Ethics exam 2

TRUE

Business organizations should consider the importance of BELONGING in their DEI policies and practices.

FALSE

Most business professionals consider earnings management to be an unethical and unacceptable practice.

The BFOQ defense is available in cases ofdiscrimination because of

Religion Sex National origin

Earnings Management Techniques

Revenue - Expenses = Earnings Accelerate revenue • Record expenses ahead of schedule • Delay invoices • Sell excess assets • Defer expenditures

TRUE

SHAREHOLDERS (OWNERS) ARE NOT ONLY STAKEHOLDERS INTERESTED IN THE ACCURACY OF FINANCIAL STATEMENTS PREPARED BY MANAGEMENT THERE IS CUSTOMERS, PUBLIC, ANALYSTS, REGULATORS, SUPPLIERS, JOURNALISTS, EMPLOYEES, CREDITORS

quid pro quo

THIS FOR THAT

Americans with Disabilities Act of 1990 "ADA".Facts about ADA.

The ADA forbids discrimination in employment, public accommodations, public services, transportation and telecommunications against the disabled. Small businesses with fewer than 15 employees are exempted from the employment portions of the ADA.Facts about ADA.

TRUE

The Age Discrimination in Employment Act (ADEA) protects individuals who are 40 years old or older.

FALSE

The BFOQ defense is available for employers who discriminate based on race.

FALSE

The PCAOB existed for many years before the Sarbanes-Oxley Act was passed.

FALSE

The Sarbanes-Oxley Act has been wholly ineffective in preventing financial fraud.

False

The Sarbanes-Oxley Act regulates who can serve as the CEO of a corporation.

False

The Sarbanes-Oxley Act took many years to pass in a delayed reaction by the U.S. Congress to massive corporate scandals like Enron and WorldCom.

TRUE

Investors find companies with smooth earnings less risky than companies with variable earnings.

Earnings management

a process in which businessesuse accounting rules and financial manipulations to meetgoals or make their earnings seem smooth

Disparate Impact

exists where an employer uses legitimate employment standards that, despite their apparent neutrality, work a heavier burden on a protected class than on other employees

Disparate Treatment

exists where an employerintentionally treats some people less favorably thanothers because of their race, color, religion, sex ornational origin

Sexual harassment consists of

unwelcome sexual advances, requests for sexual favors, and other verbal or physical conduct of a sexual nature which:

Under the Sarbanes-Oxley Act, all corporations are prohibited from making loans to corporate executives under any circumstances.

FALSE

Makes a newly acquired company look very profitable just after it is acquired

Springloading is a technique used in acquisition accounting which accomplishes the following:

Statement of Earnings (Income Statement)

-Report that measures the performance of an organizationfor a given period of time • Provides investors and creditors with information that helpsthem predict the amount, timing, and uncertainty of futurecash flows

Four Types of Audit Opinions

1. Unqualified Opinion. An unqualified opinion indicates thatthe information presented in a financial statement is an accuraterepresentation of the company's financial condition. Anunqualified opinion means the auditor found the company'sfinancial statements fair and appropriately presented, withoutany exceptions, and in compliance with GAAP 2. Qualified Opinion. In a qualified opinion, the auditorstates which aspects of the company's financial statementswith which the auditor takes exception. For example, notGAAP compliant.• 3. Disclaimer Opinion. Auditors give a disclaimer opinionwhen they are unable to express a definite opinion. This canbe due to the lack of properly maintained financial records orthe absence or insufficient support from the management.• 4. Adverse Opinion. When auditors issue an adverseopinion, it indicates that there has been a gross misstatementand, possibly, fraud, in the preparation of the company'sfinancial records. An adverse opinion shows that thecompany's records have not been prepared in accordancewith GAAP.

Sarbanes-Oxley Act of 2002

An act to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws, and for other purposes

Earnings Quality

Actions by managers used to increase or decreasecurrent reported earnings so as to create a favorablepicture for either short-term or long-term economicprofitability

ADEA

Age Discrimination in Employment Act of 1967"ADEA" The employer may defend by showing that the termination was based on a legitimate,non discriminatory reason or that age is a bona fide occupational qualification (BFOQ)—that is, that only employees of a certain age can safely and/or efficiently complete the work in question.

FALSE

All types of discrimination are legally prohibited in employment decisions.

ADA

Americans with Disabilities

FALSE

Because of legal protections and ethical awareness, there is very little discrimination in U.S. workplaces.

BFOQ

Bona Fide Occupational Qualification

More Sophisticated Earnings Management Techniques

Creative Acquisition Accounting Estimate restructuring charges at the time of an acquisition

TRUE

Compared to 50 years ago, there are now far more women in the U.S. labor force.

SEC's electronic reporting database

EDGAR

TRUE

EEOC guidelines interpret and enforce Title VII's prohibition of sex discrimination to include discrimination based on gender identity.

FALSE

Earning management techniques always result in fraudulent financial statements.

Conflicts of Interest:Enron and Arthur Andersen

Enron managers used questionable accounting practices toinflate the value of assets and hide liabilities. This resulted in in misleading financial statements and overvalued stock, which the managers conveniently sold before their fraudulent activities were exposed. Enron managers got the ideas for some of their most creative accounting practices from the consulting arm of Arthur Andersen. That same firm was responsible for auditing Enron's financial statements. Enron purchased $1M of consulting services from Arthur Andersen weekly, in addition to the fees paid for auditing services A clear conflict of interest: Andersen auditors had incentives to ignore questionable accounting practices at Enron

EEOC

Equal Employment OpportunityCommission is the federal agency charged with enforcing federal laws forbidding discrimination in employment.; The EEOC investigates discrimination claims;attempts to resolve disputes via mediation and conciliation; and, if necessary, engages in litigation

TRUE

Financial statements of a publicly-tradedcorporation must be audited

INCOME

For a lender, interest collected from a borrower is which of the following?

TRUE

In business, variability is an indicator of risk.

FALSE

In the Cloutier v. Costco case, the Defendant (Costco) prevailed because the court found that the Plaintiff's religion was not legitimate.

PCAOB

Public Company Accounting Oversight Board Establishes significant federal oversight of the accounting profession Quasi-governmental entity Under the direction of the SEC Oversees audits of public companies Establishes audit report standards and rules Investigates, inspects, and enforces compliance Registers and regulates public accounting firms PCAOB has the power to discipline public accounting firms Gives the SEC the authority to determine GAAP

True

Publicly-traded corporations must file financialreports with the SEC

investors and creditors like smooth earnings

Smooth earnings = stability

Balance Sheet

Snapshot of financial condition on a particular date • Assets • Liabilities • Shareholder equity

SPEs

Special Purpose Entities are a way to structure deals that keep debtoff of a company's balance sheet

More Sophisticated Earnings Management Techniques

Spring Loading• An acceleration of expenses related to an acquisition• A company being acquired by another company recognizes large expenses just before the acquisition

What is the difference between tax evasion and tax avoidance?

The courts recognize the fact that no taxpayer is obliged to arrange his/her affairs to maximize the tax the government receives. Individuals and businesses are entitled to take all lawful steps to minimize their taxes. A taxpayer may lawfully arrange his/her affairs to minimize taxes by such steps as deferring income from one year to the next. It is lawful to take all available tax deductions. It is also lawful to avoid taxes by making charitable contributions. Tax evasion, on the other hand, is a crime. Tax evasion typically involves failing to report income, or improperly claiming deductions that are not authorized.

CPA

The financial statements of publicly traded corporations must be certified by which of the following professionals?

a CPA

The financial statements of publicly traded corporations must be certified by which of the following professionals?

FALSE

There are no laws that protect women who are pregnant from being discriminated against by their employer.

FALSE

Title VII of the Civil Rights Act of 1964 protects employees from discrimination on the basis of disability.

Incentives that Drive Accounting Choices

Transparency • Accounting rules • Analyst forecasts• WHAT DOES THE MARKET EXPECT? • Incentive compensation• MANAGEMENT INTERESTS ALIGNED WITHSHAREHOLDERS INTERESTS (GOOD)• MANAGEMENT (THE PEOPLE MAKING ACCOUNTINGCHOICES) BENEFITS PERSONALLY FROM ACCOUNTINGCHOICES (RISK) - like in the Fannie Mae case study • Stock options • Manipulating option price by manipulating earnings

variability

Variability is an indicator of risk

FORM 10-K

Which of the following forms must publicly traded corporations file annually with the SEC?

Form 10-K

Which of the following forms must publicly traded corporations file annually with the SEC?

EDGAR

Which of the following is the SEC's electronic database?

buying influence or engagin in conflict of interest

Which of the following types of ethical dilemmas became problematic in the relationship between Enron and its auditor and was addressed by provisions of the Sarbanes-Oxley Act?

SEC

With which federal administrative agency must publicly traded corporations file their financial statements?

Religious Discrimination

nvolves treating a person (anapplicant or an employee) unfavorably because of his or herreligious beliefs. The law protects not only people whobelong to traditional, organized religions, such as Buddhism,Christianity, Hinduism, Islam, and Judaism, but also otherswho have sincerely held religious, ethical or moral beliefs

hostile environment

workplace rendered offensive and abusive by sexual comments, pictures, jokes, sexual aggression, etc. where no employment benefit is gained or lost