Ethics Quiz 2 (Chapter 5-7)

4. A facilitation payment: a. Is never lawful under the Foreign Corrupt Practices Act b. Is lawful under the Foreign Corrupt Practices Act as long as it does not involve the exportation of merchandise from the United States c. Is lawful under the Foreign Corrupt Practices Act as long as it does not involve the importation of merchandise into the United States d. Is always lawful under the Foreign Corrupt Practices Act

d

6. Enron's use of Special Purpose Entities led to: a. Widespread, and wholly unexpected, embezzlements of funds b. Widespread embezzlements of funds that could had, and should have, been readily anticipated c. The accounting profession developing the concept of consolidated financial statements d. Rule changes in GAAP

d

6. If a CPA charges a contingent fee in connection with providing professional services to a review client, the CPA's fee arrangement is: a. Permissible always b. Permitted only if the fee arrangement is expressed in a clear writing signed by the client c. Permitted only if the fee is reasonable in amount d. Never permissible

d

7. The "Dead President's" Effect refers to people's propensity, when cheating, to: a. Favor monetary rewards over nonmonetary rewards b. Prefer liquidity over illiquidity c. Favor rewards that are vivid and simple to understand over rewards that are abstract and complex d. Refrain from stealing cash

d

9. If a company makes a payment to a foreign government official to ensure that goods that are not entitled to be exported into that country are indeed allowed to enter that country, the company has given: a. A facilitation payment b. An unlawful referral fee c. A lawful referral fee d. A bribe

d

9. Some commentators have suggested that Enron would not have collapsed if it: a. Had enacted a Code of Conduct b. Had enacted a standard Code of Conduct rather than the weak one that it in fact had c. Had carefully complied with all of the provisions of the Sarbanes-Oxley Act d. Had not unduly focused on short-term stock performance

d

5. People who cheat are more likely to do so when: a. The line separating an ethical act from an unethical act is unclear b. The line separating an ethical act from an unethical act is clear c. They are well-rested d. They have a low self-image, but consider their self-image to be important

a

6. A homeowner would never steal money from her neighbors, but she does not hesitate to cheat on paying her dues owed to the local Homeowners' Association. This homeowner's actions can best be explained by the concept of: a. Moral compartmentalization b. Moral reminders c. The proximity effect d. The magnitude of the consequences effect

a

7. Enron used special-purpose entities to: a. Keep large amounts of debt off of its balance sheet b. Create the appearance of activities that fooled inspectors c. Distort its reported Accounts Receivable d. Avoid the use of accelerated depreciation on assets for which this method was required to be applied

a

9. When the probability of cheating being detected is zero, the Becker Rational Model predicts that people will: a. Cheat, without limit b. Cheat, by weighing the clear-cut benefits against the uncertain harm to their self-esteem c. Not cheat at all if they are believers in virtue ethics d. Not cheat, as long as the severity of punishment in society is severe

a

20. From the perspective of accounting, the downfall of Lehman Brothers was primarily attributable to: a. The company's undue focus on short-term earnings b. The company's blatantly deceptive revenue recognition policy on complex financial products and services c. Debt repayment transactions that lacked enduring economic substance d. A subtle variation on cookie jar accounting

c

4. Your expected gain from cheating is $600. The expected financial penalty from cheating is $300 and the expected probability of your cheating being detected is 25%. You also will experience a loss of self-esteem that has an estimated value to you of $500, whether or not your cheating is detected. You are likely to: a. Cheat, due to the copycat effect b. Not cheat, due to moral compartmentalization c. Cheat, applying the principles expressed by the Becker Rational Model d. Not cheat because cheating would be irrational

c

7. The key difference between a kickback and a contingent fee is: a. The amount involved b. Whether the percentage of the gain shared is equal or not c. A kickback refers to an unlawful transaction and contingent fees relate to lawful transactions d. All of the above

c

8. To curb potential abuse, publicly traded companies: a. May not do business with related parties b. May not have related parties serve on their Boards of Directors c. May do business with related parties, as long as such relationships and transactions are clearly disclosed d. May do business with related parties as long as such transactions occur at fair market value, as determined by the company's independent auditors

c

1. The Fraud Triangle refers to: a. The three acts of accounting deception that led to Enron's downfall b. The three alternative causes of fraud in large organizations c. The three alternative causes of financial fraud in business enterprises d. The three elements that collectively must be present for fraud to occur

d

10. A company makes a payment to a political campaign committee that supports the reelection of a foreign government official. The company's goal was to ensure that the government official authorizes goods that are not entitled to be exported into that country to indeed be allowed to enter that country. However, the company never had any direct communications with that government official. The company has given: a. A facilitation payment b. An unlawful referral fee c. A lawful bribe d. A bribe

d

11. By serving on the Board of Directors of various charities, Bernie Madoff was able to: a. Utilize their tax-exempt status to his advantage b. Invest funds in a nontaxable manner c. Hide his profits through the use of nonprofit organizations that were highly unlikely to be audited by the IRS d. Gain their trust

d

11. The term "proximity," as it is used in the issue-contingent model, describes: a. The immediacy with which harm is expected to occur b. The geographic distance between the location where harm occurs and the location of the decision-maker c. The degree of likelihood that harm actually will arise d. A person's affinity for the person or group harmed

d

13. An auditor has discovered that its audit client made numerous facilitation payments to foreign officials over the past two years. This client's stock trades on the New York Stock Exchange. The auditor should: a. Inform the SEC b. Inform authorities at the stock exchange c. Inform the companies' Audit Committee d. Ignore this discovery

d

14. When a person's net cash flow exceeds his reported taxable income, the presumption that this individual has misreported his income to taxing authorities can be rebutted by showing that: a. The cash flow was attributable to the receipt of a nontaxable inheritance b. The cash flow was attributable to loan proceeds c. The cash flow was attributable to the receipt of nontaxable gifts d. All of the above

d

20. Under insider trading rules applicable to publicly traded companies, an accountant is considered to be an "insider": a. Only if she Is a full-time accounting staff member of a company b. Only if she is an internal auditor of a company c. Only if she serves in a financial reporting oversight role d. Even if she is only temporarily on the company's premises as an external auditor

d

21. Under the insider trading rules, a staff accountant who manages the collection and recording of a publicly-traded company's Accounts Receivable is: a. Never considered to be an insider b. Prohibited from ever trading in the company's stock c. Prohibited from trading in the company's stock, unless the purchases are made in a retirement fund in which numerous other employees also participate d. Prohibited from trading in the company's stock if she possesses material, non-public information

d

23. Which of the following is not an "insider" for purposes of the insider trading rules? a. An internal auditor b. An independent member of the Board of Directors who does not own any company stock c. A shareholder who owns 7% of a company's stock and her husband owns 4% of the company's stock d. A investors who owns 20% of a company's general obligation bonds that are trading at a price roughly equal to their market value

d

24. In California, a CPA may: a. Always receive a referral fee in connection with the referral of a non-audit client b. Always pay a referral fee in connection with the referral of a non-audit client c. Never pay or receive a referral fee, in accordance with the AICPA's Code of Professional Conduct d. Never pay or receive a referral fee, even if the AICPA's Code of Professional Conduct otherwise might authorize it

d

3. The Becker Rational Model would likely be most helpful in: a. Assisting law enforcement authorities in setting the level of punishment imposed on a particular cheater after unlawful behavior has occurred b. Assisting potential cheaters in assessing the expected likelihood of getting caught c. Assisting potential cheaters in assessing the expected punishment they will endure, if and when they are caught d. Assisting potential cheaters in assessing the net economic gains they will garner from cheating

d

The overconfidence bias: a. Leads people to have an exaggerated fear of loss b. Leads people to overestimate the risks inherent in generating a possible gain c. Leads people to unduly fear losses d. Leads people to unduly minimize the odds of loss

D

19. A musician believed that his record company was not paying him the agreed-upon royalty on all songs downloaded by fans from a well-known music Internet site. This musician hired a CPA to perform a royalty audit of the record company's sales revenues. The musician and the CPA agreed that that the CPA will be entitled to receive 5% of all amounts recovered by the musician as a result of this royalty audit. They also agreed to keep the results private. This arrangement is: a. Ethical b. Unethical under all circumstances c. Unethical if the amounts recovered exceed fair compensation for the CPA's time and effort d. Unethical, unless a court or other administrative body, such as the American Federation of Musicians, approves of this fee arrangement

a

5. If a CPA charges a contingent fee in connection with providing management consulting services to a non-audit client, the CPA's fee arrangement is: a. Permissible always b. Permitted only if the fee arrangement is expressed in a clear writing signed by the client c. Permitted only if the CPA is not a member of the AICPA d. Never permissible

a

2. According to the Fraud Triangle, which the following is one of the requisites for fraud to occur? a. The perception of an opportunity for ill-gotten financial gain b. The existence of sound justification for a person to receive greater financial rewards c. The existence of a clear-cut opportunity for ill-gotten financial gain d. Employment in a sensitive financial capacity in which peers reap greater financial rewards than the employee contemplating fraud receives

a

3. A CPA wishes to accept a commission from one client for marketing the client's software product to other clients served by the CPA. The CPA: a. May do so as long as the CPA discloses this commission to these potential software purchasers and the potential purchasers are not audit clients b. Always may do so as long as the CPA discloses this commission to these potential purchasers c. May do so as long as the CPA discloses this commission to these potential software purchasers and the potential purchasers are not tax return preparation clients d. Never may do so

a

1. The Becker Rational Model is an economic model that weighs: a. The likely benefits from cheating against the likely costs b. The actual marginal benefits from cheating against the actual marginal costs c. The magnitude of harm that likely will arise from cheating against the probability of cheating being detected d. The expected maximum benefits from cheating against the expected maximum costs

a

10. Which of the following scandals involved expenses that were improperly were capitalized as assets? a. World Com b. Parmalat c. Bernie Madoff d. Enron

a

15. Which of the following scandals can best be described as a Ponzi scheme? a. The Madoff scandal b. The Healthsouth scandal c. The Krispy Kreme scandal d. All of the above

a

16. "Big bath accounting" describes a company's actions when it: a. Manages its earnings in a downward direction in the year of a major acquisition or restructuring b. Optimizes the amount of Goodwill recognized upon paying a premium to acquire another company c. Manages its earnings by maintaining such a large number of discretionary items that it could "fill a bathtub," so to speak d. "Cleans its books," so to speak, of improperly recorded items in anticipation of a rigorous audit examination

a

16. Mary, a CPA, accepted a fee from Rajiv, a CPA, for referring one of Mary's clients to him. Mary's client was not informed of this referral fee. Was Mary's acceptance of this fee permitted by applicable professional rules? e. No a. Yes, if Rajiv possesses specialized skills that Mary lacked b. Yes, if Rajiv possesses specialized skills that Mary lacks and Rajiv agreed to a non-contingent referral fee arrangement with Mary prior to provide services to the referred client c. Yes, as long Mary's fee arrangement is a lump-sum amount rather than a percentage of the amount that Rajiv bills this client for his services

a

18. Contingency fee arrangements are always allowed in tax matters if the amount of the fee an accountant is entitled to receive depends on: a. A determination by an IRS Administrative Board b. An "all or nothing" determination c. A percentage of the taxes saved d. The accountant's testimony in court being competent and persuasive to the judge or jury

a

1. The key difference between bribery of a public official and bribery of a corporate employee is that: a. Only bribery of a public official is ever unlawful under anti-bribery criminal laws b. Only bribery of a public official is unlawful under the Foreign Corrupt Practices Act c. Only bribery of a public official can ever result in a prison sentence in the United States d. Bribery of a corporate employee may exclusively be enforced through a civil action for damages by the corporation and never by government prosecution

b

12. A CPA, acting on behalf of a client company, makes a payment to a foreign government official to ensure that goods that are entitled to be exported into that country are processed more rapidly than other competing shipments into that country are processed. By doing so, the CPA has: a. Committed a direct violation of the Foreign Corrupt Practices Act's provision concerning "financial professionals and other client representatives" b. Not jeopardized her professional license c. Jeopardized her professional license if she also performed sales tax reporting services for that client during the same reporting period d. Definitely jeopardized her professional license

b

12. When a person's net cash flow exceeds his or her reported taxable income, the IRS: a. Has an automated system that identifies a taxpayer as a possible tax cheater b. Presumes, upon examination, that the taxpayer is underreporting his or her income c. Conclusively recognizes that the taxpayer is underreporting his or her income d. Conclusively recognizes that the taxpayer has underreported both income and tax payments

b

14. The "books and records" requirement of the Foreign Corrupt Practices Act require a firm involved in international commerce to maintain especially tight internal controls over transactions involving: a. Depreciation expense on real estate situated in foreign countries in which it does business b. Travel and Entertainment Expense c. Bonds Payable d. The amortization of Bond Discounts and Premiums

b

19. A "side agreement": a. Allows a company to charge a lower selling price to attract a new customer, without existing customers discovering this reduction b. A secondary agreement that overrides a primary agreement, for the purposes of committing accounting fraud c. An comparatively minor agreement that forensic investigators set aside during the course of conducting a fraud examination of major improprieties d. A technique used by Certified Fraud Examiners and others to deter potentially fraudulent actions

b

22. The Assistant Controller of a publicly-traded company may buy company stock as long as: a. She agrees to hold company stock for a minimum of six months b. She does not possess non-public information c. Her trading activities are authorized by her employment contract d. All of the above

b

3. Which of the following is not an element of The Fraud Triangle? a. A person's attitude b. A person's willingness to violate the Due Care Principle c. The presence of pressures to achieve specified performance levels d. The perceived opportunity for financial gain

b

4. Your employer operates in an industry in which company sales are expected to increase by 5% next year. Your employer, however, has issued earnings guidance in which it declared that it expects its sales to increase by 13% next year. As a result, which of the following elements of the Fraud Triangle are present? a. Rationalization b. Pressure to engage in channel stuffing c. Opportunity to exceed expectations d. Opportunity to garner above-market stock performance gains

b

5. Your employer operates in an industry in which company pre-tax earnings are expected to increase by 5% next year. Your employer, however, has issued earnings guidance in which it declared that it expects its pre-tax earnings to increase by 11% next year. As a result, which of the following elements of the Fraud Triangle are present? a. Attitudes b. Pressure to understate expenses c. Opportunity to overstate revenues d. All three elements are present

b

8. When there is no chance of their cheating being detected, some people do not cheat at all. This conclusion is: a. Consistent with the Becker Rational Model b. Inconsistent with the Becker Rational Model c. Consistent with the "cheater's high" theory d. Consistent with the "depleted resistance" theory

b

8. Which of the following would most likely be classified as a facilitation payment? a. A payment that encourages a high-ranking government official to facilitate a new business deal with a foreign supplier b. A payment that encourages a lower-level government official to perform a routine service more rapidly than it otherwise would be performed c. A payment that encourages a private-sector company to accelerate the delivery of goods or services in an international shipping transaction d. A payment that provides a lawful commission to a foreign agent or representation to enable a plant or other operational facilities to bypass certain regulations established by the Foreign Corrupt Practices Act

b

10. According to many behavioral scientists, the degree to which people cheat varies inversely with: a. Their social status b. Their financial and wealth status c. The degree to which they value their self-image d. The degree to which they have close family interactions

c

11. A CPA, acting on behalf of a client company, makes a payment to a foreign government official to ensure that goods that are not entitled to be exported into that country are indeed allowed to enter that country. By doing so, the CPA has: a. Given a lawful facilitation payment b. Committed a direct violation of the Foreign Corrupt Practices Act's provision concerning "financial professionals and other client representatives" c. Definitely jeopardized her professional license d. Jeopardized her professional license only if she also performed auditing services with respect to that client during the same reporting period

c

13. According to behavioral psychologists, which of the following compensation packages would most people rank as the least desirable? a. A guaranteed base salary of $54,000 b. A base salary of $50,000, plus a 50% chance of earning a $4,000 bonus for meeting minimum productivity requirements c. A base salary of $54,000, with a 50% chance of sustaining a $4,000 penalty for failing to meet minimum productivity requirements d. Choices (b) and (c) are, by an overwhelming majority of people, ranked as being equally undesirable

c

13. The LIBOR scandal was primarily caused by: a. Bad debt losses on bank loans that were biased downward to avoid inquiry by European banking regulators b. Excessive reliance by banks on loans the bear adjustable loan interest rates c. A lack of candor by certain banks d. A lack of integrity by large corporate borrowers

c

14. Many people choose to submit payroll forms to their employers that result in more income taxes being withheld than these employees actually will owe in income taxes. According to behavioral scientists, the most likely explanation for this behavior is that: a. The IRS, in paying tax refunds, pays generous interest rates on excess amounts withheld from taxpayers' earnings during the year b. Over-withheld taxes are viewed favorably by credit reporting agencies, which enhances taxpayers' self-esteem c. The principle of loss aversion d. The principle of moral reminders

c

15. In the Issue-Contingent Model, the term "temporal immediacy" refers to the notion that issues evoke a stronger emotional response when they: a. Are magnified, or replicated, by a copycat effect b. They induce brain activity in the temporal lobe c. They have a present-day impact d. Their future impact can be estimated instantly and easily

c

15. The "books and records" provisions of the Foreign Corrupt Practices Act: a. Potentially imposes criminal liability on internal auditors who fail to detect bribery or corruption in a firm's record-keeping system b. Potentially imposes criminal liability on external auditors who fail to detect bribery or corruption in a firm's record-keeping system c. Requires publicly-held companies to devise and maintain adequate internal controls over payments that constitute bribes d. Requires companies to document the amounts, purpose, and recipients of facilitation payments to ensure that their federal income tax reporting is accurate

c

17. "Cookie jar accounting": a. Always sweetens, or increases, a company's reported profits, as its name suggests b. Sets aside questionable but desirable items in a jar, so to speak, and reports conservative results c. Allows a firm to manipulate the trend in its earnings, making earnings less volatile d. Allows a firm to boost its long-run, total reported earnings from a financial accounting perspective

c

17. The rules governing contingent fee arrangements do not permit a tax practitioner to charge a contingent fee for rendering: a. Tax planning services b. Payroll tax processing services c. The preparation of a request for a refund of previously overpaid taxes d. Taxpayer advocacy in an IRS administrative hearing

c

18. "Round trip" transactions primarily are utilized by companies: a. To commit tax fraud b. To substantially change the overall composition of their assets c. To recognize accounting gains without meaningfully changing the nature of their operations d. To return capital that previously was contributed by shareholders, often through the use of treasury stock repurchases

c

2. According to the issue-contingent model, the importance of an ethical issue to people generally does not depend on the degree to which an issue: a. Has an impact that is distant in time b. Affects members of one's own cultural group c. Has an impact on the religious tenets of a society d. Has a high probability of harm

c

2. Under the Foreign Corrupt Practices Act, a company can be held criminally liable: a. If it is more probable than not that it committed bribery b. In a lawsuit filed by a government other than the United States c. If it engaged in "willful blindness" to acts of bribery that furthered its economic interests d. Only if documentary evidence confirms the existence of bribery

c