Accounting Ethics Chapter 3
The intent of external auditors qualifying for whistleblower awards is to ensure
Wrongdoing by the accounting firm is reported
The responsibilities of ethics compliance officers include
Ensure compliance with laws and regulations Help to create a positive ethical tone in the organization Serve as the key person to report ethics violations Serve as a sounding board for management to try out new ideas
Jennings points to seven common signs of ___ ___ in a company
Ethical collapse
Which of the following promotes ethical behavior in an organization?
Ethical norms and standards within the organization Rules of conduct within the organization Effective leadership within the organization
One of the biggest issues that corporate boards of directors face is ___ ___ and it has been found that most boards spend more time on this than ensuring the integrity of financial reporting
Executive compensation
The business judgment rule establishes the legal liability of the board of directors by holding them accountable for
Exercising a level of care expected of a reasonable person Exercising diligence in the oversight of the company's operations
Auditors who have an obligation to the public interest that underlies their corporate governance responsibilities are known as ___ auditors
External
Which of the following is the most commonly occurring anti-fraud control according to the ACFE Global Fraud Survey
External audit
Which of the following is not a source of ethical collapse in an organization?
Failing to properly manage the organization
In Miceli and Near's research, the primary reason given by whistleblowers for not coming forward is
Fear of retaliation
In the case of the Ford Pinto
Ford relied completely on utilitarian thinking Ford complied with all the laws and safety issues
The purposeful manipulation of financial statements is called ___
Fraud
A conclusion that might be drawn from Johnson and Johnson's actions in the Tylenol incident is
Good ethics is good for business
Which of the following is another way of saying that a moral meltdown has occurred at a company that has experienced an ethical collapse?
Good people in companies do really dumb things
The person-organization fit in the Ethical Dissonance Model that creates the greatest likelihood of ethical behavior occurring is
High organizational ethics, high individual ethics
A test based on reasonably foreseeable economic harm and a test based on materiality are used to determine whether a private individual has committed which type of fraud
Honest services fraud
The audit committee should
Monitor the integrity of the financial statements
According to the National Business Ethics Survey, the two most common observations of employees about ethics in their organizations is
Observed misconduct Reported observed misconduct
The conditions in an organization that limit or permit ethical or unethical behavior are referred to as
Opportunity
The moral atmosphere of the work environment and the amount of ethics practiced is referred to as the ___ ethical climate
Organizational
A company's reputation for trust is enhanced when
Organizational values guide actions by employees Organizational values are supported by top management Employees follow through ethical intent with ethical action
The size of executive pay packages are of concern because
Pay packages are excessive in relation to average worker salaries CEOs in the US are paid many times more than their counterparts in other countries
Which of the following factors appear in every case of financial statement fraud?
Perceived opportunity Situational pressure Rationalization
Each of the following can cause the ethical collapse of an organization
Rationalizing unethical actions Failing to act with integrity Asking "can it be done legally?" rather than "should it be done?" Failing to meet earnings targets
Improper asset valuations include all of the following except
Recording depreciation over estimated useful lives
Operating expenses can be understated by
Reporting operating expenses as part of cost of goods sold Failing to record operating expenses Capitalizing costs that should be expensed
"Say on pay" provisions:
Require public companies to explain how their compensation policies have taken into account the results of say on pay provisions Require public companies to provide shareholders a non binding vote on executive pay of designated officers Require public companies to allow shareholders to vote on executive compensation of designated offers at least once every three years
Revenues can be overstated by recording
Revenues too soon Bogus revenues
Internal auditors:
Review effectiveness of the audit committee Oversee risk management processes Review effectiveness of whistleblower provisions
Application of the COSO framework to the Enron and Worldcom frauds may have strengthened internal controls that failed because
The board and audit committee did not take their responsibilities seriously
When an individual with low ethics joins an organization with low ethics
The employee adopts the attitude of going along to get along The fit is there, but it turns in a negative direction of corruption The employee is more willing to participate in corruption
Which of the following do Koh and Boo identify as measures of organizational ethics?
The ethical climate of the organization The connection between ethical behavior and career success Support for ethical behavior from top management
Which of the following are criteria DeGeorge identifies when whistleblowing is morally acceptable
The firm's actions will do considerable harm to others Documented evidence must exist that certifies the individual's view is correct The employee must believe that going public is worth the risk to oneself
In business, which has a greater influence on decision making?
The organization's values
The ethical environment that is created in an organization by its leadership is known as
The tone at the top
How does the culture of an organization contribute to ethical decision making?
Through organizational relationships Through organizational expectations By the tone set by those at the top of the organization
According to ACFE report, the motivation for an employee to engage in occupational fraud includes
To steal assets from the organization such as cash To achieve some personal gain To enrich oneself at the expense of the organization
Backdating of stock options has been of concern in the past because
Top managers recieved more compensation from option packages than what would have occurred without the backdating Backdating of options is difficult to justify from an ethical perspective The option criteria were manipulated to make them ore valuable to top executives
TF: A corporate governance system includes mechanisms to ensure that management operates the organization in the interests of shareholders
True
TF: Internal control systems cannot guarantee all fraud will be detected
True
Which of the following increased from 2011 to 2013 in the Views of Employees on Ethics in the Workplace survey?
Use of ethical conduct as a performance evaluation measure Ethics training programs
What was an underlying theme in nearly all of the companies with major accounting frauds in the early 2000s?
Weak board of directors
Enron and Worldcom both failed as going concerns as a result of
A tension between ethics and the bottom line Pressure to maintain the numbers An excessive emphasis on financial results at all costs
The COSO report identifies the following components of the internal control framework
Control activities The control environment Monitoring Risk assesment
The objectives of internal control include:
Effectiveness and efficiency of operations Reliability of financial reporting Compliance with applicable laws and regulations
According to the ACFE Global Survey, the typical organization loses
5% of its revenue to fraud each year
The survey on occupational fraud and abuse found
85% of the reported cases of fraud were due to misappropriation of assets That frauds lasted about 18 months before being detected Financial statement fraud schemes made up 9% of frauds
Which of the following is the most common method of detecting occupational fraud?
A Tip
Which of the following were findings in the KPMG Integrity Survey 2013 that looked at organization misconduct
A driving force behind misconduct was pressure to do whatever it takes to meet targets More than 50% of employees reported the observed misconduct could cause a loss of public trust Almost 75% of employees observed misconduct in their organization within the past 12 months
The Categorical Imperative in Kant's ethical system implies
A rational, moral person will report wrongdoing regardless of perceived retaliation because it is a moral requirement to do so
When an individual with high ethics joins an organization with low ethics, the likely result is
A reduction in job satisfaction Higher employee turnover
Which of the following are potential concerns of the whistle blowing program
A self interested person may reveal company information with inadequate safeguards as to the quality of the information Permitting compliance officers to become whistleblowers based on the passage of time may dissolve trust in compliance officials
Which of the following must be included in a company's internal control report according to SOX
A statement of management's responsibility over internal control An attestation report from the auditor covering managements assessment of effectiveness of internal control A management assessment of the effectiveness of internal control
Ford used questionable ethical reasoning in the Pinto case because it relied on
Act utilitarianism
Conflicts of interest between managers and principles is known as the ___ problem
Agency
Financial statement fraud schemes occur because
An employee's actions cause a misstatement of material information in the financial reports
SOX requires
An independent audit committee that oversees financial reporting
The Dodd-Frank whistleblower provisions contain
Anti-retaliatory protections for whistleblowers Financial incentives for blowing the whistle
Which of the following is not an indicator of possible fraud
Association with vendor / customer
According to the Treadway Commission Report, internal auditor concerns about the financial statements should be reported directly to the
Audit committee
SOX requires the audit committee
Be completely independent of management
Values in an organization can best be thought of as
Beliefs or convictions that guide behavior and support the overall organization vision
Directors are typically protected from liability for the consequences of a decision that is within managerial authority under the ___ ___ rule
Business judgment
Identify the elements of corporate culture
CEO and CFO Audit committee Internal auditors
Clawback actions by the SEC occur because
CEOs and CFOs breached their fiduciary responsibility CEOs and CFOs receive excessive pay from stock profits tied to earnings that were restated CEOs and CFOs had knowledge of financial wrongdoing during a financial restatement period
Which of the following procedures is required under SOX to protect the public against fraudulent financial reporting?
Certification of financial statements by the CEO and CFO
Which of the following are rules managers should follow when fostering ethical leadership
Consider how actions will affect others Think about potential actions before making a decision Do not choose actions that will harm others Make decisions that respect the rights of others
The way in which corporations act to meet the interest of shareholders can be defined as ___ governance
Corporate
Under SOX, the audit committee is expected to
Create formal procedures for processing hotline claims Establish an anonymous method for employees to submit concerns
The board of directors are responsible for
Directing the business and affairs of the corporation Acting in good faith of the organization Acting in the best interests of the corporation
The duty of good faith is exhibited by
Directors having adequate knowledge to perform their responsibilities honestly
The requirement that a director or officer act in the best interest of the corporation while exercising good faith is known as the standard of
Due care
An honesty of intent that leads to caring for the well-being of stakeholders relates to
Duty of good faith
Directors and officers putting their personal interest after the welfare of the organization is an example of
Duty of loyalty
The ethical person-organization fit refers to
How ethical behavior might occur within an organization
At what point is the auditor required to report suspected fraud directly to the SEC?
If the auditor does not receive communication from the client to the SEC within one business day of the audit report to the board of directors
When an individual with low ethics joins an organization with high ethics, the likely result is
If the employee's behavior cannot be altered, the employee will leave the company Socialized employees will point out the disconnect Socialized employees may attempt to alleviate the ethical dissonance
Near and Miceli link whistle blowing to acts that are
Illegal Immoral Illegitimate
The Johnson and Johnson credo:
Implies that shareholders will earn a fair return if the company operates in accordance with their ethical values Emphasized the company's primary responsibility is to those who rely on the safety of their products
The ethics of whistleblowing has been questioned because Dodd Frank ___ the practice
Incentivizes
Having the procedures and structures in place to minimize or avoid conflicts of interest is another way of describing
Independence
Principles people use to decide what is right and wrong in the ethical decision making process are referred to as ___ values
Individual
Agency costs exist in agency theory because of ___ asymmetry
Information
The term agency costs refers to
Insiders know more about the future prospects for the corporation than outsiders The oversight of management when the board of directors fails to exercise due care in carrying out its responsibilities The imbalance that exists between information known by the corporation and its investors
The standard that establishes the basis for moral action and to avoid subordination of judgment is the ___ standard
Integrity
Unethical behavior and financial collapse sometimes go hand and hand because of
Intense pressure to maintain the numbers Loyalty to the boss An unrealistic emphasis on meeting financial projections
Mechanisms that help manage and monitor corporate governance activities to create sustainable shareholder value are known as ___ corporate governance mechanisms
Internal
The effectiveness of internal control systems should be ensured by the ___ auditors
Internal
Unless certain exceptions apply, the Dodd-Frank Act excludes the following individuals from receiving whistle blower awards
Internal auditors Internal compliance officers
The processes and procedures that management puts in place to protect company assets and to ensure company activities are conducted in accordance with the organization's policies comprise the system of
Internal control
SOX is intended to deter financial fraud because
It establishes rules as to how violators will be punished
The disclosure of wrongdoing by a client will not violate the CPA's confidentiality obligation when
It is necessary to comply with SEC regulations It is necessary to comply with the provisions of Dodd Frank
Conclusions that might be reached based on recent product liability actions against Johnson and Johnson include
It reflected a changing culture of placing expediency ahead of ethical behavior It compromised the trust of the public in its products
The model that looks at the role of one's personal code of conduct in ethical behavior within an organization is called
Jones-Hiltebeitel model
When a company retaliates against an employee for bringing bad news to the attention of top management, a ___ the ___ syndrome exists
Kill Messenger
Dennis Kozlowski, the CEO of Tyco, selected employees based on
Lack of experience Reluctance to challenge authority Possible conflicts of interest
How did the actions of Cynthia Cooper in the Worldcom fraud relate to the ethical person-organization fit
Low organization; high individual ethics
Why is the giving voice to values technique critical in ethical decision making in business?
Rules governing ethical dilemmas are often vague The correct decision is often unclear The results of the decision are unkown
The intensity of an ethical situation is based on
Situational pressures in the workplace Norms in common situations Values of those involved
The degree to which a company understands and addresses shareholder demands is known as
Stakeholder orientation
The most frequently observed misconduct in organizations in the 2013 National Business Ethics Survey was
Stealing or theft
Stewardship theory differs from agency theory because
Steps are taken to enable managers rather than control them The steward-CEO can best act by holding both the CEO and board chair positions Managers place the interests of shareholders ahead of self-interests
An ethical workplace culture is influenced by
Strong internal controls Whistleblowing policies Having an ethical code of conduct