory B. Moral blindness C. Ethical Dissonance D. Materiality

C. Ethical Dissonance

In the Phar-Mor case, Cherelstein's ethical dilemma can best be described as: A. Standing up to Pat Finn who wanted to cover up the Phar-Mor fraud until exclusivity payments coming in would cover that amount. B. Going to David Shapira to discuss Mickey Monus's fraudulent actions. C. Evaluating the levers he can use to counteract the reasons and rationalizations Monus might provide to defend his actions. D. Whether to inform the external auditors of the fraud at Phar-Mor.

C. Evaluating the levers he can use to counteract the reasons and rationalizations Monus might provide to defend his actions.

A payment made to a foreign government official to ensure that s/he does what is expected given their job requirements can be characterized as a: A. Bribe B. Asset misappropriation C. Facilitating Payment D. Legal Payment

C. Facilitating Payment

10. Each of the following is an element of trustworthiness according to the Josephson Institute except for:

C. Fairness

What are the problems with implementation of Justice?

Can be difficult to determine the criteria to distinguish equal from unequal claims -similar to communism (abuses occur)

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

C. Get the facts surrounding the problem

23. The basic ethical principle violated by Andy Fastow in his role as Enron's CFO and involvement with SPEs was: A. He lied to top management about what he was doing for the SPEs B. He failed to exercise due care in setting up SPEs C. He had a conflict of interests in his dual roles D. All of these

C. He had a conflict of interests in his dual roles

84. In the Cleveland Custom Cabinets case, the owner of the company thought it was all right to manipulate the financial statement numbers primarily because

C. He was the sole owner of the company and controlled the board of directors

46. What is the one virtue that people should want in a boss to trust the boss?

C. Honesty

52. Virtue ethics emphasizes development of good habits of character. What should be the greatest reward of practicing good habits of character, according to MacIntyre?

C. Internal rewards

85. The ethical issue in the Telecommunications case can best be described as:

C. Is it a conflict of interests for employees to accept payments or other gifts when they are involved in the decision or execution of a contract for the party making the payment or gift

31. The biggest problem in implementing an utilitarian approach to decision making is:

C. It can be difficult to evaluate the consequences of actions

32. The biggest problem in implementing a rights approach to decision making is:

C. It relies on moral absolutes

28. The ethical reasoning method that is based on treating equals, equally and unequals, unequally is:

C. Justice

18. If one's reputation is tainted it may create a:

C. Lack of trust

A criticism of the Kohlberg model is that it: A. Suggests that people continue to change their decision priorities over time. B. Considers development of moral reasoning necessary to be a moral person. C. Makes deontological ethics superior to other ethical perspectives. D. Considers all complexities of decision-making and behavior.

C. Makes deontological ethics superior to other ethical perspectives.

9. In surveys of managers, which technique to manage earnings was considered most acceptable? A. Changing inventory valuation in order to influence earnings B. Accounting manipulation C. Manipulating operating decisions D. Establishing cookie jar reserves

C. Manipulating operating decisions

How does Gilligan evaluate the solution to Heinz's dilemma? A. Women think saving a life is more important than keeping the law. B. Men think keeping the law is more important than saving a life. C. Men tend to think in terms of justice, and women in terms of caring. D. Men misunderstand and women understand.

C. Men tend to think in terms of justice, and women in terms of caring.

Carpendale suggests that moral reasoning is viewed as a process of coordinating all perspectives involved in a moral dilemma. Moral reasoning takes place in which of the following steps in Rest's Model? A. Moral sensitivity B. Moral development C. Moral judgment D. Moral character

C. Moral judgment

37. In the Sweat Construction case, the company tried to manipulate earnings through the use of which accounting technique A. Cookie jar reserves B. Lease capitalization C. Percentage of completion method D. The Big Bath accounting

C. Percentage of completion method

Which of the following connect the integrated ethical decision-making process with Rest's framework? A. Identify the ethical and professional issues and ethical behavior B. Identify and evaluate alternate courses of actions and ethical sensitivity C. Reflect on the moral intensity and virtues that enable action and ethical intent D. Take action and ethical judgment

C. Reflect on the moral intensity and virtues that enable action and ethical intent

Assume your values conflict with what you are being asked to do. Under the Giving Voice to Values methodology which of the following statements reflects the thought process you might have in developing a game plan to voice your values? A. Use philosophical ethical theories to reason through alternative courses of action B. Use the ethical decision making model to evaluate the ethics of the situation C. Reflect on the objections that might be raised to your intended expressed views D. Use Systems 2 thinking to decide on a course of action

C. Reflect on the objections that might be raised to your intended expressed views

68. Your manager asks you to "cook the books" to support a loan application at the local bank. The manager insists it is a one-time request. If you are a person of integrity, what should you do?

C. Refuse to go along with the request

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

C. Refuse to record the transaction as desired by the CFO

21. There are several aspects of Enron fraud that are dealt with directly in SOX further connecting Enron to reform in the accounting profession. Which of the following is true? A. SOX permitted the provision of internal audit service for audit clients B. Off-balance-sheet financing activities were prohibited for all companies C. Related-party transactions require disclosure in the notes D. All of these

C. Related-party transactions require disclosure in the notes

4. Which of the following author(s) emphasize(s) a "purposeful act by management in pursuit of its own self-interests as might be the case when earnings are manipulated to get the stock price up in advance of the exercise of stock options."? A. Dechow and Skinner B. Healy and Wahlen C. Schipper D. Thomas E. McKee

C. Schipper

53. Michael Josephson, founder of the Josephson Institute of Ethics, is credited for :developing

C. Six Pillars of Character

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 effects 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

C. Stage 3

A client asks his accountant to ignore a mistake which overstated the accounts receivable account. The accountant decides that the accounts receivable account has to be corrected to state the correct amount. Which stage of Kohlberg' Stages of Moral Development is the accounting reasoning? A. Stage 2 B. Stage 3 C. Stage 4 D. Stage 5

C. Stage 4

Yvonne is preparing a tax return for Jack. Jack wants to claim his nephew as a dependent even though he does not meet the criteria. Jack says if Yvonne does not list his nephew as a dependent, he will fire her and find a new tax accountant. Yvonne refuses because it is illegal to claim a dependent that does not meet the qualifications. Based on Yvonne's decision, she is likely reasoning at which stage of Kohlberg's moral development model? A. Stage 2 B. Stage 3 C. Stage 4 D. Stage 5

C. Stage 4

The results of studies indicate that CPAs reason primarily at: A. Stages 1 and 2 B. Stages 2 and 3 C. Stages 3 and 4 D. Stages 4 and 5

C. Stages 3 and 4

Which of the following is least likely to be a step or checkpoint in ethical decision-making guidelines? A. Recognize there is an ethical issue B. Determine the actor C. Test for wrong issues D. Look for a third way

C. Test for wrong issues

The ethical conflict in A Team Player can be described as: A. There is no conflict; Barbara and Diane both identify the deficiency. B. The conflict is between Diane and the rest of the audit team on whether there is a deficiency. C. The conflict is between Barbara and Haley, and the rest of the team as to whether or not to take the deficiency to Jessica, the audit senior. D. The conflict is between Barbara and the rest of the team as to whether or not to take the deficiency to Jessica, the audit senior.

C. The conflict is between Barbara and Haley, and the rest of the team as to whether or not to take the deficiency to Jessica, the audit senior.

All of the following tend to be rationalizations for fraud except for: A. We need to protect the shareholders and keep the stock price high B. All companies use aggressive accounting techniques C. The employee will be fired unless s/he goes along with the fraud D. We are correcting a temporary problem that will not exist in the future

C. The employee will be fired unless s/he goes along with the fraud

19. The Public Interest Principle in the AICPA Code of Professional Conduct recognizes:

C. The need to be independent of the client

In the LinkedIn and Shut Out case, Kenny: A. Thinks he has been scammed and takes full responsibility for the loss. B. Does not see the benefit to using LinkedIn and other social media. C. Thinks that LinkedIn is responsible to screen all users of the site to ensure integrity. D. Does not properly use social media and LinkedIn for business for his sports memorabilia business.

C. Thinks that LinkedIn is responsible to screen all users of the site to ensure integrity.

In stage 5 of Kohlberg's model, ethical reasoning is motivated by: A. Acting in the best interests of others B. Following the law C. Upholding the rights, values, and legal contracts of society D. Acting based on universal principles

C. Upholding the rights, values, and legal contracts of society

56. Greatest good for the greatest number of people is the theory of

C. Utilitarianism

77. In the Giles and Regas case, the primary ethical issue can be stated as:

C. Whether a superior should become involved in a dating relationship with a subordinate

71. A difficult choice between two moral principles that are in conflict with one another is known as a/an:

C. ethical dilemma

70. "Do that action which will bring about the greatest good for the greatest number of people," is the basic concept of which ethical theory?

C. utilitarianism

Prior Year Tax Return errors

CPAs must do 1) Advise taxpayer of consequences 2) Recommend corrective actions 3) Not inform IRS with client's permission unless required by law 4) Withdraw if a. No corrective action b Current year's tax returns cannot be prepared without perpetuating the error

79. In the Lone Star School District case, the auditors were mostly concerned about:

D. The lack of documentation for travel and entertainment expenses

Lawrence Kohlberg

Concluded that people develop childhood through adulthood through sequential and hierarchical series of cognitive stages that characterize the way they think about ethical dilemmas -moral reasoning processes become more complex and sophisticated with development

The ethical dilemma for Brenda in "The Tax Return" case can best be described as a: Conflict between loyalty to one's supervisor and doing the right thing Conflict between reporting an item of taxable income and ignoring it Lack of independence due to ties to the client entity Lack of due care in not spotting improper tax accounting

Conflict between loyalty to one's supervisor and doing the right thing

Teleology is also known as

Consequential Ethics

Ethical Judgments of Enlightened Egoism

Considers the well-being of others within the scope of deciding on a course of action based on self interest

When an auditor acts so carelessly in the application of professional standards that it implies a reckless disregard for the standards of due care is referred to as

Constructive fraud

What is an important part in making an ethical choice, according to Kidder? Knowledge Loyalty Courage Trustworthiness

Courage

Moral dilemmas

Created when duties come in conflict and there is no mechanism for solving them.

Carol Gilligan

Criticized Kohlberg for using only males in his study -she believes that women would need more information before answering the question of whether Heinz should steal the drug

31. In the Matrixx Initiatives v. Siracusano case, the Supreme Court adopted the position about materiality that A. It should always be determined only through qualitative evaluations B. It should always be determined through quantitative evaluations C. It should always be determined by considering whether the amount affects past financial statements D It should be determined by considering whether the total mix of information would be viewed by a reasonable investor as possibly accepting judgment

D It should be determined by considering whether the total mix of information would be viewed by a reasonable investor as possibly accepting judgment

61. Egoists maintain a general principle of the following sort:

D. "One ought always act in one's own interest"

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

D. A model of the role of moral development and virtue in decision making

15. Responsibility goes hand in hand with:

D. Accountability

20. 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

D. All of the above

76. In the Harvard Cheating Scandal case, using ethical reasoning who is at fault for situation? A. The professor B. Teaching assistants C. Students who cheated D. All of the above

D. All of the above

Individuals who reason at stage 6 incorporate ethical reasoning based on: A. The morality of law and duty to the social order B. A rational calculation of benefits and harms to society C. Universal ethical principles D. All of the above

D. All of the above

Some critics claim the usefulness of the audit report is limited because: A. Auditors do not examine all of the transactions B. Language in the audit report relies on subjective evaluations such as what is meant by "reasonable" C. Transactions examined are based on materiality and risk assessment determinations D. All of the above may create doubts about usefulness

D. All of the above may create doubts about usefulness

26. The expression, "Too many corporate managers, auditors, and analysts are participants in a game of nods and winks" is attributable to: A. Barry Minkow B. Jerry Seinfeld C. Thomas E. McKee D. Arthur Levitt

D. Arthur Levitt

In Thorne's model of ethical decision making, the instrumental virtues relate to: A. Moral sensitivity B. Ethical reasoning C. Ethical motivation D. Ethical character

D. Ethical character

33. The biggest problem in applying virtue theory to decision making is:

D. Conflicts between virtues may make decision making more difficult

15. Which of the following is NOT an earnings management technique? A. Failing to write down or write off impaired assets B. Releasing questionable reserves into income C. Failing to record expenses and related liabilities when future obligations remain D. Creating an allowance for uncollectible accounts and adjusting it at year end

D. Creating an allowance for uncollectible accounts and adjusting it at year end

Which of the following is NOT an earnings management technique? A. Failing to write down or write off impaired assets. B. Releasing questionable reserves into income C. Failing to record expenses and related liabilities when future obligations remain D. Creating an allowance for uncollectible accounts and adjusting it at year end.

D. Creating an allowance for uncollectible accounts and adjusting it at year end.

Which of the following is NOT one of the levers Larry Davis might use to convince Paul Jones about the rightness of his point of view in the Ace Manufacturing case discussed in the chapter? A. Davis can ask Paul Jones for supporting documentation to back up the coding of expenses to different accounts B. Davis can try to convince Paul that his actions are harmful to the company and potentially very embarrassing for his dad C. Davis can threaten to go to all the owners if Paul doesn't admit the mistake and take corrective action D. Davis can threaten to go to the SEC to protect shareholder interests if Paul agrees to pay back the amounts taken out of the company and correct the accounting

D. Davis can threaten to go to the SEC to protect shareholder interests if Paul agrees to pay back the amounts taken out of the company and correct the accounting

82. Kevin Lowe's ethical dilemma in the Eating Time case can best be described as whether to:

D. Devote time on an audit and not charge it to the job

Which of the following is a reason for an auditor to issue a qualified opinion? A. Difference of opinion with management on presentation of financial statements in the annual report B. Difference of opinion with management on earnings estimate of a material amount C. Difference of opinion with management on preferred accounting principles under GAAP D. Difference of opinion with management on a material application of accounting standards

D. Difference of opinion with management on a material application of accounting standards

Which of the following is the most likely reason for an auditor to issue a qualified opinion? A. Inability to gather sufficient relevant information to form the basis for the opinion B. Differences with management that lead to trust issues on the part of the auditor C. Going concern issue D. Difference of opinion with management on the application of generally accepted accounting principles

D. Difference of opinion with management on the application of generally accepted accounting principles

What is a worrisome consequence under the joint and several liability principle? A. Each negligent party is liable for the portion of the damages for which it is responsible B. All negligent parties are always liable for damages C. Only the negligent party considered to have "deep pockets" is held liable for damages D. Each negligent party could be held liable for the total of damages suffered

D. Each negligent party could be held liable for the total of damages suffered

16. Treating other fairly encompasses treating them:

D. Equally, impartially, and openly

72. The relationship between legal and ethical is that

D. Ethical behavior requires us to do more than required by the law and less than the law allows

Which of the following is not one of the reporting standards of GAAS that guides auditors in formulating the audit opinion? A. The financial statements have followed GAAP. B. Consistency in the application of GAAP. C. Adequate disclosures exist in the statements D. Gathering sufficient audit evidence to warrant an opinion

D. Gathering sufficient audit evidence to warrant an opinion

48. The noted researcher who studied how values in the workplace are influenced by culture is:

D. Geert Hofstede

Which of the following might NOT describe Heinz's thought process in deciding whether to steal the drug if he were at stage 6? A. Heinz should steal the medicine, because everyone has a right to live, regardless of the law. B. Heinz should steal the medicine, because saving a human life is a more fundamental value than the property rights of another person. C. Heinz should not steal the medicine, because that violates the golden rule of honesty and respect. D. Heinz should not steal the medicine, because the scientist has a right to fair compensation.

D. Heinz should not steal the medicine, because the scientist has a right to fair compensation.

In the "Heinz and the Drug" case described in the chapter, if Heinz was reasoning at stage 5 he might decide to steal the drug based on which of the following reasoning? A. Heinz should steal the medicine, because he will be much happier if he saves his wife, even if he will have to serve a prison sentence. B. Heinz should steal the medicine, because his wife expects it. C. Heinz should steal the medicine, because the law prohibits exceptions. D. Heinz should steal the medicine, because everyone has a right to live, regardless of the law.

D. Heinz should steal the medicine, because everyone has a right to live, regardless of the law.

5. Each of the following describes the behavior of Cynthia Cooper in the WorldCom fraud except for:

D. Hesitance

Each of the following represents a pressure that might lead to fraud except for: A. Desire to maximize the value of stock options B. Budget pressures C. Meet financial analysts' earnings expectations D. Inadequate internal controls

D. Inadequate internal controls

44. The most important duty of public accounting is to the:

D. Investing public

14. Respect is an important character of behavior because:

D. It encompasses attributes of how we should treat others

64. An important modern contributor to the theory of utilitarianism is:

D. Jeremy Bentham

9. Each of the following is a pillar of character according to the Josephson Institute except for:

D. Judgmental

Steve is in charge of accounting for the purchase of equipment at Cal Works, Inc. The company has a policy that all expenditures greater than $1,000 (1% of total expenditures) have to be capitalized; less than $1,000 expensed. Steve is under pressure to report high earnings. He takes one $600 and $900 expenditure, adds them together, and records a capital expenditure for $1,500. Which of the following reasons and rationalizations might Steve use for his action: A. One-time request B. Standard Practice C. Representational faithfulness D. Materiality

D. Materiality

James Rest's model of ethical action involves four components inherent to the ethical decision-making process. Which of the following relates to a person's moral judgment? A. Interpreting a situation as a moral dilemma B. Willingness to place ethical values ahead of non-ethical values C. Intention to act ethically aligning to his values D. Outcome of one's prescriptive reasoning

D. Outcome of one's prescriptive reasoning

When Sally is asked why she should share her toys with her sister, she responds by saying "Because my mom says I have to and if I don't I'll go to time-out." In which stage of moral development is Sally? A. Conventional Morality B. Nonconventional Morality C. Postconventional Morality D. Preconventional Morality

D. Preconventional Morality

Thomas Jones's research looked at the characteristics of a moral issue to develop the moral intensity model. The model includes six dimensions. Which of the following are NOT included in those dimensions? A. Concentration and probability of effect B. Social Consensus C. Proximity and magnitude of consequences D. Reasoning and values-based decision-making

D. Reasoning and values-based decision-making

Daniel Kahneman's System 1 thinking is described by all of the following except for: A. Automatic B. Emotional C. Intuitive D. Reflective

D. Reflective

50. The country with the highest Power Distance score is

D. Russia

22. The best way to characterize the role of Sherron Watkins in the downfall of Enron is: A. She directed the internal auditors to examine numerous transactions that led to the discovery of the fraud B. She gave in to the pressure of Andy Fastow to go along with materially misstated financial statements C. She was sent to jail even though she cooperated with the government in its case against Enron D. She tried to alert Ken Lay about the accounting scandal at Enron

D. She tried to alert Ken Lay about the accounting scandal at Enron

Rosie is the external auditor of Texas Two Steps, a privately-owned dance company in Texas. Rosie believes the owner of the company is skimming cash off the top. She approaches the owner who explains that the money will be replaced in the following month after he refinances his house. Rosie accepts the owner's explanation but reclassifies the expenditure as a receivable of the company from the owner. Rosie's reasoning best reflects: A. Stage 1 B. Stage 2 C. Stage 3 D. Stage 4

D. Stage 4

38. Which of the following was not an accounting issue in the Sunbeam case? A. Cookie jar reserves B. Channel stuffing C. Bill and hold sales D. Swap transactions

D. Swap transactions

What ethical action should Daniel take in A Faulty Budget? A. Work with Pete to correct the budget so Cwervo, Pete's boss, does not find out. B. Work with Pete to keep quiet about the mistake in the budget so the new hires will not be laid off. C. Tell Cwervo about the mistake in the budget but only half of the actual mistake so that employees will not be laid off. D. Tell Cwervo about the mistake in the budget so the company can make corrections as soon as possible.

D. Tell Cwervo about the mistake in the budget so the company can make corrections as soon as possible.

Under the Securities Act of 1933, if damages were incurred and there was a material misstatement or omission in the financial statements, the CPA automatically loses unless A. The management intentionally deceived the auditors B. The damages were incurred to a third party that was not a signatory to the contract C. The CPA can shift the burden of proof to the investors D. The CPA rebuts the allegations

D. The CPA rebuts the allegations

10. Which of the following is NOT a qualitative factor when assessing materiality? A. A misstatement that changes a loss into income or vice versa B. The existence of statutory or regulator reporting requirements that affect materiality thresholds C. The potential effect of the misstatement on trends, especially trends in profitability D. The use of simplistic numerical thresholds and rules of thumb

D. The use of simplistic numerical thresholds and rules of thumb

7. Which of the following author(s) define(s) earnings management as "reasonable and legal management decision making and reporting intended to achieve stable and predictable financial results."? A. Dechow and Skinner B. Healy and Wahlen C. Schipper D. Thomas E. McKee

D. Thomas E. McKee

Which of the following author(s) define(s) earnings management as "reasonable and legal management decision making and reporting intended to achieve stable and predictable financial results."? A. Dechow and Skinner B. Healy and Wahlen C. Schipper D. Thomas E. McKee

D. Thomas E. McKee

A common set of accounting standards on an international level can help to achieve each of the following except for: A.Facilitate the understandability of financial reports prepared outside the home country of a potential investor. B.Provide a foundation for professional judgment and support the implementation of international financial reporting standards (IFRS) C.Provide a foundation for professional judgment and support the implementation of international standards of Auditing (ISAs) D.Facilitate the enforcement of IFRS and ISAs

D.Facilitate the enforcement of IFRS and ISAs

Ethical Judgments of Egoism

Defines "right" behavior by consequences for the decision maker

James Rest's 4 Component Model of Ethical Decision Making

Describes the cognitive processes that individuals use in ethical decision making

Section 10A of the Securities Exchange Act of 1934 establishes each of the following requirements for auditors of public companies with respect to illegal acts except for

Determine whether management participated in the illegal act

In the U.S., if the auditor can demonstrate having performed services with the same degree of skill and judgment possessed by others in the profession, it can be said to have exercised:

Due Care

Deontology is also known as

Duty Based Ethics

A payment made to a foreign government official to ensure that s/he does what is expected given their job requirements can be characterized as a:

Facilitating Payment

The Livingston & Haynes case involves the audit firm

Failing to follow procedures designed to provide reasonable assurance of detecting illegal acts

What is a worrisome consequence under the joint and several liability principle?

Each negligent party could be held liable for the total of damages suffered

Ethical Judgments of Justice

Emphasizes rights, fairness and equality -Those with equal claims to justice should be treated equally and those with unequal claims should be treated unequally (Somebody has to determine who is doing more for public good)

Which of the following characteristics is NOT part of the behavioral approach, Giving Voice to Values? Used post-decision-making Capacity to express one's values Employs traditional philosophical reasoning Counteracts reasons and rationalizations

Employs traditional philosophical reasoning

Enron's gas bank

Enron would buy gas from a network of suppliers and sell it to a network of consumers as long term deals, contractually guaranteeing both the supply and the price, charging fees for the transactions and assuming the associated risks.

Level 2 - Conventional - Stage 3

Fairness to Others -Not only motivated by rules but seeks to do what is in the perceived best interests of others, especially those in a family -commitment to loyalty in the relationship

In Thorne's model of ethical decision making, the instrumental virtues relate to: Moral sensitivity Ethical reasoning Ethical motivation Ethical character

Ethical character Instrumental virtue > ethical character > which leads to ethical behavior

Ethical Judgments of Utilitarianism

Evaluates consequences of actions (harms and benefits) to stakeholders Act: Evaluate whether the intended action provides the greatest Rule: Select that action that conforms to the correct moral rule that produces the greatest net benefits (Who is doing the selecting? Whose morals are you using?)

In the Phar-Mor case, Cherelstein's ethical dilemma can best be described as: Standing up to Pat Finn who wanted to cover up the Phar-Mor fraud until exclusivity payments coming in would cover that amount. Going to David Shapira to discuss Mickey Monus's fraudulent actions. Evaluating the levers he can use to counteract the reasons and rationalizations Monus might provide to defend his actions. Whether to inform the external auditors of the fraud at Phar-Mor.

Evaluating the levers he can use to counteract the reasons and rationalizations Monus might provide to defend his actions. (See Phar-mor write up)

Role expectation or approval from others is a motive for doing right in which stage of Kohlberg's moral reasoning? Fairness to others Obedience Social contract Law and order

Fairness to others (Stage 3)

In stage 1 of Kohlberg's model, ethical reasoning is motivated by: Fear of punishment Satisfaction of one's needs Following the law Acting based on universal ethical principles

Fear of punishment

The Caremark opinion dealt with which element of directors' obligations?

Fiduciary obligations

Auditor's responsibilities for detecting noncompliance with laws and regulations (direct)

For ones that have direct impact on F/S 1) Same as fraud detection responsibility of auditor 2) Assess the risk and perform the audit to gain reasonable assurance 3) Examples include taxes, pensions, industry specific reporting, contracts/grants with the government

Auditor's responsibilities for detecting noncompliance with laws and regulations (not direct, but materials)

For ones that have material impact on F/S 1) In general, disclosures 2) Inquiries with management and, if appropriate, BOD 3) Inspect with relevant authorities 4) Examples include fines/penalties, terms of a license, regulatory solvency requirements, environmental rules

An audit engagement letter

Formalizes the relationship between the auditor and the client for a specific engagement

Jeremy Bentham

Founder of utilitarianism (a moral act is one which produces the greatest happiness for the greatest number of people) -strongly influenced Mill -Bentham's head was preserved

Whose theory does Kohlberg's universal belief conflict with?

Geert Hofstede's five cultural dimensions

What should be the first step in decision making when faced with an ethical dilemma? Choose an ethical theory to follow Discuss with others your options Get the facts surrounding the problem Determine consequences

Get the facts surrounding the problem

43. Ty is a rising star at Texas State Country & Western Stores. He is the controller of the company. His wife, Rosie, is the lead auditor of the CPA firm that examines Country & Western's financial statements and issues an audit opinion.

Given the nature of the relationships, Rosie would violate what ethical standard if she is allowed to conduct the audit: C. Independence

c

How does Gilligan evaluate the solution to Heinz's dilemma? A. Women think saving a life is more important than keeping the law. B. Men think keeping the law is more important than saving a life. C. Men tend to think in terms of justice, and women in terms of caring. D. Men misunderstand and women understand.

What is the name of the moral dilemma situation Kohlberg used to develop his theory?

Heinz and the Drug

Which of the following might NOT describe Heinz's thought process in deciding whether to steal the drug if he were at stage 6? Heinz should steal the medicine, because everyone has a right to live, regardless of the law. Heinz should steal the medicine, because saving a human life is a more fundamental value than the property rights of another person. Heinz should not steal the medicine, because that violates the golden rule of honesty and respect. Heinz should not steal the medicine, because the scientist has a right to fair compensation.

Heinz should not steal the medicine, because the scientist has a right to fair compensation.

In the "Heinz and the Drug" case described in the chapter, if Heinz was reasoning at stage 5 he might decide to steal the drug based on which of the following reasoning? Heinz should steal the medicine, because he will be much happier if he saves his wife, even if he will have to serve a prison sentence. Heinz should steal the medicine, because his wife expects it. Heinz should steal the medicine, because the law prohibits exceptions. Heinz should steal the medicine, because everyone has a right to live, regardless of the law.

Heinz should steal the medicine, because everyone has a right to live, regardless of the law. (Heinz should steal the medicine, because everyone has a right to live, regardless of the law)

Heinz and the Drug

Heinz's wife is sick and needs special medicine that has been priced unreasonably high, tells the drug dealer his wife is dying, still doesn't lower the price so Heinz steals the drug

In the Gateway Hospital case, Kristen's best argument to counter the reasons and rationalizations Troy might give for requesting an extra days' reimbursement is?

Her loyalty is to the hospital and not Troy.

Who is Deontology associated with?

Immanuel Kant Hobbes and John Locke from the age of enlightenment

Independence impairment: financial interest

Impaired if: 1) Direct: stocks, bonds, or loans to client 2) Indirect: mutual fund or investment in a company which holds financial interests in client; <5% rule; if not must be evaluated against member's net worth 3) Material 4) For gift or inheritances, 30 days to dispose of it; no participation in engagement during the 30 days *All category A apply to the period of engagements only

b

In Thomas Jones' model of moral intensity it can be said about accounting that: A. There is a link between the stage of moral development and ethical reasoning B. The link between social consensus and ethical decision making exists because accounting is a community with shared values and beliefs C. The link between probability of effect and ethical decision making exists because in accounting the rights of stakeholders are considered D. There is a link between moral judgment and moral action

d

In Thorne's model of ethical decision making, the instrumental virtues relate to: A. Moral sensitivity B. Ethical reasoning C. Ethical motivation D. Ethical character

a

In his evaluation of Kidder's model, Johnson points out that: A. It is not easy to determine who has responsibility for solving a problem B. A time constraint prevents making timely decisions C. Decisions lead to action D. We cannot apply lessons learned in one dilemma to future problems

b

In reference to Rest's four-component Model of Morality, which component reflects an individual's willingness to place ethical values ahead of non-ethical values that relate to self-interest? A. Moral Character B. Moral Motivation C. Moral Sympathy D. Moral Judgment

a

In stage 1 of Kohlberg's model, ethical reasoning is motivated by: A. Fear of punishment B. Satisfaction of one's needs C. Following the law D. Acting based on universal ethical principles

b

In stage 3 of Kohlberg's model, ethical reasoning is motivated by: A. Satisfaction of one's needs B. Acting in the best interests of others C. Upholding the rights, values, and legal contracts of society D. Acting based on universal principles

c

In stage 5 of Kohlberg's model, ethical reasoning is motivated by: A. Acting in the best interests of others B. Following the law C. Upholding the rights, values, and legal contracts of society D. Acting based on universal principles

d

In the "Heinz and the Drug" case described in the chapter, if Heinz was reasoning at stage 5 he might decide to steal the drug based on which of the following reasoning? A. Heinz should steal the medicine, because he will be much happier if he saves his wife, even if he will have to serve a prison sentence. B. Heinz should steal the medicine, because his wife expects it. C. Heinz should steal the medicine, because the law prohibits exceptions. D. Heinz should steal the medicine, because everyone has a right to live, regardless of the law.

Citizenship

Includes civic virtues and duties that prescribe how we ought to behave as a part of community

Cognitive dissonance creates a problem that can be described as: Inconsistency between thoughts and beliefs and our intended actions Consistency between thoughts and beliefs and our intended actions Reducing the importance of the beliefs and attitudes on our actions Acquiring new information that outweighs the dissonant beliefs

Inconsistency between thoughts and beliefs and our intended actions

d

Individuals who reason at stage 6 incorporate ethical reasoning based on: A. The morality of law and duty to the social order B. A rational calculation of benefits and harms to society C. Universal ethical principles D. All of the above

c

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 effects 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

Best definition of ethics

Knowing what ought to be done and having the will to do it

a

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

Level 2 - Conventional - Stage 4

Law and Order -emphasizes the morality of law and duty in social order -one's duty to society, respect for authority and maintaining the social order become the focus of decision making

What were the three levels of response to the Heinz Dilemma?

Level 1- Pre-conventional Level 2 - Conventional Level 3- Post-conventional

Loylty and Whistleblowing

Loyalty should never take precedence over other values

A criticism of the Kohlberg model is that it: Suggests that people continue to change their decision priorities over time. Considers development of moral reasoning necessary to be a moral person. Makes deontological ethics superior to other ethical perspectives. Considers all complexities of decision-making and behavior.

Makes deontological ethics superior to other ethical perspectives.

Carpendale suggests that moral reasoning is viewed as a process of coordinating all perspectives involved in a moral dilemma. Moral reasoning takes place in which of the following steps in Rest's Model? Moral sensitivity Moral development Moral judgment Moral character

Moral judgment

Ethical Relativism

Morality is relative to the norms of one's culture -therefore, no common framework to resolve any disputes between different societies -societies may differ in application of fundamental principles but agree on the principles

Plato

Most influential philosopher of all time -regarded as the first truly systematic thinker -originator of Virtue Ethics (focuses on the person we are aka WWJD?)

Independence impairment: Gifts or entertainment

Must be reasonable

Lotalty

Not violating confidence placed in us

Level 1- Pre-conventional - Stage 1

Obedience to Rules; Avoidance of Punishment -what is right is judged by one's obedience to rules and authority

How long do management and the audit committee have to act if the independent auditor reports possible illegal acts to them?

One business day

Ethical Judgments of Virtue Ethics

Only method where ethical reasoning methods (virtues - internal traits of character) apply BOTH to the decision maker and the decision -Judgments are made not by applying rules, but by possessing those traits that enable the decision maker to act for the good of others -What would a virtuous man do under the circumstances?

Kay and Lee performed an audit required for Holligan Industries to extend a loan with Second National Bank & Trust. Kay and Lee may be liable for:

Ordinary negligence to Second National Bank & Trust

Reputation

Overall quality or character in opinion of public towards a person or group or organization.

IFAC (International Federation of Accountants)

Parent organization that is the leader in establishing international standards for external financial statement audits, including ethics

What does Kohlberg's model suggest?

People continue to change their decision priorities over time and with additional education and experience

The business judgment rule applies to audit committee acts in each of the following instances except for:

Preparing the audit report

What are virtue ethics similar to?

Principles of the AICPA Code and IMA Standards

The most relevant sources of civil liabilities for auditors failing to adhere to the requirements of the laws in carrying out professional obligations include all of the following except for:

Private Securities Litigation Reform Act of 1995

John Rawls

Proponent of justice -beleives in the "Second Principle" aka similar to socialist/communist idea that responsibilities should be distributed according to ability and benefits according to need

John Stuart Mills

Proponent of utilitarianism and also concerned about limiting the "tyranny of the majority and advocated individual self-improvement as the road happiness

Deontology differs from utilitarianism in that moral norms or rules are based on...

Reason and not outcomes

Thomas Jones's research looked at the characteristics of a moral issue to develop the moral intensity model. The model includes six dimensions. Which of the following are NOT included in those dimensions? Concentration and probability of effect Social Consensus Proximity and magnitude of consequences Reasoning and values-based decision-making

Reasoning and values-based decision-making

Which of the following connect the integrated ethical decision-making process with Rest's framework? Identify the ethical and professional issues and ethical behavior Identify and evaluate alternate courses of actions and ethical sensitivity Reflect on the moral intensity and virtues that enable action and ethical intent Take action and ethical judgment

Reflect on the moral intensity and virtues that enable action and ethical intent

Daniel Kahneman's System 1 thinking is described by all of the following except for: Automatic Emotional Intuitive Reflective

Reflective

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: Make a decision based on what is in her own best interests Consider the interests of the stakeholders but decide based on what is in her best interests Refuse to record the transaction as desired by the CFO Inform the board of directors of the difference of opinion with the CFO

Refuse to record the transaction as desired by the CFO (Stage 4 is obedience to law and order)

The Securities Act of 1933

Regulates the initial offering of securities

What are the problems with implementation of Deontology?

Relies on moral absolutes -no exceptions Need to resolve conflicting rights

Where are many deontological ethics derived form?

Religions Values such as the 10 commandments

The Securities and Exchange Act of 1934

Requires the filing of audited annual statements and reviewed quarterly statements

Moral Sensitivity

Requires the individual to interpret situations as moral and recognize that one's actions affect the welfare of others -heightened moral sensitivity creates a culture that supports ethical action

b

Rest's "Four Component Model of Morality" can best be described as: A. A model of moral development based on one's thought process 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. An approach to ethical decision making based on prescribed steps in making ethical decisions

Level 1- Pre-conventional - Stage 2

Satisfying One's Own Needs -rules and authority are important only if acting in accordance with them satisfies one's own needs (egoism)

The legal term for the intent to deceive, manipulate or defraud is

Scienter

Professional Ethics

Shared and mutually enforced professional norms -in CA, CPA regulated by the California State Board of Accountancy

Level 3- Post-conventional - Stage 5

Social Contract -an individual is motivated by upholding the basic rights, values and legal contracts of society -recognizes that in some cases the legal and moral points of view may conflict -to reduce conflict, individuals at this stage base their decisions on rational calculations of benefits and harms to society

Level 3- Post-conventional

Society-wide perspective; principled morality (rule utilitarianism, justice orientation); there must be a society wide basis for cooperation

Gabby has just left a meeting with the partner in charge of an audit engagement and was told to ignore the typical year-end accrual entries because earnings are below financial analysts' earnings expectations. Gabby knows this is wrong and wants to act on her values but she does not want to lose her job. What is the best thing for Gabby to do in this situation if she chooses to voice her values? Quit the firm Speak with the managing partner of the firm Inform the SEC of the difference All of the above

Speak with the managing partner of the firm

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 effects on the creditors but ultimately she agrees to the accounting. Keesha is reasoning at: Stage 1 Stage 2 Stage 3 Stage 4

Stage 3 (Fairness to Others)

Rosie is the external auditor of Texas Two Steps, a privately-owned dance company in Texas. Rosie believes the owner of the company is skimming cash off the top. She approaches the owner who explains that the money will be replaced in the following month after he refinances his house. Rosie accepts the owner's explanation but reclassifies the expenditure as a receivable of the company from the owner. Rosie's reasoning best reflects: Stage 1 Stage 2 Stage 3 Stage 4

Stage 4

Yvonne is preparing a tax return for Jack. Jack wants to claim his nephew as a dependent even though he does not meet the criteria. Jack says if Yvonne does not list his nephew as a dependent, he will fire her and find a new tax accountant. Yvonne refuses because it is illegal to claim a dependent that does not meet the qualifications. Based on Yvonne's decision, she is likely reasoning at which stage of Kohlberg's moral development model?

Stage 4 Law and Order Stage 4 behavior emphasizes the morality of law and duty to the social order. One's duty to society, respect for authority, and maintaining the social order become the focus of decision making.

A client asks his accountant to ignore a mistake which overstated the accounts receivable account. The accountant decides that the accounts receivable account has to be corrected to state the correct amount. Which stage of Kohlberg' Stages of Moral Development is the accounting reasoning? Stage 2 Stage 3 Stage 4 Stage 5

Stage 4 (obedience to law and order)

The results of studies indicate that CPAs reason primarily at Stages 1 and 2 Stages 2 and 3 Stages 3 and 4 Stages 4 and 5

Stages 3 and 4

Case- Comstock (Carslbad City Treasurer)

State Board of Accountancy regulates CPAs -Milton was charged with fraud and theft as well as misappropriation of funds -Stole from nonprofit group -Prevented from acting as CPA -White collar crimes are not punished well enough -He only got 5 years for both counts

Integrity

Strength and courage of ones convictions

Aristotle

Student of Plato and tutor of Alex the Great -believed that the virtuous man was formed from values instilled in your hand that virtue and reason should guide our actions -presecribed a moral code of conduct for what he called "good living" -ETHICS STRESSED INDIVIDUAL VIRTUES

Which of the following statements best describes System 2 thinking? System 2 operates automatically and quickly, with little or no effort and no sense of voluntary control System 2 allocates attention to the effortful mental activities that demand it, including complex computations An example System 2 thinking is detecting that one object is more distant than another An example of System 2 thinking is effortlessly originating impressions and feelings about an event

System 2 allocates attention to the effortful mental activities that demand it, including complex computations

What are the 6 pillars of character?

TRRFCC -Trustworthiness -Responsibility -Respect -Fairness -Caring -Citizenship

What ethical action should Daniel take in A Faulty Budget? Work with Pete to correct the budget so Cwervo, Pete's boss, does not find out. Work with Pete to keep quiet about the mistake in the budget so the new hires will not be laid off. Tell Cwervo about the mistake in the budget but only half of the actual mistake so that employees will not be laid off. Tell Cwervo about the mistake in the budget so the company can make corrections as soon as possible.

Tell Cwervo about the mistake in the budget so the company can make corrections as soon as possible.

Which of the following is least likely to be a step or checkpoint in ethical decision-making guidelines? Recognize there is an ethical issue Determine the actor Test for wrong issues Look for a third way

Test for wrong issues

Under the rules of the Sarbanes-Oxley Act of 2002, who must certify the public reports filed with the SEC?

The CEO and CFO

Under the Securities Act of 1933, if damages were incurred and there was a material misstatement or omission in the financial statements, the CPA will most likely lose the lawsuit unless

The CPA rebuts the allegations

What famous document is an example of deontology?

The Constitution

Which Act requires firms who engaged in international operations to have internal controls and an audit committee?

The Foreign Corrupt Practices Act of 1977

What argument can be made that Sarbanes-Oxley may not be effective in reducing fraud?

The SEC has had many laws for many years that have not seemed to make much of a difference

Responsibility

The ability to reflect on alternative courses of action, preserver and carry out moral action diligently

Ethics can be traced back to whose philosophy?

The ancient greek philosophy -what is the best sort of life for human beings to live -believed that the ultimate goal of happiness was to attain some objectively good status: the life of excellence

Which of the following would normally be considered sufficient to demonstrate due care on the part of the auditor?

The auditor cites adherence to generally accepted auditing standards (GAAS)

The difference between an auditor's services regarding reports 10Q and 10K is

The auditor provides "limited assurance" regarding 10Q and "reasonable assurance" regarding 10K

39. Janice is a staff accountant in the accounting firm of Obama and Biden. She is assigned to the audit of HealthCare Associates. On the very first day Janice noticed that the accounting manager of the client took money out of the petty cash fund and put it in his pocket.

The best action for Janice to take is: B. Inform her immediate supervisor of what she observed

a

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. The approach to giving voice to one's values

Under the Private Securities Litigation Reform Act, if an auditor concludes that an illegal act with a material effect on the financial statements has been reported to, but not dealt with by senior management, the auditor should then report his/her conclusions to

The company's board of directors

TB MC Qu. 02-46 The ethical conflict in A Team Player can be.. The ethical conflict in A Team Player can be described as: There is no conflict; Barbara and Diane both identify the deficiency. The conflict is between Diane and the rest of the audit team on whether there is a deficiency. The conflict is between Barbara and Haley, and the rest of the team as to whether or not to take the deficiency to Jessica, the audit senior. The conflict is between Barbara and the rest of the team as to whether or not to take the deficiency to Jessica, the audit senior.

The conflict is between Barbara and Haley, and the rest of the team as to whether or not to take the deficiency to Jessica, the audit senior.

Level 2 - Conventional

The ends justify the means ; individual is aware of the interest of others and one's duty to society -Personal responsibility becomes important

Caring

The essence of caring is empathy

a

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. The rules of conduct in the AICPA Code of Professional Conduct

Kohlberg's conclusion of his study

The highest clam of morality is the universal principle of justice

In Thomas Jones' model of moral intensity it can be said about accounting that: -There is a link between the stage of moral development and ethical reasoning The link between social consensus and ethical decision making exists because accounting is a community with shared values and beliefs The link between probability of effect and ethical decision making exists because in accounting the rights of stakeholders are considered There is a link between moral judgment and moral action

The link between social consensus and ethical decision making exists because accounting is a community with shared values and beliefs

Definition of "material" by FASB

The magnitude of an omission or misstatement of accounting information that, in the light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or misstatement

Honesty

The most basic ethical value and means that we should express the truth as we know it without deception

Moral Judgment

The outcome of one's prescriptive reasoning is his ethical judgment of the ideal solution to an ethical dilemma

40. Kelly is the controller of a small company. One day the CFO comes in and tells her to lower the estimate of uncollectible accounts receivable. Kelly insists her numbers are correct as is. The CFO tells her it will mean her job at the company if she doesn't go along with the smaller estimate.

The primary virtue that would enable Kelly to resist the pressure to manipulate the number is: B. Integrity

c

The results of studies indicate that CPAs reason primarily at: A. Stages 1 and 2 B. Stages 2 and 3 C. Stages 3 and 4 D. Stages 4 and 5

All of the following proof can be used in an auditor's defense against third party lawsuits for fraud except for:

The third party was not in contractual privity

Cognitive Development

The thought process followed in one's moral development

The cognitive development approach refers to: The thought process followed in one's moral development The method of moral reasoning used in decision making The exercise of professional judgment in decision making The approach to giving voice to one's values

The thought process followed in one's moral development

kohlberg's model can best be described as:

The various phases in one's moral development and related levels of moral reasoning

Situation Ethics

Theory that recognizes the existence of certain principles but questions whether they should be strictly applied or used as guidelines -circumstances should influence decision making -problem: can rationalize actions such as cheating

In the LinkedIn and Shut Out case, Kenny: Thinks he has been scammed and takes full responsibility for the loss. Does not see the benefit to using LinkedIn and other social media. Thinks that LinkedIn is responsible to screen all users of the site to ensure integrity. Does not properly use social media and LinkedIn for business for his sports memorabilia business.

Thinks that LinkedIn is responsible to screen all users of the site to ensure integrity.

The Ultramares v. Touche case of 1933 held that a cause of action based on negligence could not be maintained by a third party who was not in contractual privity; however, it did leave open the possibility that:

Third parties may sue in the case of fraud or constructive fraud

d

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

The primacy of a CPAs responsibility is to who?

To the public as the way to best serve the clients and employers interest

Who is associated with Virtue Ethics?

Traces back to the ancient Greeks, Plato and Aristotle -What would jesus do?

Respect

Treating every individual with dignity

Fairness

Treating others equally, impartially and openly

Kohlberg believes his stage sequence is universal (same in all cultures) T/F

True

T/F There is no allowance for a gray area in the categorical imperative (deontology)

True -unlike the proportionality of the utility principle Ex. Lying is ALWAYS wrong even a "polite lie"

Level 3- Post-conventional - Stage 6

Universal Ethical Principles -Kohlberg believed this stage rarely occurred -person believes that right and wrong are determined by universal ethical principles that everyone should follow -individuals believe that there are inalienable rights which are universal in nature and consequence -Ex. Justice and Equality -if a law conflicts with an ethical principle then an individual should act in accordance with the principle

In stage 5 of Kohlberg's model, ethical reasoning is motivated by: Acting in the best interests of others Following the law Upholding the rights, values, and legal contracts of society Acting based on universal principles

Upholding the rights, values, and legal contracts of society

In the Doing Good by Being Good case discussed in the chapter, Becca needs to counter Matt's reasons and rationalizations for which of the following actions? Using donated funds to the Accounting Club for personal purposes. Taking money from the Accounting Club's operating account without approval. Taking money from the Accounting Club's petty cash fund without approval. Using donated funds to the Accounting Club to help victims of a hurricane.

Using donated funds to the Accounting Club for personal purposes.

In the Vertical Pharmaceuticals case, Deloitte & Touche was sued because

Vertical claimed the firm's false accusations of fraudulent conduct led to the withdrawal of another . public company's planned acquisition of Vertical

What are the problems with implementation of Virtue Ethics?

Virtues may conflict, requiring choices to be made

c

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

The "Milton Manufacturing" case illustrates: What can go wrong when a company sets a policy that potentially harms one area of its operations. How the failure to exercise professional skepticism can cloud objective judgment. The pressure that can be placed on accountants by top management. What can go wrong when fraudulent accounting is dictated by top management.

What can go wrong when a company sets a policy that potentially harms one area of its operations.

c

What is an important part in making an ethical choice, according to Kidder? A. Knowledge B. Loyalty C. Courage D. Trustworthiness

In using the GVV framework, questions to pose for dealing with the opposing points of view include all of the following except: What is the way to appeal all parties? What is at stake for the key parties? What is your most powerful and persuasive response you need to address? What levers can you to influence others?

What is the way to appeal all parties?

d

When Sally is asked why she should share her toys with her sister, she responds by saying "Because my mom says I have to and if I don't I'll go to time-out." In which stage of moral development is Sally? A. Conventional Morality B. Nonconventional Morality C. Postconventional Morality D. Preconventional Morality

The ethical dilemma for Ricardo in the Juggyfroot case can best be described as: Whether to go along with Fred and Ethel's accounting for the loss in value on marketable securities. Whether to let his failure to object to inappropriate accounting in the prior year influence whether he goes along with inappropriate accounting in the current year. Whether to quit the firm because of the pressure placed on him by his boss to go along with inappropriate accounting. Whether to blow the whistle on the inappropriate accounting sanctioned by the firm.

Whether to let his failure to object to inappropriate accounting in the prior year influence whether he goes along with inappropriate accounting in the current year.

The philosophical methods of moral reasoning suggest that once we have ascertained the facts, we should ask ourselves certain questions when trying to resolve a moral issue. Which of the following is NOT one of those questions? Which course of action maximizes my net benefits? Which course of action develops moral virtues? Which course of action advances the common good? What benefits and what harms will each course of action produce and which alternative will lead to the best overall consequences?

Which course of action maximizes my net benefits?

c

Which of the following connect the integrated ethical decision-making process with Rest's framework? A. Identify the ethical and professional issues and ethical behavior B. Identify and evaluate alternate courses of actions and ethical sensitivity C. Reflect on the moral intensity and virtues that enable action and ethical intent D. Take action and ethical judgment

c

Which of the following is least likely to be a step or checkpoint in ethical decision-making guidelines? A. Recognize there is an ethical issue B. Determine the actor C. Test for wrong issues D. Look for a third way

d

Which of the following might NOT describe Heinz's thought process in deciding whether to steal the drug if he were at stage 6? A. Heinz should steal the medicine, because everyone has a right to live, regardless of the law. B. Heinz should steal the medicine, because saving a human life is a more fundamental value than the property rights of another person. C. Heinz should not steal the medicine, because that violates the golden rule of honesty and respect. D. Heinz should not steal the medicine, because the scientist has a right to fair compensation.

Assume you were assigned a term paper and decided to surf the web to identify a provider of papers for a fee. You chose what you thought was the best paper available. With respect to Rest's model of morality it can be said that: Your actions lack moral sensitivity Your actions are based on moral judgments You are making judgments based on expectations of your peer group You have made a decision based on a harms-benefit analysis

Your actions lack moral sensitivity

c

Yvonne is preparing a tax return for Jack. Jack wants to claim his nephew as a dependent even though he does not meet the criteria. Jack says if Yvonne does not list his nephew as a dependent, he will fire her and find a new tax accountant. Yvonne refuses because it is illegal to claim a dependent that does not meet the qualifications. Based on Yvonne's decision, she is likely reasoning at which stage of Kohlberg's moral development model? A. Stage 2 B. Stage 3 C. Stage 4 D. Stage 5

The SEC v. Zurich Financial Services case deals with:

Zurich's use of finite reinsurance transactions to inflate improperly financial performance

AICPA Quality Control Standards on Ethics

a) A CPA firm must have policies and procedures b) Reasonable assurance that the employees comply c) Annual written confirmations d) Maintenance of info regarding independence e) Rotation of staff

40. Which of the following cases limited the auditors' liability for negligence in claims brought by third parties in California? a. Bylie V. Arthur Young in 1992 b. Ultramares V. Touch -1933 c. The Caremark Decision d. 1136 Tenants Corp V. Max Rothenberg

a. Bylie V. Arthur Young in 1992

1. Deontology is a school of ethical thought that: a. Considers the rights and duties of stakeholders b. Defines the "right" course of action in terms of consequences to the decision maker. c. Evaluates the consequences of actions (harms and Benefits) to the stakeholders d. Traces its origins back to the ancient Greeks, Plato and Aristotle e. Is associated with John Rawls of Harvard University

a. Considers the rights and duties of stakeholders

8. This school of Ethics is associated with Immanuel Kant, Thomas Hobbes and John Locke from the age of Enlightenment a. Deontology b. Utilitarianism c. Enlightened Egoism d. Value Ethics e. Social Justice

a. Deontology

9. The influence of this school of Ethics is clearly present in the American Declaration of Independence: a. Deontology b. Utilitarianism c. Enlightened Egoism d. Value Ethics e. Social Justice

a. Deontology

2. Which rule of professional conduct in the AICPA code does not apply both to internal and external accountants who are CPAs and members of the Institute? a. Independence b. Integrity c. Objectivity d. Due care

a. Independence

41. The Securities Act of 1933 primarily dealt with a. Initial Public Offerings b. Annual Reporting Requirements after the initial public offerings c. Corporate Internal Controls d. B and C above

a. Initial Public Offerings

1. If you have an SEC audit client which of the following non attest services can you also do for the client? a. Tax services b. Financial information systems design and implementation c. Appraisal or valuation services d. Internal audit outsourcing services

a. Tax services

3. 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 the client of this matter and the client did not inform the SEC within one business day of being informed by 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

a. The CPA informed the client of this matter and the client did not inform the SEC within one business day of being informed by the CPA

50. The Committee that first recommended that the profession institute a voluntary program for peer review was: a. The Metcalf Committee b. The Cohen Committee c. The house subcommittee on Oversight and Investigations d. The House investigative Committee

a. The Metcalf Committee

25. The misappropriation of assets refers to: a. The deliberate use of company assets for personal reasons b. The deliberate overstatement of financial statements c. The deliberate omission of disclosures from financial statements d. All of the above

a. The deliberate use of company assets for personal reasons

11. Under Circular 230 it is prohibited to prepare a tax return or an amended tax return for a contingent fee. a. True b. False

a. True

13. Honesty and Integrity are the most fundamental basis of Ethics for accountants. a. True b. False

a. True

14. Loyalty is not a virtue that accountants should consider in making ethical decisions regarding accounting matters. a. True b. False

a. True

15. Independence is a pre-requisite to do audit or review work and permeates the CPA's value system. a. True b. False

a. True

23. Normally a third party suing an auditor must prove scienter to succeed, unless he can prove that the auditor was guilty of gross negligence. a. True b. False

a. True

23. The American Advertising Agency, Kenyon & Eckhardt, was among the first to promote socially redeeming advertising. a. True b. False

a. True

29. The Foreign Corrupt Practices Act is an amendment to the Securities Act of 1934. a. True b. False

a. True

31. Studies have shown a very high correlation between government corruption and the standard of living for the people of a country. The higher the corruption the lower the standard of living as a general rule. a. True b. False

a. True

33. Directors always have a fiduciary duty to shareholders and a duty to exercise Due Care. a. True b. False

a. True

35. Some states have modified the Ultramares Doctrine and allowed liability for negligence to be upheld by third parties if the auditor had actually foreseen or reasonably could have foreseen reliance on the audit report by that third parties. a. True b. False

a. True

36. A CPA may use confidential client accounting information, without obtaining client permission, to the extent necessary to defend himself from malpractice charges brought by the client. a. True b. False

a. True

40. In Fords handling of the Pinto gas tank problems : a. Utilitarianism trumped a deontological approach to the problem. b. The company decided what to do by considering Rawl's Theory of Social Justice c. The company used a deontological approach first and put the rights of owners to a safe car above all other concerns d. Ford was not in compliance with existing law at the time e. Ford put people ahead of profits

a. Utilitarianism trumped a deontological approach to the problem.

38. John Smith goes to court and testifies under oath that Mr. Respectable is in fact a criminal, who also beats his wife, his dog and his mother. Mr. Smith then repeats these charges to reporters as he leaves the courthouse. Mr. Respectable Sues MR. Smith for slander as a result of the falsehoods he has stated to the reporters. Will Mr. Respectable be able to recover damages from Mr. Smith? a. Yes b. No

a. Yes

16. You are a CPA asked to do the audit for Acme Products. Your Uncle owns approximately 6 percent of ACME's Stock but is not a member of Management. Can you do the audit? a. Yes, if there are no other conflicts b. No, your uncle's stock ownership will violate your independence c. Yes, but only if your uncle puts the stock in a blind trust.

a. Yes, if there are no other conflicts

44. Circular 230 requires that you notify the client in writing about any errors you have discovered in his prior returns and what the penalties could be if those errors are not corrected. a. True b. False

b. False

45. You are a CPA in California and are informed that you are the subject of an investigation by the PCAOB. a. You must report the opening of the investigation to the State Board of Accountancy within 30 days b. You will have to report the investigation results to the Board of Accountancy within 30 days of a conviction c. You will not have to report the results of the investigation to the State Board of Accountancy until you are convicted and all appeals have failed. d. You do not have to report the investigation to the State Board unless you are penalized more than $30,000 by the PCAOB

a. You must report the opening of the investigation to the State Board of Accountancy within 30 days

9. Circular 230 requires that a tax preparer avoid taking a frivolous position. A Frivolous position is defined as a position that has what percentage or less chance of succeeding? a. 10% b. 20% c. 40% d. 50%

b. 20%

10. Under Circular 230, which percentage probability of success is permissible but will require disclosure on the return to avoid penalties if it does not prevail. a. 10% to 20 % b. 20% to 40 % c. 40% to 50% d. Greater than 50%

b. 20% to 40 %

42. The Securities Act of 1934 primarily dealt with a. Initial Public Offerings b. Annual Reporting Requirements after the initial public offerings c. Corporate Internal Controls d. B and C above

b. Annual Reporting Requirements after the initial public offerings

7. In the HealthSouth case, the auditors failed to meet their ethical and professional obligations because they failed to uncover fraud in which account? a. Inventory b. Contractual allowance c. Sales returns d. All of the above

b. Contractual allowance

4. Egoism: a. Considers the rights and duties of stakeholders b. Defines the "right" course of action in terms of consequences to the decision maker. c. Evaluates the consequences of actions (harms and Benefits) to the stakeholders d. Traces its origins back to the ancient Greeks, Plato and Aristotle e. Is associated with John Rawls of Harvard University

b. Defines the "right" course of action in terms of consequences to the decision maker.

21. It is good business practice to send numerous copies of the Client's Financials directly to all of his creditors and shareholders upon the client's request, because it gets the firm name out to numerous potential clients and makes the client happy. a. True b. False

b. False

28. In order to convict you of a violation of the Foreign Corrupt practices Act The Government must show that you actually gave a bribe to a foreign government, government official, political party, or a candidate for office. a. True b. False

b. False

30. The Private Securities Reform Act (PSLRA) increased the auditors' liability from proportionate liability to Joint and Severable Liability in cases where the auditor did not have Scienter. a. True b. False

b. False

36. Under the Ultramares and Bylie Decisions third parties cannot recover against the auditor under any theories of negligence, gross negligence, Fraud, or negligent misrepresentation. a. True b. False

b. False

38. A CPA, like a lawyer, will always have a fiduciary duty to his client. a. True b. False

b. False

44. A fraud conviction in an area unrelated to the practice of accounting does not need to be reported to the state board of accountancy. a. True b. False

b. False

26. Tom Jones, a former client, who just fired you calls you and demands that you give him your work papers. What are you required to do? a. Tell him that he needs to pay your bill before you will give him the work papers. b. Give him back his records and any documents without which his books and records would be incomplete, such as support for journal entries, depreciation schedules you prepared and deferred tax work papers. c. Give him access to all your work papers. d. Give him access to all your work papers and meet with him to answer any questions he may have on them.

b. Give him back his records and any documents without which his books and records would be incomplete, such as support for journal entries, depreciation schedules you prepared and deferred tax work papers.

20. The IMA's Statement on Ethical Professional practice stresses which ethical Principles: a. Integrity and Diligence b. Honesty, Fairness, Objectivity and Responsibility c. Truth, Justice , and the American Way d. Reliability, loyalty, and duty e. None of the above

b. Honesty, Fairness, Objectivity and Responsibility

8. Which of the following is an element of the introductory paragraph of an auditor's report? a. Identifies the type of opinion the auditor is giving b. Identifies the entity, financial statements being audited and time period c. Identifies audit testing and procedures used d. Identifies the generally accepted auditing standards followed in conducting the audit

b. Identifies the entity, financial statements being audited and time period

43. Who was the first SEC Commissioner during the time the Securities Acts of 1933 and 1934 were passed? a. Franklin D, Roosevelt b. Joseph Kennedy SR. c. John Kennedy d. William Taft

b. Joseph Kennedy SR.

17. In doing your conflict check in preparation to bid on the Acme audit you discover that your partner's son works in the warehouse, stocking shelves at Acme. Will this prohibit you from doing the audit? a. Yes b. No

b. No

37. John Smith goes to court and testifies under oath that Mr. Respectable is in fact a criminal, who also beats his wife, his dog and his mother. Mr. Respectable sues MR. Smith for slander as a result of the falsehoods included in his testimony. Will Mr. Respectable be able to recover damages from Mr. Smith? a. Yes b. No

b. No

18. You are a CPA asked to do the audit for Acme Products. Your daughter owns approximately 6 percent of ACME's Stock but is not a member of management and has no say in the running of the company. Can you do the audit? a. Yes, if there are no other conflicts b. No, your daughter's stock ownership will violate your independence

b. No, your daughter's stock ownership will violate your independence

12. You have a new client. Upon reviewing his prior years return you discover that his prior return has a major error and if it is corrected the client will owe an additional $5,000 in taxes plus penalties and interest. The client refuses to amend the prior year's return. Your ethical duties require you to: a. Terminate your relationship with the client b. Notify the client of the error and potential penalties and interest that he might have to pay if he gets caught by the IRS. c. Simply notify the client of the error and ask him if he wants you to amend the return. d. To amend the return and if he refuses to sign it and send it to the IRS, then you must send it to the IRS and notify them of the error.

b. Notify the client of the error and potential penalties and interest that he might have to pay if he gets caught by the IRS.

47. This man went undercover with the Klu Klux Klan and got the producers of the Superman Radio Show to expose the clan. a. John Rawls b. Stetson Kennedy c. J. Edgar Hoover d. Melvin Purvis e. Elliot Ness

b. Stetson Kennedy

16. Under which of the following set of circumstances might the auditors disclaim an opinion? a. The financial statements contain a departure from generally accepted accounting principles, the effect of which is material b. The auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion c. There has been a material change between periods in the method of the application of accounting principles d. Differences with management that lead to trust issues on the part of the auditor

b. The auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion

17. Which of the following is true about PCAOB audit standards? a. The required standards apply to all companies b. The required standards apply to all public companies only c. The required standards apply to all privately held companies only d. The required standards apply to all not-for-profit entities

b. The required standards apply to all public companies only

10. This school of ethics is associated with Jeremy Bentham and John Stewart Mills: a. Deontology b. Utilitarianism c. Enlightened Egoism d. Value Ethics e. Social Justice

b. Utilitarianism

37. When a CPA is sued for Malpractice the "standard of care" is what the CPA should have met to win the case. The "standard of care" is defined as: a. The highest level of diligence b. What the typical CPA practicing in the community would do c. What the finest CPA Firm in the area would do. d. A level of diligence that would reveal material fraud and wrong doing

b. What the typical CPA practicing in the community would do

39. When a CPA moves he must notify the State Board of Accountancy of his new address: a. Within 90 days if he has an active license b. Within 30 days if he has had a license, regardless of whether it is active, inactive, expired, or revoked. c. Within 30 days, but only if he has an active license. d. Within 90 days if he has had a license, regardless of whether it is active, inactive, expired, or revoked. e. Within 10 days if he has an active license

b. Within 30 days if he has had a license, regardless of whether it is active, inactive, expired, or revoked.

22. Which of the following Legal Decisions resulted in the AICPA requiring mandatory engagement letters for all financial statement engagements? a. The Ultramares v Touch Case b. The Bylie V. Arthur Young Case c. 1136 Tenants Corp V. Max Rothenberg d. Murphy V. B D O Seidman LLP

c. 1136 Tenants Corp V. Max Rothenberg

49. 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

c. All CPAs who render attestation services

46. When an auditor acts so carelessly in the application of professional standards that it implies a reckless disregard of the standard of due care is referred to as a. Scienter b. Fraud c. Constructive Fraud d. Negligence

c. Constructive Fraud

3. Utilitarianism is a school of ethical thought that: a. Considers the rights and duties of stakeholders b. Defines the "right" course of action in terms of consequences to the decision maker. c. Evaluates the consequences of actions (harms and Benefits) to the stakeholders d. Traces its origins back to the ancient Greeks, Plato and Aristotle e. Is associated with John Rawls of Harvard University

c. Evaluates the consequences of actions (harms and Benefits) to the stakeholders

47. A payment to a foreign government official to ensure that they do what is expected given their job requirements can be characterized as a: a. Bribe b. Asset misappropriation c. Facilitating Payment d. Illegal Payment

c. Facilitating Payment

28. The COSO Study of 347 cases of Fraudulent Financial reporting which occurred from 1998 to 2007 found which of the below to be the most common fraud technique, having occurred in 60 % of the frauds studied? a. Improper Disclosure b. Over or understated Inventories c. Improper Revenue Recognition d. Capitalization of expenses

c. Improper Revenue Recognition

12. This rather eccentric ethical scholar has had his body preserved as an auto - icon and his head is preserved in a jar at University College London to this day. a. John Locke b. Thomas Hobbes c. Jeremy Bentham d. John Stuart Mills e. John Rawls

c. Jeremy Bentham

24. This Company was threatened with a boycott by the Klu Klux Klan for their sponsoring a series of Superman Radio Shows that revealed the Klan to be hypocrites and anti - American. Despite threats from the Klan - this company did not back down from sponsoring these shows. This company is: a. General Mills b. General Motors c. Kellogg's Cereals d. General Tire e. Post Cereals

c. Kellogg's Cereals

19. The McKesson Robbins Case resulted in the SEC requiring which changes a. Mandatory Audit Partner rotation every 5 years b. Mandatory rotation of Auditing firms every 5 years c. Mandatory Audit Committees and having the shareholders approve the auditors d. The formation of the PCAOB

c. Mandatory Audit Committees and having the shareholders approve the auditors

26. Which of the following was not a factor in Donald Cresssey's theory of Fraud causation known as the Fraud Triangle? a. Opportunity b. Rationalization c. Mental Pathology d. Financial Pressure

c. Mental Pathology

20. The Ultramares Doctrine limits the liability of auditors to third parties for which of the following? a. Fraud b. Gross Negligence c. Negligence d. Negligent Representation

c. Negligence

4. CPAs can advertise and solicit clients as long as such practices are: a. Conducted in a professional manner b. Informative about the CPA's services c. Not conducted in a misleading or deceptive manner d. Paid for by outside parties

c. Not conducted in a misleading or deceptive manner

34. The legal Theory of Scienter a. Was first developed by the McKesson Robins Case b. Originated in the Ultramares V. Touch Case c. Originated from the English Common law determining if a person was responsible for property damage or physical injuries brought about by animals they owned d. Was discredited and thrown out by the Bylie case

c. Originated from the English Common law determining if a person was responsible for property damage or physical injuries brought about by animals they owned

41. The most common cause of fraudulent financial statements is: a. Improper Disclosures b. Expense Understatement c. Revenue recognition issues d. Improper Asset Valuations e. Mathematical errors

c. Revenue recognition issues

48. Under section 302 of the Sarbanes Oxley Act who is require to certify the financial statements? a. The independent Auditor b. The CEO c. The CEO and the CFO d. The CFO

c. The CEO and the CFO

48. The AICPA Code of Professional Conduct, The IMA Code of Ethics and The IIA's Ethics are all based on : a. Deontological Ethics b. Jeremy Bentham's theory of ethics c. Value Ethics d. John Rawl's theory of Social Justice e. Consequential ethics

c. Value Ethics

When would it be appropriate for an auditor to withdraw from an engagement? A. In order to avoid issuing an adverse opinion B. When that auditor cannot observe the taking of inventory or is unable to confirm receivables c. When the management cannot be trusted. d. When the auditor has overbooked too much work.

c. When the management cannot be trusted.

34. In order to do governmental audits, A CPA renewing his license must, in addition to other requirements get how many hours of so called "yellow Book" training in doing government audits. a. 4 b. 12 c. 28 d. 24

d. 24

18. The McKesson Robbins Case resulted in which changes to auditing standards? a. The mandatory observation of inventories b. The mandatory confirmation of Accounts receivables c. Preparation of a Mandatory proof of cash d. A and B above

d. A and B above

27. It is considered unethical to take a commission from a third party when: a. You are referring a client to that party b. You are doing any work that requires independence for the client involved c. When you don't get the client's oral permission to do so. d. A and B above e. A, B, and C above

d. A and B above

31. The Dodd Frank legislation: a. Required companies to have claw back rules in order to be listed on the stock exchange b. Allowed for claw backs of bonuses and profits from stock sales for only the CFO and CEO c. Encouraged whistleblowers by requiring that the SEC must pay whistleblowers 10 to 30 percent of monetary sanctions imposed d. A and C Above

d. A and C Above

45. A Privity relationship means that: a. A party may be a user of Financial Statements b. A party may sue if fraud has taken place c. A party's financial liability is limited d. A party has a contractual obligation

d. A party has a contractual obligation

7. Enlightened Egoism : a. Considers the well-being of others within the scope of deciding on a course of action based on self-interest. b. Is similar to Karma in that good comes to the decision maker by doing good to others c. Is not a workable theory in reality d. Answers a and b above are correct

d. Answers a and b above are correct

19. Your firm does the audit for Smith Company's pension plan trust. You have been asked to do a valuation for Smith Company for use in its financial decision making process. Can you do the valuation and the pension plan audit? a. You could do the pension plan audit, but not the valuation as it would violate your independence to do the audit. b. You could do the valuation, but not the audit as you would not be considered independent. c. You could do both the pension plan audit and the valuation d. Both a and b above are correct.

d. Both a and b above are correct.

11. The influence of this school of ethics is clearly present in the AICPA Code of Professional Conduct and the IMA Code of Ethics: a. Deontology b. Utilitarianism c. Enlightened Egoism d. Value Ethics e. Social Justice

d. Value Ethics

15. An auditor concludes that a client has committed an illegal act that has not been properly accounted for or disclosed. The auditor should withdraw from the engagement if the a. Auditor is precluded from obtaining sufficient competent evidence about the illegal act b. Illegal act has an effect on the financial statements that is both material and direct c. Auditor cannot reasonably estimate the effect of the illegal act on the financial statements d. Client refuses to take the remedial steps deemed necessary by the auditors

d. Client refuses to take the remedial steps deemed necessary by the auditors

6. What ethical rules are violated when a CPA auditing a client provides inside information about the client to a friend? a. Independence and objectivity b. Objectivity and due care c. Due care and confidentiality d. Confidentiality and integrity

d. Confidentiality and integrity

32. The Caremark Opinion a. was precedent setting for directors obligations b. involved violations of Medicare's anti-referral law c. was by the Delaware Court of Chancery and ruled that directors have affirmative fiduciary obligation to ensure adequate information and reporting systems exist d. Did all of the above

d. Did all of the above

14. You have a conflict of interest because you do the tax and audit work for both Smith Company and their biggest competitor, Jones Company. Under Circular 230 what are you required to do if you want to work on both companies what should you do? a. Disclose the conflict of interest and get both clients to waive the conflict. b. Nothing, this sort of thing happens all the time. c. Disclose the conflict of interest in writing and get both clients to waive the conflict in writing and keep the written waiver for 7 years after you cease work. d. Disclose the conflict of interest in writing and get both clients to waive the conflict in writing and keep the written waiver for 3 years after you cease work.

d. Disclose the conflict of interest in writing and get both clients to waive the conflict in writing and keep the written waiver for 3 years after you cease work.

33. In order to sign off on financial statements a CPA must: a. Get 30 hours of audit and accounting Courses and 4 hours of a Fraud Course b. Get 24 hours of audit and accounting course, of which 4 must be in the Fraud area c. Get 24 hours of Audit and Accounting courses plus 4 hours of fraud classes. d. Get 24 hours of Audit and Accounting courses plus 4 hours of fraud classes and 4 hours of ethics classes plus 80 hours every two years of which 40 must be in a technical area. He must also get 20 hours in each of the two years, of which 12 must be technical, and every third renewal period he must get 2 additional hours of regulatory ethics training. e. A, B, C, and D above are all correct

d. Get 24 hours of Audit and Accounting courses plus 4 hours of fraud classes and 4 hours of ethics classes plus 80 hours every two years of which 40 must be in a technical area. He must also get 20 hours in each of the two years, of which 12 must be technical, and every third renewal period he must get 2 additional hours of regulatory ethics training.

50. The most important duty of public accounting is to the: a. Securities Exchange Commission b. Current stockholders c. Management d. Investing public

d. Investing public

42. The SEC required that public companies have audit committees of "outside" directors and that the appointment of auditors be approved by the shareholders as a direct result of this famous Accounting Scandal. a. Enron b. Broadcom c. Mini Scribe d. McKesson and Robbins

d. McKesson and Robbins

49. How long do management and the audit committee have to act if the auditor reports possible illegal acts to them? a. 5 working days b. 30 Days c. Three business Days d. One business Day

d. One business Day

5. Which of the following relationships do not impair CPA-auditor independence? a. Financial relationships with the client b. Business relationships with the client c. Family relationships whereby an immediate family member holds a decision-making position with the client d. Relationships where a best friend serves in a financial reporting oversight role with the client

d. Relationships where a best friend serves in a financial reporting oversight role with the client

24. In the Nucorp Case the auditors were able to prevail by showing that a. the Auditor didn't have duty to the 3rd party b. That the Statute of Limitations had expired c. Auditors work was performed as it should have been d. That the plaintiffs losses were due to other events and would have been incurred regardless of whether the audit was incorrect

d. That the plaintiffs losses were due to other events and would have been incurred regardless of whether the audit was incorrect

29. PCAOB Auditing Standard Number 16 requires the auditor to communicate with the audit committee regarding all but one of the following items. Which of the below is not required to be discussed with the audit committee? a. Significant Accounting Practices and Policies b. Critical Accounting Policies and Practices c. Critical Accounting Estimates d. The Audit bill for the next year's audit

d. The Audit bill for the next year's audit

27. The COSO Internal Control Integrated Framework recognizes 5 interrelated components. Which one of the following is not one of these 5 components? a. The Control Environment b. Control Activities c. Monitoring of Controls d. The Political Environment

d. The Political Environment

13. You have taken a position on a client's tax return that you believe has a 40% or better chance of succeeding. Such a position is considered to : a. To be a Frivolous Position b. To be a Reasonable Position, that must be disclosed on the return to avoid penalties. c. To have substantial authority, but must be disclosed to avoid penalties d. To have substantial authority which does not require additional disclosure to avoid penalties

d. To have substantial authority which does not require additional disclosure to avoid penalties

2. " Value Ethics": a. Considers the rights and duties of stakeholders b. Defines the "right" course of action in terms of consequences to the decision maker. c. Evaluates the consequences of actions (harms and Benefits) to the stakeholders d. Traces its origins back to the ancient Greeks, Plato and Aristotle e. Is associated with John Rawls of Harvard University

d. Traces its origins back to the ancient Greeks, Plato and Aristotle

22. Lawrence Kohlberg's research showed that individuals grow to various levels of ethical awareness. His research has been widely criticized because: a. He only tested males from the Chicago area - his study excluded females. b. His statistics would be an example of disjointed universes - you should not test a unique sample and apply those results to the total population when you have not tested the total population. c. He was criticized by his own colleagues, such as Mary Gilligan. d. He was a Harvard Professor, which would make him immediately suspect as being out of touch with reality and an academic egg-head! e. A, B and C above

e. A, B and C above

35. A CPA may show client work papers to the following without getting permission from the client: a. A company looking to buy the CPA's Accounting Practice b. Government regulators such as the SEC or the State Board of Accountancy c. Peer reviewers d. The FBI or the secret service e. A, B. and C above are correct.

e. A, B. and C above are correct.

43. Which of the following are true about Whistleblowers: a. In the R. Allen Stanford Ponzi scheme, the whistleblower was ignored b. In the Bernie Madoff scandal the Sec failed to act on tips 8 years before failure from external whistleblower c. Under the Dodd Frank Wall Street Reform and Consumer Protection Act , Whistleblowers who only report internally may not be protected d. Under the Dodd Frank Wall Street Reform and Consumer Protection Act , Whistleblowers who aid in recovery of $1M or more, can receive 10-30% of the amount e. All of the above

e. All of the above

6. The ethical Theory of Social Justice is unworkable and undesirable in reality because: a. It assumes that Allocation decisions are made by disinterested persons without considering their own self-interest - Do such persons exist? It does not say who determines what is socially beneficial? Are such decisions made by Bureaucratic Czars? Obviously all the people can't vote on every decision. In the absence of people working against their own self-interest it would require an authoritarian body to make economic allocation decisions, which history has shown results in massive abuses of human rights. b. It Ignores the rights of the top earners in society and by so doing discourages people from working to better themselves and society, thus society declines c. It has common aspects to Carl Marx's theory "from each according to his abilities, to each according to his needs". Marx's theory of communism has shown itself to be an economic disaster and a civil rights abomination everywhere it has been implemented. It removes incentive to work if all get equal benefits and society regresses and as a result is doomed to fail just as communism has been an economic and civil liberties disaster in every country it has been tried in. d. It lends itself to demagoguery and the politics of envy where leaders appeal to the masses by redistributing wealth to make them dependent of government and enhance the control of the Demagogue. (This is nothing new - it goes back to ancient Rome and beyond) e. All of the above

e. All of the above

32. The California continuing education requirements to renew a CPA license require: a. That a CPA renewing his license obtain 80 hours of continuing education in a two year period. b. That the CPA renewing his license obtains at least 20 hours in each of the two years during the renewal period c. That the CPA renewing his license gets at least 12 hours of technical education in each of the two years d. That the CPA renewing his license gets at least 40 hours of technical education in the two year period. e. All of the above.

e. All of the above.

21. The Heinz Dilemma used by Kohlberg a. Was a realistic dilemma that one might be likely to find in real life b. Shows a complete lack of knowledge of how private business operates as regards the conduct of the druggist, and is typical of the thought of many college professors who have no knowledge of business. c. Would never happen in real life because the druggist would make a greater profit if he sold the medicine for a thousand dollars as it would not affect his other customers. d. Would never happen in real life because the druggist would make more money by extending credit to Heinz for the second Thousand dollars. e. B, C. and D above are all correct.

e. B, C. and D above are all correct.

30. Prosecutions under the Foreign corrupt practices act: a. Are far less numerous today than they were 10 years ago because businesses are more ethical b. Are far greater in number today than they were 10 years ago c. can be either civil or criminal, or both d. Do not apply to the giving of minor gratuities for processing permits or other routine government services, as long as they do not bring about any behavior which the official is not supposed to do as part of his job. e. B,C and D above are all correct

e. B,C and D above are all correct

25. If you have come upon an ethical problem in your accounting practice, which could result in Civil or Criminal charges being brought against the firm, the first thing you should do is: a. Discuss it thoroughly with all your partners and managers b. Discuss it with your senior partner only c. Interview those involved to get the facts you will need to defend the matter. d. Talk to your college ethics professor about the matter and get his advise e. Hire a lawyer and have him present in person or on the phone before you talk to anybody about the case

e. Hire a lawyer and have him present in person or on the phone before you talk to anybody about the case

5. The Theory of Social Justice: a. Considers the rights and duties of stakeholders b. Defines the "right" course of action in terms of consequences to the decision maker. c. Evaluates the consequences of actions (harms and Benefits) to the stakeholders d. Traces its origins back to the ancient Greeks, Plato and Aristotle e. Is associated with John Rawls of Harvard University

e. Is associated with John Rawls of Harvard University

46. In the Cherokee Parable of the two wolves which exist in all of us, one wolf is evil, it is jealousy, greed, resentment, inferiority, lies and ego. The other wolf is good, it is joy, peace, love, hope, humility, kindness, empathy and truth. Which wolf will win the battle for our soul? a. The evil wolf b. The good wolf c. The stronger wolf d. The smartest wolf e. The wolf you feed

e. The wolf you feed

a

he philosophical methods of moral reasoning suggest that once we have ascertained the facts, we should ask ourselves certain questions when trying to resolve a moral issue. Which of the following is NOT one of those questions? A. Which course of action maximizes my net benefits? B. Which course of action develops moral virtues? C. Which course of action advances the common good? D. What benefits and what harms will each course of action produce and which alternative will lead to the best overall consequences?

eudaimonia

human well being -platos' virtue based ethics are eudaemonistic aka human well being is the highest aim of moral thought and conduct