BA406 Ethics Chapter 3

03-69 The primary ethical issue in United Thermostatic Controls is Multiple Choice a. misappropriation of corporate assets. b. accelerating the recording of revenue into an earlier period. c. delaying the recording of expenses into a later period. d. failure to fully disclose all information.

b. accelerating the recording of revenue into an earlier period.

03-35 What is the main fiduciary duty of the board of directors? Multiple Choice a. maximize profits for the company b. monitor executive compensation c. safeguard the interests of the corporation and its shareholders d. allow high-risk accounting practices

c. safeguard the interests of the corporation and its shareholders

03-19 A troubling result of the 2013 National Business Ethics Survey is Multiple Choice a. decreased witnessing of misconduct in the workplace. b. decline in pressure to compromise ethics. c. no change in the likelihood to report misconduct. d. a high percentage of misconduct is conducted by management.

d. a high percentage of misconduct is conducted by management.

03-73 What was the primary ethical issue in the Theranos case? Multiple Choice a. cultural differences between U.S. and non-U.S. companies b. retaliation for reporting misconduct c. misrepresentations to potential investors d. improper accounting classification of leases

c. misrepresentations to potential investors

03-17 A common ethical problem where there is an unrealistic expectation to meet expected results and the ends justifies the means can be best described as Multiple Choice a. pressure to maintain the numbers. b. fear of reprisal. c. loyalty to the boss. d. weak board of directors.

a. pressure to maintain the numbers.

03-75 In the Wells Fargo case, what is the primary ethical issue? Multiple Choice a. recording sales that lack economic substance b. aggressive sales tactics and charging for services not requested c. bill and hold revenue recognition d. releasing cookie jar reserves to smooth income

b. aggressive sales tactics and charging for services not requested

03-63 The SEC has increased focus on identifying and penalizing misstatements in public company financials. What is one method that the SEC is using to identify companies, CEOs, and CFOs that are misstating financial statements? Multiple Choice a. utilizing the whistleblower provisions of the Dodd-Frank Act to provide a hot line. b. analyzing patterns of internal control problems even absent a restatement of the financials. c. analyzing whether the CFO has implemented adequate internal controls and safeguards over the financial reporting function. d. utilizing the company's ethics code to spot misstatements.

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

04-48 Section 302 of the Sarbanes-Oxley Act requires that management Multiple Choice a. assess the company's internal controls. b. certify the financial statements. c. disclose all executive compensation. d. blow the whistle on corporate wrongdoing.

b. certify the financial statements.

03-05 Which of the following represents a culture of fear and silence as a sign that an organization has collapsed ethically? Multiple Choice a. kill the messenger syndrome b. directors may not serve on more than one committee c. income increases every quarter d. the CEO hires only friends

b. directors may not serve on more than one committee

03-47 A strong and effective internal control environment can be enhanced by Multiple Choice a. financial statements that present fairly financial position and results of operations. b. giving the internal auditors direct and unrestricted access to the audit committee. c. having the internal auditors report to the external auditors. d. having the external auditors report to the audit committee.

b. giving the internal auditors direct and unrestricted access to the audit committee.

03-52 Backdating of stock options is unethical because Multiple Choice a. it favors top executives over other company employees with respect to the number of options. b. it purposefully manipulates the option criteria that determine their value. c. it changes the exercise price on options to benefit top executives. d. it changes the exercise date on options to benefit top executives.

b. it purposefully manipulates the option criteria that determine their value.

03-18 Which of the following is least likely to be used by a manager to set the right tone to foster ethical leadership? Multiple Choice a. consider the implications of one's actions on themselves b. make decisions that do not harm others c. make decisions that are universal d. reflect before deciding

b. make decisions that do not harm others

03-01 Organizational ethics can be thought of as Multiple Choice a. descriptions of how ethics occurs at a company. b. principles and standards of behavior that guide business decisions. c. rules of conduct that establish legal requirements for businesses. d. standards of reporting ethical violations.

b. principles and standards of behavior that guide business decisions.

03-30 An example of revenue overstatement is Multiple Choice a. manipulating reserves. b. recording gross, rather than net, revenue. c. reporting cost of sales as a non-operating expense. d. deferring revenue.

b. recording gross, rather than net, revenue.

03-37 The Clawback rule allows Multiple Choice a. protection for whistleblowers from retaliation. b. recovering compensation from CEOs who engage in financial statement misconduct. c. compensation for whistleblowers. d. protections for CEOs who act in good faith.

b. recovering compensation from CEOs who engage in financial statement misconduct.

03-45 Which of the following is not one of the audit committee's responsibilities? Multiple Choice a. monitor the integrity of the financial statements b. review all financial reporting judgments c. review whistleblowing and compliance processes d. review and monitor the effectiveness of the external audit process

b. review all financial reporting judgments

03-49 Which of the following is not a component of an effective internal control environment in COSO Internal Control - Integrated Framework? Multiple Choice a. the control environment b. risk abatement c. control activities d. information and communication

b. risk abatement

03-21 Which of the following is not considered a behavioral indicator of fraud? Multiple Choice a. refusal to take vacations b. satisfaction with pay c. financial difficulties d. an unwillingness to share duties

b. satisfaction with pay

03-46 External auditor communications with the audit committee include each of the following except Multiple Choice a. matters related to why certain accounting policies are considered critical. b. shareholder returns. c. significant estimates made by management d. significant unusual transactions

b. shareholder returns.

03-04 Which of the following represents pressures to maintain the numbers as a sign that an organization has collapsed ethically? Multiple Choice a. Directors have consulting contracts with the company they are directors for. b. Directors may not serve on more than one committee. c. Shifting of operating expenses to capitalized costs. d. The CEO hires only young managers fresh out of college.

c. Shifting of operating expenses to capitalized costs.

03-57 The triple bottom line often refers to the three concepts of Multiple Choice a. communication, compliance and compassion. b. risk management, transparency, and profit. c. people, planet, and profit d. values, productivity, and people

c. people, planet, and profit

03-56 Proper tone at the top includes all of the following except Multiple Choice a. communicating compliance and ethics messaging to employees. b. regularly reminding employees of the importance of ethical behavior. c. rarely enforcing the code of conduct. d. modeling the company's values.

c. rarely enforcing the code of conduct.

03-31 Which of the following is not a fraud method to overstate revenues? Multiple Choice a. recording future sales in the current period b. recording sales of products that are out on consignment c. recording sales based on F.O.B. shipping point d. recording revenues of other companies by acting as a middleman

c. recording sales based on F.O.B. shipping point

03-32 Examples of improper asset valuation includes all of the following except Multiple Choice a. manipulating reserves. b. changing the useful life of assets. c. recording sales that never took place. d. manipulating estimates of fair market value.

c. recording sales that never took place.

03-53 Compensation of executives has soared over the last forty plus years to more than 278 times the pay for average workers. Remedies to rein in executive compensation include all but Multiple Choice a. say on pay provisions. b. more diligent board oversight of compensation packages. c. restrictions by the law as to the maximum total compensation allowable. d. clawbacks of compensation when it can be shown executives knew of fraud.

c. restrictions by the law as to the maximum total compensation allowable.

03-70 The key fraud issue in the Franklin Industries Whistleblowing Case is Multiple Choice a. fraudulent financial statements were covered-up. b. corporate culture pressured an employee to go along with fraud. c. retaliation for reporting an embezzlement fraud. d. recording revenues too soon led to fraudulent statements.

c. retaliation for reporting an embezzlement fraud.

03-41 Strong corporate governance relies on a strong board of directors. Which of the following would be a strong candidate to be a board director for XYZ, Incorporated? Multiple Choice a. community member who has already served on the board for 15 years b. investor who has a multi-million-dollar joint venture with the CEO and CFO c. retired controller of a Fortune 500 company d. community member who receives annual large consulting contracts from XYZ

c. retired controller of a Fortune 500 company

03-08 One of the contributions of the Treadway Commission Report and the work of the Committee of Sponsoring Organizations (COSO) was Multiple Choice a. to establish a voluntary process for peer review. b. to identify red flags that might lead to fraud. c. to provide a framework for internal control. d. to establish peer review requirements for CPAs.

c. to provide a framework for internal control.

03-65 The 2010 Dodd-Frank Act includes additional incentives for whistleblowers. What is the act's effect on whistleblowing by accountants? Multiple Choice a. No accountant, internal or external, whether by job title or certification may receive a reward. b. All accountants who whistle-blow are protected against retaliation, but may not receive a reward. c. Internal auditors who whistle-blow may not receive a reward. d. A CPA may report a violation of a public accounting firm's performance in an audit.

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

03-40 Corporate governance structures and relationships are shaped by internal and external mechanisms. Which of the following is an external mechanism? Multiple Choice a. state and federal statutes require a baseline corporate governance system b. audit committees must consist of at least three members all of whom are independent of management and the entity c. all directors must be independent of management d. each listed company must have an internal audit function

a. state and federal statutes require a baseline corporate governance system

03-43 Under the Sarbanes-Oxley Act, which of the following bodies must contain members that are 100% independent of management? Multiple Choice a. board of directors b. audit committee c. internal auditors d. board of supervisors

b. audit committee

03-34 The level of care expected of a reasonable person under similar circumstances in meeting one's fiduciary duty is called Multiple Choice a. duty of loyalty. b. duty of care. c. transparency. d. fairness.

b. duty of care.

03-33 Which of the following is not an ethical or legal responsibility of officers and directors? Multiple Choice a. duty of care b. duty of good faith c. duty of loyalty d. duty of fair pay

d. duty of fair pay

03-22 Fraud can be defined as Multiple Choice a. a deliberate misrepresentation to gain an advantage over another party. b. a cover-up of a mistake made in the financial statements. c. an error in preparing financial statements. d. All of the choices are correct.

a. a deliberate misrepresentation to gain an advantage over another party.

03-64 The reporting requirements for fraud are detailed in Section 10A of the Securities Exchange Act of 1934. Which of the following steps are not part of a prescribed process that should be followed in deciding whether to report fraud? Multiple Choice a. determine who is responsible for the fraud. b. determine whether the violations have a material effect, quantitatively or qualitatively, on the financial statements. c. determine whether appropriate remedial action has been taken. d. determine whether reporting to the SEC is necessary.

a. determine who is responsible for the fraud.

03-72 The Full Disclosure: The Case of a Morally Challenged AP clerk involves the issue of Multiple Choice a. embezzling money by processing fictitious invoices. b. lowering the rate of rebates to increase operating income. c. falsifying utility rates to decrease expenses. d. lowering the rate of return on utility sales.

a. embezzling money by processing fictitious invoices.

03-28 Which of the following was the most frequent anti-fraud control identified in the ACFE 2020 Global Study on Occupational Fraud and Abuse Survey? Multiple Choice a. external audit of financial statements b. management certification of financial statements c. internal audit department d. external audit of internal controls over financial reporting

a. external audit of financial statements

03-29 According to the ACFE 2020 Global Study on Occupational Fraud and Abuse, which of the following was the most common behavioral indicator of fraud? Multiple Choice a. living beyond means b. financial difficulties c. addiction problems d. refusal to take vacations

a. living beyond means

03-24 The difference between occupational and financial statement fraud is Multiple Choice a. occupational fraud is generally committed by employees. b. occupational fraud is generally committed by external auditors. c. financial statement fraud occurs either by accident or deliberation. d. financial statement fraud always starts with non-executive decisions.

a. occupational fraud is generally committed by employees.

03-62 With respect to whistleblowing, the Sarbanes-Oxley Act Multiple Choice a. protects employees of publicly traded companies who provide evidence in fraud cases. b. confers legal protection on managers who reported wrongdoing by top executives. c. confers legal protection on the board of directors for fraudulent actions by management. d. protects auditors who blow the whistle to the SEC.

a. protects employees of publicly traded companies who provide evidence in fraud cases.

03-51 Section 301 of the Sarbanes-Oxley Act requires Multiple Choice a. the establishment of procedures to accept employee complaints. b. the principle executive to certify that they have reviewed the financial statements. c. a report of the company's internal control over financial reporting. d. code of ethics requirements for senior officers.

a. the establishment of procedures to accept employee complaints.

03-23 A unique aspect of occupational fraud is Multiple Choice a. the misuse of company assets. b. the falsification of financial statements. c. the failure to disclose full and complete information. d. the failure to resolve conflicts of interest.

a. the misuse of company assets.

03-09 Which committee established a framework for internal control? Multiple Choice a. treadway committee b. cohen committee c. house Subcommittee on Oversight and Investigations d. the audit committee

a. treadway committee

03-60 Research by Miceli and Near indicates that Multiple Choice a. whistleblowers hope their speaking out achieves the correction of an organization wrongdoing. b. whistleblowers hope those who violate the rules are prosecuted. c. whistleblowers are motivated to report under Dodd-Frank to receive an award. d. whistleblowers always blow the whistle because of altruistic reasons.

a. whistleblowers hope their speaking out achieves the correction of an organization wrongdoing.

03-67 In the Parable of Sadhu case, Bowen T. McCoy's friend Stephen summed up the dilemma by saying Multiple Choice a. "I feel that what happened with the sadhu is a good example of the breakdown between ethics in different cultures." b. "I feel that what happened with the sadhu is a good example of the breakdown between the individual and corporate ethics." c. "People tend to inevitably act in their own best interest." d. All of the choices are correct.

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

03-15 Trust in business is important because Multiple Choice a. management needs to feel confident that employees will carry out organizational objectives. b. stakeholders need to feel confident that relationships with organizations will be consistent and reliable. c. stakeholders rely on management to produce shareholder returns. d. management needs to feel confident that those with relationships with the organization do what they say.

b. stakeholders need to feel confident that relationships with organizations will be consistent and reliable.

03-02 The seven signs of a pending ethical collapse include all but Multiple Choice a. fear and silence. b. strong board of directors. c. loyalty to the boss. d. innovation like no other company.

b. strong board of directors.

03-11 The seven signs of a pending ethical collapse include all but Multiple Choice a. pressure to make numbers. b. whistleblowing hotline. c. bigger than life CEO. d. conflicts of interest overlooked.

b. whistleblowing hotline.

03-61 What is the significance of the Menendez v Halliburton, Incorporated? Multiple Choice a. Halliburton was able to preserve and show that their bill and hold method was in accordance with GAAP. b. Menendez was awarded his position back at Halliburton, but the actions of Halliburton were retaliatory. c. Appeals court panel ruled that Menendez (an internal accountant) had been retaliated against for blowing the whistle. d. The SEC agreed with Menendez about the bill and hold method; Halliburton restated their financial statements and paid penalties.

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

03-42 Which regulation requires that SEC-registered issuers allow shareholders a separate nonbinding say-on-pay vote regarding the compensation of the company named executive officers? Multiple Choice a. Sarbanes-Oxley b. COSO Framework c. Dodd-Frank d. Private Securities Litigation Reform Act

c. Dodd-Frank

03-58 Has SOX accomplished its intended goal of reliable financial reporting by public companies? Multiple Choice a. Yes, as the CEO and CFO are certifying that financial statements contain no material misstatements. b. Maybe, as very few defendants have been charged with false certification, and fewer still have been convicted. c. Maybe, as laws are needed but they serve as only a minimum standard of ethical conduct and may not lead to ethical conduct. d. No, as the SEC has unsuccessfully sought to collect disgorgement of bonuses and other compensations of officers.

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

03-59 DeGeorge thinks that "corporations have a moral obligation not to harm." Which of the following would be one of his criteria for morally permitted whistleblowing? Multiple Choice a. Documented evidence exists that would convince a reasonable and impartial observer that one's view of the situation is correct but that serious harm is unlikely to occur. b. The employee must reasonably believe that going public will not create the necessary change to protect the public and is worth the risk to oneself. c. The employee should report a firm's actions that will do serious and considerable harm to others to her supervisor, and keep reporting all the way up to board until the actions are corrected. d. The employee must first report wrongdoing to the external auditor before going public.

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

03-50 Section 404 of the Sarbanes-Oxley Act requires Multiple Choice a. the establishment of procedures to accept employee complaints b. the principle executive to certify that they have reviewed the financial statements c. a report of the company's internal control over financial reporting d. code of ethics requirements for senior officers

c. a report of the company's internal control over financial reporting

03-13 The stakeholder perspective emphasizes the obligations of management to Multiple Choice a. the shareholders. b. the shareholders and creditors. c. all parties impacted by corporate decisions in a significant way. d. the board of directors.

c. all parties impacted by corporate decisions in a significant way.

03-74 What non GAAP accounting method did Tony Menendez cite in blowing the whistle on Halliburton? Multiple Choice a. recording sales that lack economic substance b. failing to write off impaired assets c. bill and hold revenue recognition d. releasing cookie jar reserves to smooth income

c. bill and hold revenue recognition

03-38 The relationship between the shareholders, directors, and management of a company, as defined by the corporate charter, bylaws, formal policy, and rule of law is known as Multiple Choice a. code of ethics. b. corporate responsibility. c. corporate governance. d. corporate leadership.

c. corporate governance.

03-71 What was the primary ethical issue in the Franklin Industries case? Multiple Choice a. inventory shrinkage doubled year-over-year b. retaliation for reporting a sexual harassment c. embezzlement of company funds d. improper accounting classification of marketable securities

c. embezzlement of company funds

03-20 KPMG's Integrity Survey 2013 indicates all of the following except Multiple Choice a. nearly three out of four employees reported that they had observed misconduct within their organizations in the previous 12 months. b. more than half of employees reported that what they observed could potentially cause a significant loss of public trust if discovered. c. employees were certain that they would be protected from retaliation if they reported concerns to management. d. ethics and compliance programs continue to have a favorable impact on employee perceptions and behaviors.

c. employees were certain that they would be protected from retaliation if they reported concerns to management.

03-12 In the Pinto case, Ford relied on which approaches to ethical reasoning to decide on a course of action with respect to the faulty gas tank placement Multiple Choice a. egoism and utilitarianism. b. enlightened egoism and rights theory. c. ethical legalism and utilitarianism. d. justice and rights theory.

c. ethical legalism and utilitarianism.

03-06 The framework of COSO's Enterprise Risk Management can best be characterized as Multiple Choice a. incorporate enhanced internal control principles into enhanced corporate governance. b. incorporate enhanced audit sampling procedures in the testing of internal controls. c. incorporate enhanced corporate governance into internal control principles. d. incorporate enhanced audit sampling procedures in substantive testing.

c. incorporate enhanced corporate governance into internal control principles.

03-66 Under certain situations, internal accountants are eligible to become Dodd-Frank whistleblowers. Which of the following is not one of those situations? Multiple Choice a. Disclosure to the SEC is needed to prevent "substantial injury" to the financial interest of an entity or its investors. b. The whistleblower "reasonably believes" the entity is impeding investigation of the misconduct. c. The whistleblower has first reported the violation internally and at least 120 days have passed with no action. d. Disclosure to the SEC is needed to prevent "substantial injury" to the audit firm.

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

03-27 Which of the following was not a finding of the ACFE 2020 Global Study on Occupational Fraud and Abuse? Multiple Choice a. Fraud is more likely to be detected by tips than any other way. b. Financial statement fraud was the least common type of occupational fraud. c. Asset misappropriation schemes were the most common type of occupational fraud. d. External auditors discover about 25 percent of the frauds.

d. External auditors discover about 25 percent of the frauds.

03-68 What is the ethical issue in the Rite Aid Inventory Surplus Fraud case? Multiple Choice a. The surplus inventory sales and kickback involved collusion between two officers of the company. When Foster wanted to stop the scheme, he was blackmailed into continuing the fraud. b. Rite-Aid had a comprehensive corporate governance system that complied with all the requirements of Sarbanes-Oxley. c. The internal auditor found and blew the whistle on the surplus inventory sales and kickback cover-up. d. Vice Presidents of the company were involved in a material, nine-year surplus inventory sales and kickback scheme.

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

03-36 The business judgment rule refers to Multiple Choice a. faithfulness to one's obligations and duties. b. honesty of purpose and caring. c. decision making under uncertainty. d. acting with due care and good faith.

d. acting with due care and good faith.

03-25 According to the ACFE 2020 Global Study on Occupational Fraud and Abuse survey, the most common type of occupational fraud scheme is Multiple Choice a. corruption. b. fraudulent billing. c. illegal gratuities. d. asset misappropriation.

d. asset misappropriation.

03-54 The ACFE 2020 Global Study on Occupational Fraud and Abuse found that the least common way that fraud is first detected is Multiple Choice a. IT controls. b. surveillance. c. external audit. d. confession.

d. confession.

03-03 All of the following represent potential conflicts of interest described as one of the seven signs of a pending ethical collapse except Multiple Choice a. directors having consulting contracts with the company they are directors for. b. multiple directors serving on both the audit committee and the compensation committee. c. directors serving on the board for a minimum of 20 years. d. disclosure in the proxy statements why the board chair and CEO positions are unified.

d. disclosure in the proxy statements why the board chair and CEO positions are unified.

03-10 To establish an ethical corporate culture, organizations do all of the following except Multiple Choice a. enforce ethics policies fairly. b. develop an ethics training program. c. establish strong internal controls. d. establish a culture of do what I say, not what I do.

d. establish a culture of do what I say, not what I do.

03-14 Which of the following is not an element of an ethical corporate culture? Multiple Choice a. setting a proper tone at the top b. establishing strong internal controls c. having an effective internal audit function d. having an effective external audit

d. having an effective external audit

03-07 Which of the following is not an element of COSO Enterprise Risk Management? Multiple Choice a. enhancing risk response decisions b. reducing operating surprises and losses c. identification of risks and opportunities affecting achievement of an entity's objectives d. improving deployment of information technology

d. improving deployment of information technology

03-55 As a manager in her firm, Lucy concerns herself with the effectiveness of internal controls. Her main focus is how efficient and effective the company's internal controls are over time. Which component of internal control is Lucy engaging in? Multiple Choice a. risk assessment b. control activities c. control environment d. monitoring

d. monitoring

03-39 Which of the following is not an element of the corporate governance system? Multiple Choice a. board of directors b. internal controls c. executive compensation policies d. monitoring by top management

d. monitoring by top management

03-76 All of the following are systematic failures in the Wells Fargo case except Multiple Choice a. a failure of leadership. b. creating a toxic culture. c. not living up to the standards in its ethics code. d. processing employee reports of fraudulent accounts.

d. processing employee reports of fraudulent accounts.

03-44 To ensure audit committee independence, the committee should meet separately with each of the following groups except Multiple Choice a. senior executives. b. internal auditors. c. external auditors. d. shareholders.

d. shareholders.

03-16 A troubling result of the 2021 Global Business Ethics Survey is Multiple Choice a. employees say they work in organizations with a strong ethical culture. b. decline in pressure to compromise ethics. c. there is an increase in the likelihood to report wrongdoing. d. there is a significant increase in retaliation.

d. there is a significant increase in retaliation.

03-26 The ACFE 2020 Global Study on Occupational Fraud and Abuse found that the most common way that fraud is first detected is Multiple Choice a. internal audit. b. internal controls. c. external audit. d. tip.

d. tip.