CH 7 ETHICS, HW #1/#2, Ethics in Accounting Chapter 4 - Part 2, Chapter 4, Accounting ethics 4 - professional judgment in accounting, ACCT Ethics CH 5-8, ACG445 Chapter 1-4, Accounting Ethics Midterm 2, Ethics for Accountants - Test 3, Chapter 3 and...

Professional skepticism links to professional judgment through the ethical standards of: A. Independent thought, objectivity, and intelligence B. Objectivity, intelligence, and reflective thought C. Independent thought, objectivity, and due care D. Honesty, integrity, and due care

C. Independent thought, objectivity, and due care

An example of a self-review threat for CPAs in business is: A. Serving as both the CFO of a company and member of its audit committee B. Owning stock in the company the CPA works for C. Internal auditor accepts work she previously performed in a different position D. Serving as both the CFO of a company and member of the board of directors

C. Internal auditor accepts work she previously performed in a different position

The main issue in the Valley View Hospital case is: A. Fraudulent financial statements B. Improper inventory valuation C. Medicare fraud D. Bribery of foreign officials

C. Medicare fraud

Professional judgment is influenced by: A. Organizational values B. Personal code of ethics C. Personal behavioral traits D. Organizational dissonance

C. Personal behavioral traits

Organizational ethics can be thought of as: A. Standards of reporting ethical violations B. Descriptions of how ethics occur at a company C. Principles and standards of behavior that guide business decisions D. Rules of conduct that establish legal requirements of a business.

C. Principles and standards of behavior that guide business decisions

Which of the following is not part of standards for the quality of work? A. Planning and supervision B. Professional competence C. Professional data D. Professional care

C. Professional data

Some empirical research suggest that accountants and auditors may not achieve their higher levels of ethical reasoning. Why do you think this statement may be correct?

- Stage 3 (peers, superiors, clients) or - Stage 4 (rules/laws (GAAP); duty to society) o Stage 3 influences may block auditors from reaching highest level of reasoning -- loyalty to client/firm; o Stage 4 makes it difficult to select the most ethical action with rights conflict or pressures exist. Need a higher level of reasoning when this occurs.

The Navistar International case examines: A. Whether Deloitte followed all provisions of the AICPA Code B. Whether PwC followed all provisions of the AICPA Code C. Recording of revenue in the proper period D. Recording of round-trip transactions

A

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

The 2010 Dodd-Frank Act includes additional incentives for whistleblowers. What is the act's effect on whistleblowing by accountants?

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

Fraud can be defined as:

A deliberate misrepresentation to gain an advantage over another party

An alternative practice structure can best be described as:

A form of structure where a public company provides nonattest services for a client that is also provided with attest services by an affiliate of the public company

In the ZZZZ best case, Barry Minkow was charged with:

A fraudulent insurance restoration scam

In the ZZZZ best case, Barry Minkow was charged with: A fraudulent insurance restoration scam Insider trading on Lennar stock Stealing from a San Diego church Overcharging a LA housewife for carpet cleaning services

A fraudulent insurance restoration scam

Under section 302 of the SOX 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

Rests four components model of morality can best be described as

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

Each of the following is a finding of a survey of CFOs about their perceptions of earnings quality except: CFOs believe that earnings are high quality when they are sustainable and backed by actual cash flows CFOs believe that reporting discretion has declined over time, and that current standards somewhat restrain reporting high quality earnings CFOs estimate that roughly 20 percent of firms manage earnings and the typical misrepresentation for such firms is about 10 percent of reported EPS CFOs estimate that income increasing and income decreasing devices to manage earnings show a 50:50 split

CFOs estimate that income increasing and income decreasing devices to manage earnings show a 50:50 split

The global code of ethics for the accounting profession is called: A. Handbook of the code of Ethics for Professional Accountants B. IMA Ethical and Professional Standards C. Public interest Framework for the Accountancy Profession D. AICPA code of professional conduct

A. Handbook of the code of Ethics for Professional Accountants

Which of the following is NOT a pressure that might lead to fraud?

Ability to carry out the fraud

Responsibility goes hand in hand with:

Accountability

In stage 3 of Kohlberg's model, ethical reasoning is motivated by:

Acting in the best interests of others

The business judgment rule refers to:

Acting with due care and good faith

The due care principle in the AICPA code

Addresses the quality of services performed by the CPA

The due care principle in the AICPA code:

Addresses the quality of services performed by the CPA

A CPA can accept a gift from a client as long as:

Adequate safeguards exist to prevent any threats to compliance with the Integrity and Objectivity rule

According to Rule 203, Accounting Principles, requires the auditor to adhere to official pronouncements except when:

Adherence to a pronouncement would be misleading

Ethical conflicts for CPAs in business can occur when:

All of the above

The PCAOB rules prohibit auditors from:

All of the above

Which of the following elements does NOT make up an integral part of what is meant by "ethics"?

Always following the law

The "particularity" provision in the PSLRA allows a plaintiff to:

Assert scienter

The "particularity" provision in the PSLRA allows a plaintiff to: Sue the auditor Assert scienter Sue management Assert privity

Assert scienter

Which of the following is NOT required of management under Section 302 of the SOX? Review their disclosure controls and procedures quarterly Identify key control exceptions and determine which are internal control deficiencies Assess each internal control deficiency's impact on the audit report Identify and report significant control deficiencies on material weaknesses to the audit committee and independent auditor

Assess each internal control deficiency's impact on the audit report

Under the Sarbanes-Oxley Act, which of the following bodies must contain members that are 100% independent of management?

Audit committee

In gathering audit evidence, the accessibility of information may be a factor thereby influencing which judgment trigger?

Availability

In gathering audit evidence, the accessibility of information may be a factor thereby influencing which judgment trigger? Confirmation Overconfidence Anchoring Availability

Availability

In the case of Equity Funding, the audit client: A. Fraudulently recorded inventories that did not in fact exist B. Inflated its earnings by recording fictitious sales of insurance policies C. Moved liabilities off the balance sheet by using thousands of subsidiaries D. Recorded inventory below cost, therefore understating costs of goods sold and overstating net income

B

The "particularity" provision in the PSLRA allows a plaintiff to: A. Sue the auditor B. Assert scienter C. Sue management D. Assert privity

B

The Groupon case deals with all but the following issues: A. Improperly estimated customer returns B. Improper recognition of gross revenue C. Used a new innovative metric of "Adjusted Consolidated Segment Operating Income" D. Blamed material weakness on their auditors EY

B

The primary ethical issue in United Thermostatic Controls is: 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

To hold employees accountable to ethical standards, moral managers: A. Walk the talk of leadership B. Use reward systems to encourage ethical performance C. Strive to do what is right regardless of the consequences of one's actions D. All of the above

B

Which of the following is NOT a factor that managers use to set the right tone at the top and foster ethical leadership? A. Consider the implications of one's actions on the stakeholders B. Make decisions that do not harm others C. Make decisions that are universal D. Reflect before deciding

B

The due care principle in the AICPA code: A. Addresses the quality of the individual who performs professional services B. Addresses the quality of services performed by the CPA C. Addresses whether the independence standards has been met D. All of these

B. Addresses the quality of services performed by the CPA

The Independence Principle in the AICPA Code applies to: A. All accountants and auditors B. All CPAs who render attestation services C. All CPAs regardless of professional services D. All members of the audit committee

B. All CPAs who render attestation services.

The stakeholder view emphasizes the obligations of management to: A. The board of directors B. All parties impacted by corporate decisions in a significant way C. The shareholders and creditors D. The shareholders

B. All parties impacted by corporate decisions in a significant way

During the period of failures at savings and loan institutions, Lincoln S&L was charged with: A. Stealing $300 million from shareholders B. Causing retirees to lose their life savings C. Causing employees to lose their jobs D/ Engaging in a Ponzi scheme

B. Causing retirees to lose their life savings

To prevent subordination of judgment, a CPA should evaluate threats to: A. Independence and Due Care B. Objectivity and Integrity C. Integrity and Due care D. Independence and Scope of Services

B. Objectivity and Integrity

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

Motivations to smooth net income over time include each of the following except: A. Maximize bonuses and stock option values B. Steady increase in earnings each year C. Minimize overall taxes D. Make it appear managers are doing better than they really are

C

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

51. The Diamond Foods case addresses each of the following issues except for: A. Crop payable recorded in the wrong year B. Increasing revenues but stagnating cash flows C. Depreciation of almond trees D. Clawbacks of stock and cash

C. Depreciation of almond trees

The house subcommittee on Oversight and Investigations made its recommendations after looking into failures at each of the following companies except: A. ESM Government Securities B. Penn Square Bank C. Enron D. Continental Illinois National Bank and Trust

C. Enron

SOX 302

Certification by CEO & CFO.

With respect to U.S. GAAP, the SEC's approach to determining whether International Financial Reporting Standards (IFRS) should be allowed for and/or replace GAAP can be described as:

Condorsement

Which is not a permitted form of organization for a CPA practice?

Corporation

The Ethical Dissonance Model helps to evaluate: A. Whether the organization sets an ethical tone at the top B. Whether the organization has ethical leadership C. Whether the organization has a whistle-blowing process D. Whether the organization's ethics aligns with individual ethics

D

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

D. 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 development B. Moral character C. Moral sensitivity D. Moral Judgement

D. Moral Judgement

In establishing that the third party relied on the financial statements, one factor that works against plaintiffs' establishing such reliance is: Fraud did not exist Damages or loss suffered by the plaintiff would not have occurred regardless of whether the audited financial statements were misstated Damages or loss suffered by the plaintiff would have occurred regardless of whether the audited financial statements were misstated Negligence did not exist

Damages or loss suffered by the plaintiff would have occurred regardless of whether the audited financial statements were misstated

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

Discretionary accruals are items that management has full control over

Social Learning Theory holds that:

Employees learn what to do and what not to do by observing their leaders' behavior and its consequences

In accounting, building a reputation for ethical leadership means to:

Enable ethics and values to shine through the fog of beating the competition and meeting financial projections

Kelly and Jordan are writing a term paper together on the concept of "faithful representation" in the financial statements. Kelly is assigned the task of defining it in the context of an amount being an estimate. Which of the following statements should NOT be used by Kelly in her description?

Error free procedures in selecting and applying an appropriate process for developing the estimate

Which type of employee is most likely to report ethical issues in the workplace?

Executives

The Sino-Forest case centered around the: Acceleration of revenue due to channel stuffing arrangements Use of cookie jar reserves to manage earnings Existence of assets Contingent liabilities due to forestry fires

Existence of assets

Which of the following was the most frequent anti-fraud control identified in the 2014 ACFE Global Fraud Survey?

External audit of financial statements

One reason independence in appearance is used to evaluate threats to independence is

Factual independence is based on unobservable matters

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

Fair evaluations

Which of the following is NOT a likely rationalization a student might use to justify cheating on an exam?

Fair treatment

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

Fair, but honest evaluations

Each of the following is an element of honesty according to the Josephson Institute except for:

Fairness

Which of the following is NOT an element of trustworthiness according to the Six Pillars of Character?

Fairness

In stage 1 of Kohlberg's model, ethical reasoning is motivated by:

Fear of punishment

Recipients of the corporate ethics awards show that:

Firms can be financially successful and ethically focused

The difference between errors in the financial statements as compared to fraud is:

Fraud is always an intentional act designed to deceive another party

The primary accounting issue in the Royal Ahold case is:

Fraudulent inflation of promotional allowances to increase operating income

George has been asked by his audit client to provide income tax services including tax planning. Prior to providing such services, George should be certain that:

He assesses threats to independence

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

Honesty

In putting together the best audit team for a high tech company, which of the following would be allowed under SOX and independence rules?

IT auditor

Which of the following is an element of the introductory paragraph of an auditor's report under AICPA standards?

Identifies the entity, financial statements being audited and time period

Which of the following is NOT a consideration in determining a measure of materiality?

Importance of audit committee in the organization

The Groupon case deals with all but the following issues:

Improper recognition of gross revenue

Cognitive dissonance creates a problem that can be described as

Inconsistency between thoughts and beliefs and our intended actions

The accounting issue(s) in the Crazy Eddie case were: Accelerating revenues into earlier periods Inflating inventory and net income Capitalizing costs that should have been expensed Off-balance sheet entities

Inflating inventory and net income

In Case 1-6, as a Certified Management Accountant (CMA), which standards would apply in this situation?

Integrity and Credibility

Internal rewards of accounting practice include:

Integrity and Excellence

The ______ Rule prohibits Sue Kolb from knowingly misrepresenting facts under the _____________.

Integrity, Subordination of Judgment

De Cremer and Tenbrunsel characterize ethical leadership in part as:

Intention to demonstrate normatively appropriate conduct

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

Internal rewards

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

Internal rewards

The international body responsible for developing and issuing high-quality ethical standards and other pronouncements for professional accountants for use around the world is: International Organization of Securities Commissions International Accounting Standards Board International Ethics Board International Ethics Standards Board for Accountants

International Ethics Standards Board for Accountants

The international body responsible for developing and issuing high-quality ethical standards and other pronouncements for professional accountants for use around the world is: International Organization of Securities Commissions International Accounting Standards Board International Ethics Board International Ethics Standards Board for Accountants

International Ethics Standards Board for Accountants

The international body responsible for developing and issuing high-quality ethical standards and other pronouncements for professional accountants for use around the world is: International Organization of Securities Commissions International Accounting Standards Board International Ethics Board International Ethics Standards Board for Accountants

International Ethics Standards Board for Accountants

The name of the international securities body that facilitates a country's choice to regulate the use and application of IFRS is:

International Organization of Securities Commissions

Respect is an important character of behavior because

It encompasses attributes of how we should treat others

Auditors are responsible to detect and correct errors when they are:

Material

Which of the following is the most likely reason for an auditor to issue a modified opinion with a qualification? Inability to gather any sufficient relevant information to form the basis for the opinion Misstatements that are material and pervasive Going concern issue Misstatements that are material but not pervasive

Misstatements that are material but not pervasive

Which of the following is NOT an element of the corporate governance system?

Monitoring by top management

Taylor and Curtis found from their study of whistleblowing among public accounting seniors that:

Moral intensity affects the intention to report wrongdoing

With respect to the importance of moral issues in business, Thomas Jones posited that:

Moral issues of high intensity are more pronounced than those of low intensity

In the Imperial Valley Community Bank case, each of the following were reasons for the going concern issue except: The magnitude of loan losses Insufficient equity capital Operating losses over an extended period of time Questions about the collectability of outstanding loans

Operating losses over an extended period of time

To whom does the CPA owe ultimate allegiance in carrying out professional obligations?

Public interest

Which of the following is not a fraud method to overstate revenues?

Recording sales based on F.O.B. shipping point

All of the following are examples of "Recording revenue too soon or of questionable quality" except: Recording sales that lack economic substance Recording revenue when future services remain to be provided Recording revenue before shipment or before the customer's unconditional acceptance Recording revenue even though the customer is not obligated to pay

Recording sales that lack economic substance

Which of the following is an element of ERM?

Reducing operational surprises and losses

Which of the following is an element of ERM? Reducing operational surprises and losses Aligning risk appetite and whether fraud has occurred Control environment Audit risk assessment

Reducing operational surprises and losses

In an ethical decision making model, the final step is

Reflect on the decision

Which of the following connect the integrated ethical decision-making process with Rest's framework?

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:

Reflective

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. What should you do?

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:

Refuse to record the transaction as desired by the CFO

In Case 4-6, Tax Shelters, arrangements such as the one created by the CPA firm must be _______________.

Registered with the IRS

The Securities Act of 1933:

Regulates the initial offering of securities

The Securities Act of 1933: Regulates the auditing of financial statements for publicly-traded companies Limits the financial liability of independent auditors except in the case of gross negligence Regulates the initial offering of securities Regulates which services may be performed for a publicly-traded company by an audit firm

Regulates the initial offering of securities

The Securities Act of 1933: Regulates the auditing of financial statements for publicly-traded companies Limits the financial liability of independent auditors except in the case of gross negligence Regulates the initial offering of securities Regulates which services may be performed for a publicly-traded company by an audit firm

Regulates the initial offering of securities

The Securities Act of 1933: Regulates the auditing of financial statements for publicly-traded companies Limits the financial liability of independent auditors except in the case of gross negligence Regulates the initial offering of securities Regulates which services may be performed for a publicly-traded company by an audit firm

Regulates the initial offering of securities

The primary issue in the Rooster, Hen, Footer and Burger case is:

Related party transactions

The primary issue in the Rooster, Hen, Footer and Burger case is: The timing of revenue recognition and shipping date of merchandise Related party transactions The timing of expense recognition on accrual accounts The accounting for walnuts

Related party transactions

According to the ethical standards of the profession, which of the following acts is generally prohibited?

Retaining client records after an engagement is terminated prior to completion and the client has demanded their return

The key fraud issue in the Franklin Industries Whistleblowing Case is:

Retaliation for reporting an embezzlement fraud

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, Inc.?

Retired controller of a Fortune 500 company.

Sarah's concern in the Solutions Network case is: Expenses were delayed at year-end to manage earnings Revenue was recorded at year-end before the agreement with the customer was finalized Revenue was accelerated into an earlier period through channel stuffing Off-balance sheet entities were not disclosed

Revenue was accelerated into an earlier period through channel stuffing

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

Rule Utilitarianism

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

Rule utilitarianism

Principles-based standards differ from a rules-based approach because: Principles-based standards rely on bright-line concepts to apply accounting standards Rules-based standards rely on bright-line rules to apply accounting standards Principles-based standards set uniform goals for the application of accounting standards Rules-based standards form the basis of IFRS

Rules-based standards rely on bright-line rules to apply accounting standards

Country with highest Power Distance score is:

Russia

Which of the following elements were NOT part of the fraud at Tyco?

Setting up special-purpose-entities to keep debt off Tyco's books

Which of the following elements were NOT part of the fraud at Tyco? Benefits given to certain members of the board of directors to secure their silence about the fraud Corporate assets used by members of top management for personal purposes Setting up special-purpose-entities to keep debt off Tyco's books Related party transactions that were not adequately disclosed

Setting up special-purpose-entities to keep debt off Tyco's books

An ethical organization includes the following traits:

Shared values, goals, and problem-solving mechanisms

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

Shifting current revenue to a later period

Which of the following is NOT one of the communications that should be made by external auditors to the audit committee?

Significant deficiencies in audit procedures

An example of a management participation threat is:

Stablishing and maintaining internal controls for the client

Pre-conventional:

Stage 1: Obedience to rules; avoidance to punishment Stage 2: Satisfying one's needs

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 affects on the creditors but ultimately she agrees to the accounting. Keesha is reasoning at:

Stage 2

Which of the following is least likely to be a step or checkpoint in ethical decision-making guidelines?

Test for wrong issues

One difference between the AICPA auditor's report and that of the PCAOB is:

The AICPA report is not signed by the auditor

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

The lack of documentation for travel and entertainment expenses

In the LinkedIn and Shut Out case, Kenny:

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

The conceptual framework in the AICPA Code establishes a:

Threats and safeguards approach to assess whether ethics rules have been violated

Which of the following is NOT a motivation to manage earnings? Companies try to meet or beat Wall Street earnings projections in order to grow market capitalization and increase the value of stock options Avoid the consequences of violating debt covenants To smooth net income over time To maximize employee bonuses

To maximize employee bonuses

The term disgorgement means:

To return ill-gotten gains

Among the safeguards provided in the AICPA Code for Members in Business, the one missing at Valley View is most likely which of the following?

Tone at the top

One failure with respect to the internal controls at Tyco and Adelphia was:

Top executives used hundreds of millions of dollars from interest-free loans for personal purposes

The Committee of Sponsoring Organizations of the Treadway Committee (COSO) analyzed the financial reporting of public companies during the 1998-2007 periods when business failures due to accounting fraud were high and found that: Top management was frequently involved in the fraud with the CEO and/or CFO being the most frequently involved The most common fraud technique involved understating expenses The audit committee always sanctioned the fraud A minority of audit reports issued during the fraud period contained unqualified audit opinions

Top management was frequently involved in the fraud with the CEO and/or CFO being the most frequently involved

The failure of Lehman Brothers was due in large part to:

Use of Repo 105 transactions

To hold employees accountable to ethical standards, moral managers:

Use reward systems to encourage ethical performance

Which of the following is NOT one of the techniques used by Gemstar TV Guide International in its accounting fraud?

Used channel stuffing to accelerate the recording of revenue into earlier periods

Which of the following is NOT one of the techniques used by Gemstar TV Guide International in its accounting fraud? Created cookie jar reserves of advertising revenue to smooth net income Engaged in round trip transactions Used channel stuffing to accelerate the recording of revenue into earlier periods Inflated advertising revenue from nonmonetary and barter transactions

Used channel stuffing to accelerate the recording of revenue into earlier periods

Which of the following is NOT one of the techniques used by Gemstar TV Guide International in its accounting fraud? Created cookie jar reserves of advertising revenue to smooth net income Engaged in round trip transactions Used channel stuffing to accelerate the recording of revenue into earlier periods Inflated advertising revenue from nonmonetary and barter transactions

Used channel stuffing to accelerate the recording of revenue into earlier periods

The SEC's complaint in its case against GE included a charge that the company: Used off-balance sheet entities to manipulate earnings Falsified inventory values to inflate earnings Used non-GAAP measures to meet EPS estimates Used EBITDA to obscure reported earnings

Used non-GAAP measures to meet EPS estimates

The SEC's complaint in its case against GE included a charge that the company: Used off-balance sheet entities to manipulate earnings Falsified inventory values to inflate earnings Used non-GAAP measures to meet EPS estimates Used EBITDA to obscure reported earnings

Used non-GAAP measures to meet EPS estimates

A common method used to smooth net income over time is:

Using accrual of operating expenses and future adjustments

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

Utilitarianism

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 Deloitte failed to issue an audit report on a timely basis thereby leading to the withdrawal by another public company's planned acquisition of Vertical Vertical claimed Deloitte committed fraud in its audit of Vertical Deloitte issued a modified opinion (adverse) on Vertical's financial statements thereby leading to the withdrawal by another public company's planned acquisition of Vertical

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

PwC's actions in their audits of Avon and Pinnacle were similar in that the SEC alleged that the firm:

Was influenced in their opinions by the size of nonaudit services

The "Milton Manufacturing" case illustrates:

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

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

When the auditor concludes that management cannot be trusted

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

When the auditor concludes that management cannot be trusted

During the investigations by the House Subcommittee on Oversight and Investigations, a question that was raised was:

Where were the auditors

The Navistar International case examines:

Whether Deloitte followed all provisions of the AICPA Code

Selection-socialization bias in audit firms pertains to:

Whether a firm hires and promotes individuals who fit into the prevailing firm culture and whether individuals unable to fit leave

The AOL-Time Warner case deals with:

Whether a whistleblower was a hero or villain

The ethical issue in the Beauda Medical case is:

Whether an audit firm should inform one audit client about malfunctioning equipment at another client that the former plans to buy

Each of the following were themes of Congressional investigations of the accounting profession during the 1970s and 1980s except:

Whether low-balling to obtain audits impairs independence

Each of the following were themes of the investigations of the accounting profession during the 1970s and 1980s except for:

Whether low-balling to obtain audits impairs independence

The M&A Transaction case focuses on:

Whether merger and acquisition services should be provided for an audit client

The Family Games case deals with the following accounting issue:

Whether revenue should be accelerated into an earlier period

The auditors' determination of whether the financial statements "present fairly" is based on:

Whether the accounting principles used are appropriate in the circumstances

The auditors' determination of whether the financial statements "present fairly" is based on: Whether the users are able to assess the reliability of the financial statements Whether the statements have been prepared in accordance with the same GAAP used from one year to another Whether the auditor has been able to gather sufficient evidence to warrant the statement that the financial statements present fairly Whether the accounting principles used are appropriate in the circumstances

Whether the accounting principles used are appropriate in the circumstances

Which of the following is not one of the evaluations of the control environment of an organization?

Whether the company has an anonymous hot line

Which of the following is not one of the evaluations of the control environment of an organization? Whether management's philosophy and operating style promote effective internal control over financial reporting Whether sound integrity and ethical values, particularly of top management, are developed and understood Whether the Board or audit committee understands and exercises oversight responsibility over financial reporting and internal control Whether the company has an anonymous hot line

Whether the company has an anonymous hot line

Gathering and objectively evaluating audit evidence requires the auditor to consider:

Whether the evidence is competent and sufficient enough to render an audit opinion

The KBC Solutions case deals with:

Whether the senior in charge of an audit can provide adequate explanations for the accounting for transactions being questioned by the review partner

In Han, Kang & Lee, LLC, the main accounting issue being discussed with the client is:

Whether to write-down inventory by 20 percent

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?

Diane is a CFO at We Do What We Want, Inc. She was just instructed by her boss, the CEO, to accelerate the recording of revenue into an earlier year to meet financial analysts' earnings projections. In order to meet the ethical standards of the accounting profession, Diane must be certain that she:

Works through the chain of command within the company to avoid subordinating judgment

In order to meet the ethical standards of the accounting profession, Diane must be certain that she

Works through the chain of command within the company to avoid subordinating judgment (lower/undergrade her judgment, required code of professional conduct)

Assume you are taking an exam and you clearly see that your friend is cheating. Your professor does not notice it. What is the most appropriate action for you to take if you are an ethical person?

You discuss the matter with your friend after the exam.

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

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 rests model of morality it can be said that

Your actions lack moral sensitivity

Anchoring tendency

a cognitive bias that describes the common human tendency to rely too heavily on the first piece of information offered

what is integrity

a fundamental trait of character

Rest's "Four Component Model of Morality" can best be described as?

a model of moral judgement based on ones possession of certain virtues of behavior

The best definition of a financial restatement is: A company, either voluntarily or under prompting by its auditors or regulators, revises its public financial information that was previously reported A company, either voluntarily or under prompting by its auditors or regulators, revises its public financial information for the current period An adjustment of financial information due to an error correction 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

An unusual aspect of the Green Mountain case is it included: Conference calls that provided earnings guidance to shareholders and analysts were used to mask a financial fraud Desire to meet or beat analysts' earnings expectations led to manipulation of receivables balances Company violated the Sarbanes- Oxley Act PricewaterhouseCoopers knew about inflated inventory values

a. Conference calls that provided earnings guidance to shareholders and analysts were used to mask a financial fraud

Which of the following audit deficiencies was identified most often in a study by the Center for Audit Quality of SEC imposed sanctions? Failure to gather sufficient competent evidence Failure to exercise due care Insufficient level of professional skepticism Failure to obtain adequate evidence related to management representations

a. Failure to gather sufficient competent evidence (73 percent). Failure to exercise due care (67 percent). Insufficient level of professional skepticism (60 percent). Failure to obtain adequate evidence related to management representations (54 percent). Failure to express an appropriate audit opinion (47 percent).

Which of the following was not true according to the Enron case? Fastow developed the concept of buying up oil and gas companies to establish SPEs Fastow 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 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 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 Learning Objective: 07-05 Explain the workings of financial shenanigans.

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

Typically, when a going concern issue exists the auditor should: Issue an unmodified opinion with an emphasis-of-matter paragraph Issue a modified opinion and explain the reasons for the going concern issue Issue a disclaimer of opinion Withdraw from the engagement Learning Objective: 05-04 Explain the standards for audit reports.

a. Issue an unmodified opinion with an emphasis-of-matter paragraph An emphasis-of-matter paragraph is a paragraph in the auditor's report that refers to a matter appropriately presented or disclosed in the financial statements (e.g., going concern, litigation uncertainty, subsequent events, etc.).

One result of earnings management is: It brings into question the quality of earnings It uses a non-GAAP financial measure to manipulate earnings EBITDA does not reflect GAAP earnings It improves shareholder returns over time

a. It brings into question the quality of earnings

Which technique was used by both WorldCom and Waste Management to manage earnings? Manipulating asset net valuation amounts to minimize operating expenses for a period Accelerating the recording of revenue into an earlier period Delaying needed repairs to a later period All of the above were used Learning Objective: 07-02 Explain what earnings management seeks to accomplish.

a. Manipulating asset net valuation amounts to minimize operating expenses for a period well-publicized ways of managing earnings during the period of financial fraud in the early 2000s were: (1) by using aggressive accounting techniques such as capitalizing costs that should have been expensed (e.g., WorldCom accounted for its line costs as capital expenditures rather than expensing them against revenue); and (2) by establishing or altering the elements of an estimate to achieve a desired goal (e.g., Waste Management's lengthening of the useful lives on trash hauling equipment to slow down depreciation each year).a.

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

a. Material

An example of fraudulent financial statements is: >Misrepresentation of events, transactions, and other significant events in the financial statements >Failure to provide adequate documentation to support financial statements assertions > Aggressive accounting for transactions, events, or other significant matters >Misappropriation of assets Learning Objective: 05-01 Distinguish between audit requirements for errors, fraud, and illegal acts.

a. Misrepresentation of events, transactions, and other significant events in the financial statements Fraudulent financial reporting involves either intentional misstatements or omissions of amounts or disclosures in financial statements that are intended to deceive financial statement users. Fraudulent financial reporting generally occurs in one of three ways: (1) Deception such as manipulation, falsification, or alteration of accounting records or supporting documents from which the financial statements are prepared; (2) misrepresentation in, or intentional omission from, the financial statements of events, transactions, or other significant information; and (3) intentional misapplication of accounting principles relating to measurement, recognition, classification, presentation, or disclosure.

The SEC is concerned that auditors don't pay enough attention to qualitative factors affecting materiality because: > Qualitative factors may cause quantitatively small misstatements to become material > Quantitative factors are not always useful > Quantitative factors cannot be accumulated to assess overall materiality > All are of concern to the SEC can find in "audit report and auditing standards"

a. Qualitative factors may cause quantitatively small misstatements to become material However, the SEC ruled that both qualitative and quantitative factors must be considered when assessing materiality. Materiality judgments in lawsuits against accountants rely on the "reasonable person" standard, that "a substantial likelihood that the . . . fact would have been viewed by the reasonable investor as having significantly altered the 'total mix' of information made available." If an item is material, it should be disclosed in the body of the financial statements or footnotes. The SEC lists some of the qualitative factors that may cause quantitatively small misstatements to become material

Motivations to smooth net income over time include each of the following except: Maximize bonuses and stock option values Steady increase in earnings each year Minimize overall taxes Make it appear managers are doing better than they really are

c. Minimize overall taxes

Judgment triggers

can lead to accepting a solution before it is properly identified and evaluated

Which of the following is NOT an earnings management technique? Failing to write down or write off impaired assets Releasing questionable reserves into income Failing to record expenses and related liabilities when future obligations remain Creating an allowance for uncollectible accounts and adjusting it at year end Learning Objective: 07-05 Explain the workings of financial shenanigans.

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

Which of the following is not one of the reporting standards of GAAS that guides auditors in formulating the audit opinion? > The financial statements have followed GAAP > Consistency in the application of GAAP > Adequate disclosures exist in the statements > Gathering sufficient audit evidence to warrant an opinion Learning Objective: 05-04 Explain the standards for audit reports.

d. Gathering sufficient audit evidence to warrant an opinion (1) determination of whether the statements have been prepared in conformity with GAAP (a) (2) identification of situations where the accounting principles have not been observed consistently in the current period in relation to the preceding period, and (b) (3) discussion in the report of any situation identified in the footnotes to the financial statements where informative disclosures are inadequate. (c)

The least immoral way to break promises

does the least harm

virtue ethics is

doing what is right

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

ethical dilemma

what best describes the relationship between laws and ethics?

ethical people rely on ethical standards to determine whether laws should be followed

"we push the envelope around here" is typical of the rationalization employed in

groupthink

the person-organization fit in the Ethical Dissonance Model that creates the greatest likelihood of ethical behaviour is

high organization ethics, high individual ethics

the act that enables a whitsleblower to receive compensation for blowing the whistle if the claims are deemed to be valid and the individual is not precluded from receiving such an award is

the dodd-frank financial reform act

The ACFE found that the most common way that fraud is first detected is

tip

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

Shifting current revenue from exclusivity payments to a later period

Which of the following earnings management techniques were not used in the Lucent Technologies, Inc.'s case?

Shifting current revenue to a later period

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

Shifting current revenue to a later period

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

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

What argument can be made that SOX may not be effective in reducing fraud? It is not as stringent as international standards The SEC has many laws for many years that have not seemed to make much of a difference The penalties under Sarbanes-Oxley are especially stringent, so it may not be enforced Civil and criminal penalties are not effective in preventing financial fraud

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

Which statement characterizes the moral reasoning typically found in a child?

"I'll let you play with my toy if you let me play with yours"

Which of the following statements include in the advertising of a CPA firm is permissible according to Rule 502, Advertising and Other Forms of Solicitation?

"We audit the fie largest manufacturing companies in the state."

Internal Control Framework

(CCRIM) Control Environment Control Activities Risk Assessment Information and Communication Monitoring

Which of the following is NOT one of the communications that should be made by external auditors to the audit committee? Accounting estimates Threats to auditor independence and related safeguards to mitigate those threats Significant deficiencies in audit procedures The nature and scope of significant assumptions

Significant deficiencies in audit procedures

In Case 1-1 Harvard Cheating Scandal, students who engage in cheating usually rationalize their behavior via what?

Situation ethics

Decisions that are made based on the underlying circumstances of a particular matter can be best characterized by:

Situational

Decisions that are made based on the underlying circumstances of a particular matter can be best characterized by:

Situational ethics

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

Six Pillars of Character

Deontology (Rights Theory)

-Considers "rights" of stakeholders and related duties to them. -Treats people as an an end and not a means to an end. -"Universallity": Would I want others to act in a similar manner for similar reasons in this situation?

Stewardship Theory

Someone who is in charge of someone else's assets.

The PCAOB rules prohibit auditors from:

-Providing tax preparation and planning services for public company executives -Providing tax services to members of the audit client's management who serve in financial reporting oversight roles -Providing certain aggressive tax shelters to their public company audit clients (All of the above)

Which of the following is an element of COSO Enterprise Risk Management?

-Reducing operating surprises and losses -Seizing opportunities -Enhancing risk response decisions

Which of the following are an affirmative defense for those violating the FCPA?

-The payment is lawful under the written laws of the foreign country -The payment can be made for reasonable and bona fide expenditures

The 6 pillars of character

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

Dodd-Frank act

-Wait 120 days to see if matter is corrected. -Public harmed by the accounting.

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 3

Grace Sloan explained that the audit team pressured her to let certain matters go. By doing so, Grace succumbed to groupthink. Groupthink has a home in which of the following

Stage 3 of the Kohlberg model

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's Stages of Moral Development is the accounting reasoning?

Stage 4

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 4

Yvonne is preparing a tax return for Jack. Jack wants 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 at which stage of Kohlberg's moral development model

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

Post-conventional:

Stage 5: Social contracts; upholding basic rights, values and legal contracts of society Stage 6: Universal ethical principles that everyone should follow; utopia

Conventional

Stage3: Fairness to others; loyalty Stage 4: one's duty to society

The results of studies indicate that CPAs reason primarily at:

Stages 3 and 4

Trust in business is important because:

Stakeholders need to feel confident that relationships with organizations will be consistent and reliable

What are the 3 categories of safeguards?

1) safeguards created by the profession, legislation, or regulation (continuing education requirements on independence and ethics and external review of a firm's quality control system. 2) safeguards implemented by the attest client, such as a tone at the top that emphasizes the attest client's commitment to fair financial reporting and governance structure, such as an active audit committee, that is designed to ensure appropriate decision making, oversight, and communications regarding firm's services. 3) safeguards implemented by a firm, including policies and procedures to implement professional and regulatory requirements.

Ethical Dissonance Model

1. High-High (high organizational & high individual ethics) 2. Low-Low (low organizational & low individual ethics) 3. High-Low (high organizational & low individual ethics) 4. Low-High (low organizational & high individual ethics)

Corporate governance structures and relationships are shaped by internal and external mechanisms. Which of the following is an external mechanism?

State and federal statues require a baseline corporate governance system

CPAs should always adhere to the rules of conduct of the

State board of accountancy

The ethical environment within an accounting firm is created through adherence to the:

Stated values and management practices

Which of the following is NOT an element of the auditor's responsibility of the AICPA's auditor's report?

States the audit evaluates the overall financial statement presentation

Which of the following is NOT an element of the auditor's responsibility of the AICPA's auditor's report? States the auditor's responsibility to express an opinion on the financial statements States the audit provides reasonable assurance that the statements are free of material misstatement States audit provides reasonable basis for the opinion States the audit evaluates the overall financial statement presentation

States the audit evaluates the overall financial statement presentation

Confidentiality exceptions

1. Peer or quality review 2. Investigation of CPA 3. Client agrees for auditor to disclose confidential information 4. When permitted by law or regulation

Seven signs of ethical collapse

1. Pressure to maintain numbers 2. Fear and silence 3. Loyalty to the boss 4. Weak board of directors 5. Conflicts of interest overlooked or unaddressed 6. Innovation like no other company 7. Goodness in some areas atones for evil in others

Which of the following is NOT an element of the auditor's responsibility of the AICPA's auditor's report? States the auditor's responsibility to express an opinion on the financial statements States the audit provides reasonable assurance that the statements are free of material misstatement States audit provides reasonable basis for the opinion States the audit evaluates the overall financial statement presentation

States the audit evaluates the overall financial statement presentation

Whistleblowers who meet the criteria are eligible to receive an award based on what was collected as a result of the monetary sanctions. This can vary from ___________.

10 to 30 percent

The applicable section to Helen's situation in the conceptual framework rules for CPAs in business would be which of the following (ethical dilemma due to financial self-interest threat)

2.000.010

The applicable section to Helen's situation in the conceptual framework rules for CPAs in business would be which of the following?

2.000.010

The SEC requires stealth restatements to be: Disclosed only in periodic reports Disclosed only in an 8-K report or amended 10-K/A or 10-Q/A Increased to more 50% of restatements Disclosed in ten business days after determination of need for restatement Learning Objective: 07-06 Explain the causes and effects of financial restatements.

??Disclosed only in an 8-K report or amended 10-K/A or 10-Q/A The SEC defines a stealth restatement as one that is disclosed only in periodic reports and not in the 8-K or amended periodic report such as a 10-K/A or 10-Q/A. The percentage of stealth restatements has hold steady at about 50 percent for the past few years.

All of the following are examples of "Recording revenue too soon or of questionable quality" except: A. Recording sales that lack economic substance B. Recording revenue when future services remain to be provided C. Recording revenue before shipment or before the customer's unconditional acceptance D. Recording revenue even though the customer is not obligated to pay

A

An authentic leader: A. Is focused on building short-term shareholder value, not in just beating quarterly estimates B. Is focused on controlling management's desires to beat quarterly estimates C. Empowers employees to make choices after discussing them with leaders D. Acts consistently with norms of behavior

A

An example of fraudulent financial statements is: A. Misrepresentation of events, transactions, and other significant events in the financial statements B. Failure to provide adequate documentation to support financial statements assertions C. Aggressive accounting for transactions, events, or other significant matters D. Misappropriation of assets

A

Arel et al. in their study of ethical leadership, the internal audit function, and moral intensity on a decision to record a questionable entry found that: A. There is a joint influence of ethical leadership and internal audit quality on accountants' willingness to book a questionable entry B. There is a joint influence of internal audit quality and tone at the top on accountants' willingness to book a questionable entry C. Ethical leadership does not influence accountants' willingness to book a questionable entry D. Internal audit quality does not influence accountants' willingness to book a questionable entry

A

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

Bobek et al. found that nonpartners are more likely to perceive the ethical environment of their firm as strong when they: A. Believe they have a meaningful role in shaping and maintaining the ethical environment of their firms B. Believe ethical leaders consider their interests in firm decision making C. Are included in firm decision making D. Have a high frequency of receiving mentoring

A

Fraud can be defined as: 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 above

A

If the financial statements are not materially misstated, the auditor should give a(an): A. Unmodified opinion B. Modified opinion C. Adverse opinion D. Qualified opinion

A

In Grant Thornton v. Prospect High Income Fund, the Texas Supreme Court held: A. Auditors were not liable for accurate accounting to anyone who reads and relies upon the audit report B. Auditors were not liable for ordinary negligence C. Auditors are not guarantors of accurate and reliable financial statements D. Management is responsible for the financial statements

A

In Heinrich Müller: Big-Four Whistleblower, Müller had an ethical dilemma because: A. Confidential tax documents demonstrate the firm was engaged in illegal firm-arranged tax avoidance deals B. Confidential tax documents indicate the client violated the law by taking advantage of tax advantaged investment C. His supervisor ordered him to commit tax fraud D. His supervisor was engaged in tax fraud

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

A

In the Capitalization versus Expensing case the main ethical issue is whether Gloria Hernandez should: A. Capitalize or expense $1 million of expenditures B. Report her superiors' actions to the CEO C. Talk to the audit committee about the pressure imposed by her supervisor D. Become a whistle blower

A

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

In the Shifty Industries case, the primary ethical issue can be stated as: A. Whether an accountant should claim a higher section 179 deduction ($100,000) than allowed by law. B. Whether an accountant should claim any section 179 deduction or not. C. Whether an accountant should claim inflated expenses on the company tax return. D. Whether an accountant should claim a section 179 deduction ($25,000) as allowed by law.

A

In the ZZZZ best case, Barry Minkow was charged with: A. A fraudulent insurance restoration scam B. Insider trading on Lennar stock C. Stealing from a San Diego church D. Overcharging a LA housewife for carpet cleaning services

A

In which of the following circumstances would a qualified opinion be appropriate? A. The statements are not in conformity with generally accepted accounting principles regarding stock options plans and but does not have pervasive effect on the financial statements B. The statements are not in conformity with generally accepted accounting principles regarding stock options plans and has pervasive effect on the financial statements C. The auditor has been unable to obtain sufficient competent evidential matter D. The principal auditors decide to withdraw from the engagement due to distrust of management

A

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

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 B. Justice C. Virtue ethics D. Utilitarianism

A

Kelly and Jordan are writing a term paper together on the concept of "faithful representation" in the financial statements. Kelly is assigned the task of defining it in the context of an amount being an estimate. Which of the following statements should NOT be used by Kelly in her description? A. Good faith attempt to gather evidence to support the amount B. Clear disclosure of an amount as an estimate C. The nature and limitations of the estimating process D. Error free procedures in selecting and applying an appropriate process for developing the estimate

A

Lawsuits filed against Johnson & Johnson for product defects years after the Tylenol affair best illustrates that: A. Even good companies can do bad things B. A reputation for trust can be lost in an instance C. Good companies are targets of consumer lawsuits D. Ignoring bad evidence about a product is a bad idea

A

One reason independence in appearance is used to evaluate threats to independence is: A. Factual independence is based on unobservable matters B. Independence in appearance links to other rules of conduct C. Threats to independence can only be measured using a safeguards approach D. Threats to independence always exist when perceptions indicate a conflict of interests may exist between the auditor and client

A

One result of earnings management is: A. It brings into question the quality of earnings B. It uses a non-GAAP financial measure to manipulate earnings C. EBITDA does not reflect GAAP earnings D. It improves shareholder returns over time

A

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

Selection-socialization bias in audit firms pertains to: A. Whether a firm hires and promotes individuals who fit into the prevailing firm culture and whether individuals unable to fit leave B. Whether a firm fires individuals who do not fit into the prevailing firm culture C. Whether individuals choose to work for a particular firm D. Effective leadership and followership

A

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

The Committee of Sponsoring Organizations of the Treadway Committee (COSO) analyzed the financial reporting of public companies during the 1998-2007 periods when business failures due to accounting fraud were high and found that: A. Top management was frequently involved in the fraud with the CEO and/or CFO being the most frequently involved B. The most common fraud technique involved understating expenses C. The audit committee always sanctioned the fraud D. A minority of audit reports issued during the fraud period contained unqualified audit opinions

A

The Con-Way case deals with legal liabilities due to: A. Bribery of foreign government officials B. Fraudulent financial statements C. Facilitating payments to government agents D. Bribery of U.S. government officials

A

The KPMG Professional Judgment Framework defines judgment as: A. The process of reaching a decision or drawing a conclusion where there are a number of possible alternative solutions B. The process of making a judgment where there are a number of possible virtues C. The process of acting in accordance with the AICPA Code D. The process of deciding when giving voice to one's values

A

The KPMG tax shelter case deals with: A. The culture of the tax practice and aggressive marketing of tax shelters to wealthy clients B. The influence of independence and objectivity in selling tax shelter products to audit clients C. The use of the a realistic possibility of success opinion letter on tax shelters for clients D. The aggressiveness of tax clients in demanding the firm provide opinion letters on tax shelter products

A

The SEC is concerned that auditors don't pay enough attention to qualitative factors affecting materiality because: A. Qualitative factors may cause quantitatively small misstatements to become material B. Quantitative factors are not always useful C. Quantitative factors cannot be accumulated to assess overall materiality D.All are of concern to the SEC

A

The Tax Inversion case deals with: A. Whether IFRS should be used for all subsidiaries following an acquisition B. Whether IFRS should replace U.S. GAAP C. Whether a quality reviewer should be chosen from outside the company D. Whether a tax inversion should occur

A

The U.S. Supreme Court ruled in Ernst & Ernst v. Hochfelder that: A. A private cause of action for damages does not come under rule 10b-5 in the absence of any allegation of scienter B. The auditor engaged in an act in connection with the purchase or sale of a security that caused the loss to the plaintiff C. Breach of duty is not required to establish fraud D. The auditor has no legal liability for fraud to third parties

A

The anchoring tendency relates to: A. Starting from an initial numerical value and then adjusting insufficiently away from it in forming a final judgment B. Starting from management's estimate and then adjusting sufficiently away from it in forming a final judgment C. Developing a system to give voice to one's values D. Developing a decision making framework

A

The cultural value of Individualism reflects: A. The degree a society reinforces individual or collective achievement B. Tolerance for uncertainty and ambiguity in society C. The degree of equality between people in a society D. Whether a society has a long-term or short-term orientation

A

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

The ethical dissonance model looks at the ethical fit of the organizational and individual values. The optimal fit for an individual with high individual ethics would be: A. High-High B. High-Low C. Low-High D. Low-Low

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

A

The leadership style of management at Krispy Kreme can best be summed up as: A. Aggressively sought to manage earnings using round-trip transactions B. Pressured auditors to overlook material misstatements in the financial statements C. Encouraged employees to engage in deception and fraud through franchisees D. All of the above

A

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

The method of ethical reasoning that evaluates actions in terms of harms and benefits is: A. Act Utilitarianism B. Rights Theory C. Justice D. Virtue

A

Under section 302 of the SOX the financial statement certifying officials must include in their certification that: A. 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 B. The auditors are responsible for the internal controls and have evaluated and reported on them C. All changes in internal controls or related factors that could have a negative effect on the internal controls have been made D. The audit report was unmodified

A

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 B. Contacts his/her immediate superior who says to forget about the matter C. Informs the external auditors who tell him/her to inform the appropriate authorities D. Believes there has been an ethical violation

A

Utilitarian philosophers are divided into two types: act utilitarian and A. rule utilitarian. B. egoistic utilitarian. C. ethical utilitarian. D. beneficial utilitarian.

A

Which of the following audit deficiencies was identified most often in a study by the Center for Audit Quality of SEC imposed sanctions? A. Failure to gather sufficient competent evidence B. Failure to exercise due care C. Insufficient level of professional skepticism D. Failure to obtain adequate evidence related to management representations

A

Which of the following authors(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

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

Which of the following is an element of ERM? A. Reducing operational surprises and losses B. Aligning risk appetite and whether fraud has occurred C. Control environment D. Audit risk assessment

A

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 B. Fastow 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

Which of the following was the most frequent anti-fraud control identified in the 2014 ACFE Global Fraud Survey? A. External audit of financial statements B. Code of conduct C. Internal audit department D. External audit of internal controls over financial reporting

A

With respect to whistleblowing, the Sarbanes-Oxley Act: 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

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 these

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

A common requirement/effect of the commissions and contingent fees rule is:

A CPA is prohibited from accepting such a form of payment when engaged in attest services for a client

a common requirement of the commissions and contiguent fees rules is

A CPA is prohibited from accepting such forms of payment when also auditing the client

The 2010 Dodd-Frank Act includes additional incentives for whistleblowers. What is the acts effect on whistleblowing by accountants?

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

the 2010 dodd frank act includes addictional incentives for whistleblowers. what is the acts effect on whitsleblowing by accountants?

A CPA may report a violation of public accounting firms performace in an audit

What are the implications of reasoning at stages 3 and 4?

A CPA unable to apply technical accounting standards is likely to be influenced by others.

Which of the following is NOT an affirmative defense for those violating the FCPA? The payment is lawful under the written laws of the foreign country The payment can be made for reasonable and bona fide expenditures A and B are both affirmative defenses None of the above

A and B are both affirmative defenses

Which of the following is NOT an affirmative defense for those violating the FCPA? The payment is lawful under the written laws of the foreign country The payment can be made for reasonable and bona fide expenditures A and B are both affirmative defenses None of the above

A and B are both affirmative defenses

Which of the following are an affirmative defense for those violating the FCPA? The payment is lawful under the written laws of the foreign country The payment can be made for reasonable and bona fide expenditures A and B are both affirmative defenses None of the above

A and B are both affirmative defenses Two affirmative defenses for those accused of violating the act are that the payment is lawful "under the written laws" of the foreign country, and that the payment can be made for "reasonable and bona fide expenditures."

The best definition of a financial restatement is: A company, either voluntarily or under prompting by its auditors or regulators, revises its public financial information that was previously reported A company, either voluntarily or under prompting by its auditors or regulators, revises its public financial information for the current period An adjustment of financial information due to an error correction All are part of the definition

A company, either voluntarily or under prompting by its auditors or regulators, revises its public financial

The best definition of a financial restatement is:

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

The best definition of a financial restatement is: A company, either voluntarily or under prompting by its auditors or regulators, revises its public financial information that was previously reported A company, either voluntarily or under prompting by its auditors or regulators, revises its public financial information for the current period An adjustment of financial information due to an error correction All are part of the definition

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

In the ZZZZ best case, Barry Minkow was charged with: A fraudulent insurance restoration scam Insider trading on Lennar stock Stealing from a San Diego church Overcharging a LA housewife for carpet cleaning services

A fraudulent insurance restoration scam

Vorhies identities four perspectives to help CPAs identify key internal control exceptions under the Sarbanes Oxley Act (SOX) including:

A large variance in an accounting estimate compared with the actual determined amount

Vorhies identities four perspectives to help CPAs identify key internal control exceptions under the Sarbanes Oxley Act (SOX) including: An internal control deficiency caused by accounting manipulations A large variance in an accounting estimate compared with the actual determined amount A misstatement that changes a loss into income or vice versa All were identified

A large variance in an accounting estimate compared with the actual determined amount

Vorhies identities four perspectives to help CPAs identify key internal control exceptions under the Sarbanes Oxley Act (SOX) including: An internal control deficiency caused by accounting manipulations A large variance in an accounting estimate compared with the actual determined amount A misstatement that changes a loss into income or vice versa All were identified

A large variance in an accounting estimate compared with the actual determined amount

Under section 302 of the SOX 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 The auditors are responsible for the internal controls and have evaluated and reported on them All changes in internal controls or related factors that could have a negative effect on the internal controls have been made The audit report was unmodified

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

Under section 302 of the SOX 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 The auditors are responsible for the internal controls and have evaluated and reported on them All changes in internal controls or related factors that could have a negative effect on the internal controls have been made The audit report was unmodified

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

Under section 302 of the SOX 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 The auditors are responsible for the internal controls and have evaluated and reported on them All changes in internal controls or related factors that could have a negative effect on the internal controls have been made The audit report was unmodified

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 the relationship between ethical action and one's level of moral development

Thorne's "Integrated Model of Ethical Decision-Making" can best be described as:

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

A privity relationship means that: A party may be a user of the financial statements A party may sue if fraud has taken place A party's financial liability is limited A party has a contractual obligation

A party has a contractual obligation

A privity relationship means that: A party may be a user of the financial statements A party may sue if fraud has taken place A party's financial liability is limited A party has a contractual obligation

A party has a contractual obligation

The U.S. Supreme Court ruled in Ernst & Ernst v. Hochfelder that:

A private cause of action for damages does not come under rule 10b-5 in the absence of any allegation of scienter

The U.S. Supreme Court ruled in Ernst & Ernst v. Hochfelder that: A private cause of action for damages does not come under rule 10b-5 in the absence of any allegation of scienter The auditor engaged in an act in connection with the purchase or sale of a security that caused the loss to the plaintiff Breach of duty is not required to establish fraud The auditor has no legal liability for fraud to third parties

A private cause of action for damages does not come under rule 10b-5 in the absence of any allegation of scienter

The U.S. Supreme Court ruled in Ernst & Ernst v. Hochfelder that: A private cause of action for damages does not come under rule 10b-5 in the absence of any allegation of scienter The auditor engaged in an act in connection with the purchase or sale of a security that caused the loss to the plaintiff Breach of duty is not required to establish fraud The auditor has no legal liability for fraud to third parties

A private cause of action for damages does not come under rule 10b-5 in the absence of any allegation of scienter

What is enterprise risk management (ERM)?

A process, effected by an entity's board of directors, management, and other personnel designed to identify potential events that may affect the entity and to manage risk within its risk appetite

What is enterprise risk management (ERM)? A process of evaluating internal controls to ensure operations are carried out efficiently and effectively A process designed to identify material events that may affect the financial statements and to manage risk within the entity's risk appetite A process, effected by an entity's board of directors, management, and other personnel designed to identify potential events that may affect the entity and to manage risk within its risk appetite A process by which compliance with laws and regulations can be assessed

A process, effected by an entity's board of directors, management, and other personnel designed to identify potential events that may affect the entity and to manage risk within its risk appetite

A conflict of interest exists when:

A professional service or relationship creates a situation that might impair objective judgement

A conflict of interest exists when:

A professional service or relationship creates a situation that might impair objective judgment

In the development of a scale to measure professional skepticism, Hurtt, Eining and Plumlee identified the following three characteristics of skepticism that deal with examining evidence:

A questioning mind, the suspension of judgment and the search for knowledge

The results of Morris's study of the influence of authentic leadership and ethical firm culture on auditor behavior is:

A significant negative correlation exists between authentic leadership and dysfunctional audit behaviors

The cost to the public to clean up 1,043 failed savings and loan institutions during the period of 1986- 1995 was: A. $152.9 billion including $123.8 billion of U.S. taxpayer losses B. $300 million including $123.8 million of U.S. taxpayer losses C. $400 billion including $152.9 billion of U.S. taxpayer losses D. $400 million including $152.9 billion of U.S. taxpayer losses

A. $152.9 billion including $123.8 billion of U.S. taxpayer losses

15. The best definition of a financial restatement is: A. A company, either voluntarily or under prompting by its auditors or regulators, revises its public financial information that was previously reported B. A company, either voluntarily or under prompting by its auditors or regulators, revises its public financial information for the current period 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

Rest's Four Component Model of Morality can best be described as: A. A model of the relationship between ethical action and one's level of moral development B. A model of moral development based on one's thought process 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.

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

A conflict of interest exists when: A. A professional service or relationship creates a situation that might impair objective judgment B. Professional skepticism fails to meet objective standards C. A professional service or relationship creates a situation that might impair completion of the audit D. All of the above

A. A professional service or relationship creates a situation that might impair objective judgment

The due care principle in the AICPA code: A. Addresses the quality of services performed by the CPA B. Addresses whether the independence standards have been met C. Addresses wether the integrity and objectivity have been compromised D. Addresses the quality of the individual who performs professional services

A. Addresses the quality of services performed by the CPA

A CPA can accept a gift from a client as long as: A. Adequate safeguards exist to prevent any threats to compliance with the Integrity and Objectivity rule B. Adequate internal controls exist in the client entity to ensure gifts are made without any pre-conditions C. The amount is below what is considered to be a material payment D. Audit services are not provided to the client

A. Adequate safeguards exist to prevent any threats to compliance with the Integrity and Objectivity rule

Professional skepticism can best be defined as having: A. An inquiring mind and suspension of belief B. Careful observation and virtue based decision making C. An inquiring mind and deliberate decision making D. Deliberate decision making and suspension of belief

A. An inquiring mind and suspension of belief

Under the Sarbanes-Oxley act, the auditor's responsibility with respect ot internal controls can best be stated as: A. Assess management's report on internal controls B. Prepare a report on internal controls to be provided to management C. Assess whether the internal controls help to prevent and detect fraud D. Develop a system of internal controls that help to prevent and detect fraud

A. Assess management's report on internal controls

Which of the following characteristics is NOT part of behaving with empathy? A. Being loyal to one's friends B. Being sensitive to the feeling of one's friends C. Being caring about one's friends D. Being understanding of one's friends

A. Being loyal to one's friends

17. 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

Which of the following is a permitted loan to a CPA from an audit client financial institution? A. Car loan collateralized by the car B. Credit cards with a limit greater than $25,000 C. Home mortgage D. Personal loan of less than $10,000

A. Car loan collateralized by the car

Which of the following is NOT a component of the KPMG Professional Judgment Framework? A. Clarify issues and conclusions B. Clarify issues and objectives C. Gather and evaluate information D. Articulate and document rationale

A. Clarify issues and conclusions

Which statement is correct with respect to a CPA's ethical obligation to return client books and records and CPA work papers? A. Client-provided records in the custody or control of the CPA should be returned to the client at the client's request B. CPA work papers should be given to the client at the end of each audit C. CPA work product never has to be turned over to the client D. Client-provided records should be destroyed after the audit

A. Client-provided records in the custody or control of the CPA should be returned to the client at the client's request

7. 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

The role of a leader in an organization is to: A. Determine organizational climate and define norms B. Enforce violations of code rules of conduct C. Develop the principles and strategic initiatives to guide ethical actions D. Establish principles and standards of behavior that guide business decisions

A. Determine organizational climate and define norms

Which of the following is not an element of internal control over financial reporting? A. Developing a code of conduct and whistleblowing procedures B. Providing reasonable assurance that receipts and expenditures are recorded based on proper authorization by management C. providing reasonable assurance that the financial statements are prepared in accordance with GAAp D. Maintaining accurate financial records.

A. Developing a code of conduct and whistleblowing procedures

13. 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

39. 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

The level of care expected of a reasonable person under similar circumstances in meeting one's fiduciary duty is called: A. Duty of loyalty B. Duty of care C. Fairness D. Transparency

A. Duty of loyalty

21. 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 B. Fastow 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

Kelly and Jordan are writing a term paper together on the concept of "faithful representation" in the financial statements. Kelly is assigned the task of defining it in the context of an amount being an estimate. Which of the following statements should NOT be used by Kelly in her description? Good faith attempt to gather evidence to support the amount Clear disclosure of an amount as an estimate The nature and limitations of the estimating process Error free procedures in selecting and applying an appropriate process for developing the estimate

A. Good faith attempt to gather evidence to support the amount auditors shouldnt rely on good faith

In the ESM fraud discussed in this chapter, Jose Gomez violated the Independence standard because he: A. Had loans outstanding from the client B. Engaged in a business relationship with the client C. Had family members who owned stock directly in the client D. All of these

A. Had loans outstanding from the client

9. 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

In its investigation of ZZZZ Best, the House Subcommittee on Oversight and Investigations looked into: A. How the company was able to create 80% or more fictitious revenue B. Why the board of directors failed to uncover the fraud at ZZZZ Best C. How the company was able to create cookie jar reserves D. All of the above

A. How the company was able to create 80% or more fictitious revenue

The ethics rules that applies solely to those who conduct an audit of a client entity is: A. Independence B. Objectivity C. Integrity D. All of these

A. Independence

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

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

Which of the following is NOT a safeguard to mitigate threats to compliance with the rules for CPAs in business or reduce them to an acceptable level? A. Independent external audit B. Tone at the top C. Independent audit committee D. Whistle-blower hot line

A. Independent external audit

The most important duty of public accounting is to the: A. Investing public B. Securities and Exchange Commission C. Management D. Current stockholders

A. Investing public

43. 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

Which of the following is NOT a pillar of character according to Josephson? A. Judgmental B. Respect C. Caring D. Citizenship

A. Judgmental

4. 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

The committee that first recommended that the profession institute a voluntary program for peer review was: A. Metcalf committee B. Cohen committee C. The House Subcommittee on Oversight and Investigations D. Mintz and Morris committee

A. Metcalf committee

The committee that first recommended that the profession institute a voluntary program for peer review was: A. Metcalf committee B. Cohen committee C. The House Subcommittee on Oversight and Investigations D. Mintz and Morris committee

A. Metcalf committee

As a manger 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? A. Monitoring B. Control activities C. Control environment D. Risk Assessment

A. Monitoring

Which of the following is NOT an element of the corporate governance system? A. Monitoring by top management B. Board of directors C. Executive compensation policies D. Internal controls

A. Monitoring by top management

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 motivation B. Moral Judgment C. Moral Character D. Moral Sympathy

A. Moral Motivation

Professional judgement is influenced by: A. Personal behavioral traits B. Personal code of ethics C. Organizational values D. Organizational dissonance

A. Personal behavioral traits

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. Preconventional Morality B. Conventional Morality C. Postconventional Morality D. Nonconventional Morality

A. Preconventional Morality

44. The main accounting issues in the Nortel Networks case were: A. Premature revenue recognition and hidden cash reserves B. Capitalization of operating expenses and hidden cash reserves C. Premature revenue recognition and off-balance-sheet entities D. Capitalization of operating expenses and off-balance-sheet entities

A. Premature revenue recognition and hidden cash reserves

On January 24, 2014, KPMG agreed to pay $8.2 million to settle charges by the SEC that the firm violated auditor independence rules because it: A. Provided certain nonaudit services to affiliate companies whose books KPMG was auditing B. Provided audit services to affiliate companies while owning stock in those companies C. Had a management decision-making position in affiliate companies that KPMG audited D. Had a business relationship with management of an affiliate company it was auditing

A. Provided certain nonaudit services to affiliate companies whose books KPMG was auditing

The insider trading case against Scott London focused on: A. Providing confidential information about audit clients to a friend B. Personally buying stock of audit clients after receiving confidential information C. Providing confidential information about audit clients to his son D. Personally selling stock of audit clients after receiving confidential information

A. Providing confidential information about audit clients to a friend

An example of revenue overstatement is: A. Recording gross, rather than net, revenue B. Deferring revenue C. Reporting cost of sales as a non-operating expense D. Manipulating reserves

A. Recording gross, rather than net, revenue

47. 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

31. 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

30. All of the following are examples of "Recording revenue too soon or of questionable quality" except for: A. Recording sales that lack economic substance. B. Recording revenue when future services remain to be provided. C. Recording revenue before shipment or before the customer's unconditional acceptance. D. Recording revenue even though the customer is not obligated to pay.

A. Recording sales that lack economic substance.

The method of ethical reasoning that requires selecting the correct moral rule that produces the greatest benefits over harms is: A. Rule utilitarianism B. Justice C. Rights theory D. Act Utilitarianism

A. Rule Utilitarianism

20. 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

The anchoring tendency relates to: A. Starting from an initial numerical value and then adjusting insufficiently away from it in forming a final judgment B. Starting from management's estimate and then adjusting sufficiently away from it in forming a final judgment C. Developing a system to give voice to one's values D. Developing a decision making framework

A. Starting from an initial numerical value and then adjusting insufficiently away from it in forming a final judgment

CPAs should always adhere to the rules of conduct of the A. State board of accountancy B. AICPA C. IMA D. All of these

A. State board of accountancy

Each of the following is an outright restriction on providing nonattest services for an attest client except for: A. Tax services B. Financial information systems design and implementation C. Appraisal or valuation services D. Internal audit outsourcing services

A. Tax services

Which of the following is NOT an outright restriction on providing nonattest services for an attest client? A. Tax services B. Financial information systems design and implementation C. Appraisal or valuation services D. Internal audit outsourcing services

A. Tax services

The Public Interest Principles in the AICPA Code of Professional Conduct recognizes: A. The importance of integrity in decision-making B. The importance of whistleblowing when financial wrongdoing exists C. The importance of maintaining confidentiality D. The importance of loyalty to one's superior

A. The importance of integrity in decision making

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

A. The link between social consensus and ethical devision-making exists because accounting is a community with shared values and beliefs

33. Which of the following is NOT addressed in the Waste Management's case? A. The misstatements represented 10% of pre-tax income, which was not considered material. B. The company employed aggressive accounting practices to enhance its earnings. C. The company used the gain to offset unrelated operating expenses which was not in conformity with GAAP. D. The company's auditor, Arthur Andersen, had engaged in improper professional conduct.

A. The misstatements represented 10% of pre-tax income, which was not considered material.

36. 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

The KPMG Professional Judgment Framework defines judgment as: A. The process of reaching a decision or drawing a conclusion where there are a number of possible alternative solutions B. The process of making a judgment where there are a number of possible virtues C. The process of acting in accordance with the AICPA Code D. The process of deciding when giving voice to one's values

A. The process of reaching a decision or drawing a conclusion where there are a number of possible alternative solutions

Deontology deals with: A. The rights of others and duties towards them B. Consequences of actions C. Following the law as an element of ethical behavior D. Following prescribed virtue characteristics

A. The rights of others and duties towards them

The conceptual framework in the AICPA Code establishes a: A. Threats and safeguards approach to assess whether ethics rules have been violated B. Rules to assess independence violations apart from those affecting other services C. New rule on when to follow the Dodd Frank whistle-blower's act D. Legal liability of auditors

A. Threats and safeguards approach to assess whether ethics rules have been violated

25. 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

The term disgorgement means: A. To return ill-gotten gains B. To return profit earned illegally C. To give up one's meal after eating D. To give up one's board position after a fraud incident

A. To return ill-gotten gains

Which of the following is NOT something the CPA should do in tax planning? A. Uncritically accept the client's explanations for assumptions and representations B. Establish the relevant background facts C. Consider the reasonableness of the assumptions and representations D. Consider the business purpose and economic substance of the transaction, if relevant to the tax consequences of the transaction

A. Uncritically accept the client's explanations for assumptions and representations

In using the GVV framework, questions to post 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 your most powerful and persuasive response you need to address? C. What is at stake for the key parties? D. What levers can you influence others?

A. What is the way to appeal all parties

The ethical issue in the Beauda Medical case is: A. Whether an audit firm should inform one audit client about malfunctioning equipment at another client that the former plans to buy B. Whether an audit firm should inform one audit client about fraudulent financial statements of another client C. Whether certain expenditures should be capitalized rather than expensed D. Whether revenue should be accelerated into an earlier period

A. Whether an audit firm should inform one audit client about malfunctioning equipment at another client that the former plans to buy

Each of the following were themes of Congressional investigations of the accounting profession during the 1970s and 1980s except: A. Whether low-balling to obtain audits impairs independence B. Whether nonaudit services impair auditor independence C. The need for a report on internal controls D. The importance of developing techniques to prevent and detect fraud

A. Whether low-balling to obtain audits impairs independence

The M&A Transaction case focuses on: A. Whether merger and acquisition services should be provided for an audit client B. Whether merger and acquisition services should be provided for a tax client C. Whether a merger should go through between two audit clients D. How to record M&A transactions

A. Whether merger and acquisition services should be provided for an audit client

The ethical dissonance model helps to evaluate: A. Whether the organization's ethics aligns with individual ethics. B. Whether the organization has a whistleblowing process C. Whether the organization sets an ethical tone at the top D. Whether the organization has ethical leadership

A. Whether the organization's ethics aligns with individual ethics.

In Han, Kang & Lee, LLC, the main accounting issue being discussed with the client is: A. Whether to write-down inventory by 20 percent B. Whether to increase the value of inventory by 20 percent C. Whether to record an expenditure of $2 million as a capital expense and not operating expense D. Whether to inform the audit committee of fraud

A. Whether to write-down inventory by 20 percent

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

A. upholding the rights, values and legal contract of society

Which statement is correct with respect to a CPA's ethical obligation to return client books and records and CPA work papers: A.Client-provided records in the custody or control of the CPA should be returned to the client at the client's request. B. CPA work papers should be given to the client at the end of each audit. C. CPA work product never has to be turned over to the client. D. All of these

A.Client-provided records in the custody or control of the CPA should be returned to the client at the client's request.

Which of the following is NOT a pressure that might lead to fraud? Desire to maximize the value of stock options Budget pressures Meet financial analysts' earnings expectations Ability to carry out the fraud

Ability to carry out the fraud

The 2012 State of Compliance Study of PwC indicates that:

About the same percentage of compliance officers report to the audit committee as to the general counsel

The primary ethical issue in United Thermostatic Controls is:

Accelerating the recording of revenue into an earlier period

The Harrison Industries case deals with: Using non-GAAP measures of earnings Acceptability of recording unpaid severance accruals Using EBITDA to obscure earnings All of the above

Acceptability of recording unpaid severance accruals

The Harrison Industries case deals with: Using non-GAAP measures of earnings Acceptability of recording unpaid severance accruals Using EBITDA to obscure earnings All of the above.

Acceptability of recording unpaid severance accruals

According to the ethical standards of the profession, which of the following acts is generally prohibited?

Accepting a commission for recommending a product to an audit client

Which of the following is NOT an example of a conflict of interest?

Accepting commissions in a financial planning engagement for a no audit client

Which of the following is NOT an example of a conflict of interest?

Accepting commissions in a financial planning engagement for a nonaudit client

An unacceptable threat to independence occurs when a CPA performs nonaudit services for an audit client unless the CPA

Accepts management's responsibility for the services

An unacceptable threat to independence occurs when a CPA performs nonaudit services for an audit client unless the CPA:

Accepts management's responsibility for the services

Leadership in accounting is different than leadership in most other organizations because:

Accountants are expected to place the public interest above all else

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

When courts find accountants liable for constructive fraud, the implication is that: Auditors should always be liable when investors lose money due to deceit Accountants may be liable for fraud even when they had no knowledge of deceit Auditors should be able to detect all deceit by management Accountants may be held liable even to third parties to whom they did not have a duty

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

When courts find accountants liable for constructive fraud, the implication is that: Auditors should always be liable when investors lose money due to deceit Accountants may be liable for fraud even when they had no knowledge of deceit Auditors should be able to detect all deceit by management Accountants may be held liable even to third parties to whom they did not have a duty

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

When courts find accountants liable for constructive fraud, the implication is that: Auditors should always be liable when investors lose money due to deceit Accountants may be liable for fraud even when they had no knowledge of deceit Auditors should be able to detect all deceit by management Accountants may be held liable even to third parties to whom they did not have a duty

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

Which of the following is NOT addressed in the Diamond Foods case? Accounting for payments to walnut growers Matching revenues with the proper period Depreciation of almond trees Misleading the external auditors

Accounting for payments to walnut growers

The problem of a compliance approach in implementing global standards is that it can result in:

Achieving formal compliance without considering ethical consequences

The problem of a compliance approach in implementing global standards is that it can result in: Achieving informal compliance without considering ethical consequences Achieving a true and fair view with respect to the auditor's report Achieving a dual system of boards of directors Achieving formal compliance without considering ethical consequences

Achieving formal compliance without considering ethical consequences

The problem of a compliance approach in implementing global standards is that it can result in: Achieving informal compliance without considering ethical consequences Achieving a true and fair view with respect to the auditor's report Achieving a dual system of boards of directors Achieving formal compliance without considering ethical consequences

Achieving formal compliance without considering ethical consequences

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

Act Utilitarianism

The rights theory incorporates all the following elements except for

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

Which of the following elements is not an integral part of Rights Theory?

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

Your professor asks you to consider whether earnings management can be justified by arguing that the net benefits of managing earnings exceeds any harms that may occur. The professor is asking you to apply what reasoning methods to make the analysis? Egoism Act utilitarianism Rule utilitarianism Virtue

Act utilitarianism

The key element that protects an auditor against common law liability is:

Adherence to generally accepted auditing standards (GAAS)

The key element that protects an auditor against common law liability is: Adherence to generally accepted accounting principles (GAAP) Adherence to generally accepted auditing standards (GAAS) Compliance with threats and safeguards approach Maintain confidentiality of client information

Adherence to generally accepted auditing standards (GAAS)

The key element that protects an auditor against common law liability is: Adherence to generally accepted accounting principles (GAAP) Adherence to generally accepted auditing standards (GAAS) Compliance with threats and safeguards approach Maintain confidentiality of client information

Adherence to generally accepted auditing standards (GAAS)

The aim of executive compensations is to:

Align the goals of the executive with the shareholders

The independence principle in the AICPA code applies to

All CPA's who render attestation services

The Independence Principle in the AICPA Code applies to:

All CPAs who render attestation services

A "particularized" allegation requires establishing: Strong circumstantial evidence of conscious misbehavior Strong circumstantial evidence of recklessness Facts showing the defendant had both motive and opportunity to commit securities fraud All of the above

All of the above

A "particularized" allegation requires establishing: Strong circumstantial evidence of conscious misbehavior Strong circumstantial evidence of recklessness Facts showing the defendant had both motive and opportunity to commit securities fraud All of the above

All of the above

A "particularized" allegation requires establishing: Strong circumstantial evidence of conscious misbehavior Strong circumstantial evidence of recklessness Facts showing the defendant had both motive and opportunity to commit securities fraud All of the above

All of the above

Impairments of independence can occur when

All of the above

Impairments of independence can occur when:

All of the above

In the Harvard Cheating scandal case, using ethical reasoning, who is at fault for the situation?

All of the above

Individuals who reason at stage 6 incorporate ethical reasoning based on:

All of the above

Jodie Fisher's allegations of sexual harassment are made believable due to Mark Hurd's:

All of the above

Misstatements in the financial statements can result from: Errors Fraud Illegal acts improperly recorded All of the above

All of the above

Misstatements in the financial statements can result from: Errors Fraud Illegal acts improperly recorded All of the above

All of the above

Pfizer was investigated by the SEC for violating the Foreign Corrupt Practices Act (FCPA) because it allegedly: Made improper payments to foreign officials to obtain regulatory and formulary approvals Made improper payments to foreign officials to obtain sales Made improper payments to foreign officials to obtain increased prescriptions for the company's pharmaceutical products All of the above

All of the above

Pfizer was investigated by the SEC for violating the Foreign Corrupt Practices Act (FCPA) because it allegedly: Made improper payments to foreign officials to obtain regulatory and formulary approvals Made improper payments to foreign officials to obtain sales Made improper payments to foreign officials to obtain increased prescriptions for the company's pharmaceutical products All of the above

All of the above

The PCAOB rules prohibit auditors from: A)Providing tax preparation and planning services for public company executives B)Providing tax services to members of the audit client's management who serve in financial reporting oversight roles C)Providing certain aggressive tax shelters to their public company audit clients D)All of the above

All of the above

The accounting issues at failed savings and loan institutions included:

All of the above

The auditors in the Tier One Bank case were investigated by the SEC because it: Failed to obtain sufficient competent evidential matter to support audit conclusions Failed to exercise the appropriate level of care in its audit Failed to exercise the proper degree of professional skepticism All of the above

All of the above

The auditors in the Tier One Bank case were investigated by the SEC because it: Failed to obtain sufficient competent evidential matter to support audit conclusions Failed to exercise the appropriate level of care in its audit Failed to exercise the proper degree of professional skepticism All of the above

All of the above

The credibility standard in the Statement of Ethical Professional Practice of the IMA requires that an accounting professional should:

All of the above

Under the Securities Act of 1933, accountants who assist in the preparation of the registration statement are civilly liable if the registration statement: Contains untrue statements of material fact Omits material facts required by statute or regulation Omits information that if not given makes the facts stated misleading All of the above

All of the above

Under the Securities Act of 1933, accountants who assist in the preparation of the registration statement are civilly liable if the registration statement: Contains untrue statements of material fact Omits material facts required by statute or regulation Omits information that if not given makes the facts stated misleading All of the above

All of the above

Audit documentation is critical to evidence gathering because:

All of the above -It demonstrates professional skepticism -It demonstrates that an audit has been conducted -It substitutes for making audit judgments and estimates

Impairments of independence can occur when:

All of the above (A CPA owns a direct financial interest in a client, a CPA owns a material indirect financial interest in a client, and Immediate family members of the CPA are in violation of the independence rules)

Jodie Fisher's allegations of sexual harassment are made believable due to Mark Hurd's:

All of the above (Conflict of interests, misuse of company assets, and inaccurate expense reports)

The Private Securities Litigation Reform Act imposes additional requirements on public companies reporting to the SEC and their auditors when: The illegal act has a material effect on the financial statements Senior management and the board have not acted properly to correct for the act The failure to correct for the action is reasonably expected to warrant a departure from the standard audit report All of the above are additional requirements

All of the above are additional requirements

The Private Securities Litigation Reform Act imposes additional requirements on public companies reporting to the SEC and their auditors when: The illegal act has a material effect on the financial statements Senior management and the board have not acted properly to correct for the act The failure to correct for the action is reasonably expected to warrant a departure from the standard audit report All of the above are additional requirements

All of the above are additional requirements

The Private Securities Litigation Reform Act imposes additional requirements on public companies reporting to the SEC and their auditors when:

All of the above are additional requirements -The failure to correct for the action is reasonably expected to warrant a departure from the standard audit report -Senior management and the board have not acted properly to correct for the act -The illegal act has a material effect on the financial statements

Which of the following is NOT a safeguard that can help to mitigate threats to independence?

All of the above are safeguards

Which of the following is NOT a safeguard that can help to mitigate threats to independence? A) Safeguards created by the corporate governance system of the attest client B) Safeguards created by the Sarbanes-Oxley Act C) Quality control safeguards created by the audit firm D) All of the above are safeguards

All of the above are safeguards

Needles suggests that making judgments about what earnings management is becomes difficult because:

All of the below -It depends on management's intentions -There is no clear limit beyond which a choice is clearly unethical -A perfectly routine accounting estimate may be illegal and unethical

Pfizer was investigated by the SEC for violating the Foreign Corrupt Practices Act (FCPA) because it allegedly:

All of the below -Made improper payments to foreign officials to obtain regulatory and formulary approvals -Made improper payments to foreign officials to obtain sales -Made improper payments to foreign officials to obtain increased prescriptions for the company's pharmaceutical products

A "particularized" allegation requires establishing:

All of the below -strong circumstantial evidence of conscious misbehavior -strong circumstantial evidence of recklessness -facts showing the defendant had both motive and opportunity to commit securities fraud

The Private Securities Litigation Reform Act imposes additional requirements on public companies reporting to the SEC and their auditors when:

All of the below are additional requirements -the illegal act has a material effect on the financial statements -senior management and the board have not acted properly to correct for the act -the failure to correct for the action is reasonably expected to warrant a departure from the standard audit report

Misstatements in the financial statements can result from:

All of the below: -errors -fraud -illegal acts improperly recorded

Halliburton was violating revenue recognition rules by recognizing revenue _____________.

All of these are correct.

In Case 1-6, suppose Gloria "goes along to get along" and capitalizes the one million in expenses. Then, the external auditors subsequently find the incorrect transaction. As a CPA, Gloria could be subject to which of the following?

All of these choices are correct

The stakeholder view emphasizes the obligations of management to

All parties impacted by corporate decisions in a significant way

The stakeholder view emphasizes the obligations of management to:

All parties impacted by corporate decisions in a significant way

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

All possible third party users of financial statements must be anticipated

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

All possible third party users of financial statements must be anticipated

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?

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

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

Always following the law

What is "Operation Broken Gate?"

An SEC initiative to identify auditors who neglect their duties and the required auditing standards

Kohlberg's Stages of Moral Development

An individual's ability to make reasoned judgements about moral maters develops in stages. Level 1: Pre-conventional Stage 1 -obedience to rules; avoidance of punishment Stage 2 -Satisfying one's own needs (egoism) Level 2: Conventional Stage 3 -Fairness to others; commitment to loyalty; peer pressure Stage 4 -Law and order; societal norms; one's duty to society; respect for authority. Level 3: Post-conventional Stage 5 -Social contracts; weighing benefits and costs to society. Stage 6 -Universal ethical principles (Sequential)

Rest's Model of Morality

An individual's behavior is related to his/her level of moral development. Ethical decision-making requires four characteristics: Moral Sensitivity: Ability to identify what is moral and amoral. Moral Judgment: Ability to reason through several courses of action and make the right decision when faced with an ethical dilemma. Moral Motivation: Desire to make an ethical decision; place ethical values ahead of nonethical ones. Moral Character: Moral intent; having one's ethical intentions match actions taken. (Not Sequential, but all must occur)

Professional skepticism can best be defined as having

An inquiring mend and suspension of belief

Professional skepticism can best be defined as having

An inquiring mind and suspension of belief

Professional skepticism can best be defined as having:

An inquiring mind and suspension of belief

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?

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

To which group can a CPA provide audit documentation without being subpoenaed and without the client's consent?

Another CPA firm performing a peer review

What is the significance of the Menendez v. Halliburton, Inc.?

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

Professional skepticism means:

Approaching the audit with a questioning mind

Who linked earnings management to an excessive zeal to project smoother earnings from year to year that casts a pall over the quality of the underlying numbers?

Arthur Levitt

Who linked earnings management to an excessive zeal to project smoother earnings from year to year that casts a pall over the quality of the underlying numbers? Warren Buffet Arthur Levitt Thomas E. McKee Lynn Turner

Arthur Levitt

Who linked earnings management to an excessive zeal to project smoother earnings from year to year that casts a pall over the quality of the underlying numbers? Warren Buffet Arthur Levitt Thomas E. McKee Lynn Turner

Arthur Levitt

Business Judgement Rule

As long as decision was made in good faith, stayed loyal, included fiduciary responsibilities, and exercised due care then the person is free of liability.

The "particularity" provision in the PSLRA allows a plaintiff to: Sue the auditor Assert scienter Sue management Assert privity

Assert scienter

Which of the following is NOT required of management under Section 302 of the SOX? Review their disclosure controls and procedures quarterly Identify key control exceptions and determine which are internal control deficiencies Assess each internal control deficiency's impact on the audit report Identify and report significant control deficiencies on material weaknesses to the audit committee and independent auditor

Assess each internal control deficiency's impact on the audit report

PCAOB Standard 7 addresses engagement quality reviews and have as its objectives to:

Assess how an audit has been conducted and the firm's own quality control procedures

PCAOB Standard 7 addresses engagement quality reviews and have as its objectives to: Assess how an audit has been conducted and the appropriateness of the audit opinion Assess the firm's own quality controls and the appropriateness of the audit opinion Assess how an audit has been conducted and the firm's own quality control procedures Assess whether materiality has been properly evaluated

Assess how an audit has been conducted and the firm's own quality control procedures

PCAOB Standard 7 addresses engagement quality reviews and have as its objectives to: Assess how an audit has been conducted and the appropriateness of the audit opinion Assess the firm's own quality controls and the appropriateness of the audit opinion Assess how an audit has been conducted and the firm's own quality control procedures Assess whether materiality has been properly evaluated

Assess how an audit has been conducted and the firm's own quality control procedures

Under the Sarbanes-Oxley Act, the auditor's responsibility with respect to internal controls can best be stated as:

Assess management's report on internal controls

The first step for an auditor who concludes an illegal act exists is to:

Assess the impact of the illegal act on the financial statements

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

Assess the impact of the illegal act on the financial statements

According to the ACFE survey, the most common type of occupational fraud scheme is:

Asset misappropriation

To be an ethical leader, executives must also:

Attend to cultivating ethics and be an ethical person

Under the Sarbanes-Oxley Act, which of the following bodies must contain members that are 100% independent of management?All

Audit committee

Which of the following would be an example of due care?

Audit documentation with reviews by senior, manager, and partner

In Brennan and Kelly's study of the factors that influence propensity or willingness to blow the whistle among audit trainees, the authors identified each of the following factors except:

Audit firm ethical leadership

Audit procedures are different than audit evidence because:

Audit procedures are specific acts performed by the auditor to gather evidence about whether specific assertions are being met

Audit procedures are different than audit evidence because: Audit procedures address the competency and sufficiency of audit evidence Audit procedures are specific acts performed by the auditor to gather evidence about whether specific assertions are being met Audit procedures are specific acts to assess whether the financial statements "present fairly" Audit procedures do not have to be determined based on risk assessment

Audit procedures are specific acts performed by the auditor to gather evidence about whether specific assertions are being met

Which tax service is still permitted by the PCAOB for audit clients following the KPMG tax shelter case?

Auditing of deferred taxes

PCAOB Standard 14 addresses audit results and requires:

Auditor's determination of whether the auditor has obtained sufficient appropriate evidence

PCAOB Standard 14 addresses audit results and requires: Auditor's evaluation of internal controls Auditor's determination of whether the auditor has obtained sufficient appropriate evidence Auditor's evaluation of the applicable financial reporting framework Auditor's independence

Auditor's determination of whether the auditor has obtained sufficient appropriate evidence

PCAOB Standard 14 addresses audit results and requires: Auditor's evaluation of internal controls Auditor's determination of whether the auditor has obtained sufficient appropriate evidence Auditor's evaluation of the applicable financial reporting framework Auditor's independence

Auditor's determination of whether the auditor has obtained sufficient appropriate evidence

The unique aspect of auditors' legal liability in the Rosenblum v. Adler ruling is:

Auditors could be held liable for ordinary negligence to all reasonably foreseeable third parties

The unique aspect of auditors' legal liability in the Rosenblum v. Adler ruling is: Auditors could be held liable for ordinary negligence to all reasonably foreseeable third parties Auditors could be held liable for gross negligence to all reasonably foreseeable third parties Auditors could be held liable for fraud to all reasonably foreseeable third parties Auditors should be able to detect all deceit by management

Auditors could be held liable for ordinary negligence to all reasonably foreseeable third parties

The unique aspect of auditors' legal liability in the Rosenblum v. Adler ruling is: Auditors could be held liable for ordinary negligence to all reasonably foreseeable third parties Auditors could be held liable for gross negligence to all reasonably foreseeable third parties Auditors could be held liable for fraud to all reasonably foreseeable third parties Auditors should be able to detect all deceit by management

Auditors could be held liable for ordinary negligence to all reasonably foreseeable third parties

Which of the following is NOT one of the four stages in an audit-related dispute?

Auditors legal liability leads to financial settlement

Which of the following is NOT one of the four stages in an audit-related dispute? Events arise that create losses for the users of the financial statements Losses are linked to material misstatements of financial statements Legal process resolves the dispute Auditors legal liability leads to financial settlement

Auditors legal liability leads to financial settlement

Which of the following is NOT one of the four stages in an audit-related dispute? Events arise that create losses for the users of the financial statements Losses are linked to material misstatements of financial statements Legal process resolves the dispute Auditors legal liability leads to financial settlement

Auditors legal liability leads to financial settlement

In Grant Thornton v. Prospect High Income Fund, the Texas Supreme Court held: Auditors were not liable for accurate accounting to anyone who reads and relies upon the audit report Auditors were not liable for ordinary negligence Auditors are not guarantors of accurate and reliable financial statements Management is responsible for the financial statements

Auditors were not liable for accurate accounting to anyone who reads and relies upon the audit report

In Grant Thornton v. Prospect High Income Fund, the Texas Supreme Court held: Auditors were not liable for accurate accounting to anyone who reads and relies upon the audit report Auditors were not liable for ordinary negligence Auditors are not guarantors of accurate and reliable financial statements Management is responsible for the financial statements

Auditors were not liable for accurate accounting to anyone who reads and relies upon the audit report

2. Which of the following is NOT considered "earnings management"? A. "Earnings management" is done to project smoother earnings from year to year. B. Management emphasizes achieving long-term results to meet financial goals. C. A Management uses "cookie-jar reserves each year." D. The executives manipulate the earnings in order to match their predetermined target.

B

3. 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

Accruals that are based on estimated changes in fundamental economic performance of the firm are: A. Discretionary accruals B. Nondiscretionary accrual C. Operating accruals D., Cookie jar accruals

B

An alternative practice structure can best be described as: A. A form of ownership where a CPA firm owns a public company and audits that company B. A form of structure where a public company provides nonattest services for a client that is also provided with attest services by an affiliate of the public company C. A form of structure where a CPA firm provides nonattest services for a client that is also provided with attest services by a public company D. A form of structure other than LLP and LLC

B

Audit documentation is critical to evidence gathering because: A. It demonstrates that an audit has been conducted B. It demonstrates professional skepticism C. It substitutes for making audit judgments and estimates D. All of the above

B

Backdating of stock options is unethical because: 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

Circular 230 applies to CPAs who: A. Audit the financial statements of a tax client B. Practice before the IRS C. Practice before the SEC D. Prepare tax services for clients

B

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

B

Decisions that are made based on the underlying circumstances of a particular matter can be best characterized by: A. Ethical Collectivism B. Situational ethics C. Ethical relativism D. Judgmental Individualism

B

During the period of failures at savings and loan institutions, Lincoln S&L was charged with: A. Stealing $300 million from shareholders B. Causing retirees to lose their life savings C. Causing employees to lose their jobs D. Engaging in a Ponzi scheme

B

Ethical leadership failure can be caused by: A. Lines of communication are blurred B. Ignoring ethical boundaries within a company C. Organizational factors promote unethical action D. All of the above

B

In accounting, building a reputation for ethical leadership means to: A. Enable ethics and values to take place without fear of retaliation B. Enable ethics and values to shine through the fog of beating the competition and meeting financial projections C. Refrain from using non-GAAP measures of earnings D. Create an environment that fosters short-term shareholder value

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

B

In the Better Boston Beans case, what is the ethical dilemma facing Cyndie? A. Loyalty of co-worker versus trust of co-worker B. Trust of co-worker versus the honesty of the workplace C. Honesty of the workplace versus the privacy of an individual D. Privacy of an individual versus loyalty of co-worker

B

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?

B

Leaders who engage in unethical behaviors create a context supporting: A. Cognitive dissonance B. Parallel deviance C. Moral intensity D. Leader perseverance

B

Madison is in the process of gathering evidence to support the audit opinion on Jefferson & Adams, Inc. She's a new staff accountant and wants to make sure she exercises the appropriate level of professional skepticism. Madison asks for your advice as the senior on the audit. How best might you guide her as to the skepticism issues? A. Accept management's representation unless they fail to provide adequate supporting documentation B. Always review the evidence you gather to assess persuasiveness C. Approach the audit assuming fraud does exist D. Keep an open mind and rely on your team in making professional judgments

B

One feature of a corporate governance system commonly found outside the U.S. is: A. Unitary board of directors B. Dual system of boards of directors C. No board of directors D. Acceptance of facilitating payments and bribery

B

Ponemon hypothesized that there is a correlation between: A. Moral intensity and subordinates' personal characteristics and decision-making styles B. Organizational culture and subordinates' personal characteristics and decision-making styles C. Culture of the organization and leadership style D. Leadership style and followership

B

Principles-based standards differ from a rules-based approach because: A. Principles-based standards rely on bright-line concepts to apply accounting standards B. Rules-based standards rely on bright-line rules to apply accounting standards C. Principles-based standards set uniform goals for the application of accounting standards D. Rules-based standards form the basis of IFRS

B

The Giving Voice to Values framework distinguishes between organizational and individual values because: A. Organizational values are internal to each individual while individual values are highly visible within the organization B. Organizational values are highly visible within the organization while individual values are internal to the very core of individuals C. Organizational values are influenced by ethical leadership while individual values are influenced by perceptions of organizational values D. Organizational values create perceptions of ethical leadership while individual values are innate to the individual

B

The International Federation of Accountants (IFAC) Policy Position Paper #4 A Public Interest Framework for the Accountancy Position addresses: A. Bribery on an international level B. High standards of ethical behavior and professional judgment required in the accountancy profession C. Internal control to prevent fraud D. Corporate governance systems

B

The International Federation of Accountants (IFAC) research report, Rebuilding Public Confidence in Financial Reporting: An International Perspective, has as its goal which of the following? A. Creating an international CPA certificate. B. Examine ways of restoring the credibility of financial reporting and corporate disclosure from an international. perspective. C. Establishing a global code of conduct corporate disclosure from an international perspective. D. Develop guidelines for auditors to express professional judgment.

B

The KBC Solutions case deals with: A. Whether the controller should give in to the pressure and go along with false financial statements B. Whether the senior in charge of an audit can provide adequate explanations for the accounting for transactions being questioned by the review partner C. Whether the senior in charge of an audit pressures staff accountants to not increase the workload at year-end because of audit budget considerations D. Whether an audit firm should go along with the client's demands for accelerating the recording of revenue

B

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

The accounting issue(s) in the Crazy Eddie case were: A. Accelerating revenues into earlier periods B. Inflating inventory and net income C. Capitalizing costs that should have been expensed D. Off-balance sheet entities

B

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

The difference between the United Kingdom Bribery Act and the FCPA in the U.S. is: A. The UK Bribery Act permits bribery as well as facilitating payments B. The UK Bribery Act prohibits both bribery and facilitating payments C. The FCPA permits both bribery and facilitating payments D. There are no differences between the two laws

B

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

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

The ethical dilemma in the Research Triangle Software Innovations case can best be summed up as: A. Should an auditor share information about a client with a nonaudit member of the firm? B. Is it appropriate to select an audit client's ERP software for a different advisory services client? C. Should the audit firm recommend its own ERP software package to an audit client? D. Is it appropriate to engage in ERP management advisory services for an audit client?

B

The legal liability of the auditors in the Autonomy case can best be described as resulting from: A. Liability for gross negligence that constituted fraud B. No liability because the firms were not sued by Autonomy C. Liability for failing to inform creditors of a nonexistent bank account carried on Autonomy's books D. Improper accounting for a merger transaction between Hewlett-Packard and Autonomy

B

The more intense the ethical issues, the more likely: A. Decision makers will act in accordance with their own ethical values B. Decision makers are aware of the ethical implications of their intended actions C. Organizations will foster ethical behavior D.Organizations will establish an ethical tone at the top

B

The most significant change in the Revised AICPA Code of Professional Conduct is: A. A conceptual framework approach for evaluating ethics violations B. Two conceptual frameworks: one for members in public practice and one for CPAs in business C. Eliminating Code coverage for members in business D. Clarifying that all CPAs must follow the Independence rule regardless of professional services

B

The primary issue in the Rooster, Hen, Footer and Burger case is: A. The timing of revenue recognition and shipping date of merchandise B. Related party transactions C. The timing of expense recognition on accrual accounts D. The accounting for walnuts

B

The term "true and fair view" tends to be a replacement for _________ used in the U.S. A. Full and fair B. Present fairly C. Representational faithfulness D. Economic substance

B

To prevent subordination of judgment, a CPA should evaluate threats to: A. Independence and Due Care B. Objectivity and Integrity C. Integrity and Due care D. Independence and Scope of Services

B

Trevino et al. believe ethical leaders possess each of the following two traits: A. Moral follower and moral servant B. Moral person and moral manager C. Moral person and moral employee D. Moral person and transformational leader

B

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

Vorhies identities four perspectives to help CPAs identify key internal control exceptions under the Sarbanes Oxley Act (SOX) including: A. An internal control deficiency caused by accounting manipulations B. A large variance in an accounting estimate compared with the actual determined amount C. A misstatement that changes a loss into income or vice versa D. All were identified

B

Which of the following is NOT considered "earnings management?" A."Earnings management" is done to project smoother earnings from year to year B. Management emphasizes achieving long-term results to meet financial goals C. Management uses "cookie-jar reserves each year" D. Executives manipulate the earnings in order to match their predetermined target

B

Which of the following is NOT one of the most relevant sources of civil liabilities for auditors charged with failing to adhere to the requirements of the laws in carrying out professional obligations? A. Securities Act of 1933 B. Private Securities Litigation Reform Act of 1995 C. Securities and Exchange Act of 1934 D.Sarbanes-Oxley Act of 2002

B

Which of the following is not true of "reasonable assurance"? A. The auditors have exercised due care B. The audit opinion is a guarantee that material misstatements have been identified C. The audit has been properly planned and supervised D. The auditors have followed GAAS

B

Which of the following is true of the relationship between civility and ethics? A. One can be both ethical and uncivil. B. One can be both civil and unethical. C. One can use others, be a bully and be ethical. D. One can have empathy and caring for others and be uncivil towards them.

B

Which of the following was not a technique used by Enron to manage earnings? A. Used reserves to increase earnings when reported amounts were too low B. Deliberately overstated the allowance for uncollectibles and adjusted it downward in future years C. Used mark-to-market estimates to inflate earnings in violation of GAAP D. Selected which operating assets to "sell" to the SPEs, affecting the gain on transfer and earnings effect

B

Who linked earnings management to an excessive zeal to project smoother earnings from year to year that casts a pall over the quality of the underlying numbers? A. Warren Buffet B. Arthur Levitt C. Thomas E. McKee D. Lynn Turner

B

With respect to ethical leadership, the issue in the Cumberland Lumber case can best be characterized as: A. The relationship between the chief internal auditor and CEO B. The leadership style of the CEO and culture of the company C. The leadership style of the chief internal auditor and tone at the top D. The relationship between an audit client and management advisory services client

B

Your professor asks you to consider whether earnings management can be justified by arguing that the net benefits of managing earnings exceeds any harms that may occur. The professor is asking you to apply what reasoning methods to make the analysis? A. Egoism B. Act utilitarianism C. Rule utilitarianism D. Virtue

B

he 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

The SEC's Advisory Committee on Improvements to Financial Reporting (CIFiR) developed a framework for accounting judgments consisting of which components? A. A critical good faith thought process and reflective judgment B. A critical good faith thought process and documentation C. Documentation and reflective judgment D. Values and principles

B. A critical good faith thought process and documentation

Fraud can be defined as: A. An error in preparing financial statements B. A deliberate misrepresentation to gain an advantage over another party C. A cover-up of a mistake made in the financial statements D. All of the above

B. A deliberate misrepresentation to gain an advantage over another party

An alternative practice structure can best be described as: A. A form of ownership where a CPA firm owns a public company and audits that company B. A form of structure where a public company provides nonattest services for a client that is also provided with attest services by an affiliate of the public company C. A form of structure where a CPA firm provides nonattest services for a client that is also provided with attest services by a public company D. A form of structure other than LLP and LLC

B. A form of structure where a public company provides nonattest services for a client that is also provided with attest services by an affiliate of the public company

12. Vorhies identities four perspectives to help CPAs identify key internal control exceptions under the Sarbanes Oxley Act including: A. An internal control deficiency caused by accounting manipulations B. A large variance in an accounting estimate compared with the actual determined amount C. A misstatement that changes a loss into income or vice versa D. All were identified

B. A large variance in an accounting estimate compared with the actual determined amount

A conflict of interest exists when: A. A professional service or relationship creates a situation that might impair completion of the audit B. A professional service or relationship creates a situation that might impair objective judgment C. Professional skepticism fails to meet objective standards D. All of the above

B. A professional service or relationship creates a situation that might impair objective judgment

41. Your professor asks you to consider whether earnings management can be justified by arguing that the net benefits of managing earnings exceeds any harms that may occur. The professor is asking you to apply what reasoning methods to make the analysis? A. Egoism B. Act utilitarianism C. Rule utilitarianism D. Virtue

B. Act utilitarianism

The due care principle in the AICPA code: A. Addresses the quality of the individual who performs professional services B. Addresses the quality of services performed by the CPA C. Addresses whether the independence standards have been met D. Addresses whether integrity and objectivity have been compromised

B. Addresses the quality of services performed by the CPA

Madison is in the process of gathering evidence to support the audit opinion on Jefferson & Adams, Inc. She's a new staff accountant and wants to make sure she exercises the appropriate level of professional skepticism. Madison asks for your advice as the senior on the audit. How best might you guide her as to the skepticism issues? A. Accept management's representation unless they fail to provide adequate supporting documentation B. Always review the evidence you gather to assess persuasiveness C. Approach the audit assuming fraud does exist D. Keep an open mind and rely on your team in making professional judgments

B. Always review the evidence you gather to assess persuasiveness

Which tax service is still permitted by the PCAOB for audit clients following the KPMG tax shelter case? A. Aggressive tax shelter for audit clients B. Auditing of deferred taxes C. Tax services to audit client management or family members D. Tax services for a contingent fee

B. Auditing of deferred taxes

Which of the following situations of a CPA's distant relatives does not impair the CPA's independence? A. CPA's parent holds a key position with an audit client. B. CPA's nephew is starting as a salesperson with an audit client. C. CPA's dependent roommate owns a material interest, and sits on the board, of an audit client. D. CPA's sister is chief counsel for an audit client.

B. CPA's nephew is starting as a salesperson with an audit client.

The Tax Shelters case deals with: A. Ignoring the recording of lottery gains in a client's tax return B. Changing culture in the tax department of a CPA firm C. Pressure from one's superior to manipulate financial statements D. Whether to sell tax shelter products to members of the audit firm

B. Changing culture in the tax department of a CPA firm

Teleology deals with: A. Respecting the rights of others B. Consequences of actions C. Fairness to others D. Following prescribed virtue characteristics

B. Consequences of actions

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: A. Corporate leadership B. Corporate governance C. Code of ethics D. Corporate responsibility

B. Corporate governance

The ancient Greeks thought of the virtues as characteristics of behavior that: A. Support the rights theory B. Could lead to a good life C. Make up the "six pillars of character" D. Rationalize unethical actions

B. Could lead to a good life

22. Which of the following was not a technique used by Enron to manage earnings? A. Used reserves to increase earnings when reported amounts were too low. B. Deliberately over stated the allowance for uncollectibles and adjusted it downward in future years C. Used mark-to-market estimates to inflate earnings in violation of GAAP D. Selected which operating assets to "sell" to the SPEs, affecting the gain on transfer and earnings effect.

B. Deliberately over stated the allowance for uncollectibles and adjusted it downward in future years

A danger of situational ethics is that it can be used to rationalize a wrong-doing. Such rationalizations may be seen in all of the following examples except: A. Cheating at the University of North Carolina B. DigitPrint case discussed in the chapter C. Penn State scandal D. Betty Vinson's actions at WorldCom

B. DigitPrint case discussed in the chapter

16. 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.

Hofstede's Cultura Dimensions helps explain how workers from different cultures might react in the workplace. The Long-Term Orientation dimension could help explain the different approaches toward: A. Emphasizing results over process B. Emphasizing short-term and long-term results C. Dealing with uncertainty D. Dealing with differences in power structure

B. Emphasizing short-term and long-term results

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

B. Employs traditional philosophical reasoning

The method of ethical reasoning that deals with making decisions after considering the interest of others is: A. Rights Theory B. Enlightened Egoism C. Egoism D. Utilitarianism

B. Enlightened Egoism

An example of a management participation threat is: A. Establishing and maintaining the budget for audit completion B. Establishing and maintaining internal controls for the client C. Initiating litigation against the client D. Preparing source documents used to generate the client's financial statements

B. Establishing and maintaining internal controls for the client

What are the five elements of the framework for understanding ethical decision making in business? A. Individual factors; organizational factors; opportunity; moral character; and business ethics, intentions, behavior and evaluations. B. Ethical issue intensity; individual factors; organizations factors; opportunity; and business ethics intentions, behavior, and evaluations C. Organizations factors; opportunity; moral judgment; individual values; and business ethics intentions, behavior, and evaluations D. Ethical issue sensitivity; individual factors; organizational factors; opportunity; and business ethics intentions and evaluations.

B. Ethical issue intensity; individual factors; organizations factors; opportunity; and business ethics intentions, behavior, and evaluations

One reason independence in appearance is used to evaluate threats to independence is: A. Independence in appearance links to other rules of conduct B. Factual independence is based on unobservable matters C. Threats to independence can only be measured using a safeguards approach D. Threats to independence always exist when perceptions indicate a conflict of interests may exist between the auditor and the client

B. Factual independence is based on unobservable matters

Common judgment traps include: A. Group think, judgment triggers, and reacting to pressures B. Group think, judgment triggers, and a rush to solve problems C. Reacting to pressures, a rush to solve problems, and Systems 1 thinking D. Systems 1 thinking, cognitive dissonance, a rush to solve problems

B. Group think, judgment triggers, and a rush to solve problems

The most important element of a high ethics organization would be: A. Acting in accordance with self-interest B. Having a mission statements, values and ethical code C. Acting opposite of stated values, ethics and mission D. Having a credo and mission statement.

B. Having a mission statements, values and ethical code

George has been asked by his audit client to provide income tax services including tax planning. Prior to providing such services, George should be certain that: A. He first completes the audit B. He assesses threats to independence C. The CEO pre-approves the performance of such services D. The board of directors is informed about such services

B. He assesses threats to independence

6. 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

In its investigation of ZZZZ Best, the House Subcommittee on Oversight and Investigations looked into: A. Why the board of directors failed to uncover the fraud at ZZZZ Best B. How the company was able to create 80% or more fictitious revenue C. How the company was able to create cookie jar reserves D. All of the above

B. How the company was able to create 80% or more fictitious revenue

In its investigation of ZZZZ Best, the House Subcommittee on Oversight and Investigations looked into: A. Why the board of directors failed to uncover the fraud at ZZZZ Best B. How the company was able to create 80% or more fictitious revenue C. How the company was able to create cookie jar reserves D. All of these

B. How the company was able to create 80% or more fictitious revenue

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

B. Inconsistency between thoughts and beliefs and attitudes on our actions

The main ethical issue in Healthcare Fraud case is: A. Maintaining two sets of accounting books. B. Inflating healthcare costs submitted to Medicare. C. Outsourcing operations to a firm known for maximizing expense reimbursements. D. All of these.

B. Inflating healthcare costs submitted to Medicare.

Independence may be impaired when a partner leaves an audit firm and is subsequently employed by the client if that partner: A. Is in a position to influence the management's decisions with respect to the audit B. Is in a position to influence the accounting firm's operations C. Serves on the board of directors of the client D. Amounts due the former partner are not material to the firm

B. Is in a position to influence the accounting firm's operations

The CPA firm that became involved in tax shelter controversies with the IRS is: A. Deloitte & Touche B. KPMG C. PricewaterhouseCoopers D. Ernst & Young

B. KPMG

One of the differences between the ethical obligations of CPAs and lawyers is: A. Lawyers are obligated first and foremost to the public interest while CPAs are obligated to their clients' interests B. Lawyers are obligated first and foremost to the client's interest while CPAs are obligated to the public interest C. Lawyers and CPAs both must be independent of their clients D. Lawyers and CPAs must exercise objective judgment

B. Lawyers are obligated first and foremost to the client's interest while CPAs are obligated to the public interest

Safeguards implemented by the attest client include each of the following except: A. Proper oversight by client management B. Management participation in the client by the attest firm C. Policies and procedures to address ethical conduct D. The tone at the top set by executive management

B. Management participation in the client by the attest firm

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 $1000 (1% of total expenditures) have to be capitalized; less than $1000 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 $1500. Which of the following reasons and rationalizations might Steve use for his action: A. Representational faithfulness B. Materiality C. Standard Practice D. One-time request

B. Materiality

34. 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.

29. "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.

The insider trading case against Thomas Flanagan focused on: A. Providing confidential information about audit clients to a friend B. Personally trading in securities of audit clients after receiving confidential information C. Providing confidential information about audit clients to his business partner D. Accepting a position with an audit client after receiving positive confidential information

B. Personally trading in securities of audit clients after receiving confidential information

Ethical relativism can best be described as a: A. An ethical reasoning method that holds one should always act out of self-interest. B. Point of view that morality is relative to the norms of one's culture. C. An ethical reasoning method that holds one should always consider the effect of one's actions on others. D. Concept that holds that integrity should be maintained in the face of the pressure by others.

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

Circular 230 applies to CPAs who: A. Audit the financial statements of a tax client B. Practice before the IRS C. Practice before the SEC D. Prepare tax services for clients

B. Practice before the IRS

An example of a self-review threat is: A. Establishing and maintaining the internal controls for the client B. Preparing source documents used to generate the client's financial statements C. Promoting the client's securities through investment banking activities D. Borrowing money from the client

B. Preparing source documents used to generate the client's financial statements

To whom does the CPA owe ultimate allegiance in carrying out professional obligations? A. Stockholders B. Public interest C. Client D. Stakeholders

B. Public interest

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

Utilitarian philosophers are divided into two types: Act utilitarian and A. Beneficial utilitarian B. Rule Utilitarian C. Ethical Utilitarian D. Egoistic Utilitarian

B. Rule Utilitarian

48. 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

Decisions that are made based on the underlying circumstances of a particular matter can be best characterized by: A. Ethical relativism B. Situational ethics C. Ethical collectivism D. Judgmental individualism

B. Situational Ethics

Michael Josephson, found of the Josephson Institute of Ethics, is credited for developing: A. Book of virtues B. Six pillars of character C. Care and response orientation D. Rights theory

B. Six Pillars of Character

Trust in business is important because: A. Stakeholders rely on management to produce shareholder returns B. Stakeholders need to feel confident that relationships with organizations will be consistent and reliable C. Management needs to feel confident that those with relationships with the organization do what they say D. Management needs to feel confident that employees will carry out organizations objectives

B. Stakeholders need to feel confident that relationships with organizations will be consistent and reliable

In the Family Outreach case, Yimei finds three accounts all using the same documentation and amounts. Being skeptical, Yimei should consider doing all but: A. Report her findings to Kwami, her supervisor B. Talk to the agency's board of directors C. Examine more evidence to support her finding D. Check to see if the accounts were in the prior years' workpapers

B. Talk to the agency's board of directors

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

B. Test of wrong issues

In which of the following is a CPA independent in fact and appearance? A. The CPA's brother is the controller of the company being audited. B. The CPA serves on the board of a non-profit with the CFO of the company being audited. C. The CPA borrowed money for a new car from the CEO of the company being audited. D. The CPA owes an office building that he leases to the client.

B. The CPA serves on the board of a non-profit with the CFO of the company being audited

In the PeopleSoft case, the auditors violated what aspect of independence? A. The auditor was exposed to an intimidation threat by the client B. The auditor was involved in a business relationship with the client C. The auditor served in a management decision making position with the client D. All of these

B. The auditor was involved in a business relationship with the client

The question that arises in the First Community Church case is whether: A. The financial statements have been materially misstated B. There has been a misappropriation of assets C. The auditors lacked independence D. All of these

B. There has been a misappropriation of assets

The requirement that there should be reasonable support for a tax return position before a CPA recommends it to a client most directly aligns with which tax standard: A. The tax return should not be based on a frivolous position B. There is a realistic possibility of success if the tax position is challenged C. It is more likely than not that the tax position will be upheld if challenged D. Contingent fees cannot be accepted when providing tax services for an audit client

B. There is a realistic possibility of success if the tax position is challenged

The requirement that there should be reasonable support for a tax return position before a CPA recommends it to a client most directly aligns with which tax standard? A. The tax return should not be based on a frivolous position B. There is a realistic possibility of success if the tax position is challenged C. It is more likely than not that the tax position will be upheld if challenged D. Contingent fees cannot be accepted when providing tax services for an audit client

B. There is a realistic possibility of success if the tax position is challenged

38. Accruals are potentially troublesome because: A. They can lead to giving an unmodified audit opinion when it should have been modified B. They provide an opportunity to manage earnings through aggressive or more conservative estimations C. They always lead to fraud in financial statements D. They provide an opportunity to shift debt off the books by setting up an SPE

B. They provide an opportunity to manage earnings through aggressive or more conservative estimations

Michael has been approached by the CEO of an audit client and offered two tickets to the FIFA tournament during the Rio 2016 Olympic Games. The CEO knows that Michael's wife is from Rio and thought this was a nice way to thank him for twenty-years of excellent professional services. From an ethical perspective in deciding whether to accept the gift Michael should consider whether: A. He has the time and money to travel to Rio for the games B. Threats created by the gifts are at an acceptable level C. The audit has been completed for the current year D. Nonaudit services are also provided for the client

B. Threats created by the gifts are at an acceptable level

A unique aspect of the HealthSouth case discussed in the text of this chapter is: A. The external auditors failed to assess whether the internal controls operated as intended B. Top management certified that the financial statements were accurate C . The external auditors violated the independence standards because they were involved in a business venture with members of top management D. Top management hyped the stock price to increase the value of their stock options

B. Top management certified that the financial statements were accurate

The most significant change in the Revised AICPA Code of Professional Conduct is: A. A conceptual framework approach for evaluating ethics violations B. Two conceptual frameworks: one for members in public practice and one for CPAs in business C. Eliminating Code coverage for members in business D. Clarifying that all CPAs must follow the Independence rule regardless of professional services

B. Two conceptual frameworks: one for members in public practice and one for CPAs in business

A CPA would violate the Due Care Principle if he/she: A. The accounting firm uses two external partner reviews on high risk audits or clients. B. Undertook a professional engagement without having the requisite background, knowledge and experience. C. Performs tax services for an audit client with audit committee approval. D. Specializes in the industry of the client, even offering training classes for other accounting firms on the industry.

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

Greatest good for the greatest number of people its he theory of _____________: A. Justice B. Utilitarianism C. Rights D. Deontology

B. Utilitarianism

The risk-based approach is used to assess: A. Whether a CPA's scope of services poses an unacceptable risk to Independence B. Whether a CPA's relationship with a client would pose an unacceptable risk to Independence C. Risk of audit failure D. Risk of fraud

B. Whether a CPA's relationship with a client would pose an unacceptable risk to Independence

The KBC Solutions case deals with: A. Whether the controller should give in to the pressure and go along with false financial statements C. Whether the senior in charge of an audit pressures staff accountants to not increase the workload at year-end because of audit budget considerations D. Whether an audit firm should go along with the client's demands for accelerating the recording of revenue

B. Whether the senior in charge of an audit can provide adequate explanations for the accounting for transactions being questioned by the review partner

53. 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

19. 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. D. Xerox 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.

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

B. it is not easy to determine who has responsibility for solving a problem.

Utilitarianism

Based on consequences of actions and evaluates harms & benefits.

AICPA Code

Basic values of accounting profession. Protect public interest (investors & creditors) i. Independence ii. Integrity iii. Objectivity iv. Due Care

Ethical Legalism

Being ethical and following the law are not always the same thing; for example, it is not illegal to lie to a friend but most people would say it is wrong.

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:

Believes there is a clear violation of the law

An example from the book of someone who may have experienced cognitive dissonance is:

Betty Vinson

What non GAAP accounting method did Tony Menendez cite in blowing the whistle on Halliburton?

Bill and hold revenue recognition

Halliburton provided a flow chart on revenue recognition known as the ______________.

Bill-and-Hold Decision Tree

A payment made to induce a foreign government official to do something they might not otherwise be required to do is a(n):

Bribe

A payment made to induce a foreign government official to do something they might not otherwise be required to do is a: Bribe Asset misappropriation Facilitating Payment Legal Payment

Bribe

A payment made to induce a foreign government official to do something they might not otherwise be required to do is a: Bribe Asset misappropriation Facilitating Payment Legal Payment

Bribe

The Con-Way case deals with legal liabilities due to: Bribery of foreign government officials Fraudulent financial statements Facilitating payments to government agents Bribery of U.S. government officials

Bribery of foreign government officials

According to a 2013 opinion poll, Americans hold a dim view of :

Business Executives

In the Bhopal case, in evaluating its exposure to possible future liability due to technology failures, Union Carbide used which of the following concepts?

Business Risk

Directors and officers are expected to exercise due care and should decision making. This can best be described as

Business judgement rule

In the Bhopal case, in evaluating its exposure to possible future liability due to technology failures, Union Carbide used which of the following concepts?

Business risk

The case which deals with assigning a quality review partner to an audit is: ZZZZ Best Imperial Valley Community Bank Busy Season Planning Rooster, Hen, Footer and Burger

Busy Season Planning

The case which deals with assigning a quality review partner to an audit is: ZZZZ Best Imperial Valley Community Bank Busy Season Planning Rooster, Hen, Footer and Burger

Busy Season Planning

The case which deals with assigning a quality review partner to an audit is: ZZZZ Best Imperial Valley Community Bank Busy Season Planning Rooster, Hen, Footer and Burger

Busy Season Planning

Each of the following is a common revenue recognition device to manage earnings except:

Buy and hold

Each of the following is a common revenue recognition device to manage earnings except: Multiple deliverables Channel stuffing Buy and hold Round tripping

Buy and hold

Each of the following is a common revenue recognition device to manage earnings except: Multiple deliverables Channel stuffing Buy and hold Round tripping

Buy and hold

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

Bystander effect and moral blindness

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

A CPA can accept a contingent fee in providing tax services for an attest client if: A. The CPA discloses this fact to the tax client B. The CPA receives the permission of the client to accept such a form of payment C. The CPA's tax services will be reviewed by a taxing authority D. All of the above

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.

C

A difficult choice between two moral principles that are in conflict with one another is known as a/an: A. ethical relativism B. situational ethics C. ethical dilemma D. conflict ethics

C

A good example of antisocial behavior is: A. Dennis Kozlowski's use of corporate resources for personal purposes B. Betty Vinson's decisions to go along with financial wrongdoing C. Jeff Skilling's policy of "rank and yank" D. Whistleblowing by Cynthia Cooper

C

A troubling result of the 2013 National Business Ethics Survey is: A. Increased witnessing of misconduct in the workplace B. Decline in pressure to compromise ethics C. Percentage of employees retaliated against for whistle-blowing is a problem D. Lessening of observed misconduct

C

Agency theory can best be described as: A. The relationship between top management and the board of directors B. The relationship between the board of directors and shareholders C. The relationship between top management, the board of directors, and shareholders D. The relationship between the external auditors and top management

C

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

Aristotle believed that __________ always preceded the choice of action. A. Empathy B. Due Care C. Deliberation D. Loyalty

C

Auditors need to be attuned to the red flags that fraud may exist because: A. Materiality judgments are based on red flags identifying possible material misstatements B. Audit opinions must be withdrawn when red flags indicate fraud may exist C. Overly-aggressive accounting and outright manipulation of earnings may exist D.All of the above

C

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? 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

Decisions that are made based on the underlying cultural factors can be best characterized by: A. Ethical Collectivism B. Situational ethics C. Ethical relativism D. Judgmental Individualism

C

Has SOX accomplished its intended goal of reliable financial reporting by public companies? 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 collected disgorgement of bonuses and other compensations of officers.

C

If one's reputation is tainted it may create a: A. Conflict of interests B. Loss of independence C. Lack of trust D. Loss of objectivity

C

In the Advanced Battery Technologies case, the opinion of the court: A. Held the auditors legally liable because they failed to exercise due care and to demonstrate professional skepticism B. Held the auditors legally liable because they failed to gather sufficient, competent evidential matter to warrant the expression of an opinion C. Held the auditors not legally liable because the plaintiff could not plead with particularity that the audit work was so deficient as to amount to no audit at all D. Held the auditors were not legally liable because they met all professional standards

C

In the Giles and Regas case, the primary ethical issue can be stated as: A. Whether a subordinate should blow the whistle on a superior who has violated ethical policy B. Whether two staff members of the same rank should be allowed to date C. Whether a superior should become involved in a dating relationship with a subordinate D. Whether a student should renege on the acceptance of an offer from one firm after receiving an offer from a second firm

C

On July 1, 2015, the SEC charged Deloitte & Touche with violating auditor independence because: A. It provided certain nonaudit services to an audit client B.It provided audit services to a client when engaged in a business relationship with management C. Its consulting affiliate kept a business relationship with a trustee serving on the board of three funds Deloitte audited D. Its consulting affiliate owned stock of a firm Deloitte audited

C

On an organizational level, the key issue in the Parmalat case is: A. The influence of moral intensity on ethical decision making B. The influence of ethical leadership on accounting and auditing C. The role of ethical leadership and corporate governance in the accounting fraud D. The role of professional skepticism and moral intensity in corporate governance and accounting fraud

C

Organizational dissidence in audit firms is created when: A. Client interests are placed ahead of the public interest B. Firm interests are placed ahead of the public interest C. Individual values do not fit into expectations of the firm D. Individual values lead to firms changing their values to achieve greater socialization

C

Professional judgment is influenced by: A. Organizational values B. Personal code of ethics C. Personal behavioral traits D. Organizational dissonance

C

Sarah's concern in the Solutions Network case is: A. Expenses were delayed at year-end to manage earnings B. Revenue was recorded at year-end before the agreement with the customer was finalized C. Revenue was accelerated into an earlier period through channel stuffing D. Off-balance sheet entities were not disclosed

C

The Family Games case deals with the following accounting issue: A. Whether an audit firm should inform one audit client about fraudulent financial statements of another client B. Whether certain expenditures should be capitalized rather than expensed C. Whether revenue should be accelerated into an earlier period D. Whether depreciation should be reduced by 20 percent to increase earnings

C

The ethical environment within an accounting firm is created through adherence to the: A. AICPA Code of Professional Conduct B. Rules and regulations of the SEC C. Stated values and management practices D. Moral intensity and management practices

C

The fraud at HealthSouth at the structural level of the company was more intense because: A. The external auditors went along with the fraud B. The board of directors managed the fraud C. Checks and balances were eliminated and organizational culture was compromised D. There was no hotline to report financial fraud

C

The main reason the PCAOB has charged Chinese affiliates of U.S. audit firms with failing to provide sufficient documentary evidence of audits of Chinese companies listed on U.S. exchanges is: A. Audit firms are unable to gather sufficient competent evidential matter B. Audit firms are not knowledgeable enough about Chinese accounting standards C. Chinese regulatory agencies can be uncooperative in providing access to PCAOB regarding their inspections of audit documents D. Chinese regulatory agencies conduct inspections of the audit documents of the firms

C

The name of the international securities body that facilitates a country's choice to regulate the use and application of IFRS is: A. International Accounting Standards Board B. International Federation of Accountants C. International Organization of Securities Commissions D. International Securities and Exchange Commission

C

The primary accounting issue in the Royal Ahold case is: A. Fraudulent recording of revenues on sales to customers B. Fraudulent use of company resources by top management for personal purposes C. Fraudulent inflation of promotional allowances to increase operating income D. Fraudulent inflation of inventory to reduce losses on the income statement

C

The principle of ethical behavior in the AICPA Code that asks questions directly related to ethical courage is: A. Independence B. Objectivity C. Integrity D. Due care

C

The term disgorgement means: A. To give up one's meal after eating B. To return profits earned illegally C. To return ill-gotten gains D. To give up one's board position after a fraud incident

C

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: A.Integrity B. Due care C. Independence D.Responsibility

C

Under the Securities Act of 1933 and the Securities and Exchange Act of 1934, accountants may be subject to criminal penalties for: A. Obstruction of justice B. Securities fraud C. Willful violations of the securities acts D. Violations of internal controls

C

Values-based leadership can best be summed up as: A. Clearly articulating a vision for the organization B. Defining organizational values and work culture C. Clearly articulating and demonstrating one's values D. Using the Giving Voice to Values methodology to create a culture of compliance

C

Virtue ethics emphasizes development of good habits of character. What should be the greatest reward of practicing good habits of character, according to MacIntyre? A. External rewards B. Loyalty from others C.Internal rewards D. Authority of rules

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

C

What is the main fiduciary duty of the board of directors? A. Maximize profits for the company B. Monitor executive compensation C. Safeguard the interests of the company's stakeholders D. Allow high risk accounting practices

C

What non GAAP accounting method did Tony Menendez cite in blowing the whistle on Halliburton? 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

What was the result of the annual inventory audit of the inventory shrinkage problem at Walmart? A. Inventory shrinkage doubled year-over-year B. Inventory shrinkage increased by 90 percent C. Inventory shrinkage decreased by 90 percent D. There was no change in inventory shrinkage

C

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: A. Scienter B. Fraud C. Constructive fraud D. Negligence

C

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? A. Utilitarianism B. Deontology C. Egoism D. Justice

C

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

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

Which of the following elements does NOT make up an integral part of what is meant by "ethics"? A. Accepted standards of behavior B. Knowing the difference between right and wrong C. Always following the law D. The moral point of view

C

Which of the following is NOT an element of internal control over financial reporting? A. Maintaining accurate financial records B. Providing reasonable assurance that receipts and expenditures are recorded based on proper authorization by management C. Developing a code of conduct and whistle-blowing procedures D. Providing reasonable assurance that the financial statements are prepared in accordance with generally accepted accounting principles

C

Which of the following is NOT one of the communications that should be made by external auditors to the audit committee? A. Accounting estimates B. Threats to auditor independence and related safeguards to mitigate those threats C. Significant deficiencies in audit procedures D. The nature and scope of significant assumptions

C

Which of the following is NOT required of management under Section 302 of the SOX? A. Review their disclosure controls and procedures quarterly B. Identify key control exceptions and determine which are internal control deficiencies C. Assess each internal control deficiency's impact on the audit report D. Identify and report significant control deficiencies on material weaknesses to the audit committee and independent auditor

C

Which of the following is not a component of the Framework for Understanding Ethical Decision Making in Business? A. Ethical issue intensity B. Individual and organizational factors C. Internal controls D. Business ethics intentions, behaviors, and evaluations

C

Which of the following statements best reflect the ethical obligation of CPAs with respect to working with outside advertising agencies to market professional services for the CPA? A. Make sure that advertising is done professionally B. Prohibit advertising on social media C. Make sure the agency does not do anything that would put you in violation of the ethics rules D. Prohibit statements about the scope of professional services

C

With respect to leadership in the accounting profession, it might be said that: A. Ethical judgment is more important than how one makes decisions B. Partners must exhibit moral imagination through ethical perception of what it means to be ethical, professional, and successful C. Partners must exhibit ethical decision making through ethical sensitivity to the needs of one's firm D. How one makes decisions is more important than ethical leadership

C

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

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

What is the maximum amount of time an audit manager or partner may spend on nonattest services for an attest client? A. 20 hours B. 15 hours C. 10 hours D. 8 hours

C. 10 hours

A common requirement/effect of the commissions and contingent fees rule is: A. A CPA who accepts such a payment always violates independence B. The CPA must disclose the acceptance of such a payment to the firm C. A CPA is prohibited from accepting such a form of payment when engaged in attest services for a client D. The CPA must not turn over any working papers that might constitute client books and records

C. A CPA is prohibited from accepting such a form of payment when engaged in attest services for a client

35. "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

What is "Operation Broken Gate?" A. An SEC initiative to identify audit firms that violate independence standards B. A PCAOB initiative to identify audit firms with deficiencies in audits through its inspection program C. An SEC initiative to identify auditors who neglect their duties and the required auditing standards D. An AICPA program to implement its conceptual framework standards

C. An SEC initiative to identify auditors who neglect their duties and the required auditing standards

What is "operation Broken Gate?" A. An AICPA program to implement its conceptual framework standards B. An SEC initiative to identify audit firms that violate independence standards C. An SEC initiative to identify auditors who neglect their duties and the required auditing standards D. A PCAOB initiative to identify audit firms with deficiencies in audits through its inspection program

C. An SEC initiative to identify auditors who neglect their duties and the required auditing standards

Professional skepticism can best be defined as having: A. An inquiring mind and deliberate decision making B. Deliberate decision making and suspension of belief C. An inquiring mind and suspension of belief D. Careful observation and virtue-based decision making

C. An inquiring mind and suspension of belief

Under the Sarbanes-Oxley Act, the auditor's responsibility with respect to internal controls can best be stated as: A. Develop a system of internal controls that help to prevent and detect fraud B. Assess whether the internal controls help to prevent and detect fraud C. Assess management's report on internal controls D. Prepare a report on internal controls to be provided to management

C. Assess management's report on internal controls

Which of the following would be an example of due care? A. Audit documentation only supplied by the client. B. Audit documentation is a copy of last year's workpapers. C. Audit documentation obtained by the auditor with reviews by supervisory personnel. D. Audit documentation with misapplication of GAAP.

C. Audit documentation obtained by the auditor with reviews by supervisory personnel.

To avoid violating independence when engaged in nonattest services for an audit client, a CPA must: A. Make all management decisions and perform all management decisions B. Evaluate the adequacy and results of the services performed C. Avoid being biased when providing nonattest services for the audit client D. Avoid being pressured by the client when providing nonattest services for the audit client

C. Avoid being biased when providing nonattest services for the audit client

Which of the following immediate family members or close relatives would not have to follow the independence rules that apply to the CPA according to Interpretation 101-1? A. CPA's spouse B. CPA's spousal equivalent C. CPA's uncle D. CPA's dependents

C. CPA's uncle

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

C. Chewco

To whom does the CPA owe ultimate allegiance in carrying out professional obligations? A. Stockholders B. Public interest C. Client D. Stakeholders

C. Client

Which of the following is NOT the underlying trait of character of an effective leader identified by Johnson? A. Temperance B. Reverence C. Confidence D. Compassion

C. Confidence

52. 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.

The motive of "duty" is most associated with: A. Egoism B. Justice C. Deontology D. Utilitarianism

C. Deontology

42. 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

Decisions that are made based on the underlying cultural factors can be best characterized by: A. Situational ethics B. Judgmental individualism C. Ethical relativism D. Ethical collectivism

C. Ethical relativism

The ethical issue raised in the Beauda Medical Center case is similar to that in: A. ESM Government Securities B. PeopleSoft C. Fund of Funds D. Enron

C. Fund of Funds

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

C. Get the facts surrounding the problem

Common judgment traps include: A. Reacting to pressures, a rush to solve problems, and systems 1 thinking B. Systems 1 thinking, cognitive dissonance, a rush to solve problems C. Group think, judgement riggers, and a rush to solve problems D. Group think, judgement triggers, and reacting to pressures

C. Group think, judgement riggers, and a rush to solve problems

The global code of ethics for the accounting profession is called: A. AICPA Code of Professional Conduct B. IMA Ethical and Professional Standards C. Handbook of the Code of Ethics for Professional Accountants D. Public Interest Framework for the Accountancy Profession

C. Handbook of the Code of Ethics for Professional Accountants

28. 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

The ethical dissonance model looks at the ethical fit of the organizational and individual values. The optimal fit for an individual with high individual ethics would be: A. Low-high B. Low-low C. High-high D. High-low

C. High-high

Professional skepticism links to professional judgment through the ethical standards of: A. Objectivity, intelligence, and reflective thought B. Honesty, integrity, and due care C. Independent thought, objectivity, and due care D. Independent thought, objectivity, and intelligence

C. Independent thought, objectivity, and due care

Ethics rules in the AICPA code apply to: A. Licensed accounting firms and certain members of alternative practice structures B. Individual CPAs who are licensed by state boards of accountancy only C. Individual CPAs who are licensed by state boards of accountancy, licensed accounting firms, and certain members of alternative practice structures D. Individual CPAs who are licensed by state boards of accountancy and accounting firms

C. Individual CPAs who are licensed by state boards of accountancy, licensed accounting firms, and certain members of alternative practice structures

The principle of ethical behavior in the AICPA Code that asks questions directly related to ethical courage is: A. Independence B. Objectivity C. Integrity D. Due care

C. Integrity

The principle of ethical behavior in the AICPA Code that asks questions directly related to ethical courage is: A. Independence B. Objectivity C. Integrity D. Fraud prevention

C. Integrity

What is the common characteristic of Aristotle's virtues and ethical standards for CPAs? A. Truthfulness B. Due Care C. Integrity D. Loyalty

C. Integrity

37. According to AU 320, the evaluation of whether a misstatement could influence economic decisions of users A. Is essential to determining whether to render an unmodified opinion B. Is essential to determining whether the financial statements contain fraud C. Is essential to determining whether such a misstatement is material D. Is essential to determining whether there is a failed audit

C. Is essential to determining whether such a misstatement is material

The biggest problem in implementing a utilitarian approach to decision-making is: A. It relies on moral absolutes B. The interests of others may be subservient to self-interests C. It can be difficult to weigh all the consequences of actions D. It fails to consider the interest of others

C. It can be difficult to weigh all the consequences of actions

Why don't auditors prepare financial statements, as well as audit them? A. It would take away a job from the controller of the company B. It would not eliminate errors in the financial statements C. It would be a conflict of interest and violate ethical standards D. It would not streamline the process and be effective

C. It would be a conflict of interest and violate ethical standards

Why don't auditors prepare financial statements, as well as audit them? A. It would take away a job from the controller of the company. B. It would not eliminate errors in the financial statements. C. It would be a conflict of interest and violates ethical standards. D. It would streamline the process and be effective.

C. It would be a conflict of interest and violates ethical standards.

On July 1, 2015, the SEC charged Deloitte & Touche with violating auditor independence because: A. It provided certain nonaudit services to an audit client B. It provided audit services to a client when engaged in a business relationship with management C. Its consulting affiliate kept a business relationship with a trustee serving on the board of three funds Deloitte audited D. Its consulting affiliate owned stock of a firm Deloitte audited

C. Its consulting affiliate kept a business relationship with a trustee serving on the board of three funds Deloitte audited

Which of the following statements best reflect the ethical obligation of CPAs with respect to working with outside advertising agencies to market professional services for the CPA? A. Make sure that advertising is done professionally B. Prohibit advertising on social media C. Make sure the agency does not do anything that would put you in violation of the ethics rules D, Prohibit statements about the scope of professional services

C. Make sure the agency does not do anything that would put you in violation of the ethics rules

10. 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

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

49. 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

The SEC's position on independence can best be characterized as: A. Permitting certain financial interests with the client B. Prohibiting auditors from providing tax advice to audit clients C. Proscribing certain business relationships with the client D. Banning the provision of all nonaudit services to audit clients

C. Proscribing certain business relationships with the client

With respect to whistleblowing, the Sarbanes-oxley Act: A. Protects auditors who blow the whistle to the SEC B. Confers legal protection on managers who reported wrongdoing by top executives C. Protects employees of publicly traded companies who provide evidence in fraud cases D. Confers to legal protection on the board of directors for fraudulent actions by management.

C. Protects employees of publicly traded companies who provide evidence in fraud cases

26. 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

Each of the following is a safeguard that helps to mitigate threats to independence except for: A. Safeguards created by the profession, legislation, or regulation B. Safeguards implemented by the attest client, such as a tone at the top C. Safeguards developed to ensure independence when performing nonattest services D. Safeguards implemented by the firm, including policies and procedures to implement regulatory requirements

C. Safeguards developed to ensure independence when performing nonattest services

Which of the following is not considered a behavioral indicator of fraud? A. An unwillingness to share duties B. Refusal to take vacations C. Satisfaction with pay D. Financial difficulties

C. Satisfaction with pay

5. 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

Each of the following is a threat to independence except: A. Self-review threat B. Adverse interest threat C. Self-interest threat D. Undue influence threat

C. Self-interest threat

Yvonne is preparing a tax return for Jack. Jack wants to claim his nephew as a dependent even though he does not meeting 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. Stages 3 C. Stage 4 D. Stage 5

C. Stage 4

Independence may be impaired when a partner leaves an audit firm and is subsequently employed by the client if: A. Amounts due the former partner are not material to the firm B. That partner serves on the BOD of the client C. That partner is in a position to influence the accounting firm's operations D. That partner is in a position to influence the management's decisions with respect to the audit

C. That partner is in a position to influence the accounting firm's operations

Objectivity may be impaired when a CPA prepares a tax return for a client because: A. The CPA violates the independence rule B. The CPA violates the integrity rule C. The CPA serves in a tax advocacy position for the client D. The CPA must prepare the tax return solely based on the information provided by the client

C. The CPA serves in a tax advocacy position for the client

A CPA can accept a contingent fee in providing tax services for an attest client if: A. The CPA discloses this fact to the tax client B. The CPA receives the permission of the client to accept such a form of payment C. The CPA's tax services will be reviewed by a taxing authority D. All of the above

C. The CPA's tax services will be reviewed by a taxing authority

In the Peoplesoft case , the auditors violated what aspect of independence? A. The auditor was exposed to an intimidation threatened by the client B. The auditor was involved in a business relationship with the client C. The auditor served in a management decision-making position with the client D. The auditor borrowed money from the client

C. The auditor served in a management decision-making position with the client

Assume the external auditor of a client entity also served on the client's board of directors. What aspect of independence would be violated? A. The auditor may be exposed to an intimidation threat by the client B. The auditor is involved in a business relationship with the client C. The auditor serves in a management decision making position with the client D. All of these

C. The auditor serves in a management decision making position with the client

In the PeopleSoft case, the auditors violated what aspect of independence? A. The auditor borrowed money from the client B. The auditor was exposed to an intimidation threat by the client C. The auditor was involved in a business relationship with the client D. The auditor served in a management decision making position with the client

C. The auditor was involved in a business relationship with the client

Kohlberg's model can best be described as: A. A model of ethical actions that is based on one's moral development B. A predictive tool to determine how a person will reason ethically based on one's moral development C. The various phases in one's moral development and related levels of moral reasoning D. A model of age-specific levels of moral reasoning

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

To whom do the accounting codes of professional conduct (either the state board of public accountancy or AICPA) apply? A. Those CPAs in public accounting only. B. Those CPAs in industry, government, and education. C. Those CPAs in public accounting, industry, government, and education. D. Those CPAs in public accounting, doing auditing and taxation.

C. Those CPAs in public accounting, industry, government, and education.

One of the Contributions of the Treadway Commission Report and the work of the Committee of Sponsoring Organizations (COSO) was: A. To establish a voluntary process for peer review B. To identify red flags that might lead to fraud C. To identify the tone at the top for management to create an ethical culture D. To establish peer review requirements for CPAs

C. To identify the tone at the top for management to create an ethical culture

One of the Contributions of the Treadway Commission Report and the work of the Committee of Sponsoring Organizations (COSO) was: A. To establish a voluntary process for peer review B. To identify red flags that might lead to fraud C. To identify the tone at the top for management to create an ethical culture D. All of these

C. To identify the tone at the top for management to create an ethical culture

14. Each of the following techniques was used by Gemstar TV Guide International in its accounting fraud except for: A. Created cookie jar reserves of advertising revenue to smooth net income B. Engaged in round trip transactions whereby Gemstar paid money to a third party to advertise its services and capitalized that cost while the third party used Gemstar's funds to buy advertising from Gemstar, and the company recorded 100% of that amount as revenue while capitalizing the cost of its advertising payments C. Used channel stuffing to accelerate the recording of revenue into earlier periods D. Inflated advertising revenue from nonmonetary and barter transactions

C. Used channel stuffing to accelerate the recording of revenue into earlier periods

During the investigations by the House Subcommittee on Oversight and Investigations, a question that was raised was: A. Why was fraud allowed to occur at some many companies B. Where was the board of directors in all these frauds C. Where were the auditors D. Why did the internal controls fail in some many frauds

C. Where were the auditors

During the investigations by the House Subcommittee on Oversight and Investigations, a question that was raised was: A. Why was fraud allowed to occur at some many companies? B. Where was the board of directors in all these frauds? C. Where were the auditors? D. Why did the internal controls fail in so many frauds?

C. Where were the auditors?

The Family Games case deals with the following accounting issue: A. Whether an audit firm should inform one audit client about fraudulent financial statements of another client B. Whether certain expenditures should be capitalized rather than expensed C. Whether revenue should be accelerated into an earlier period D. Whether depreciation should be reduced by 20 percent to increase earnings

C. Whether revenue should be accelerated into an earlier period

Which of the following is not a component of the Framework for Understanding Ethical Decision-Making in Business? A. Business ethics intentions, behaviors, and evaluations B. Ethical Issue Intensity C. Internal controls D. Individual and organizational factors

C. internal controls

Each of the following is a finding of a survey of CFOs about their perceptions of earnings quality except:

CFOs estimate that income increasing and income decreasing devices to manage earnings show a 50:50 split

Which of the following situations of a CPA's distant relatives does not impair the CPA's independence?

CPA's nephew is starting as a salesperson with an audit client.

In the CVS acquisition of Longs Drug, the SEC concluded that the purchase price accounting (PPA) was not in compliance with GAAP because: The amount did not reflect current use of Longs personal property at the acquisition date CVS used an overly-aggressive technique to value Longs CVS did not account for its use of Long's assets to generate revenue after the acquisition date All of the above

CVS did not account for its use of Long's assets to generate

In the CVS acquisition of Longs Drug, the SEC concluded that the purchase price accounting (PPA) was not in compliance with GAAP because: The amount did not reflect current use of Longs personal property at the acquisition date CVS used an overly-aggressive technique to value Longs CVS did not account for its use of Long's assets to generate revenue after the acquisition date All of the above

CVS did not account for its use of Long's assets to generate revenue after the acquisition date

Which of the following is a permitted loan to a CPA from an audit client financial institution?

Car loan collateralized by the car

Transformational leaders:

Causes change in individuals and social systems

During the period of failures at savings and loan institutions, Lincoln S&L was charged with:

Causing retirees to lose their life savings

In the Lincoln Savings & Loan failure during the period of failures at savings and loan institutions, Lincoln was charged with:

Causing retirees to lose their life savings

Section 302 of the Sarbanes-Oxley Act requires that management:

Certify the financial statements

The Tax Shelters case deals with:

Changing culture in the tax department of a CPA firm

Which of the following partnerships that Enron created eventually lead to its demise?

Chewco

Which of the following partnerships that Enron created eventually lead to its demise? JEDI Cactus Chewco Ironman

Chewco

Which of the following partnerships that Enron created eventually lead to its demise? JEDI Cactus Chewco Ironman

Chewco

The main reason the PCAOB has charged Chinese affiliates of U.S. audit firms with failing to provide sufficient documentary evidence of audits of Chinese companies listed on U.S. exchanges is:

Chinese regulatory agencies can be uncooperative in providing access to PCAOB regarding their inspections of audit documents

The main reason the PCAOB has charged Chinese affiliates of U.S. audit firms with failing to provide sufficient documentary evidence of audits of Chinese companies listed on U.S. exchanges is: Audit firms are unable to gather sufficient competent evidential matter Audit firms are not knowledgeable enough about Chinese accounting standards Chinese regulatory agencies can be uncooperative in providing access to PCAOB regarding their inspections of audit documents Chinese regulatory agencies conduct inspections of the audit documents of the firms

Chinese regulatory agencies can be uncooperative in providing access to PCAOB regarding their inspections of audit documents

The main reason the PCAOB has charged Chinese affiliates of U.S. audit firms with failing to provide sufficient documentary evidence of audits of Chinese companies listed on U.S. exchanges is: Audit firms are unable to gather sufficient competent evidential matter Audit firms are not knowledgeable enough about Chinese accounting standards Chinese regulatory agencies can be uncooperative in providing access to PCAOB regarding their inspections of audit documents Chinese regulatory agencies conduct inspections of the audit documents of the firms

Chinese regulatory agencies can be uncooperative in providing access to PCAOB regarding their inspections of audit documents

The main reason the PCAOB has charged Chinese affiliates of U.S. audit firms with failing to provide sufficient documentary evidence of audits of Chinese companies listed on U.S. exchanges is: Audit firms are unable to gather sufficient competent evidential matter Audit firms are not knowledgeable enough about Chinese accounting standards Chinese regulatory agencies can be uncooperative in providing access to PCAOB regarding their inspections of audit documents Chinese regulatory agencies conduct inspections of the audit documents of the firms

Chinese regulatory agencies can be uncooperative in providing access to PCAOB regarding their inspections of audit documents

Rule utilitarianism

Choose the action that conforms to the correct moral rule that produces greatest net benefits.

What argument can be made that SOX may not be effective in reducing fraud? It is not as stringent as international standards The SEC has many laws for many years that have not seemed to make much of a difference The penalties under Sarbanes-Oxley are especially stringent, so it may not be enforced Civil and criminal penalties are not effective in preventing financial fraud

Civil and criminal penalties are not effective in preventing financial fraud

Which of the following is NOT a component of the KPMG Professional Judgment Framework?

Clarify issues and conclusions

Values-based leadership can best be summed up as:

Clearly articulating and demonstrating one's values

An auditor concludes that a client has committed an illegal act that has not been properly accounted for or disclosed. The auditor is most likely to withdraw from the engagement when the:

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

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

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

Which statement is correct with respect to a CPA's ethical obligation to return client books and records and CPA work papers?

Client-provided records in the custody or control of the CPA should be returned to the client at the client's request

A company establishes a set of formalized rules and standards that describe what a company expects of its employees. This is called a

Code of ethics

The legal precedent that evolves from legal opinions issued by judges in deciding a case and guides judges in deciding similar cases in the future is referred to as:

Common law

The legal precedent that evolves from legal opinions issued by judges in deciding a case and guides judges in deciding similar cases in the future is referred to as: Business law Tort law Common law Statutory law

Common law

The legal precedent that evolves from legal opinions issued by judges in deciding a case and guides judges in deciding similar cases in the future is referred to as: Business law Tort law Common law Statutory law

Common law

The legal precedent that evolves from legal opinions issued by judges in deciding a case and guides judges in deciding similar cases in the future is referred to as: Business law Tort law Common law Statutory law

Common law

The auditors' responsibility to communicate findings with respect to fraud can best be summarized as:

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

The auditors' responsibility to communicate findings with respect to fraud can best be summarized as: Communicate to the audit committee the existence of fraud but not the amount involved Communicate to the audit committee both material and immaterial amounts of fraud that are detected Communicate to the SEC the existence of fraud but not the amount involved Communicate to the SEC both material and immaterial amounts of fraud that are detected

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

The auditors' responsibility to communicate findings with respect to fraud can best be summarized as: Communicate to the audit committee the existence of fraud but not the amount involved Communicate to the audit committee both material and immaterial amounts of fraud that are detected Communicate to the SEC the existence of fraud but not the amount involved Communicate to the SEC both material and immaterial amounts of fraud that are detected

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

In the Hertz fraud, the company tried to explain its use of non-GAAP financial measures by: Comparing them to aggressive but ethical measurements Comparing the validity of the amounts to pre-tax GAAP income Having a conference call with financial analysts to explain their position Correcting problems in internal controls

Comparing the validity of the amounts to pre-tax GAAP income

In the Hertz fraud, the company tried to explain its use of non-GAAP financial measures by: Comparing them to aggressive but ethical measurements Comparing the validity of the amounts to pre-tax GAAP income Having a conference call with financial analysts to explain their position Correcting problems in internal controls

Comparing the validity of the amounts to pre-tax GAAP income

With respect to U.S. GAAP, the SEC's approach to determining whether International Financial Reporting Standards (IFRS) should be allowed for and/or replace GAAP can be described as: Transparency Comparability Convergence Condorsement

Condorsement

With respect to U.S. GAAP, the SEC's approach to determining whether International Financial Reporting Standards (IFRS) should be allowed for and/or replace GAAP can be described as: Transparency Comparability Convergence Condorsement

Condorsement

With respect to U.S. GAAP, the SEC's approach to determining whether International Financial Reporting Standards (IFRS) should be allowed for and/or replace GAAP can be described as: Transparency Comparability Convergence Condorsement

Condorsement The current approach is dubbed "condorsement." This approach is in essence an endorsement approach that would share characteristics of the incorporation approaches with other jurisdictions that have incorporated or are incorporating IFRS into their financial reporting systems. However, during the undefined transitional period, the framework would employ aspects of the convergence approach to address existing differences between IFRS and U.S. GAAP.

An unusual aspect of the Green Mountain case is it included: Conference calls that provided earnings guidance to shareholders and analysts were used to mask a financial fraud Desire to meet or beat analysts' earnings expectations led to manipulation of receivables balances Company violated the Sarbanes-Oxley Act PricewaterhouseCoopers knew about inflated inventory values

Conference calls that provided earnings guidance to shareholders and analysts were used to mask a financial fraud

Which of the following is NOT an underlying trait of character of an effective leader identified by Johnson?

Confidence

In Heinrich Müller: Big-Four Whistleblower, Müller had an ethical dilemma because: Confidential tax documents demonstrate the firm was engaged in illegal firm-arranged tax avoidance deals Confidential tax documents indicate the client violated the law by taking advantage of tax advantaged investment His supervisor ordered him to commit tax fraud His supervisor was engaged in tax fraud

Confidential tax documents demonstrate the firm was engaged in illegal firm-arranged tax avoidance deals

In Heinrich Müller: Big-Four Whistleblower, Müller had an ethical dilemma because: Confidential tax documents demonstrate the firm was engaged in illegal firm-arranged tax avoidance deals Confidential tax documents indicate the client violated the law by taking advantage of tax advantaged investment His supervisor ordered him to commit tax fraud His supervisor was engaged in tax fraud

Confidential tax documents demonstrate the firm was engaged in illegal firm-arranged tax avoidance deals

In Heinrich Müller: Big-Four Whistleblower, Müller had an ethical dilemma because: Confidential tax documents demonstrate the firm was engaged in illegal firm-arranged tax avoidance deals Confidential tax documents indicate the client violated the law by taking advantage of tax advantaged investment His supervisor ordered him to commit tax fraud His supervisor was engaged in tax fraud

Confidential tax documents demonstrate the firm was engaged in illegal firm-arranged tax avoidance deals

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

Confidentiality

The statement made by Lynn Turner, former SEC chief accountant, "Are the auditors going to serve management, or are they going to serve the best interests of the investing public?", refers to concerns about:

Conflict between professionalism and commercialism

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

Conflicts between virtues may make decision making more difficult

Each of the following describes the behavior for Cynthia cooper in the WorldCom fraud except for:

Conformity

Which of the following characteristics does NOT describe the behavior of Cynthia Cooper in the WorldCom fraud?

Conformity

Teleology deals with:

Consequences

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

Consequences

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:

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

The need to exercise professional skepticism in auditing can be linked to

Considering and responding to the risk of material misstatement in the financial statements due to fraud

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: Scienter Fraud Constructive fraud Negligence

Constructive fraud

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: Scienter Fraud Constructive fraud Negligence

Constructive fraud

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: Scienter Fraud Constructive fraud Negligence

Constructive fraud

The relationship between the shareholders, directors, and management of a company, as defined b the corporate charter, bylaws, formal policy and rule of law is known as

Corporate Governance

the relationship between shareholders, directors, and management of a company, as defined by the corporate charter is known as the

Corporate governance

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:

Corporate governance.

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

Could lead to a good life

The ancient Greeks thought of virtues as characteristics of behavior that

Could lead to a good life

The Miniscribe fraud was carried out by:

Counting nonexistent product in inventory

What is an important part in making an ethical choice, according to Kidder?

Courage

In the Loyalty and Fraud Reporting case, Ethan Lester pressured his friend Vic Jensen to:

Cover up Ethan's fraud

In the Loyalty and Fraud Reporting case, Ethan Lester pressured his friend Vic Jensen to: Misappropriate funds from the company Cover up Ethan's fraud Be silent and not report Ethan's fraud to the audit committee Give an unmodified audit report

Cover up Ethan's fraud

In the Loyalty and Fraud Reporting case, Ethan Lester pressured his friend Vic Jensen to: Misappropriate funds from the company Cover up Ethan's fraud Be silent and not report Ethan's fraud to the audit committee Give an unmodified audit report

Cover up Ethan's fraud

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

Crawford followed the GAAP methods that Deloitte suggested

Which of the following is NOT an earnings management technique?

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

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

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

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

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

Which of the following summarizes the essence of field work standards of GAAS?

Criteria for judging the quality of audit work

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

Criteria for judging the quality of audit work

The Olympus case was unique from a corporate governance perspective because it deals with:

Cultural differences between Japanese management and western style of management

A privity relationship means that: A. A party may be a user of the 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

According to the ACFE survey, the most common type of occupational fraud scheme is: A. Corruption B. Fraudulent billing C. Illegal gratuities D. Asset misappropriation

D

An auditor concludes that a client has committed an illegal act that has not been properly accounted for or disclosed. The auditor is most likely to withdraw from the engagement when 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

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? A. Risk assessment B. Control activities C. Control environment D. Monitoring

D

Bill Young's ethical dilemma was: A. Whether the loan loss reserves of the bank were understated B. Whether to file a whistle-blower's complaint with the SEC under Dodd-Frank C. Whether to commit fraud to cover up stealing from the company D. Whether to inform management or the regulatory authorities of illegal acts of an audit client

D

Civility requires all but the following: A. Restraint B. Politeness C. Respect D. Disregard

D

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

D

Diane is a CFO at We Do What We Want, Inc. She was just instructed by her boss, the CEO, to accelerate the recording of revenue into an earlier year to meet financial analysts' earnings projections. In order to meet the ethical standards of the accounting profession, Diane must be certain that she: A. Blows the whistle on the financial wrongdoing B. Reports the matter to the SEC C. Informs the external auditors D. Works through the chain of command within the company to avoid subordinating judgment

D

Each of the following is an element of agency costs except: A. The costs incurred in monitoring managerial performance B. The costs incurred because there is information symmetry between the corporation and outsiders C. The costs incurred because insiders know more about a company than do outsiders D. The costs incurred in developing internal controls over financial reporting

D

Impairments of independence can occur when: A. A CPA owns a direct financial interest in a client B. A CPA owns a material indirect financial interest in a client C. Immediate family members of the CPA are in violation of the independence rules D. All of the above

D

In gathering audit evidence, the accessibility of information may be a factor thereby influencing which judgment trigger? A. Confirmation B. Overconfidence C. Anchoring D. Availability

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.

D

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 can be said that ethical leaders exhibit each of the following traits except for: A. Ethical leaders understand the need for respect, openness and trust B. Ethical leaders aim to empower others to achieve success based on right action C. Ethical leaders take responsibility for their actions and are accountable D. Ethical leaders encourage behaviors whereby employees do what the leaders say

D

Personal values link to: A. Ethical judgment and motivation B. Ethical motivation and action C. Ethical sensitivity and action D. Ethical sensitivity and judgment

D

Pfizer was investigated by the SEC for violating the Foreign Corrupt Practices Act (FCPA) because it allegedly: A. Made improper payments to foreign officials to obtain regulatory and formulary approvals B. Made improper payments to foreign officials to obtain sales C. Made improper payments to foreign officials to obtain increased prescriptions for the company's pharmaceutical products D. All of the above

D

Responsibility goes hand in hand with: A. Respect B. Loyalty C. Courage D. Accountability

D

Servant leaders: A. Advocate a perspective that leaders have a responsibility to serve their followers by helping them to achieve followers' goals B. Servant leadership is the flip side of authentic leadership C. Promote a culture that enhances organizational outcomes D. Help followers to fulfill their needs by modeling ethical values, attitudes and behaviors

D

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

The CPA firm that became involved in tax shelter controversies with the IRS is: A. Ernst & Young B. Deloitte & Touche C. PricewaterhouseCoopers D. KPMG

D

The Private Securities Litigation Reform Act imposes additional requirements on public companies reporting to the SEC and their auditors when: A. The illegal act has a material effect on the financial statements B. Senior management and the board have not acted properly to correct for the act C. The failure to correct for the action is reasonably expected to warrant a departure from the standard audit report D. All of the above are additional requirements

D

The auditors' determination of whether the financial statements "present fairly" is based on: A. Whether the users are able to assess the reliability of the financial statements B. Whether the statements have been prepared in accordance with the same GAAP used from one year to another C. Whether the auditor has been able to gather sufficient evidence to warrant the statement that the financial statements present fairly D. Whether the accounting principles used are appropriate in the circumstances

D

The biggest problem in applying virtue theory to decision making is: A. It can be difficult to identify virtues B. It relies on moral absolutes in decision making C. It can be difficult to determine virtues to distinguish equals from unequal claims in decision making D. Conflicts between virtues may make decision making more difficult

D

The confidentiality standard in the AICPA code provides a blanket exception to the rule in each of the following situations except: A. In response to a validly issued court summons B. To provide information to the PCAOB in its inspection process C. To defend oneself in an ethics investigation D. In response to a successor auditor's request

D

The credibility standard in the Statement of Ethical Professional Practice of the IMA requires that an accounting professional should: A. Communicate information fairly and objectively C. 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 D. All of the above

D

The problem of a compliance approach in implementing global standards is that it can result in: A. Achieving informal compliance without considering ethical consequences B. Achieving a true and fair view with respect to the auditor's report C. Achieving a dual system of boards of directors D. Achieving formal compliance without considering ethical consequences

D

The relationship between legal and ethical can best be expressed as: A. Always follow the law regardless of consequences for others B. Ethical behavior requires less than legal behavior C. Legal and ethical are the same thing D. Ethical behavior requires us to do more than required by the law and less than the law allows

D

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: A. Code of ethics. B. Corporate leadership. C. Corporate responsibility. D. Corporate governance.

D

Treating other fairly encompasses treating them: A. Equally, impartially, and responsibly B. Equally, responsibly, and openly C. Impartially, openly, and diligently D. Equally, impartially, and openly

D

What argument can be made that SOX may not be effective in reducing fraud? A. It is not as stringent as international standards B. The SEC has many laws for many years that have not seemed to make much of a difference C. The penalties under Sarbanes-Oxley are especially stringent, so it may not be enforced D. Civil and criminal penalties are not effective in preventing financial fraud

D

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

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

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

Which of the following is NOT a characteristic behavior illustrating the fiduciary duty of the board of directors? A. Safeguarding corporate assets B. Promoting shareholder interests C. Exercising care in carrying out their responsibilities D. Representing the interests of all stakeholders

D

Which of the following is NOT a common judgment tendency? A. Availability tendency B. Confirmation tendency C. Over-confidence tendency D. Decision making tendency

D

Which of the following is NOT a pressure that might lead to fraud? A. Desire to maximize the value of stock options B. Budget pressures C. Meet financial analysts' earnings expectations D. Ability to carry out the fraud

D

Which of the following is NOT a safeguard that can help to mitigate threats to independence? A. Safeguards created by the Sarbanes-Oxley Act B. Safeguards created by the corporate governance system of the attest client C. Quality control safeguards created by the audit firm D. All of the above are safeguards

D

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

Which of the following is not an element of COSO Enterprise Risk Management? A. Enhancing risk response decisions B. Reducing operating surprises and losses C. Seizing opportunities D. Improving deployment of information technology

D

Which of the following is not an element of an ethical corporate culture? 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

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

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

With respect to U.S. GAAP, the SEC's approach to determining whether International Financial Reporting Standards (IFRS) should be allowed for and/or replace GAAP can be described as: A. Transparency B. Comparability C. Convergence D. Condorsement

D

Ethical conflicts for CPAs in business can occur when: A)Relationships exist with vendors B)Threats from higher levels of management create constraints to providing accurate and reliable financial statements C)Obstacles exist to complying with professional and legal standards D) All of the above

D) All of the above

Ethical conflicts for CPAs in business can occur when: A) Relationships exist with vendors B)Threats from higher levels of management create constraints to providing accurate and reliable financial statements C)Obstacles exist to complying with professional and legal standards D)All of the above

D)All of the above

The accounting issues at failed savings and loan institutions included: A)The failure to provide adequate allowances for loan losses B)The existence of inadequate controls to prevent inadequate allowances and control for dubious deals C)The failure to disclose dubious deals between the S&Ls and some of its major customers D)All of the above

D)All of the above

Which of the following is NOT an example of a conflict of interest? A. Advising two clients at the same time who are competing to acquire the same company when the advice might be relevant to the parties' competitive positions B. Advising a client to invest in a business in which, for example, the immediate family member of the CPA has a financial interest in the business C. Providing tax or personal financial planning services for several members of a family whom the CPA knows to have opposing interests D. Accepting commissions in a financial planning engagement for a nonaudit client

D. Accepting commissions in a financial planning engagement for a nonaudit client

The business judgment rule refers to: A. Honesty of purpose and caring B. Faithfulness to one's obligations and duties C. Decision-making under uncertainty D. Acting with due care and good faith

D. Acting with due care and good faith

Ethical conflicts for CPAs in business can occur when: A. Obstacles exist to complying with professional and legal standards B. Relationships exist with vendors C, Threats from higher levels of management create constraints to providing accurate and reliable financial statements D. All of the above

D. All of the above

Ethical conflicts for CPAs in business can occur when: A. Relationships exist with vendors B. Obstacles eist to complying with professional and legal standards C. Threats from high levels of management create constraints to providing accurate and reliable financial statements. D. All of the above

D. All of the above

Impairments of independence can occur when: A. A CPA owns a direct financial interest in a client B. A CPA owns a material indirect financial interest in a client C. Immediate family members of the CPA are in violation of the independence rules D. All of the above

D. All of the above

Impairments of independence can occur when: A. A CPA owns a direct financial interest in a client B. Immediate family members of the CPA are in violation of the Independence rules C. A CPA owns a material indirect financial interest in a client 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. Universal ethical principles C. A rational calculation of benefits and harms to society D. All of the above

D. All of the above

The accounting issues at failed savings and loan institutions included: A. The failure to provide adequate allowances for loan losses B. The failure to disclose dubious deals between the S&Ls and some of its major customers C. The existence of inadequate controls to prevent inadequate allowances and control for dubious deals D. All of the above

D. All of the above

Which of the following is NOT a safeguard that can help to mitigate threats to independence? A. Safeguards created by the Sarbanes-Oxley Act B. Safeguards created by the corporate governance system of the attest client C. Quality control safeguards created by the audit firm D. All of the above are safeguards

D. All of the above are safeguards

23. What is the culture at Enron that discussed in the case? A. Employees worked later and later. B. Employees were evaluated in groups; the goal was to remove the bottom 20% of each group every year. C. Enron had a cutthroat system and encouraged a "yes" culture. D. All of these

D. All of these

Impairments of independence can occur when: A. A CPA owns a direct financial interest in a client B. A CPA owns a material indirect financial interest in a client C. Immediate family members of the CPA are in violation of the independence rules D. All of these

D. All of these

PricewaterhouseCoopers was investigated by the SEC for independence violations due to: A. Reporting systems that relied on self-reporting of violations B. Ownership of client stock C. Investments by PwC professionals in bank accounts of audit clients D. All of these

D. All of these

The accounting issues at failed savings and loan institutions included: A. The failure to provide adequate allowances for loan losses B. The failure to disclose dubious deals between the S&Ls and some of its major customers C. The existence of inadequate controls to prevent inadequate allowances and control for dubious deals D. All of these

D. All of these

The confidentiality standard in the AICPA code provides for exceptions to the rule in: A. In response to a validly issued court summons B. To provide information to the CPA's peer reviewers C. To defend oneself in an ethics investigation D. All of these

D. All of these

32. 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

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

Which is not a permitted form of organization for a CPA practice? A. Sole proprietorship with name of sole proprietor B. Limited liability partnership C. Professional corporation D. Corporation

D. Corporation

18. 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 a common judgment tendency? A. Availability tendency B. Confirmation tendency C. Over-confidence tendency D. Decision making tendency

D. Decision making tendency

Which of the following is NOT a common judgement tendency? A. Confirmation tendency B. Over-confidence tendency C. Availability tendency D. Decision-making tendency

D. Decision-making tendency

Which case in the text of the chapter illustrates the danger of a CPA accepting loans from an audit client? A. Tyco International B. Enron C. Adelphia D. ESM Government Securities

D. ESM Government Securities

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 followers her senior's instructions and ignores the misstatement. Which ethical theory did Jane use to make her decision? A. Utilitarianism B. Justice C. Virtue Ethics D. Egoism

D. Egoism

The House Subcommittee on Oversight and Investigations made its recommendations after looking into failures at each of the following companies except: A. ESM Government Securities B. Continental Illinois National Bank and Trust C. Penn Square Bank D. Enron

D. Enron

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

D. Ethical Character

A difficult choice between two moral principles that are in conflict with one another is known as a/an: A. Situational ethics B. Conflict ethics C. Ethical relativism D. Ethical dilemma

D. Ethical Dilemma

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: A. Justice and rights theory B. Enlightened egoism and rights theory C. Egoism and utilitarianism D. Ethical legalism and utilitarianism

D. Ethical legalism and utilitarianism

Personal values link to: A. Ethical judgment and motivation B. Ethical motivation and action C. Ethical sensitivity and action D. Ethical sensitivity and judgment

D. Ethical sensitivity and judgment

Personal values link to: A. Ethical motivation and actions B. Ethical sensitivity and actions C. Ethical judgment and motivation D. Ethical sensitivity and judgment

D. Ethical sensitivity and judgment

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

D. Fear of punishment

A strong and effective internal control environment can be enhanced by: A. Having the internal auditors report to the external auditors B. Having the external auditors report to the audit committee C. Financial statements that present fairly financial position and results of operations. D. Giving the internal auditors direct and unrestricted access to the audit committee

D. Giving the internal auditors direct and unrestricted access to the audit committee

Jacob just joined the firm of Gordon & Towns LLC. Prior to beginning his first group audit assignment, Jacob asks to meet with his mentor, Isaac. He asks Isaac how making judgments in an audit team setting differs from running audit oneself. What is the best advice for Isaac to give to Jacob? A. Good judgment principles apply only in group settings since others are involved B. They are not the same C. Groups are not prone to judgment traps and biases D. Groups are prone to making quick decisions in order to avoid conflict.

D. Groups are prone to making quick decisions in order to avoid conflict.

Integrity is measured in terms of what is right and just. What is a question that a CPA can ask to test decisions? A. Am I doing what another CPA would do? B. Am I serving the interests of my client? C. Am I protecting my self-interests?

D. Have I retained my integrity?

Integrity is measured in terms of what is right and just. What is a question that a CPA can ask to test decisions? A. Am I doing what another CPA would do? B. Am I serving the interests of my client? C. Am I protecting my self-interests? D. Have I retained my integrity?

D. Have I retained my integrity?

The confidentiality standard in the AICPA code provides a blanket exception to the rule in each of the following situations except: A. In response to a validly issued court summons B. To provide information to the PCAOB in its inspection process C. To defend oneself in an ethics investigation D. In response to a successor auditor's request

D. In response to a successor auditor's request

Ethics rules in the AICPA Code apply to: A. Individual CPAs who are licensed by state boards of accountancy only B. Individual CPAs who are licensed by state boards of accountancy and accounting firms C. Licensed accounting firms and certain members of alternative practice structures D. Individual CPAs who are licensed by state boards of accountancy, licensed accounting firms, and certain members of alternative practice structures

D. Individual CPAs who are licensed by state boards of accountancy, licensed accounting firms, and certain members of alternative practice structures

Eddie paid in $8 restaurant check with a $10 bill. The waitress gave him $12 back. The most ethical action for Eddie is to: A. Inform that manager of the restaurant of the overpayment B. Leave a larger tip for the waitress C. Keep the extra $10 D. Inform the waitress of her overpayment

D. Inform the waitress of the overpayment

40. 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

Why don't auditors prepare financial statements, as well as audit them? A. It would not eliminate errors in the financial statements B. It would not streamline the process and be effective C. It would take away a job from the controller of the company D. It would be a conflict of interest and violate ethical standards

D. It would be a conflict of interest and violate ethical standards

The CPA firm that became involved in tax shelter controversies with the IRS is: A. Ernst & Young B. Deloitte & Touche C. PricewaterhouseCoopers D. KPMG

D. KPMG

CPAs in business face threats to independence just as CPAs in public practice. Which of the following threats do not exist for CPAs in business? A. Adverse interest threat B. Advocacy threat C. Self-interest threat D. Management participation threat

D. Management participation threat

Which of the following services are allowed to be performed for an attest services client by Sarbanes Oxley Act? A. Financial information systems design and implementation B. Management functions or human resources C. Internal audit outsourcing services D. Pension plan audits

D. Pension plan audits

One concern in the Armadillo Foods case in the text of the chapter is: A. The failure of internal controls B. Pressure to go along with the misappropriation of assets C. The failure of the external auditors to catch fraud D. Pressure to meet financial analysts' earnings estimates

D. Pressure to meet financial analysts' earnings estimates

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

D. Reflective

Wanda is faced with an ethical dilemma. She knows her supervisor, the CFO, wants to accelerate the recording 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. Consider the interest of the stakeholders but decide based on what is in her best interest. B. Make a devision based on what is in her own best interests C. Inform the board of directors of the difference of opinion with the CFO D. Refused to record the transaction as desired by the CFO

D. Refused to record the transaction as desired by the CFO

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

In the Lee & Han, LLC case, Barbara Strom should: A. Report the situation to SEC under the Dodd-Frank Act. B. Change the audit workpapers to not reflect the market decline in inventory. C. Discuss the matter with Kate Boller. D. Report the situation to the firm's oversight or similar committee.

D. Report the situation to the firm's oversight or similar committee.

Which of the following is NOT one of the audit committee's responsibilities? A. Monitor the integrity of the financial statements B. Review and monitor the external audit process C. Review whistleblowing and compliance processes D. Review all financial reporting judgments

D. Review all financial reporting judgments

An ethical organization includes the following traits: A. A focus on results over process B. A culture of do what I say, not what i do C. Zero tolerance for individual and collective mistakes D. Shared values, goals, and problem solving mechanisms.

D. Shared values, goals, and problem solving mechanisms.

27. 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

50. 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

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

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

What is the difference on contingent fees under the PCAOB rules versus the AICPA rules? A.Both rules allow contingent fees for an audit client if the contingency is based upon findings of government agencies. B. The AICPA prohibits contingent fees to an audit client. C. The PCAOB allows contingent fees for non-public company engagements. D. The PCAOB prohibits contingent fees in tax engagements performed for an audit client.

D. The PCAOB prohibits contingent fees in tax engagements performed for an audit client.

If a client refuses to accept an auditors' report that has been modified, the public accounting firm should withdraw from the engagement and give its reasons in writing to the board of directors except when: A. The auditor is unable to obtain sufficient appropriate evidence about a suspected illegal act B. The client fails to account for or disclose properly a material amount connected with an illegal act C. The auditor is unable to estimate amounts involved in an illegal act D. The auditor is unable to observe the physical inventory

D. The auditor is unable to observe the physical inventory

The ethical domain in accounting and auditing refers to: A. The stages of the moral development of accountants and auditors B. The decision-making process followed by accountants and auditors C. The rules of conduct in the AICPA code of professional conduct D. The important constituent groups affected by accounting and auditing work

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

11. 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

8. 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

Michael has been approached by the CEO of an audit client and offered two tickets to the FIFA tournament during the RIO 2016 Olympic Games. The CEO knows that Michael's wife is from RIO and thought this was a nice way to thank him for twnty-years of excellent professional services. From an ethical perspective in deciding whether to accept the gift Michael should consider whether: A. The audit has been completed for the current year B. He has the time and money to travel to Rio for the games C. Nonaudit services are also provided for the client D. Threats created by the gifts are at an acceptable level

D. Threats created by the gifts are at an acceptable level

The most significant change in the Revised AICPA Code of Professional Conduct is: A Eliminating Code coverage for members in business. B. A conceptual framework approach for evaluating ethics violations C. Clarifying that all CPAs must follow the independence rule regardless of professional services D. Two conceptual frameworks: one for members in public practice and one for CPAs in business

D. Two conceptual frameworks: one for members in public practice and one for CPAs in business

The failure of Lehman Brothers was due in large part to: A. Accelerating recording revenue into an earlier period than warranted B. Understating allowance for loan losses C. Aggressive valuation of marketable securities D. Use of Repo 105 transactions

D. Use of Repo 105 transactions

James Doty, the chairman of the PCAOB, in his testimony before Congress on the financial crisis of 2007-2008, admitted that auditors should have been more vigilant—not just at Lehman Brothers, but across the board. Which audit areas did Doty signal out for criticism? A. Inventories and cash flow B. Capital and operating expenses C. Special purpose and related-party entities D. Valuations and end-of-period transactions

D. Valuations and end-of-period transactions

PwC's actions in their audits of Avon and Pinnacle were similar in that the SEC alleged that the firm: A. Owned stock in both clients B. Served on the board of directors of both clients C. Borrowed money from both clients D. Was influenced in their opinions by the size of nonaudit services

D. Was influenced in their opinions by the size of nonaudit services

The risk-based approach is used to assess: A. Risk of audit failure B. Whether a CPA's scope of services poses an unacceptable risk to Independence C. Risk of fraud D. Whether a CPA's relationship with a client would post an unacceptable risk to Independence

D. Whether a CPA's relationship with a client would post an unacceptable risk to Independence

The AOL-Time Warner case deals with: A. Whether the merger of two large telecommunications companies should be allowed B. Recording round-trip transactions as revenue in one year and an expense in a later one C. Recording expenditures as capital costs rather than operating expenses D. Whether a whistle-blower was a hero or villain

D. Whether a whistle-blower was a hero or villain

Diane is a CFO at We Do What We Want, Inc. She was just instructed by her boss, the CEO, to accelerate the recording of revenue into an earlier year to meet financial analysts' earnings projections. In order to meet the ethical standards of the accounting profession, Diane must be certain that she: A. Blows the whistle on the financial wrongdoing B. Reports the matter to the SEC C. Informs the external auditors D. Works through the chain of command within the company to avoid subordinating judgment

D. Works through the chain of command within the company to avoid subordinating judgment

46. The accounting issue in the Cubbies Cable case with respect to cable installations costs is closest to the accounting issue in which case? A. Enron B. Gemstar TV Guide C. Xerox D. WorldCom

D. WorldCom

Assume you were assigned a team 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. You have made a decision based on a harms-benefit analysis B. Your actions are based on moral judgments C. You are making judgements based on expectations of your peer group D. Your actions lack moral sensitivity

D. Your actions lack moral sensitivity

In establishing that the third party relied on the financial statements, one factor that works against plaintiffs' establishing such reliance is: Fraud did not exist Damages or loss suffered by the plaintiff would not have occurred regardless of whether the audited financial statements were misstated Damages or loss suffered by the plaintiff would have occurred regardless of whether the audited financial statements were misstated Negligence did not exist

Damages or loss suffered by the plaintiff would have occurred regardless of whether the audited financial statements were misstated

In establishing that the third party relied on the financial statements, one factor that works against plaintiffs' establishing such reliance is: Fraud did not exist Damages or loss suffered by the plaintiff would not have occurred regardless of whether the audited financial statements were misstated Damages or loss suffered by the plaintiff would have occurred regardless of whether the audited financial statements were misstated Negligence did not exist

Damages or loss suffered by the plaintiff would have occurred regardless of whether the audited financial statements were misstated

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?

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

Which of the following authors(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?

Dechow and Skinner

Which of the following authors(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? Dechow and Skinner Healy and Wahlen Schipper Thomas E. McKee

Dechow and Skinner

Which of the following authors(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? Dechow and Skinner Healy and Wahlen Schipper Thomas E. McKee

Dechow and Skinner

The more intense the ethical issues, the more likely:

Decision makers are aware of the ethical implications of their intended actions

Which of the following is NOT a key element of the definition of ethics?

Definitive conclusions

Which of the following was not a technique used by Enron to manage earnings?

Deliberately overstated the allowance for uncollectibles and adjusted it downward in future years

Which of the following was not a technique used by Enron to manage earnings? Used reserves to increase earnings when reported amounts were too low Deliberately overstated the allowance for uncollectibles and adjusted it downward in future years Used mark-to-market estimates to inflate earnings in violation of GAAP Selected which operating assets to "sell" to the SPEs, affecting the gain on transfer and earnings effect

Deliberately overstated the allowance for uncollectibles and adjusted it downward in future years

Aristotle believed that __________ always preceded the choice of action.

Deliberation

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

Deontology

Which of the following is NOT addressed in the Diamond Foods case? Accounting for payments to walnut growers Matching revenues with the proper period Depreciation of almond trees Misleading the external auditors

Depreciation of almond trees

Which of the following is NOT addressed in the Diamond Foods case? Accounting for payments to walnut growers Matching revenues with the proper period Depreciation of almond trees Misleading the external auditors

Depreciation of almond trees

The role of a leader in an organization is to:

Determine organizational climate and define norms

Which of the following is NOT a requirement of Section 10A of the Securities Exchange Act of 1934 for auditors of public companies with respect to illegal acts? Determine whether it is likely that an illegal act has occurred Determine what the possible effect of the illegal act is on the financial statements Determine whether management participated in the illegal act Inform management and assure that the audit committee knows about any material illegal act that has been detected

Determine whether management participated in the illegal act

Which of the following is NOT a requirement of Section 10A of the Securities Exchange Act of 1934 for auditors of public companies with respect to illegal acts? Determine whether it is likely that an illegal act has occurred Determine what the possible effect of the illegal act is on the financial statements Determine whether management participated in the illegal act Inform management and assure that the audit committee knows about any material illegal act that has been detected

Determine whether management participated in the illegal act

Which of the following is NOT a requirement of Section 10A of the Securities Exchange Act of 1934 for auditors of public companies with respect to illegal acts? Determine whether it is likely that an illegal act has occurred Determine what the possible effect of the illegal act is on the financial statements Determine whether management participated in the illegal act Inform management and assure that the audit committee knows about any material illegal act that has been detected

Determine whether management participated in the illegal act

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?

Determine who is responsible for the fraud.

Which of the following is NOT an element of internal control over financial reporting?

Developing a code of conduct and whistleblowing procedures

A danger of situational ethics is that it can be used to rationalize a wrong-doing. Such rationalizations may be seen in all of the following examples except:

DigitPrint case discussed in the chapter

The SEC requires stealth restatements to be:

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

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

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

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

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

Under certain circumstances, internal accountants are eligible to become Dodd-Frank whist blower. Which of the following is not one of those conditions?

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

Under certain circumstances, internal accountants are eligible to become Dodd-Frank whistleblowers. Which of the following is not one of those conditions?

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

The main difference between a discretionary and nondiscretionary accrual is:

Discretionary accruals are items that management has full control over

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

Discretionary accruals are items that management has full control over

Civility requires all but the following:

Disregard

The best restatement of Kant's categorical imperative is:

Do to others as you would have everyone do unto you

The best restatement of categorical imperative is:

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

One feature of a corporate governance system commonly found outside the U.S. is:

Dual system of boards of directors

One feature of a corporate governance system commonly found outside the U.S. is: Unitary board of directors Dual system of boards of directors No board of directors Acceptance of facilitating payments and bribery

Dual system of boards of directors

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: Prudence Scienter Nonfeasance Due Care

Due Care

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: Prudence Scienter Nonfeasance Due Care

Due Care

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

The level of care expected of a reasonable person under similar circumstances in meeting one's fiduciary duty is called:

Duty of care

The House Subcommittee on Oversight and Investigations made its recommendations after looking into failures at:

ESM Government Securities Continental Illinois National Bank and Trust Penn Square Bank

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

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

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

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

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

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

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

Which of the following has NOT been found to be a measure of a non-GAAP financial metric?

Earnings before depreciation and amortization

Which of the following has NOT been found to be a measure of a non-GAAP financial metric? Earnings before depreciation and amortization Operating income before certain non-recurring expense or revenue items EBITDA GAAP earnings

Earnings before depreciation and amortization

Which of the following has NOT been found to be a measure of a non-GAAP financial metric? Earnings before depreciation and amortization Operating income before certain non-recurring expense or revenue items EBITDA GAAP earnings

Earnings before depreciation and amortization

The concept that earnings management might align with conservative versus aggressive reporting is known as the:

Earnings continuum

The concept that earnings management might align with conservative versus aggressive reporting is known as the: Earnings judgment Earnings accruals Earnings continuum Earnings manipulations

Earnings continuum

Daniel Kahneman's system 2 can be described by all of the following except for

Effortless (conscious, reasoned, slower)

If a company is managing its earnings, which of the ethical theories are they most likely following? Rights Fairness Egoism Virtue

Egoism

Jane finds a material misstatement while auditing a client 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?

Egoism

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?

Egoism

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?

Egoism

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?

Egoism

Hofstede's Cultural Dimensions helps explain how workers from different cultures might react in the workplace. The Long-Term Orientation dimension could help explain the different approaches toward:

Emphasizing short-term and long-term results

The method of ethical reasoning that deals with making decisions after considering the interests of others is:

Enlightened Egoism

The House Subcommittee on Oversight and Investigations made its recommendations after looking into failures at each of the following companies except:

Enron

Treating other fairly encompasses treating them:

Equally, impartially, and openly

Which of the following elements do NOT have to be proved once a plaintiff has established the ability to sue under rule 10b-5?

Error by auditor led to plaintiffs' loss

The IFAC Global Code of Ethics is similar to the AICPA Code in each of the following areas except it doesn't:

Establish state boards of accountancy to regulate standards

The IFAC Global Code of Ethics is similar to the AICPA Code in each of the following areas except it doesn't: Require acting in accordance with the public interest Address threats to independence Identify safeguards to mitigate threats to independence Establish state boards of accountancy to regulate standards

Establish state boards of accountancy to regulate standards

The IFAC Global Code of Ethics is similar to the AICPA Code in each of the following areas except it doesn't: Require acting in accordance with the public interest Address threats to independence Identify safeguards to mitigate threats to independence Establish state boards of accountancy to regulate standards

Establish state boards of accountancy to regulate standards

An ethical tone at the top can best be described as:

Establishing an ethical culture within an organization

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?

Ethical Dissonance

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? Rights Theory Moral blindness Ethical Dissonance Materiality

Ethical Dissonance

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? Rights Theory Moral blindness Ethical Dissonance Materiality

Ethical Dissonance

The relationship between legal and ethical can best be expressed as:

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

In Thorne's model of ethical decision-making, the instrumental virtues relate to:

Ethical character

The 2013 Ethics Resource Center National Business Ethics Survey indicates each of the following results with respect to how employees view the ethics and ethical practices of organizations they work for except:

Ethical cultures are weaker

It can be said that ethical leaders exhibit each of the following traits except for:

Ethical leaders encourage behaviors whereby employees do what the leaders say

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:

Ethical legalism and utilitarianism

Decisions that are made based on the underlying cultural factors can be best characterized by:

Ethical relativism

Personal values link to:

Ethical sensitivity and judgment

Act utilitarianism

Evaluate whether the intended action provides the greatest net benefits.

Which of the following is NOT something external auditors are expected to do in looking for fraud?

Evaluating management's commitment to serve the public interest

Which of the following is NOT something external auditors are expected to do in looking for fraud? Assessing the control environment of the organization Evaluating internal controls Considering audit risk and materiality Evaluating management's commitment to serve the public interest

Evaluating management's commitment to serve the public interest

Which of the following is NOT something external auditors are expected to do in looking for fraud? Assessing the control environment of the organization Evaluating internal controls Considering audit risk and materiality Evaluating management's commitment to serve the public interest

Evaluating management's commitment to serve the public interest

Lawsuits filed against Johnson & Johnson for product defects years after the Tylenol affair best illustrates that:

Even good companies can do bad things

The International Federation of Accountants (IFAC) research report, Rebuilding Public Confidence in Financial Reporting: An International Perspective, has as its goal which of the following?

Examine ways of restoring the credibility of financial reporting and corporate disclosure from an international. perspective

The International Federation of Accountants (IFAC) research report, Rebuilding Public Confidence in Financial Reporting: An International Perspective, has as its goal which of the following?

Examine ways of restoring the credibility of financial reporting and corporate disclosure from an international. perspective.

The Sino-Forest case centered around the: Acceleration of revenue due to channel stuffing arrangements Use of cookie jar reserves to manage earnings Existence of assets Contingent liabilities due to forestry fires

Existence of assets

The Restatement (Second) of Torts Approach:

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

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

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

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

Expands an accountant's legal liability to third parties identified by the client as intended recipients of work The Restatement (Second) of the Law of Torts approach, sometimes known as Restatement 552,14 expands accountants' legal liability exposure for negligence beyond those with near privity (actually foreseen) to a small group of persons and classes who are or should be foreseen by the auditor as relying on the financial information. This is known as the foreseen third-party concept because even though there is no privity relationship, the accountant knew that that party or those parties would rely on the financial statements for a specified transaction.

Internal control over financial reporting includes each of the following elements except for:

External audit conducted in accordance with generally accepted auditing standards

Which of the following was not a finding of the ACFE 2014 Report to the Nation on Occupational Fraud?

External auditors discover about 10 percent of the frauds

All of the following are in a position to commit fraud except:

External auditors who audit the financial statements

All of the following are in a position to commit fraud except: Employees who have access to assets Top management who can override internal controls External auditors who audit the financial statements All of the above are in a position to commit fraud

External auditors who audit the financial statements

All of the following are in a position to commit fraud except: Employees who have access to assets Top management who can override internal controls External auditors who audit the financial statements All of the above are in a position to commit fraud

External auditors who audit the financial statements

A payment made to foreign government officials to ensure that they do what is expected given their job requirements can be characterized as a(n):

Facilitating Payment

A payment made to foreign government officials to ensure that they do what is expected given their job requirements can be characterized as a(n): Bribe Asset misappropriation Facilitating Payment Legal Payment

Facilitating Payment

A payment made to foreign government officials to ensure that they do what is expected given their job requirements can be characterized as a: Bribe Asset misappropriation Facilitating Payment Legal Payment

Facilitating Payment

A payment made to foreign government officials to ensure that they do what is expected given their job requirements can be characterized as a: Bribe Asset misappropriation Facilitating Payment Legal Payment

Facilitating Payment

One reason independence in appearance is used to evaluate threats to independence is:

Factual independence is based on unobservable matters

The fraud at Groupon occurred because the company:

Failed to set aside enough money to cover customer refunds

The best explanation why the fraud at Tyco was not discovered and acted on is:

Failure of the corporate governance system

The best explanation why the fraud at Tyco was not discovered and acted on is: Failure of the corporate governance system External auditors told management to let the fraud go Tyco management hid the fraud from the auditors The fraud was not material

Failure of the corporate governance system

The best explanation why the fraud at Tyco was not discovered and acted on is: Failure of the corporate governance system External auditors told management to let the fraud go Tyco management hid the fraud from the auditors The fraud was not material

Failure of the corporate governance system

Which of the following audit deficiencies was identified most often in a study by the Center for Audit Quality of SEC imposed sanctions?

Failure to gather sufficient competent evidence

Which of the following audit deficiencies was identified most often in a study by the Center for Audit Quality of SEC imposed sanctions? Failure to gather sufficient competent evidence Failure to exercise due care Insufficient level of professional skepticism Failure to obtain adequate evidence related to management representations

Failure to gather sufficient competent evidence

Which of the following audit deficiencies was identified most often in a study by the Center for Audit Quality of SEC imposed sanctions? Failure to gather sufficient competent evidence Failure to exercise due care Insufficient level of professional skepticism Failure to obtain adequate evidence related to management representations

Failure to gather sufficient competent evidence

Role expectation or approval from others is a motive for doing right in which stage of Kohlberg's moral reasoning?

Fairness to others

List of threats and debrief each one

Familiarity threat Advocacy threat Adverse interest threat Financial self-interest threat Self-review threat Undue influence threat Management participation threat

Which of the following was not true according to the Enron case?

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

Which of the following was not true according to the Enron case? Fastow developed the concept of buying up oil and gas companies to establish SPEs Fastow 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 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 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

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

Which of the following was not true according to the Enron case? Fastow developed the concept of buying up oil and gas companies to establish SPEs Fastow 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 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 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

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

Which of the following is NOT a cultural factor identified in Gray's Model?

Flexibility

Which of the following is NOT a cultural factor identified in Gray's Model? Professionalism Flexibility Conservatism Secrecy

Flexibility

Which of the following is NOT a cultural factor identified in Gray's Model? Professionalism Flexibility Conservatism Secrecy

Flexibility

Which of the following is NOT a cultural factor identified in Gray's Model? Professionalism Flexibility Conservatism Secrecy

Flexibility

It can be said about followership that:

Followership is the flip side of leadership

An audit engagement letter: Offers an auditor's services to a client Is required by generally accepted auditing standards (GAAS) Details the SEC's expectations for the audit firm for a specific engagement Formalizes the relationship between the auditor and the client for a specific engagement

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

An audit engagement letter: Offers an auditor's services to a client Is required by generally accepted auditing standards (GAAS) Details the SEC's expectations for the audit firm for a specific engagement Formalizes the relationship between the auditor and the client for a specific engagement

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

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

Fraud is always an intentional act designed to deceive another party

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

Fraud is always an intentional act designed to deceive another party

The primary accounting issue in the Royal Ahold case is: Fraudulent recording of revenues on sales to customers Fraudulent use of company resources by top management for personal purposes Fraudulent inflation of promotional allowances to increase operating income Fraudulent inflation of inventory to reduce losses on the income statement

Fraudulent inflation of promotional allowances to increase operating income

The primary accounting issue in the Royal Ahold case is: Fraudulent recording of revenues on sales to customers Fraudulent use of company resources by top management for personal purposes Fraudulent inflation of promotional allowances to increase operating income Fraudulent inflation of inventory to reduce losses on the income statement

Fraudulent inflation of promotional allowances to increase operating income

Which of the following is not one of the reporting standards of GAAS that guides auditors in formulating the audit opinion?

Gathering sufficient audit evidence to warrant an opinion

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

Gathering sufficient audit evidence to warrant an opinion

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

Gathering sufficient audit evidence to warrant an opinion

Which of the flowing philosophical theories places emphasis on the consideration of projecting consequences of choice in terms of this question: "what may be the consequences of similar persons making this choice in similar circumstances?

Generalization principle

What should be the first step in decision-making when faced with an ethical dilemma?

Get the facts surrounding the problem

What should be the first step in decision making when faced with an ethical dilemma?

Get the facts surrounding the problem.

A strong and effective internal control environment can be enhanced by:

Giving the internal auditors direct and unrestricted access to the audit committee

Kelly and Jordan are writing a term paper together on the concept of "faithful representation" in the financial statements. Kelly is assigned the task of defining it in the context of an amount being an estimate. Which of the following statements should NOT be used by Kelly in her description?

Good faith attempt to gather evidence to support the amount

Kelly and Jordan are writing a term paper together on the concept of "faithful representation" in the financial statements. Kelly is assigned the task of defining it in the context of an amount being an estimate. Which of the following statements should NOT be used by Kelly in her description? Good faith attempt to gather evidence to support the amount Clear disclosure of an amount as an estimate The nature and limitations of the estimating process Error free procedures in selecting and applying an appropriate process for developing the estimate

Good faith attempt to gather evidence to support the amount

Kelly and Jordan are writing a term paper together on the concept of "faithful representation" in the financial statements. Kelly is assigned the task of defining it in the context of an amount being an estimate. Which of the following statements should NOT be used by Kelly in her description? Good faith attempt to gather evidence to support the amount Clear disclosure of an amount as an estimate The nature and limitations of the estimating process Error free procedures in selecting and applying an appropriate process for developing the estimate

Good faith attempt to gather evidence to support the amount

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: Second National Bank & Trust declining to extend the loan Ordinary negligence to the bank that loaned money to Holligan because the firm did not discover improper accounting for revenue and assets Gross negligence to the bank that loaned money to Holligan because the firm did not discover improper accounting for receivables and inventory Holligan declaring bankruptcy without a going-concern emphasis of matter

Gross negligence to the bank that loaned money to Holligan because the firm did not discover improper accounting for receivables and inventory

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: Second National Bank & Trust declining to extend the loan Ordinary negligence to the bank that loaned money to Holligan because the firm did not discover improper accounting for revenue and assets Gross negligence to the bank that loaned money to Holligan because the firm did not discover improper accounting for receivables and inventory Holligan declaring bankruptcy without a going-concern emphasis of matter

Gross negligence to the bank that loaned money to Holligan because the firm did not discover improper accounting for receivables and inventory

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: Second National Bank & Trust declining to extend the loan Ordinary negligence to the bank that loaned money to Holligan because the firm did not discover improper accounting for revenue and assets Gross negligence to the bank that loaned money to Holligan because the firm did not discover improper accounting for receivables and inventory Holligan declaring bankruptcy without a going-concern emphasis of matter

Gross negligence to the bank that loaned money to Holligan because the firm did not discover improper accounting for receivables and inventory

Common judgment traps include:

Group think, judgment triggers, and a rush to solve problems

Jacob just joined the firm of Gordon & Towns LLC. Prior to beginning his first group audit assignment, Jacob asks to meet with his mentor, Isaac. He asks Isaac how making judgments in an audit team setting differs from running an audit oneself. What is the best advice for Isaac to give to Jacob?

Groups are prone to making quick decisions in order to avoid conflict

The global code of ethics for the accounting profession is called:

Handbook of the Code of Ethics for Professional Accountants

Integrity is measured in terms of what is right and just. What is a question that a CPA can ask to test decisions?

Have I retained my integrity?

The most important element of a high ethics organization would be:

Having a mission statement, values, and ethical code

Which of the following is not an element of an ethical corporate culture?

Having an effective external audit

The honest services fraud rule that was used by Jeff Skilling was successful because the U.S. Supreme Court rule that:

He did not accept bribes or kickbacks as an Enron officer

Which of the following authors(s) focus(es) on "management's intent to deceive the stakeholders by using accounting devices to positively influence reported earnings?"

Healy and Wahlen

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

Healy and Wahlen

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

Healy and Wahlen

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 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 everyone has a right to live, regardless of the law.

In the Advanced Battery Technologies case, the opinion of the court: Held the auditors legally liable because they failed to exercise due care and to demonstrate professional skepticism Held the auditors legally liable because they failed to gather sufficient, competent evidential matter to warrant the expression of an opinion Held the auditors not legally liable because the plaintiff could not plead with particularity that the audit work was so deficient as to amount to no audit at all Held the auditors were not legally liable because they met all professional standards

Held the auditors not legally liable because the plaintiff could not plead with particularity that the audit work was so deficient as to amount to no audit at all

In the Advanced Battery Technologies case, the opinion of the court: Held the auditors legally liable because they failed to exercise due care and to demonstrate professional skepticism Held the auditors legally liable because they failed to gather sufficient, competent evidential matter to warrant the expression of an opinion Held the auditors not legally liable because the plaintiff could not plead with particularity that the audit work was so deficient as to amount to no audit at all Held the auditors were not legally liable because they met all professional standards

Held the auditors not legally liable because the plaintiff could not plead with particularity that the audit work was so deficient as to amount to no audit at all

The International Federation of Accountants (IFAC) Policy Position Paper #4 A Public Interest Framework for the Accountancy Position addresses: Bribery on an international level High standards of ethical behavior and professional judgment required in the accountancy profession Internal control to prevent fraud Corporate governance systems

High standards of ethical behavior and professional judgment required in the accountancy profession

The International Federation of Accountants (IFAC) Policy Position Paper #4 A Public Interest Framework for the Accountancy Position addresses:

High standards of ethical behavior and professional judgment required in the accountancy profession

The International Federation of Accountants (IFAC) Policy Position Paper #4 A Public Interest Framework for the Accountancy Position addresses: Bribery on an international level High standards of ethical behavior and professional judgment required in the accountancy profession Internal control to prevent fraud Corporate governance systems

High standards of ethical behavior and professional judgment required in the accountancy profession

The ethical dissonance model looks at the ethical fit of the organizational and individual values. The optimal fit for an individual with high individual ethics would be:

High-High

What is a university's equivalent of a code of ethics?

Honor code

Who distinguished between earnings manipulation and earnings management?

Hopwood et al.

Who distinguished between earnings manipulation and earnings management? Hopwood et al. Thomas E. McKee Arthur Levitt Belverd Needles

Hopwood et al.

In its investigation of ZZZZ Best, the House Subcommittee on Oversight and Investigations looked into:

How the company was able to create 80% or more fictitious revenue

In the Parable of Sadhu case, Bowen T. McCoy's friend Stephen summed up the dilemma by saying:

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

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

Identifies the entity, financial statements being audited and time period

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

Identifies the entity, financial statements being audited and time period

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

Identifies the entity, financial statements being audited and time period

Impairments of independence can occur when:

Immediate family members of the CPA are in violation of the independence rules A CPA owns material indirect financial interest in a client A CPA owns a direct financial interest in a client (All of these are correct)

Which of the following is not a consideration in determining a measure of materiality? Risks of material misstatements due to fraud Quantitative assessment of the importance of the difference of opinion with client management on an accounting issues Qualitative assessment of the importance of the difference of opinion with client management on an accounting issues Importance of audit committee in the organization

Importance of audit committee in the organization

Which of the following is not a consideration in determining a measure of materiality? Risks of material misstatements due to fraud Quantitative assessment of the importance of the difference of opinion with client management on an accounting issues Qualitative assessment of the importance of the difference of opinion with client management on an accounting issues Importance of audit committee in the organization

Importance of audit committee in the organization

Which of the following is not a consideration in determining a measure of materiality? Risks of material misstatements due to fraud Quantitative assessment of the importance of the difference of opinion with client management on an accounting issues Qualitative assessment of the importance of the difference of opinion with client management on an accounting issues Importance of audit committee in the organization

Importance of audit committee in the organization

The Groupon case deals with all but the following issues: Improperly estimated customer returns Improper recognition of gross revenue Used a new innovative metric of "Adjusted Consolidated Segment Operating Income" Blamed material weakness on their auditors EY Learning Objective: 05-03 Describe fraud risk assessment procedures.

Improper recognition of gross revenue

Which of the following is not an element of COSO Enterprise Risk Management?

Improving deployment of information technology

Which of the following is not an element of COSO Enterprise Risk Management? Enhancing risk response decisions Reducing operating surprises and losses Seizing opportunities Improving deployment of information technology

Improving deployment of information technology

The confidentiality standard in the AICPA code provides a blanket exception to the rule in each of the following situations except:

In response to a successor auditor's request

The confidentiality standard in the AICPA code provides for exceptions to the rule in:

In response to a validly issued court summons To provide information to the CPA's peer reviewers To defend oneself in an ethics investigation

Which of the following was not an accounting issue in the Sunbeam case?

Swap transactions

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

Swap transactions

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

Swap transactions

Which of the following statements best describes System 2 thinking?

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

Cognitive dissonance creates a problem that can be described as:

Inconsistency between thoughts and beliefs and our intended actions

The framework of COSO's Enterprise Risk Management can best be characterized as:

Incorporate enhanced corporate governance into internal control principles

The framework of COSO's Enterprise Risk Management can best be characterized as: Incorporate enhanced internal control principles into enhanced corporate governance Incorporate enhanced audit sampling procedures in the testing of internal controls Incorporate enhanced corporate governance into internal control principles Incorporate enhanced audit sampling procedures in substantive testing

Incorporate enhanced corporate governance into internal control principles

Each of the following is a pillar of corporate governance except for:

Independence

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:

Independence

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?

Independence

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?

Independence

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?

Independence

which rule of professional conduct in the AICPA code doesn not apply both to internal and external accountants whoa re CPA's and members of the Institute

Independence

Which was the ethical concern in the PeopleSoft case?

Independence in appearance and fact

rnold Schilder, Chair of the International Auditing and Assurance Standards Board (IAASB), cites which of the following traits to enable an auditor to maintain a skeptical mindset in executing an audit?

Independence, technical proficiency, and professional judgment

Which of the following is NOT a safeguard to mitigate threats to compliance with the rules for CPAs in business or reduce them to an acceptable level?

Independent external audit

Professional skepticism links to professional judgment through the ethical standards of:

Independent thought, objectivity, and due care

Ethics rules in the AICPA Code apply to:

Individual CPAs who are licensed by state boards of accountancy, licensed accounting firms, and certain members of alternative practice structures

Ethics rules in the AICPA code apply to:

Individual CPAs who are licensed by state boards of accountancy, licensed accounting firms, and certain members of alternative practice structures.

Organizational dissidence in audit firms is created when:

Individual values do not fit into expectations of the firm

In the case of Equity Funding, the audit client: Fraudulently recorded inventories that did not in fact exist Inflated its earnings by recording fictitious sales of insurance policies Moved liabilities off the balance sheet by using thousands of subsidiaries Recorded inventory below cost, therefore understating costs of goods sold and overstating net income

Inflated its earnings by recording fictitious sales of insurance policies

In the case of Equity Funding, the audit client: Fraudulently recorded inventories that did not in fact exist Inflated its earnings by recording fictitious sales of insurance policies Moved liabilities off the balance sheet by using thousands of subsidiaries Recorded inventory below cost, therefore understating costs of goods sold and overstating net income

Inflated its earnings by recording fictitious sales of insurance policies

The accounting issue(s) in the Crazy Eddie case were: Accelerating revenues into earlier periods Inflating inventory and net income Capitalizing costs that should have been expensed Off-balance sheet entities

Inflating inventory and net income

The accounting issue(s) in the Crazy Eddie case were: Accelerating revenues into earlier periods Inflating inventory and net income Capitalizing costs that should have been expensed Off-balance sheet entities

Inflating inventory and net income

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:

Inform her immediate supervisor of what she observed

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

Inform the waitress of her overpayment

Building ethical safeguards into a company's everyday routines is called:

Institutionalizing Ethics

Kelly is the controller of a small company. One day the CFO comes in and tells her to lower the estimate of uncollectible AR. Kelly insists her numbers are correct as is. The CFO tells her it will mean her job at the company is 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

Integrity

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:

Integrity

The principle of ethical behavior in the AICPA Code that asks questions directly related to ethical courage is:

Integrity

Accountants may hesitate to record a questionable entry if they know:

Internal audit is likely to detect the inappropriate financial reporting practices

An example of a self-review threat for CPAs in business is:

Internal auditor accepts work she previously performed in a different position

Which of the following is not a component of the Framework for Understanding Ethical Decision-Making in Business?

Internal controls

The name of the international securities body that facilitates a country's choice to regulate the use and application of IFRS is: International Accounting Standards Board International Federation of Accountants International Organization of Securities Commissions International Securities and Exchange Commission

International Organization of Securities Commissions

The name of the international securities body that facilitates a country's choice to regulate the use and application of IFRS is: International Accounting Standards Board International Federation of Accountants International Organization of Securities Commissions International Securities and Exchange Commission

International Organization of Securities Commissions

The name of the international securities body that facilitates a country's choice to regulate the use and application of IFRS is: International Accounting Standards Board International Federation of Accountants International Organization of Securities Commissions International Securities and Exchange Commission

International Organization of Securities Commissions

What was the result of the annual inventory audit of the inventory shrinkage problem at Walmart?

Inventory shrinkage decreased by 90 percent

Independence may be impaired when a partner leaves an audit firm and is subsequently employed by the client if that partner

Is in a position to influence the accounting firms operations

Typically, when a going concern issue exists the auditor should:

Issue an unmodified opinion with an emphasis-of-matter paragraph

Typically, when a going concern issue exists the auditor should: Issue an unmodified opinion with an emphasis-of-matter paragraph Issue a modified opinion and explain the reasons for the going concern issue Issue a disclaimer of opinion Withdraw from the engagement

Issue an unmodified opinion with an emphasis-of-matter paragraph

Typically, when a going concern issue exists the auditor should: Issue an unmodified opinion with an emphasis-of-matter paragraph Issue a modified opinion and explain the reasons for the going concern issue Issue a disclaimer of opinion Withdraw from the engagement

Issue an unmodified opinion with an emphasis-of-matter paragraph

One result of earnings management is:

It brings into question the quality of earnings

One result of earnings management is: It brings into question the quality of earnings It uses a non-GAAP financial measure to manipulate earnings EBITDA does not reflect GAAP earnings It improves shareholder returns over time

It brings into question the quality of earnings

One result of earnings management is: It brings into question the quality of earnings It uses a non-GAAP financial measure to manipulate earnings EBITDA does not reflect GAAP earnings It improves shareholder returns over time

It brings into question the quality of earnings

The biggest problem in implementing a utilitarian approach to decision-making is:

It can be difficult to weigh all the consequences of actions

Audit documentation is critical to evidence gathering because:

It demonstrates professional skepticism

Audit documentation is critical to evidence gathering because: It demonstrates that an audit has been conducted It demonstrates professional skepticism It substitutes for making audit judgments and estimates All of the above

It demonstrates professional skepticism

Audit documentation is critical to evidence gathering because: It demonstrates that an audit has been conducted It demonstrates professional skepticism It substitutes for making audit judgments and estimates All of the above

It demonstrates professional skepticism

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?

It depends on whether the misstatements were made deliberately

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? It depends on whether the misstatements were made deliberately It depends on whether a user relied on the financial statements It depends on whether the statements lead to a modified or unmodified opinion All are valid statements for Steve to support his point of view

It depends on whether the misstatements were made deliberately

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? It depends on whether the misstatements were made deliberately It depends on whether a user relied on the financial statements It depends on whether the statements lead to a modified or unmodified opinion All are valid statements for Steve to support his point of view

It depends on whether the misstatements were made deliberately

Respect is an important character of behavior because:

It encompasses attributes of how we should treat others

A unique aspect of Johnson & Johnson's Credo is that it:

It is an aspirational statement rather than the typical "thou shalt not" form of a code of ethics

What is the SEC's position on companies that communicate with investors on social media?

It is legal so long as companies inform investors which outlets they intend to use

What is the SEC's position on companies that communicate with investors on social media? It is illegal to do so It is legal so long as companies inform investors which outlets they intend to use It is legal so long as the postings are restricted to Facebook There are no limitations on companies communicating through social media

It is legal so long as companies inform investors which outlets they intend to use

In his evaluation of Kidder's model, Johnson points out that:

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

Confidential client information can be disclosed outside the entity without violating the AICPA Code of Professional Conduct in each of the following situations except when:

It protects the auditor's accounting for fraud and illegal acts

Confidential client information can be disclosed outside the entity without violating the AICPA Code of Professional Conduct in each of the following situations except when: It is reported to the SEC under Section 10A of the Securities Exchange Act It is to comply with the Private Securities Litigation Reform Act It protects the auditor's accounting for fraud and illegal acts It is allowed for under the Dodd-Frank Financial Reform Act

It protects the auditor's accounting for fraud and illegal acts

Confidential client information can be disclosed outside the entity without violating the AICPA Code of Professional Conduct in each of the following situations except when: It is reported to the SEC under Section 10A of the Securities Exchange Act It is to comply with the Private Securities Litigation Reform Act It protects the auditor's accounting for fraud and illegal acts It is allowed for under the Dodd-Frank Financial Reform Act

It protects the auditor's accounting for fraud and illegal acts

Backdating of stock options is unethical because:

It purposefully manipulates the option criteria that determine their value

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

It relies on moral absolutes

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

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

Why don't auditors prepare financial statements, as well as audit them?

It would be a conflict of interest and violate ethical standards

Why don't auditors prepare financial statements, as well as audit them?

It would be a conflict of interest and violet ethical standards

On July 1, 2015, the SEC charged Deloitte & Touche with violating auditor independence because:

Its consulting affiliate kept a business relationship with a trustee serving on the board of three funds Deloitte audited

A good example of antisocial behavior is:

Jeff Skilling's policy of "rank and yank"

Which of the following is NOT a pillar of character according to the Josephson Institute?

Judgmental

Dara & Co. Audit Hill Corporation. Ellie is the engagement partner on the audit with an office in Buffalo Grove. Which of the following would NOT be considered a covered member?

Julie, a partner in Dara & Company, with an office in Elmhurst

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

Justice

The CPA firm that became involved in tax shelter controversies with the IRS is:

KPMG

In Case 4-6, Tax Shelters, the largest fine for marketing abusive tax shelters was levied on ____________ for $_________________.

KPMG, 456 million

In case 3-1, one might say that each group was operating at which ethical level?

Kohlberg's Stage Two

CPA Krostad is the executive in charge of the Omaha office of the audit firm. He is responsible for the practice in all areas of audit, tax, and consulting, but he does not serve as a field audit partner or reviewer. CPA Ward is the partner in charge of the Dodger, Inc. audit (an SEC filing). The audit firm's independence is impaired if:

Krogstad owns Dodger common stock

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

Lack of Trust

Which of the following is NOT one of the most common audit deficiencies identified in PCAOB inspections?

Lack of independent audits

Which of the following is NOT one of the most common audit deficiencies identified in PCAOB inspections? Inadequate internal controls over financial reporting Lack of independent audits Lack of due care Inability to exercise the appropriate level of professional skepticism

Lack of independent audits

Which of the following is NOT one of the most common audit deficiencies identified in PCAOB inspections? Inadequate internal controls over financial reporting Lack of independent audits Lack of due care Inability to exercise the appropriate level of professional skepticism

Lack of independent audits

Which of the following is NOT one of the most common audit deficiencies identified in PCAOB inspections? Inadequate internal controls over financial reporting Lack of independent audits Lack of due care Inability to exercise the appropriate level of professional skepticism

Lack of independent audits (independence is not the problem)

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

Lack of trust

Some critics claim the usefulness of the audit report is limited because:

Language in the audit report relies on subjective evaluations such as what is meant by "reasonable"

Some critics claim the usefulness of the audit report is limited because: Auditors do not examine management's estimates and judgments Language in the audit report relies on subjective evaluations such as what is meant by "reasonable" Transactions examined are based on sampling and other techniques to limit choices of which transactions to audit All of the above may create doubts about usefulness

Language in the audit report relies on subjective evaluations such as what is meant by "reasonable"

Some critics claim the usefulness of the audit report is limited because: Auditors do not examine management's estimates and judgments Language in the audit report relies on subjective evaluations such as what is meant by "reasonable" Transactions examined are based on sampling and other techniques to limit choices of which transactions to audit All of the above may create doubts about usefulness Learning Objective: 05-04 Explain the standards for audit reports.

Language in the audit report relies on subjective evaluations such as what is meant by "reasonable"

Some critics claim the usefulness of the audit report is limited because: Auditors do not examine management's estimates and judgments Language in the audit report relies on subjective evaluations such as what is meant by "reasonable" Transactions examined are based on sampling and other techniques to limit choices of which transactions to audit All of the above may create doubts about usefulness

Language in the audit report relies on subjective evaluations such as what is meant by "reasonable"

One of the differences between the ethical obligations of CPAs and lawyers is:

Lawyers are obligated first and foremost to the client's interest while CPAs are obligated to the public interest

A unique aspect of the story of ethical leadership illustrated by Diem-Thi Le is that:

Le's working papers were altered by her supervisor

Followership, servant leaders, and authenticity all share the following common characteristic:

Leader ethicality

Ethical leadership competence refers to:

Leaders' ability to develop problem-solving and decision-making skills

In Case 4-6, Tax Shelters, the CPA firm has created a product that is substantially similar to a transaction identified as a __________.

Tax avoidance transaction

SSTS No. 1 states that when a CPA specifically advises an appropriate tax strategy, there is evidence of a ___________.

Tax position

Which of the following is NOT an outright restriction on providing nonattest services for an attest client?

Tax services

Which of the following is not an outright restriction on providing no attest services for an attest client?

Tax services

According to the ACFE Global Fraud Study, which of the following was the most common behavioral indicator of fraud?

Living beyond means

In Case 3-1. Burchard's Ethical Dissonance Cycle Model suggests this was a failure of which of the following?

Low Organizational Ethics, High Individual Ethics Low High

The Bennie and the Jets case centers on utility rates and the issue of:

Lowering the rate of rebates to lower operating income

Bob is being pressured by his superior to go along with improper accounting and told he is expected to be a team player. Which of the following statements best characterizes those expectations?

Loyalty

Objectivity requires that a CPA should:

Maintain a mental attitude of intellectual honesty and impartiality

The FCPA requires all SEC registrants to have each of the following except: Maintain internal accounting controls Ensure all transactions are authorized by management and recorded properly Maintain information systems that prevent fraudulent activities that violate the FCPA Maintain adequate books and records to fairly reflect an issuer's transactions and disposition of assets

Maintain information systems that prevent fraudulent activities that violate the FCPA

The FCPA requires all SEC registrants to have each of the following except: Maintain internal accounting controls Ensure all transactions are authorized by management and recorded properly Maintain information systems that prevent fraudulent activities that violate the FCPA Maintain adequate books and records to fairly reflect an issuer's transactions and disposition of assets

Maintain information systems that prevent fraudulent activities that violate the FCPA

The FCPA requires all SEC registrants to have each of the following except: Maintain internal accounting controls Ensure all transactions are authorized by management and recorded properly Maintain information systems that prevent fraudulent activities that violate the FCPA Maintain adequate books and records to fairly reflect an issuer's transactions and disposition of assets

Maintain information systems that prevent fraudulent activities that violate the FCPA

Rule 10b-5 of the Securities Exchange Act of 1934 makes it unlawful for a CPA to engage in each of the following activities except: Employ any device, scheme, or artifice to defraud Omit a material fact necessary for the financial statements to present fairly financial position, results of operations, and cash flows Engage in any act, practice, or course of business to commit fraud or deceit in connection with the purchase or sale of a security Make an untrue statements of material fact or omit a material fact necessary in order to make the statement made, in the light of the circumstances under which they were made, not misleading

Make an untrue statements of material fact or omit a material fact necessary in order to make the statement made, in the light of the circumstances under which they were made, not misleading

Which of the following is the responsibility of the Professional Ethics Executive?

Make and enforce all the rules of conduct for CPAs who are AICPA members

Which of the following is NOT a factor that managers use to set the right tone at the top and foster ethical leadership?

Make decisions that do not harm others

Which of the following statements best reflect the ethical obligation of CPA's with respect to working with outside advertising agencies to market professionals services for the CPA?

Make sure the agency does not do anything that would put you in violation of the ethics rules

Which of the following statements best reflect the ethical obligation of CPAs with respect to working with outside advertising agencies to market professional services for the CPA?

Make sure the agency does not do anything that would put you in violation of the ethics rules

A criticism of the Kohlberg model is that it:

Makes deontological ethics superior to other ethical perspectives.

In Bobek's study of the effect of gender on decision-making of public accounting professionals, it was found that:

Males were less likely than females to concede to the client's demand in an audit condition

Which of the following is NOT considered "earnings management?"

Management emphasizes achieving long-term results to meet financial goals

Safeguards implemented by the attest client include each of the following except:

Management participation in the client by the attest firm

CPAs in business face threats to independence just as CPAs in public practice. Which of the following threats do not exist for CPAs in business?

Management participation threat

Section 302 of the Sarbanes-Oxley Act requires:

Management's certification of the financial statements

Section 302 of the Sarbanes-Oxley Act requires: Management's report on internal controls Auditor's independent report Auditor's assessment of management's report on internal controls Management's certification of the financial statements

Management's certification of the financial statements

Section 302 of the Sarbanes-Oxley Act requires: Management's report on internal controls Auditor's independent report Auditor's assessment of management's report on internal controls Management's certification of the financial statements

Management's certification of the financial statements

What is the agency problem?

Managers place personal goals ahead of corporate goals.

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

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

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

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

In surveys of managers, which technique to manage earnings was considered most acceptable?

Manipulating operating decisions

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

Manipulating operating decisions

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

Manipulating operating decisions

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

Material

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

Material

Which of the following elements do NOT have to be proved once a plaintiff has established the ability to sue under rule 10b-5? Material, factual misrepresentation or omission Error by auditor led to plaintiffs' loss Reliance by the plaintiff on the financial statements Damages suffered by plaintiff as a result of reliance on the financial statements

Material, factual misrepresentation or omission Error by auditor led to plaintiffs' loss

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:

Materiality

Which of the following is not part of the fraud triangle?

Materiality

Which of the following is not part of the fraud triangle? Incentives Opportunity Materiality Rationalization

Materiality

Which of the following is not part of the fraud triangle? Incentives Opportunity Materiality Rationalization

Materiality

Which of the following is not part of the fraud triangle? Incentives Opportunity Materiality Rationalization

Materiality

Which of the following is NOT correct about materiality?

Materiality should be predictable from audit to audit so that the readers of financial statements know what constitutes materiality

Which of the following is not correct about materiality? The concept of materiality recognizes that some matters are more important for fair presentation of financial statements Materiality judgments are made in light of surrounding circumstances and necessarily involve quantitative and qualitative judgments Materiality should be predictable from audit to audit so that the readers of financial statements know what constitutes materiality An auditor's consideration of materiality is influenced by the auditor's perception of the need of the readers of the financial statements

Materiality should be predictable from audit to audit so that the readers of financial statements know what constitutes materiality

Which of the following is not correct about materiality? The concept of materiality recognizes that some matters are more important for fair presentation of financial statements Materiality judgments are made in light of surrounding circumstances and necessarily involve quantitative and qualitative judgments Materiality should be predictable from audit to audit so that the readers of financial statements know what constitutes materiality An auditor's consideration of materiality is influenced by the auditor's perception of the need of the readers of the financial statements

Materiality should be predictable from audit to audit so that the readers of financial statements know what constitutes materiality

Which of the following is not correct about materiality? The concept of materiality recognizes that some matters are more important for fair presentation of financial statements Materiality judgments are made in light of surrounding circumstances and necessarily involve quantitative and qualitative judgments Materiality should be predictable from audit to audit so that the readers of financial statements know what constitutes materiality An auditor's consideration of materiality is influenced by the auditor's perception of the need of the readers of the financial statements

Materiality should be predictable from audit to audit so that the readers of financial statements know what constitutes materiality (Materiality is not a black and white thing that is predictable from audit to audit and is not always known by the reader)

Has SOX accomplished its intended goal of reliable financial reporting by public companies?

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

The main issue in the Valley View Hospital case is:

Medicare fraud

The interpretation of Rule 501, Acts Discreditable to the Profession, would not include:

Membership in an activist political party

How does Gilligan evaluate the solution to Heinz's dilemma?

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

The committee that first recommended that the profession institute a voluntary program for peer review was:

Metcalf Committee

The committee that first recommended that the profession institute a voluntary program for peer review was:

Metcalf committee

Motivations to smooth net income over time include each of the following except:

Minimize overall taxes

Motivations to smooth net income over time include each of the following except: Maximize bonuses and stock option values Steady increase in earnings each year Minimize overall taxes Make it appear managers are doing better than they really are

Minimize overall taxes

Motivations to smooth net income over time include each of the following except: Maximize bonuses and stock option values Steady increase in earnings each year Minimize overall taxes Make it appear managers are doing better than they really are

Minimize overall taxes

An example of fraudulent financial statements is:

Misrepresentation of events, transactions, and other significant events in the financial statements

An example of fraudulent financial statements is: Misrepresentation of events, transactions, and other significant events in the financial statements Failure to provide adequate documentation to support financial statements assertions Aggressive accounting for transactions, events, or other significant matters Misappropriation of assets

Misrepresentation of events, transactions, and other significant events in the financial statements

The example of fraudulent financial statements is:

Misrepresentation of events, transactions, and other significant events in the financial statements

Which of the following is the most likely reason for an auditor to issue an adverse opinion?

Misstatements that are material and pervasive

Which of the following is the most likely reason for an auditor to issue a modified opinion with a qualification?

Misstatements that are material but not pervasive

Which of the following is the most likely reason for an auditor to issue a modified opinion with a qualification? Inability to gather any sufficient relevant information to form the basis for the opinion Misstatements that are material and pervasive Going concern issue Misstatements that are material but not pervasive

Misstatements that are material but not pervasive

Which of the following is the most likely reason for an auditor to issue an adverse opinion? Inability to gather any sufficient relevant information to form the basis for the opinion Misstatements that are material and pervasive Going concern issue Misstatements that are material but not pervasive

Misstatements that are material but not pervasive

Which of the following is the most likely reason for an auditor to issue an adverse opinion? Inability to gather any sufficient relevant information to form the basis for the opinion Misstatements that are material and pervasive Going concern issue Misstatements that are material but not pervasive

Misstatements that are material but not pervasive

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?

Monitoring

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 Motivation

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 judgment

Statement on Standards for Tax Services No. 1 establishes as a basic principle of providing tax services that the CPA:

Must have a good faith belief that the tax return position has a realistic possibility of success if challenged by the IRS

Statement on standards for Tax Services No. 1 stablishes as a basic principle of providing tax services that the CPA:

Must have a good faith belief that the tax return position has a realistic possibility of success if challenged by the IRS

Rights Theory

Never violate the rights of another party. Make decisions that are universally acceptable (categorical imperative) The ends do not justify the means.

The legal liability of the auditors in the Autonomy case can best be described as resulting from: Liability for gross negligence that constituted fraud No liability because the firms were not sued by Autonomy Liability for failing to inform creditors of a nonexistent bank account carried on Autonomy's books Improper accounting for a merger transaction between Hewlett-Packard and Autonomy

No liability because the firms were not sued by Autonomy

The legal liability of the auditors in the Autonomy case can best be described as resulting from: Liability for gross negligence that constituted fraud No liability because the firms were not sued by Autonomy Liability for failing to inform creditors of a nonexistent bank account carried on Autonomy's books Improper accounting for a merger transaction between Hewlett-Packard and Autonomy

No liability because the firms were not sued by Autonomy

The legal liability of the auditors in the Autonomy case can best be described as resulting from: Liability for gross negligence that constituted fraud No liability because the firms were not sued by Autonomy Liability for failing to inform creditors of a nonexistent bank account carried on Autonomy's books Improper accounting for a merger transaction between Hewlett-Packard and Autonomy

No liability because the firms were not sued by Autonomy

Which of the following is NOT a valid defense to legal liability under the Securities Act of 1933? Materiality defense Non-negligence defense Due diligence defense Lack of causation defense

Non-negligence defense

Which of the following is NOT a valid defense to legal liability under the Securities Act of 1933? Materiality defense Non-negligence defense Due diligence defense Lack of causation defense

Non-negligence defense

Which of the following is NOT a valid defense to legal liability under the Securities Act of 1933? Materiality defense Non-negligence defense Due diligence defense Lack of causation defense

Non-negligence defense [(1) the materiality defense; (2) the due diligence defense; (3) the knowledge of falsehood defense; or (4) the lack of causation defense]

To encourage various groups to come forward and report fraud, Dodd-Frank extended whistle-blowing privileges and rewards to which of the following?

The CEO

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

The CEO and CFO

Under the rules of the Sarbanes-Oxley Act of 2002 (SOX), who must certify the public reports filed with the SEC? The independent auditor The CEO and the independent auditor The CEO and CFO The CFO and the board of directors

The CEO and CFO

Under the rules of the Sarbanes-Oxley Act of 2002 (SOX), who must certify the public reports filed with the SEC? The independent auditor The CEO and the independent auditor The CEO and CFO The CFO and the board of directors

The CEO and CFO

Perhaps the most unusual thing about Case 3-7 Olympus is that _______________.

The CEO turned whistleblower

In which of the following circumstance would a CPA who audits XZ Corporation lack independence?

The CPA and XZ's president each own 25% of FOB Corporation, a closely held company

A CPA who informs management of a material misstatement in the financial statements can go to the SEC with his/her concerns if:

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

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

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 management intentionally deceived the auditors The damages were incurred to a third party that was not a signatory to the contract The CPA can shift the burden of proof to the investors The CPA rebuts the allegations

The CPA rebuts the allegations

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 management intentionally deceived the auditors The damages were incurred to a third party that was not a signatory to the contract The CPA can shift the burden of proof to the investors The CPA rebuts the allegations

The CPA rebuts the allegations

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 management intentionally deceived the auditors The damages were incurred to a third party that was not a signatory to the contract The CPA can shift the burden of proof to the investors The CPA rebuts the allegations

The CPA rebuts the allegations

Objectivity may be impaired when a CPA prepares a tax return for a client because:

The CPA serves in a tax advocacy position for the client

In which of the following is a CPA independent in fact and appearance?

The CPA serves on the board of a non-profit with the CFO of the company being audited.

A CPA can accept a contingent fee in providing tax services for an attest client if

The CPA's tax services will be reviewed by a taxing authority

A CPA can accept a contingent fee in providing tax services for an attest client if:

The CPA's tax services will be reviewed by a taxing authority

Accruals that are based on estimated changes in fundamental economic performance of the firm are:

Nondiscretionary accrual

Accruals that are based on estimated changes in fundamental economic performance of the firm are: Discretionary accruals Nondiscretionary accrual Operating accruals Cookie jar accruals

Nondiscretionary accrual

Accruals that are based on estimated changes in fundamental economic performance of the firm are: Discretionary accruals Nondiscretionary accrual Operating accruals Cookie jar accruals

Nondiscretionary accrual

CPA's can advertise and solicit clients as long as such practices are:

Not conducted in a misleading or deceptive manner

CPAs can advertise and solicit clients as long as such practices are:

Not conducted in a misleading or deceptive manner

In evaluating the wisdom of the tax shelter transaction, the tax manager should be aware of the duty of the firm to do what?

Notify the audit committee of the scope of the service and the fee structure

Which of the following is NOT an attribute of internal audit leadership according to Chambers?

Objectivity

In Case 1-4, Jose and Emily would probably have to report this incident under which Principles section of the AICPA Code of Conduct?

Objectivity and Independence

To prevent subordination of judgment, a CPA should evaluate threats to:

Objectivity and Integrity

To prevent subordination of judgment, a CPA should evaluate threats to:

Objectivity and integrity

The difference between occupational and financial statement fraud is:

Occupational fraud is generally committed by employees

Business executives are finding that a trusting, ethical relationship with a business partner is:

Often essential in conducting business

Misstatements in the financial statements are most likely to occur when there are:

Omission of notes to the financial statements

Misstatements in the financial statements are most likely to occur when there are: Omission of the auditor's report Omission of notes to the financial statements Failure to disclose major estimates made in the financial statements Failure to disclose major judgments made in the financial statements

Omission of notes to the financial statements

Misstatements in the financial statements are most likely to occur when there are: Omission of the auditor's report Omission of notes to the financial statements Failure to disclose major estimates made in the financial statements Failure to disclose major judgments made in the financial statements

Omission of notes to the financial statements

How long do management and the audit committee have to act if the independent auditor reports possible illegal acts to them? One week One month Three business days One business day

One business day

How long do management and the audit committee have to act if the independent auditor reports possible illegal acts to them? One week One month Three business days One business day

One business day

Which of the following is true of the relationship between civility and ethics?

One can be both civil and unethical.

Each of the following is an element of Rest's model of morality except for:

One's stage of ethical development

In the Imperial Valley Community Bank case, each of the following were reasons for the going concern issue except: The magnitude of loan losses Insufficient equity capital Operating losses over an extended period of time Questions about the collectability of outstanding loans

Operating losses over an extended period of time

Ponemon hypothesized that there is a correlation between:

Organizational culture and subordinates' personal characteristics and decision-making styles

The Giving Voice to Values framework distinguishes between organizational and individual values because:

Organizational values are highly visible within the organization while individual values are internal to the very core of individuals

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?

Outcome of one's prescriptive reasoning

Auditors need to be attuned to the red flags that fraud may exist because:

Overly-aggressive accounting and outright manipulation of earnings may exist

"Cookie jar reserves" can best be described as:

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

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

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

The ethical dilemma in the Getaway Cruise Lines case can best be described as: The external auditors are being blocked by the client in attempting to verify accounting treatment of surplus electricity and water provided by the client to the local government The Director of International Accounting questions the requirement to provide surplus electricity and water to the local government The external auditors question the requirement to make facilitating payments to the local authorities The Director of International Accounting questions the requirement to provide surplus electricity and water and make facilitating payments to the local authorities

The Director of International Accounting questions the requirement to provide surplus electricity and water and make facilitating payments to the local authorities

in his discussion about the standards for business ethics, Maxwell says those standards can be best equated with

The Golden Rule

One difference between the AICPA auditor's report and that of the PCAOB is:

The PCAOB report does not have section headings

One difference between the AICPA auditor's report and that of the PCAOB is: The PCAOB report is not signed by the auditor The AICPA report is not signed by the auditor The PCAOB report does not have section headings Both reports are the same

The PCAOB report does not have section headings

One difference between the AICPA auditor's report and that of the PCAOB is: The PCAOB report is not signed by the auditor The AICPA report is not signed by the auditor The PCAOB report does not have section headings Both reports are the same

The PCAOB report does not have section headings

One difference between the AICPA auditor's report and that of the PCAOB is: The PCAOB report is not signed by the auditor The AICPA report is not signed by the auditor The PCAOB report does not have section headings Both reports are the same

The PCAOB report does not have section headings

What argument can be made that SOX may not be effective in reducing fraud?

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

What argument can be made that SOX may not be effective in reducing fraud? It is not as stringent as international standards The SEC has many laws for many years that have not seemed to make much of a difference The penalties under Sarbanes-Oxley are especially stringent, so it may not be enforced Civil and criminal penalties are not effective in preventing financial fraud

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

PCAOB inspections of U.S. audit firms operating in China creates challenges because:

The SEC has to work through the China Securities Regulatory Commission to facilitate inspections of U.S. audit firms operating in China

PCAOB inspections of U.S. audit firms operating in China creates challenges because: China requires the PCAOB to come to China to do their inspections The SEC has to work through the China Securities Regulatory Commission to facilitate inspections of U.S. audit firms operating in China China refuses to cooperate on any level with the SEC The SEC requires that U.S. audit firms operating in China transmit all work papers to the U.S. audit firm's headquarters before an inspection can take place

The SEC has to work through the China Securities Regulatory Commission to facilitate inspections of U.S. audit firms operating in China

PCAOB inspections of U.S. audit firms operating in China creates challenges because: China requires the PCAOB to come to China to do their inspections The SEC has to work through the China Securities Regulatory Commission to facilitate inspections of U.S. audit firms operating in China China refuses to cooperate on any level with the SEC The SEC requires that U.S. audit firms operating in China transmit all work papers to the U.S. audit firm's headquarters before an inspection can take place

The SEC has to work through the China Securities Regulatory Commission to facilitate inspections of U.S. audit firms operating in China

PCAOB inspections of U.S. audit firms operating in China creates challenges because: China requires the PCAOB to come to China to do their inspections The SEC has to work through the China Securities Regulatory Commission to facilitate inspections of U.S. audit firms operating in China China refuses to cooperate on any level with the SEC The SEC requires that U.S. audit firms operating in China transmit all work papers to the U.S. audit firm's headquarters before an inspection can take place

The SEC has to work through the China Securities Regulatory Commission to facilitate inspections of U.S. audit firms operating in China

The difference between the United Kingdom Bribery Act and the FCPA in the U.S. is:

The UK Bribery Act prohibits both bribery and facilitating payments

The difference between the United Kingdom Bribery Act and the FCPA in the U.S. is: The UK Bribery Act permits bribery as well as facilitating payments The UK Bribery Act prohibits both bribery and facilitating payments The FCPA permits both bribery and facilitating payments There are no differences between the two laws

The UK Bribery Act prohibits both bribery and facilitating payments

The difference between the United Kingdom Bribery Act and the FCPA in the U.S. is: The UK Bribery Act permits bribery as well as facilitating payments The UK Bribery Act prohibits both bribery and facilitating payments The FCPA permits both bribery and facilitating payments There are no differences between the two laws

The UK Bribery Act prohibits both bribery and facilitating payments

Which US Act prohibits executives representing US-based companies from paying bribes to foreign government officials, political parties, or political candidates?

The US Foreign Corrupt Practices Act

Based on Sarbanes-Oxley, who is ultimately responsible for the independence of the external auditor?

The audit committee

Which of the following is not true of "reasonable assurance"?

The audit opinion is a guarantee that material misstatements have been identified

Which of the following is not true of "reasonable assurance"? The auditors have exercised due care The audit opinion is a guarantee that material misstatements have been identified The audit has been properly planned and supervised The auditors have followed GAAS

The audit opinion is a guarantee that material misstatements have been identified

Which of the following is not true of "reasonable assurance"? The auditors have exercised due care The audit opinion is a guarantee that material misstatements have been identified The audit has been properly planned and supervised The auditors have followed GAAS

The audit opinion is a guarantee that material misstatements have been identified

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)

Which of the following would normally be considered sufficient to demonstrate due care on the part of the auditor? The auditor had its work reviewed by another audit firm The auditor cites adherence to generally accepted auditing standards (GAAS) No omissions or misstatements have been found in the client's financial statements The auditor signs a statement expressing its unmodified opinion as to the fairness of the financial statements

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

Which of the following would normally be considered sufficient to demonstrate due care on the part of the auditor? The auditor had its work reviewed by another audit firm The auditor cites adherence to generally accepted auditing standards (GAAS) No omissions or misstatements have been found in the client's financial statements The auditor signs a statement expressing its unmodified opinion as to the fairness of the financial statements

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

Which of the following would normally be considered sufficient to demonstrate due care on the part of the auditor? The auditor had its work reviewed by another audit firm The auditor cites adherence to generally accepted auditing standards (GAAS) No omissions or misstatements have been found in the client's financial statements The auditor signs a statement expressing its unmodified opinion as to the fairness of the financial statements

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

Under which of the following set of circumstances might the auditors disclaim an opinion?

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

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

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

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

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

In the PeopleSoft case, the auditors violated what aspect of independence?

The auditor was involved in a business relationship with the client

According to the profession's ethical standards, an auditor would be considered independent in which of the following instances?

The auditor's checking account that is fully insured by a federal agency is held at a client financial institution

The purpose of the fraud triangle is to identify:

The causes of and reasons for fraud when there may be intentional misstatements or omissions of amounts or disclosures in the financial statements.

The purpose of the fraud triangle is to identify: The causes of when the audit opinion should be qualified. The causes of and reasons for fraud when there may be intentional misstatements or omissions of amounts or disclosures in the financial statements. The causes of when there is a lack of independence in performing an audit. The causes of illegal acts.

The causes of and reasons for fraud when there may be intentional misstatements or omissions of amounts or disclosures in the financial statements.

The purpose of the fraud triangle is to identify: The causes of when the audit opinion should be qualified. The causes of and reasons for fraud when there may be intentional misstatements or omissions of amounts or disclosures in the financial statements. The causes of when there is a lack of independence in performing an audit. The causes of illegal acts.

The causes of and reasons for fraud when there may be intentional misstatements or omissions of amounts or disclosures in the financial statements.

An audit client hires a member of the audit engagement team to be its new controller. Sarbanes-Oxley rules require that:

The client find a new audit firm

Under the Private Securities Litigation Reform Act (PSLRA), 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 next report his/her conclusions to: The Securities and Exchange Commission The company's board of directors The office of the controller/comptroller for the appropriate state The Federal Bureau of Investigation

The company's board of directors

Under the Private Securities Litigation Reform Act (PSLRA), 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 next report his/her conclusions to: The Securities and Exchange Commission The company's board of directors The office of the controller/comptroller for the appropriate state The Federal Bureau of Investigation

The company's board of directors

Which of the following is NOT correct about materiality?

The concept of materiality recognizes that some matters are more important for fair presentation of financial statements

The ethical conflict in A Team Player can be described as:

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.

Each of the following is an element of agency costs except:

The costs incurred in developing internal controls over financial reporting

The KPMG tax shelter case deals with:

The culture of the tax practice and aggressive marketing of tax shelters to wealthy clients

The cultural value of Individualism reflects:

The degree a society reinforces individual or collective achievement

In an audit, the auditor has a requirement to address risk assessment with respect to:

The design and performance of audit procedures to respond to assessed risks

In an audit, the auditor has a requirement to address risk assessment with respect to: The design and performance of audit procedures to respond to assessed risks Whether the standards close the expectation gap The role and responsibilities of the audit committee in preventing fraud All of the above

The design and performance of audit procedures to respond to assessed risks

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?

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.

All of the following tend to be rationalizations for fraud except:

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

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

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

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

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

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

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

Taylor and Curtis studied the complex relationships in accounting firms that influence an individual's decision to report an ethical violation and found at the center of these potentially conflicting layers of commitment lies:

The ethical violation itself and the individual's personal reaction to it

The accounting issues at failed savings and loan institutions included:

The existence of inadequate controls to prevent Addresses the quality of services performed by the CPA

The Credit Alliance v. Arthur Andersen & Co. case established three tests that must be satisfied for holding auditors liable for negligence to third parties. All of the following are tests described except: Knowledge by the accountant that the financial statements are to be used for a particular purpose The intention of the third party to rely on those statements Some action by the accountant linking him or her to the third party that provides evidence of the accountant's understanding of intended reliance The identity of the third party must be directly known to the auditor

The identity of the third party must be directly known to the auditor

The Credit Alliance v. Arthur Andersen & Co. case established three tests that must be satisfied for holding auditors liable for negligence to third parties. All of the following are tests described except: Knowledge by the accountant that the financial statements are to be used for a particular purpose The intention of the third party to rely on those statements Some action by the accountant linking him or her to the third party that provides evidence of the accountant's understanding of intended reliance The identity of the third party must be directly known to the auditor

The identity of the third party must be directly known to the auditor

The Credit Alliance v. Arthur Andersen & Co. case established three tests that must be satisfied for holding auditors liable for negligence to third parties. All of the following are tests described except: Knowledge by the accountant that the financial statements are to be used for a particular purpose The intention of the third party to rely on those statements Some action by the accountant linking him or her to the third party that provides evidence of the accountant's understanding of intended reliance The identity of the third party must be directly known to the auditor

The identity of the third party must be directly known to the auditor

The auditor's responsibility with regard to illegal acts is greatest when:

The illegal acts have a direct and material effect on financial statement amounts

The auditor's responsibility with regard to illegal acts is greatest when: The illegal acts have an indirect and material effect on financial statement amounts The illegal acts have a direct and material effect on financial statement amounts The illegal acts have a direct and immaterial effect on financial statement amounts Illegal acts exist regardless of the effects on the financial statements

The illegal acts have a direct and material effect on financial statement amounts

The public interest principle in the AICPA Code of Professional Conduct recognizes

The importance of integrity in decision making

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

The importance of integrity in decision-making

The ethical domain in accounting and auditing refers to:

The important constituent groups affected by accounting and auditing work

In Thomas Jones's model of moral intensity it can be said about accounting that:

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

Leaders who engage in unethical behaviors create a context supporting:

Parallel deviance

With respect to leadership in the accounting profession, it might be said that:

Partners must exhibit moral imagination through ethical perception of what it means to be ethical, professional, and successful

A troubling result of the 2013 National Business Ethics Survey is:

Percentage of employees retaliated against for whistleblowing is a problem

Cynthia Cooper's actions in the WorldCom case can be best characterized as demonstrating:

Persistence and courage

Professional judgment is influenced by:

Personal behavioral traits

The Ethical Leadership Scale developed by Kelly and Early identify each of the following measures of leadership:

Personal ethical competence, ethical leadership, and ethical organization

The insider trading case against Thomas Flanagan focused on:

Personally trading in securities of audit clients after receiving confidential information

The insider trading cases against Thomas Flanagan focused on

Personally trading in securities of audit clients after receiving confidential information

At the time, revenue recognition required a firm to include ___________.

Persuasive evidence of an arrangement and a fixed or determinable seller's price.

The executives of McKesson and Robbins Pharmaceuticals were able to steal about $2.9 million in 1939 because:

Physical inspection of inventory was not performed by the auditors

The executives of McKesson and Robbins Pharmaceuticals were able to steal about $2.9 million in 1939 because: Its auditors did not follow the generally accepted auditing standards (GAAS) at the time The independent audit of financial statements was not required at the time Physical inspection of inventory was not performed by the auditors The auditors were not independent and conspired with management to steal the funds

Physical inspection of inventory was not performed by the auditors

The executives of McKesson and Robbins Pharmaceuticals were able to steal about $2.9 million in 1939 because: Its auditors did not follow the generally accepted auditing standards (GAAS) at the time The independent audit of financial statements was not required at the time Physical inspection of inventory was not performed by the auditors The auditors were not independent and conspired with management to steal the funds

Physical inspection of inventory was not performed by the auditors

The executives of McKesson and Robbins Pharmaceuticals were able to steal about $2.9 million in 1939 because: Its auditors did not follow the generally accepted auditing standards (GAAS) at the time The independent audit of financial statements was not required at the time Physical inspection of inventory was not performed by the auditors The auditors were not independent and conspired with management to steal the funds

Physical inspection of inventory was not performed by the auditors (this was not a required audit procedure at the time)

Ethical relativism can be best described as a:

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

Ethical relativism can best be described as a:

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

Circular 230 applies to CPA's who:

Practice before the IRS

Circular 230 applies to CPAs who:

Practice before the IRS

Richard does his homework as soon as he gets home from school because of fear that his mother will not allow him to go outside. Which stage of Kohlberg's moral development is Richard?

Pre-conventional

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?

Preconventional Morality

The main accounting issues in the Nortel Networks case were: Premature revenue recognition and hidden cash reserves Capitalization of operating expenses and hidden cash reserves Premature revenue recognition and off-balance-sheet entities Capitalization of operating expenses and off-balance-sheet entities

Premature revenue recognition and hidden cash reserves

The main accounting issues in the Nortel Networks case were: Premature revenue recognition and hidden cash reserves Capitalization of operating expenses and hidden cash reserves Premature revenue recognition and off-balance-sheet entities Capitalization of operating expenses and off-balance-sheet entities

Premature revenue recognition and hidden cash reserves

An example of a self-review threat is:

Preparing source documents used to generate the client's financial statements

An example of a self-review threat is:

Preparing source documents used to generate the clients financial statements.

A self-review threat occurs when a CPA/external auditor is

Preparing sources documents used to generate the client's financial statements

Which of the following is NOT an example of a conflict situation for CPAs in business that may lead to subordination of judgment?

Preparing the financial statements and auditing the same work

The term "true and fair view" tends to be a replacement for _________ used in the U.S. Full and fair Present fairly Representational faithfulness Economic substance

Present fairly

The term "true and fair view" tends to be a replacement for _________ used in the U.S. Full and fair Present fairly Representational faithfulness Economic substance

Present fairly

The term "true and fair view" tends to be a replacement for _________ used in the U.S. Full and fair Present fairly Representational faithfulness Economic substance

Present fairly

One concern in the Armadillo Foods case in the text of the chapter is:

Pressure to meet financial analysts' earnings estimates

The Commercialism versus Professionalism case raises issues about:

Pressures to compromise ethical values that exist in alternative practice structures

Organizational ethics can be thought of as:

Principles and standards of behavior that guide business decisions

Which of the following is NOT one of the most relevant sources of civil liabilities for auditors charged with failing to adhere to the requirements of the laws in carrying out professional obligations?

Private Securities Litigation Reform Act of 1995

Which of the following is NOT one of the most relevant sources of civil liabilities for auditors charged with failing to adhere to the requirements of the laws in carrying out professional obligations? Securities Act of 1933 Private Securities Litigation Reform Act of 1995 Securities and Exchange Act of 1934 Sarbanes-Oxley Act of 2002

Private Securities Litigation Reform Act of 1995

Which of the following is NOT one of the most relevant sources of civil liabilities for auditors charged with failing to adhere to the requirements of the laws in carrying out professional obligations? Securities Act of 1933 Private Securities Litigation Reform Act of 1995 Securities and Exchange Act of 1934 Sarbanes-Oxley Act of 2002

Private Securities Litigation Reform Act of 1995

Which of the following is NOT one of the most relevant sources of civil liabilities for auditors charged with failing to adhere to the requirements of the laws in carrying out professional obligations? Securities Act of 1933 Private Securities Litigation Reform Act of 1995 Securities and Exchange Act of 1934 Sarbanes-Oxley Act of 2002

Private Securities Litigation Reform Act of 1995

Because of the risk of material misstatement due to improper management representations, an audit of financial statements in accordance with GAAS should be performed with:

Professional skepticism

Because of the risk of material misstatement due to improper management representations, an audit of financial statements in accordance with GAAS should be performed with: Objective judgment Professional skepticism Internal controls Due diligence

Professional skepticism

The actions of Sherron Watkins in the Enron case appears to reflect each of the following except for:

Professional skepticism

Leroy audits the financial statements of a small business. During the course of his audit he notices that all five members of top management have purchased new BMWs. Given that each manager's salary is less than $100,000 per year, Leroy becomes suspicious about how all five of them were able to buy such an expensive automobile. He decides to double check the bank statements for the year and postings to expense accounts that might indicate improper expenditures. Leroy's actions demonstrate:

Professional skepticism Objective decision making Due care

The Private Securities Litigation Reform Act of 1995 applies the practice of ______ to auditor liability determinations. Risk assessment Joint and several liability Particularized standard Proportionate liability

Proportionate liability

The Private Securities Litigation Reform Act of 1995 applies the practice of ______ to auditor liability determinations. Risk assessment Joint and several liability Particularized standard Proportionate liability

Proportionate liability

The Private Securities Litigation Reform Act of 1995 applies the practice of ______ to auditor liability determinations. Risk assessment Joint and several liability Particularized standard Proportionate liability

Proportionate liability (The PSLRA changes the legal liability standard of auditors from joint-and-several liability to proportionate liability)

The SEC's position on independence can best be characterized as:

Proscribing certain business relationships with the client

The SEC's position on independence can best be characterized as:

Proscribing certain financial interests with the client Proscribing certain business relationships with the client Restricting the provision of certain nonaudit services to audit clients

What is the social responsibility of business according to Milton Friedman?

Protecting interest to increase profits

With respect to whistleblowing, the Sarbanes-Oxley Act:

Protects employees of publicly traded companies who provide evidence in fraud cases

On January 24, 2014, KPMG agreed to pay $8.2 million to settle charges by the SEC that the firm violated auditor independence rules because it:

Provided certain nonaudit services to affiliate companies whose books KPMG was auditing

The PCAOB rules prohibit auditors from:

Providing certain aggressive tax shelters to their public company audit clients Providing tax preparation and planning services for public company executives Providing tax services to member of the audit client's management who serve in financial reporting oversight roles All of these are correct

The insider trading case against Scott London focused on:

Providing confidential information about audit clients to a friend

The insider trading cases against Scott London focused on

Providing confidential information about audit clients to a friend

Red and Green, CPAs are external auditors for Blue Corporation, a publicly-held company. Blue Corporation has outsourced its internal audit function to Red and Green. Which of the following statements is true?

Public accounting firms cannot be both the internal and external auditors for publicly-held companies and maintain independence

What is the primary fiduciary responsibility of professional accountants?

Public interest

The SEC is concerned that auditors don't pay enough attention to qualitative factors affecting materiality because:

Qualitative factors may cause quantitatively small misstatements to become material

The SEC is concerned that auditors don't pay enough attention to qualitative factors affecting materiality because: Qualitative factors may cause quantitatively small misstatements to become material Quantitative factors are not always useful Quantitative factors cannot be accumulated to assess overall materiality All are of concern to the SEC

Qualitative factors may cause quantitatively small misstatements to become material

Each of the following is a safeguard that can help mitigate threats to independence except for

Quality controls safeguards created by the previous auditor

Which of the following summarizes the essence of general standards of GAAS?

Quality of professionals that perform an audit

Which of the following summarizes the essence of general standards of GAAS? Quality of professionals that perform an audit Criteria used to judge whether the audit has met quality requirements The standards that guide auditors in issuing the audit report Whether the auditor obtained sufficient competent evidential matter to render an opinion

Quality of professionals that perform an audit

Which of the following summarizes the essence of general standards of GAAS? Quality of professionals that perform an audit Criteria used to judge whether the audit has met quality requirements The standards that guide auditors in issuing the audit report Whether the auditor obtained sufficient competent evidential matter to render an opinion

Quality of professionals that perform an audit

The Richards & Co. case raises questions for the quality review partner because the client had: Accelerated revenue into an earlier period without proper documentation Delayed expenses into a later period through the use of reserves Violated the Foreign Corrupt Practices Act Recorded supplier-provide credits as revenue with the promise of purchasing merchandise from that supplier

Recorded supplier-provide credits as revenue with the promise of purchasing merchandise from that supplier

The Richards & Co. case raises questions for the quality review partner because the client had: Accelerated revenue into an earlier period without proper documentation Delayed expenses into a later period through the use of reserves Violated the Foreign Corrupt Practices Act Recorded supplier-provide credits as revenue with the promise of purchasing merchandise from that supplier

Recorded supplier-provide credits as revenue with the promise of purchasing merchandise from that supplier

An example of revenue overstatement is:

Recording gross, rather than net, revenue

Which of the following was NOT one of the schemes used by Beazer Homes to manipulate its earnings? Improper recording of revenue on sale-leaseback transactions Fraudulently increased land inventory expense accounts to reduce earnings Over-reserving of house cost-to-complete expenses to increase reported earnings in earlier periods Recording revenue from roundtrip transactions prematurely

Recording revenue from roundtrip transactions prematurely

Which of the following was NOT one of the schemes used by Beazer Homes to manipulate its earnings? Improper recording of revenue on sale-leaseback transactions Fraudulently increased land inventory expense accounts to reduce earnings Over-reserving of house cost-to-complete expenses to increase reported earnings in earlier periods Recording revenue from roundtrip transactions prematurely

Recording revenue from roundtrip transactions prematurely

All of the following are examples of "Boosting Income with One-Time Gains" except:

Recording sales that lack economic substance

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

Recording sales that lack economic substance

All of the following are examples of "Recording revenue too soon or of questionable quality" except:

Recording sales that lack economic substance

All of the following are examples of "Recording revenue too soon or of questionable quality" except: Recording sales that lack economic substance Recording revenue when future services remain to be provided Recording revenue before shipment or before the customer's unconditional acceptance Recording revenue even though the customer is not obligated to pay

Recording sales that lack economic substance

All of the following are examples of "Recording revenue too soon or of questionable quality" except: Recording sales that lack economic substance Recording revenue when future services remain to be provided Recording revenue before shipment or before the customer's unconditional acceptance Recording revenue even though the customer is not obligated to pay

Recording sales that lack economic substance

Which of the following is an element of ERM? Reducing operational surprises and losses Aligning risk appetite and whether fraud has occurred Control environment Audit risk assessment

Reducing operational surprises and losses

The fraud at Satyam involved: Related party transactions, fictitious revenue and falsified bank account balances Related party transactions, impaired assets and off- balance sheet entities Impaired assets, falsified bank account and facilitating payments Fictitious revenue, contingent liabilities and facilitating payments

Related party transactions, fictitious revenue and falsified bank account balances

The fraud at Satyam involved: Related party transactions, fictitious revenue and falsified bank account balances Related party transactions, impaired assets and off-balance sheet entities Impaired assets, falsified bank account and facilitating payments Fictitious revenue, contingent liabilities and facilitating payments

Related party transactions, fictitious revenue and falsified bank account balances

There are several aspects of the Enron fraud that are dealt with directly in SOX further connecting Enron to reform in the accounting profession. Which of the following is true? SOX permitted the provision of internal audit service for audit clients Off-balance-sheet financing activities were prohibited for all companies Related-party transactions require disclosure in the notes Cookie jar reserves must be disclosed in the notes

Related-party transactions require disclosure in the notes

There are several aspects of the Enron fraud that are dealt with directly in SOX further connecting Enron to reform in the accounting profession. Which of the following is true? SOX permitted the provision of internal audit service for audit clients Off-balance-sheet financing activities were prohibited for all companies Related-party transactions require disclosure in the notes Cookie jar reserves must be disclosed in the notes

Related-party transactions require disclosure in the notes

Ethical conflicts for CPAs in business can occur when:

Relationships exist with vendors Obstacles exist to complying with professional and legal standards Threats from higher levels of management create constraints to providing accurate and reliable financial statements. (All of these are correct)

Which of the following is NOT one of the AICPA Principles of Professional Conduct?

Reliability

The title of the PCAOB auditor's report is:

Report of the Independent Registered Audit Firm

The title of the PCAOB auditor's report is: Independent Auditor's Report Report of the Independent Registered Audit Firm Auditor's Report on Management's Financial Statements Auditor's Report on Internal Controls

Report of the Independent Registered Audit Firm

The title of the PCAOB auditor's report is: Independent Auditor's Report Report of the Independent Registered Audit Firm Auditor's Report on Management's Financial Statements Auditor's Report on Internal Controls

Report of the Independent Registered Audit Firm

Which of the following is NOT a characteristic behavior illustrating the fiduciary duty of the board of directors?

Representing the interests of all stakeholders

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

Requires the filing of audited annual statements and reviewed quarterly statements

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

Requires the filing of audited annual statements and reviewed quarterly statements

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

Requires the filing of audited annual statements and reviewed quarterly statements

Principals of AICPA Code of Conduct

Responsibilities, public interest, integrity, objectivity, due care, scope and nature of services

An essential element in creating an ethical environment in an audit firm is:

Responsible leadership of the firm

Compensation of executives has soared over the last forty plus years to more than 400 times the pay for average workers. Remedies to rein in executive compensation include all but:

Restrictions by the law as to the maximum total compensation allowable

Which of the following is NOT one of the audit committee's responsibilities?

Review all financial reporting judgments

People everywhere depend on ethical systems to tell them whether their actions are:

Right or wrong

Which of the following is NOT a component of an effective internal control environment in COSO Internal Control - Integrated Framework?

Risk abatement

What agency has the ultimate authority in defining independence for public companies?

SEC

Sarbanes-Oxley Act (SOX) sets new standards for governance that will ultimately impact on which of the following?

SEC registrant companies, including foreign companies listed on US.

What is the main fiduciary duty of the board of directors?

Safeguard the interests of the company's stakeholders

Menendez was excluded from a meeting on accounting for a potential joint venture arrangement. This is a violation of which of the following?

Sarbanes-Oxley

Which of the following is not considered a behavioral indicator of fraud?

Satisfaction with pay

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?"

Schipper

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?" Dechow and Skinner Healy and Wahlen Schipper Thomas E. McKee

Schipper

The section of SOX that requires management to prepare a report on its internal controls is:

Section 404

The section of SOX that requires management to prepare a report on its internal controls is: Section 302 Section 404 Section 808 Section 10A(b)

Section 404

The section of SOX that requires management to prepare a report on its internal controls is: Section 302 Section 404 Section 808 Section 10A(b)

Section 404

The section of SOX that requires management to prepare a report on its internal controls is: Section 302 Section 404 Section 808 Section 10A(b)

Section 404

An internal accountant should always take the following step 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:

Seek legal advice before taking any action

Each of the following is a threat to independence except for

Self interest threat

Each of the following is a threat to independence except:

Self-interest threat

SA: Do you think it is the same t act in your own self-interest as it is to act in a selfish way? Why or why not?

Selfish means do not consider how your actions affect others; self-interest means to consider others' interests but ultimately act in your own best interests

A tobashi scheme involves which of the following?

Selling investments and buying them back disguised as advisory fees

A giant step is taken toward improving ethical performance throughout the company when:

Senior-level managers signal to employees that they believe ethics is a high priority

Gray uses Hofstede's cultural values that were discussed in Chapter 1 to:

Set forth accounting values that can be used to define a country's cultural foundation with respect to financial reporting

Gray uses Hofstede's cultural values that were discussed in Chapter 1 to: Set forth accounting values that can be used to define a country's cultural foundation with respect to financial reporting Set forth corporate governance provisions that define an ethical organization culture Define what is meant by the public interest in accounting Define what is meant by internal controls over financial reporting in a cultural context

Set forth accounting values that can be used to define a country's cultural foundation with respect to financial reporting

Gray uses Hofstede's cultural values that were discussed in Chapter 1 to: Set forth accounting values that can be used to define a country's cultural foundation with respect to financial reporting Set forth corporate governance provisions that define an ethical organization culture Define what is meant by the public interest in accounting Define what is meant by internal controls over financial reporting in a cultural context

Set forth accounting values that can be used to define a country's cultural foundation with respect to financial reporting

Which of the following elements were NOT part of the fraud at Tyco? Benefits given to certain members of the board of directors to secure their silence about the fraud Corporate assets used by members of top management for personal purposes Setting up special-purpose-entities to keep debt off Tyco's books Related party transactions that were not adequately disclosed

Setting up special-purpose-entities to keep debt off Tyco's books

External auditor communications with the audit committee include each of the following except:

Shareholder returns

To ensure audit committee independence, the committee should meet separately with each of the following groups except:

Shareholders

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

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

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

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

In the Imperial Valley Community Bank case, each of the following were reasons for the going concern issue except:

The magnitude of loan losses

A unique aspect of occupational fraud is:

The misuse of company assets

"Cookie jar reserves" can best be described as: Buying a lot of chocolate chip cookies, storing them for when you have a hunger attack, and then releasing them into your stomach Overstating or understating allowances and reversing amounts in the future to smooth out net income over time Accelerating the recording of revenues into an earlier year than is warranted Delaying the recording of expenses to a later year to boost income in the current year Learning Objective: 07-04 Describe the devices used to manage earnings.

The objective of using cookie-jar-reserves is to smooth net income over time.

Inherent risk refers to:

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

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

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

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

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

PCAOB Auditing Standard No.16 requires the auditor to communicate with the audit committee all but:

The procedures followed by the auditor in evaluating evidence

PCAOB Auditing Standard No.16 requires the auditor to communicate with the audit committee all but: Significant accounting policies and practices Critical accounting practices and policies Significant unusual transactions The procedures followed by the auditor in evaluating evidence

The procedures followed by the auditor in evaluating evidence

PCAOB Auditing Standard No.16 requires the auditor to communicate with the audit committee all but: Significant accounting policies and practices Critical accounting practices and policies Significant unusual transactions The procedures followed by the auditor in evaluating evidence

The procedures followed by the auditor in evaluating evidence

PCAOB Auditing Standard No.16 requires the auditor to communicate with the audit committee all but: Significant accounting policies and practices Critical accounting practices and policies Significant unusual transactions The procedures followed by the auditor in evaluating evidence

The procedures followed by the auditor in evaluating evidence

PCAOB Auditing Standard No.16 requires the auditor to communicate with the audit committee all but:

The procedures followed to comply with generally accepted auditing standards

PCAOB Auditing Standard No.16 requires the auditor to communicate with the audit committee all but: Going concern issues Whether the auditor expects to modify the opinion Any disagreements with management The procedures followed to comply with generally accepted auditing standards

The procedures followed to comply with generally accepted auditing standards

PCAOB Auditing Standard No.16 requires the auditor to communicate with the audit committee all but: Going concern issues Whether the auditor expects to modify the opinion Any disagreements with management The procedures followed to comply with generally accepted auditing standards

The procedures followed to comply with generally accepted auditing standards

The KPMG Professional Judgment Framework defines judgment as:

The process of reaching a decision or drawing a conclusion where there are a number of possible alternative solutions

Agency theory can best be described as:

The relationship between top management, the board of directors, and shareholders

On an organizational level, the key issue in the Parmalat case is:

The role of ethical leadership and corporate governance in the accounting fraud

In which of the following circumstances would a qualified opinion be appropriate?

The statements are not in conformity with generally accepted accounting principles regarding stock options plans and but does not have pervasive effect on the financial statements

In which of the following circumstances would a qualified opinion be appropriate? The statements are not in conformity with generally accepted accounting principles regarding stock options plans and but does not have pervasive effect on the financial statements The statements are not in conformity with generally accepted accounting principles regarding stock options plans and has pervasive effect on the financial statements The auditor has been unable to obtain sufficient competent evidential matter The principal auditors decide to withdraw from the engagement due to distrust of management

The statements are not in conformity with generally accepted accounting principles regarding stock options plans and but does not have pervasive effect on the financial statements

In which of the following circumstances would a qualified opinion be appropriate? The statements are not in conformity with generally accepted accounting principles regarding stock options plans and but does not have pervasive effect on the financial statements The statements are not in conformity with generally accepted accounting principles regarding stock options plans and has pervasive effect on the financial statements The auditor has been unable to obtain sufficient competent evidential matter The principal auditors decide to withdraw from the engagement due to distrust of management

The statements are not in conformity with generally accepted accounting principles regarding stock options plans and but does not have pervasive effect on the financial statements

In which of the following circumstances would a qualified opinion be appropriate? The statements are not in conformity with generally accepted accounting principles regarding stock options plans and but does not have pervasive effect on the financial statements The statements are not in conformity with generally accepted accounting principles regarding stock options plans and has pervasive effect on the financial statements The auditor has been unable to obtain sufficient competent evidential matter The principal auditors decide to withdraw from the engagement due to distrust of management

The statements are not in conformity with generally accepted accounting principles regarding stock options plans and but does not have pervasive effect on the financial statements

Which of the following is NOT one of the defenses an auditor can use against third party lawsuits for fraud?

The third party was not in contractual privity

Which of the following is NOT one of the defenses an auditor can use against third party lawsuits for fraud? The third party was not in contractual privity The auditor did not have a duty to the third party The third party was negligent The third party did not suffer a loss

The third party was not in contractual privity

Which of the following is NOT one of the defenses an auditor can use against third party lawsuits for fraud? The third party was not in contractual privity The auditor did not have a duty to the third party The third party was negligent The third party did not suffer a loss

The third party was not in contractual privity (contractual privity is not necessary to bring up a lawsuit)

The cognitive development approach refers to

The thought process followed in one's moral development

The cognitive development approach refers to:

The thought process followed in one's moral development

Which of the following is NOT a qualitative factor when assessing materiality?

The use of simplistic numerical thresholds and rules of thumb

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

The use of simplistic numerical thresholds and rules of thumb

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

The use of simplistic numerical thresholds and rules of thumb

Kohlberg's model can best be described as

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

Kohlberg's model can best be described as:

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

People's ethical beliefs come from:

Their religious background, family, and education

The requirement that there should be reasonable support for a tax return position before a CPA recommends it to a client most directly aligns with which tax standard?

There is a realistic possibility of success if the tax position is challenged

The requirement that there should be reasonable support for a tax return position before a CPA recommends it to a client most directly aligns with which tax standard?

There is a realistic possibility of success if the tax position is challenged.

Needles suggests that making judgments about what earnings management is becomes difficult because: It depends on management's intentions There is no clear limit beyond which a choice is clearly unethical A perfectly routine accounting estimate may be illegal and unethical All of the above

There is no clear limit beyond which a choice is clearly unethical

In Grant Thornton v. Prospect High Income Fund, Grant used each of the following points to defend itself against legal liability except: There was no evidence of a causal connection between Grant's alleged misrepresentation and the funds' alleged injury There was no evidence of actual and justifiable reliance There was no evidence of the loss suffered by the plaintiffs Liability for fraudulent misrepresentations runs only to those whom the auditor knows and intends to influence, all of which was not present

There was no evidence of the loss suffered by the plaintiffs

In Grant Thornton v. Prospect High Income Fund, Grant used each of the following points to defend itself against legal liability except: There was no evidence of a causal connection between Grant's alleged misrepresentation and the funds' alleged injury There was no evidence of actual and justifiable reliance There was no evidence of the loss suffered by the plaintiffs Liability for fraudulent misrepresentations runs only to those whom the auditor knows and intends to influence, all of which was not present

There was no evidence of the loss suffered by the plaintiffs

In Grant Thornton v. Prospect High Income Fund, Grant used each of the following points to defend itself against legal liability except: There was no evidence of a causal connection between Grant's alleged misrepresentation and the funds' alleged injury There was no evidence of actual and justifiable reliance There was no evidence of the loss suffered by the plaintiffs Liability for fraudulent misrepresentations runs only to those whom the auditor knows and intends to influence, all of which was not present

There was no evidence of the loss suffered by the plaintiffs

Social networking is the norm for many workers, and some workers spend at least 30 percent of their workday linked up to one or more networks. The Ethics Resource Center conducted a survey in which social networkers admitted each of the following except:

They always consider the consequences of their postings on others.

What is false of active social networkers?

They are less likely to blow the whistle than coworkers

Which of following is false of active social networkers?

They are less likely to blow the whistle than coworkers.

Accruals are potentially troublesome because:

They provide an opportunity to manage earnings through aggressive or more conservative estimations

Accruals are potentially troublesome because: They can lead to giving an unmodified audit opinion when it should have been modified They provide an opportunity to manage earnings through aggressive or more conservative estimations They always lead to fraud in financial statements They provide an opportunity to shift debt off the books by setting up an SPE

They provide an opportunity to manage earnings through aggressive or more conservative estimations

Accruals are potentially troublesome because: They can lead to giving an unmodified audit opinion when it should have been modified They provide an opportunity to manage earnings through aggressive or more conservative estimations They always lead to fraud in financial statements They provide an opportunity to shift debt off the books by setting up an SPE

They provide an opportunity to manage earnings through aggressive or more conservative estimations

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 that were "foreseeable" may sue for ordinary negligence Third parties may sue if one of the parties in contractual privity allowed it to Third parties may sue in the case of fraud or constructive fraud Third parties who used the financial statements may sue

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

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 that were "foreseeable" may sue for ordinary negligence Third parties may sue if one of the parties in contractual privity allowed it to Third parties may sue in the case of fraud or constructive fraud Third parties who used the financial statements may sue

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

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?" Dechow and Skinner Healy and Wahlen Schipper Thomas E. McKee

Thomas E. McKee

The conceptual framework in the AICPA code establishes a

Threats and safeguards approach to assess whether ethics rules have been violated

Michael has been approached by the CEO of an audit client and offered two tickets to the FIFA tournament during the RIO 2016 Olympic Games. The CEO knows that Michael's wife is from RIO and thought this was a nice way to thank him for twenty-years of excellent professional services. From an ethical perspective in deciding whether to accept the gift Michael should consider whether:

Threats created by the gifts are at an acceptable level

Michael has been approached by the CEO of an audit client and offered two tickets to the FIFA tournament during the Rio 2016 Olympic Games. The CEO knows that Michael's wife is from Rio and thought this was a nice way to thank him for twenty-years of excellent professional services. From an ethical perspective in deciding whether to accept the gift Michael should consider whether:

Threats created by the gifts are at an acceptable level

Michael has been approached by the CEO of an audit client and offered two tickets to the FIFA tournament during the Rio 2016 Olympic games. The CEO knows that Michael's wife is from Rio and thought this was a nice way to thank him got twenty-years of excellent professional services. From an ethical perspective in deciding whether to accept the gift Michael should consider whether:

Threats created by the gifts are at an acceptable level

Michael has been approached by the CEO of an audit client and offered two tickets to the FIFA tournament during the Rio 2016 Olympic Games. The CEO knows that Michael's wife is from Rio and thought this was a nice way to thank him for twenty-years of excellent professional services. From an ethical perspective in deciding whether to accept the gift Michael should consider whether?

Threats created by the gifts are at an acceptable level.

The ACFE found that the most common way that fraud is first detected is:

Tip

The defendant-auditors in the Anjoorian case argued, in their defense, that: 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. The plaintiff's theory of damages did not meet the foreseen legal criteria They had no liability to the client because the client did not rely on the audited financial statements They followed generally accepted auditing standards

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

The defendant-auditors in the Anjoorian case argued, in their defense, that: 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. The plaintiff's theory of damages did not meet the foreseen legal criteria They had no liability to the client because the client did not rely on the audited financial statements They followed generally accepted auditing standards

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.

The defendant-auditors in the Anjoorian case argued, in their defense, that: 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. The plaintiff's theory of damages did not meet the foreseen legal criteria They had no liability to the client because the client did not rely on the audited financial statements They followed generally accepted auditing standards

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.

What was the original motivation by FASB on SPEs?

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

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

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

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

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

One of the Contributions of the Treadway Commission Report and the work of the Committee if Sponsoring Organizations (COSO) was:

To identify the tone at the top for management to create an ethical culture

One of the Contributions of the Treadway Commission Report and the work of the Committee of Sponsoring Organizations (COSO) was:

To identify the tone at the top for management to create an ethical culture

Which of the following is NOT a motivation to manage earnings?

To maximize employee bonuses

Which of the following is NOT a motivation to manage earnings? Companies try to meet or beat Wall Street earnings projections in order to grow market capitalization and increase the value of stock options Avoid the consequences of violating debt covenants To smooth net income over time To maximize employee bonuses

To maximize employee bonuses

The term disgorgement means:

To return profits earned illegally

The Committee of Sponsoring Organizations of the Treadway Committee (COSO) analyzed the financial reporting of public companies during the 1998-2007 periods when business failures due to accounting fraud were high and found that: Top management was frequently involved in the fraud with the CEO and/or CFO being the most frequently involved The most common fraud technique involved understating expenses The audit committee always sanctioned the fraud A minority of audit reports issued during the fraud period contained unqualified audit opinions

Top management was frequently involved in the fraud with the CEO and/or CFO being the most frequently involved

The Committee of Sponsoring Organizations of the Treadway Committee (COSO) analyzed the financial reporting of public companies during the 1998-2007 periods when business failures due to accounting fraud were high and found that: Top management was frequently involved in the fraud with the CEO and/or CFO being the most frequently involved The most common fraud technique involved understating expenses The audit committee always sanctioned the fraud A minority of audit reports issued during the fraud period contained unqualified audit opinions

Top management was frequently involved in the fraud with the CEO and/or CFO being the most frequently involved

In the Better Boston Beans case, what is the ethical dilemma facing Cyndie?

Trust of co-worker versus the honesty of the workplace

In Case 1-1 Harvard Cheating Scandal, students who engaged in cheating would have probably violated which of the following Six Pillars of Character more than the others?

Trustworthiness

In respect to Herb Morris as a Managing Partner in Case 1-2, Giles and Regas's failure to adhere to firm rules most closely breaks which of the Josephson Pillars?

Trustworthiness

The most significant change in the Revised AICPA Code of Professional Conduct is:

Two conceptual frameworks: one for members in public practice and one for CPAs in business

Which of the following is NOT something that a CPA should should do in tax planning

Uncritically accept the client's explanations for assumptions and representations

Which of the following is NOT something the CPA should do in tax planning?

Uncritically accept the client's explanations for assumptions and representations

Which of the following is NOT something the CPA should do in tax planning? Correct!

Uncritically accept the client's explanations for assumptions and representations

A CPA would violate the Due Care principle if he/she

Undertook a professional engagement without having the requite background, knowledge and experience

If the financial statements are not materially misstated, the auditor should give a(an):

Unmodified opinion

If the financial statements are not materially misstated, the auditor should give a(an): Unmodified opinion Modified opinion Adverse opinion Qualified opinion

Unmodified opinion

If the financial statements are not materially misstated, the auditor should give a(an): Unmodified opinion Modified opinion Adverse opinion Qualified opinion

Unmodified opinion

In stage 5 of Kohlberg's model, ethical reasoning is motivated by:

Upholding the rights, values, and legal contracts of society

A common method used to smooth net income over time is: Accelerate revenue into earlier periods Delay expenses into later periods Using accrual of operating expenses and future adjustments Using nonrecurring items to increase earnings in one year and reduce it later on

Using accrual of operating expenses and future adjustments

Which of the following philosophical principles in ethics places emphasis on the consequences of action, rather on flowing the rules?

Utilitarianism principle

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 Deloitte failed to issue an audit report on a timely basis thereby leading to the withdrawal by another public company's planned acquisition of Vertical Vertical claimed Deloitte committed fraud in its audit of Vertical Deloitte issued a modified opinion (adverse) on Vertical's financial statements thereby leading to the withdrawal by another public company's planned acquisition of Vertical

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

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 Deloitte failed to issue an audit report on a timely basis thereby leading to the withdrawal by another public company's planned acquisition of Vertical Vertical claimed Deloitte committed fraud in its audit of Vertical Deloitte issued a modified opinion (adverse) on Vertical's financial statements thereby leading to the withdrawal by another public company's planned acquisition of Vertical

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

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:

Violated the trust placed in him by the owners

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

Violated the trust placed in him by the owners Risked his reputation if the owners find out Compromised his integrity

the fastest growing observation made by employees in the National Business Ethics Survey is

Weak-leaning ethical culture

When would it be appropriate for an auditor to withdraw from an engagement?

When the auditor concludes that management cannot be trusted

During the investigations by the House Subcommittee on Oversight and Investigations, a question that was raised was:

Where were the auditors?

The Tax Inversion case deals with

Whether IFRS should be used for all subsidiaries following an acquisition

The Tax Inversion case deals with: Whether IFRS should be used for all subsidiaries following an acquisition Whether IFRS should replace U.S. GAAP Whether a quality reviewer should be chosen from outside the company Whether a tax inversion should occur

Whether IFRS should be used for all subsidiaries following an acquisition

The Tax Inversion case deals with: Whether IFRS should be used for all subsidiaries following an acquisition Whether IFRS should replace U.S. GAAP Whether a quality reviewer should be chosen from outside the company Whether a tax inversion should occur

Whether IFRS should be used for all subsidiaries following an acquisition

The risk-based approach is used to assess:

Whether a CPA's relationship with a client would pose an unacceptable risk to Independence

Gathering and objectively evaluating audit evidence requires the auditor to consider: Whether an unmodified opinion should be issued Whether a modified opinion should be issued Whether the evidence is adequate to complete the audit Whether the evidence is competent and sufficient enough to render an audit opinion

Whether the evidence is competent and sufficient enough to render an audit opinion

Gathering and objectively evaluating audit evidence requires the auditor to consider: Whether an unmodified opinion should be issued Whether a modified opinion should be issued Whether the evidence is adequate to complete the audit Whether the evidence is competent and sufficient enough to render an audit opinion

Whether the evidence is competent and sufficient enough to render an audit opinion

The Ethical Dissonance Model helps to evaluate:

Whether the organization's ethics aligns with individual ethics

Bill Young's ethical dilemma was:

Whether to inform management or the regulatory authorities of illegal acts of an audit client

Bill Young's ethical dilemma was: Whether the loan loss reserves of the bank were understated Whether to file a whistle-blower's complaint with the SEC under Dodd-Frank Whether to commit fraud to cover up stealing from the company Whether to inform management or the regulatory authorities of illegal acts of an audit client

Whether to inform management or the regulatory authorities of illegal acts of an audit client

Bill Young's ethical dilemma was: Whether the loan loss reserves of the bank were understated Whether to file a whistle-blower's complaint with the SEC under Dodd-Frank Whether to commit fraud to cover up stealing from the company Whether to inform management or the regulatory authorities of illegal acts of an audit client

Whether to inform management or the regulatory authorities of illegal acts of an audit client

The ethical dilemma for Ricardo in the Juggyfroot case can best be described as:

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.

SOX 806

Whistleblower protections

Research by Miceli and Near indicates that:

Whistleblowers hope their speaking out achieves the correction of an organization wrongdoing

The seven signs of a pending ethical collapse include all but:

Whistleblowing hotline

The 7 signs of a pending ethical collapse include all but

Whistleblowing hotline (pressure to make numbers, bigger than life CEO, Conflicts of interest overlooked)

Under the Securities Act of 1933 and the Securities and Exchange Act of 1934, accountants may be subject to criminal penalties for:

Willful violations of the securities acts

Under the Securities Act of 1933 and the Securities and Exchange Act of 1934, accountants may be subject to criminal penalties for: Obstruction of justice Securities fraud Willful violations of the securities acts Violations of internal controls

Willful violations of the securities acts

Under the Securities Act of 1933 and the Securities and Exchange Act of 1934, accountants may be subject to criminal penalties for: Obstruction of justice Securities fraud Willful violations of the securities acts Violations of internal controls

Willful violations of the securities acts

Diane is a CFO at We Do What We Want, Inc. She was just instructed by her boss, the CEO, to accelerate the recording of revenue into an earlier year to meet financial analysts' earnings projections. In order to meet the ethical standards of accounting profession, Diane must be certain that she:

Works thought the chain of command within the company to avoid subordinating judgment

In Case 1-6, The question of whether to capitalize or expense in this situation most closely parallels the case involving which company?

WorldCom

In Tenants Corp. v. Max Rothenberg, the auditors were held legally liable for: Ordinary negligence Gross negligence Deficient tax work Write-up work

Write-up work

In Tenants Corp. v. Max Rothenberg, the auditors were held legally liable for: Ordinary negligence Gross negligence Deficient tax work Write-up work

Write-up work

Which of the following was not pointed to by the SEC as a motivation for fraud in the Xerox case?

Xerox top management overrode the internal control to manipulate earnings

Which of the following was not pointed to by the SEC as a motivation for fraud in the Xerox case? Xerox misled investors by polishing its reputation on Wall Street and to boost the company's stock price Xerox top management overrode the internal control to manipulate earnings Xerox failed to disclose GAAP violations that led to acceleration in the recognition of approximately $3 billion in equipment revenues Xerox 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

Xerox top management overrode the internal control to manipulate earnings

Which of the following was not pointed to by the SEC as a motivation for fraud in the Xerox case? Xerox misled investors by polishing its reputation on Wall Street and to boost the company's stock price Xerox top management overrode the internal control to manipulate earnings Xerox failed to disclose GAAP violations that led to acceleration in the recognition of approximately $3 billion in equipment revenues Xerox 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

Xerox top management overrode the internal control to manipulate earnings

Which of the following situations would be considered ethical?

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

Which of the following authors(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? Dechow and Skinner Healy and Wahlen Schipper Thomas E. McKee Learning Objective: 07-02 Explain what earnings management seeks to accomplish.

a. Dechow and Skinner Dechow and Skinner offer their own view that a distinction should be made between making choices in determining earnings that may comprise aggressive, but acceptable, accounting estimates and judgments, as compared to fraudulent accounting practices that are clearly intended to deceive others.

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

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

The best explanation why the fraud at Tyco was not discovered and acted on is: > Failure of the corporate governance system > External auditors told management to let the fraud go >Tyco management hid the fraud from the auditors >The fraud was not material Learning Objective: 05-02 Explain the components of the Fraud Triangle.

a. Failure of the corporate governance system CEO of Tyco, Kozlowski said his motivation to steal from the company was to keep up with "the masters of the universe." Kozlowski was generous with his lieutenants because he thought they would be loyal to the boss. in the case of Kozlowski, enlisting the aid of others in the organization to hide what was going on. In the Tyco case, Kozlowski stated in his "60 Minutes" interview that he wasn't doing anything different from what was done by his predecessor.

Which of the following summarizes the essence of general standards of GAAS? Quality of professionals that perform an audit Criteria used to judge whether the audit has met quality requirements The standards that guide auditors in issuing the audit report Whether the auditor obtained sufficient competent evidential matter to render an opinion Learning Objective: 05-04 Explain the standards for audit reports.

a. Quality of professionals that perform an audit There are three general standards that relate to the quality of the professionals who perform the audit. These include (1) adequate technical training and proficiency, (2) independence in mental attitude, and (3) due care in the performance of the audit and preparation of the report.

All of the following are examples of "Boosting Income with One-Time Gains" except: Recording sales that lack economic substance Boosting profits by selling undervalued assets Including investment income or gains as part of revenue Including investment income or gains as a reduction in operating expenses Recording sales that lack economic substance Learning Objective: 07-04 Describe the devices used to manage earnings.

a. Recording sales that lack economic substance

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

a. Shifting current revenue to a later period Learning Objective: 07-05 Explain the workings of financial shenanigans.

In an audit, the auditor has a requirement to address risk assessment with respect to: > The design and performance of audit procedures to respond to assessed risks > Whether the standards close the expectation gap > The role and responsibilities of the audit committee in preventing fraud > All of the above Learning Objective: 05-04 Explain the standards for audit reports.

a. The design and performance of audit procedures to respond to assessed risks The auditor has a responsibility to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud.

Inherent risk refers to: The possibility that a material misstatement will occur within the reporting company's accounting information system The possibility that a material misstatement that has occurred will not be detected on a timely basis by the company's control system The possibility that a material misstatement that has occurred will not be caught be the independent auditor's testing The possibility that a material misstatement will occur in the financial statements Learning Objective: 07-03 Discuss how earnings management judgments are made.

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

What was the original motivation by FASB on SPEs? To establish a mechanism to encourage companies to invest in needed assets while keeping related debt of its books To keep the large amount of debt off the books To sell non-producing assets to the SPE To select which assets to sell to the SPEs affecting the gain Learning Objective: 07-05 Explain the workings of financial shenanigans.

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

The Tax Inversion case deals with: Whether IFRS should be used for all subsidiaries following an acquisition Whether IFRS should replace U.S. GAAP Whether a quality reviewer should be chosen from outside the company Whether a tax inversion should occur

a. Whether IFRS should be used for all subsidiaries following an acquisition

The PCAOB rules prohibit auditors from

aggressive tax shelters, tax services to members of the audit client's management, tax preparation and planning services for public company executives

impairments of independence can occur when

all of these

According to Kant, humans may be treated as:

an end and never as a means only

the conceptual framework rules for CPAs

applies to integrity and objectivity, as well as other rules of conduct, but not independence. incorporates a "threats and safeguards" approach to accounting practices

In the event that Carl and the CEO won't change their position, Helen should probably take her concerns to which of the following

audit committee

In gathering audit evidence, the accessibility of information may be a factor thereby influencing which judgment trigger?

availability

The Harrison Industries case deals with: Using non-GAAP measures of earnings Acceptability of recording unpaid severance accruals Using EBITDA to obscure earnings All of the above. Learning Objective: 07-04 Describe the devices used to manage earnings.

b. Acceptability of recording unpaid severance accruals

Your professor asks you to consider whether earnings management can be justified by arguing that the net benefits of managing earnings exceeds any harms that may occur. The professor is asking you to apply what reasoning methods to make the analysis? Egoism Act utilitarianism Rule utilitarianism Virtue

b. Act utilitarianism

Which of the following is an element of ERM? > Reducing operational surprises and losses > Aligning risk appetite and whether fraud has occurred > Control environment > Audit risk assessment Can find in "fraud considerations and risk assessment" section

b. Aligning risk appetite and whether fraud has occurred "erm" = enterprise risk management ERM is defined as a process, effected by an entity's board of directors, management, and other personnel and applied in strategy settings and across the enterprise, designed to identify potential events that may affect the entity and to manage risk within its risk appetite. According to COSO, ERM encompasses six elements: > Aligning risk appetite and strategy. > Enhancing risk response decisions. > Reducing operational surprises and losses. > Identifying and managing multiple and cross-enterprise risks. > Seizing opportunities. > Improving deployment of capital.

Audit procedures are different than audit evidence because: Audit procedures address the competency and sufficiency of audit evidence Audit procedures are specific acts performed by the auditor to gather evidence about whether specific assertions are being met Audit procedures are specific acts to assess whether the financial statements "present fairly" Audit procedures do not have to be determined based on risk assessment Learning Objective: 05-04 Explain the standards for audit reports

b. Audit procedures are specific acts performed by the auditor to gather evidence about whether specific assertions are being met

PCAOB Standard 14 addresses audit results and requires: Auditor's evaluation of internal controls Auditor's determination of whether the auditor has obtained sufficient appropriate evidence Auditor's evaluation of the applicable financial reporting framework Auditor's independence Learning Objective: 05-04 Explain the standards for audit reports. in section "PCAOB standards and inspections" section

b. Auditor's determination of whether the auditor has obtained sufficient appropriate evidence This standard establishes requirements regarding the auditor's evaluation of audit results and determination of whether the auditor has obtained sufficient appropriate audit evidence.

In the Loyalty and Fraud Reporting case, Ethan Lester pressured his friend Vic Jensen to: > Misappropriate funds from the company > Cover up Ethan's fraud > Be silent and not report Ethan's fraud to the audit committee >Give an unmodified audit report

b. Cover up Ethan's fraud "Ethan Lester was seen as a "model employee" who deserved a promotion to CFO" "Lester could "order" Jensen to cover up the fraud but hoped he would do so out of friendship and loyalty. Besides, Lester knew Jensen had committed his own fraud two years ago and covered it up by creating false journal entries for undocumented sales, returns, transactions, and operating expenses."

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

b. Criteria for judging the quality of audit work Standards of fieldwork establish the criteria for judging whether the audit has met quality requirements.

Which of the following was not a technique used by Enron to manage earnings? Used reserves to increase earnings when reported amounts were too low Deliberately overstated the allowance for uncollectibles and adjusted it downward in future years Used mark-to-market estimates to inflate earnings in violation of GAAP Selected which operating assets to "sell" to the SPEs, affecting the gain on transfer and earnings effect Learning Objective: 07-05 Explain the workings of financial shenanigans.

b. Deliberately overstated the allowance for uncollectibles and adjusted it downward in future years

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

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

Which of the following authors(s) focus(es) on "management's intent to deceive the stakeholders by using accounting devices to positively influence reported earnings?" Dechow and Skinner Healy and Wahlen Schipper Thomas E. McKee Learning Objective: 07-02 Explain what earnings management seeks to accomplish.

b. Healy and Wahlen positiveLY heaLY focus on management's intent to deceive the stakeholders by using accounting devices to influence reported earnings positively.

Audit documentation is critical to evidence gathering because: > It demonstrates that an audit has been conducted > It demonstrates professional skepticism > It substitutes for making audit judgments and estimates >All of the above Learning Objective: 05-04 Explain the standards for audit reports.

b. It demonstrates professional skepticism Professional skepticism plays an important role in gathering audit evidence and evaluating its usefulness

Who linked earnings management to an excessive zeal to project smoother earnings from year to year that casts a pall over the quality of the underlying numbers? Warren Buffet Arthur Levitt Thomas E. McKee Lynn Turner Learning Objective: 07-01 Describe the motivation for earnings management.

b. Levitt This quote by former SEC chair Arthur Levitt from "The Numbers Game" links the practice of "earnings management" to an excessive zeal to project smoother earnings from year to year that casts a pall over the quality of the underlying numbers.

Which of the following is NOT considered "earnings management?" "Earnings management" is done to project smoother earnings from year to year Management emphasizes achieving long-term results to meet financial goals Management uses "cookie-jar reserves each year" Executives manipulate the earnings in order to match their predetermined target

b. Management emphasizes achieving long-term results to meet financial goals

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

b. Manipulating operating decisions They also found that, in general, the respondents thought manipulating earnings via operating decisions (e.g., purposefully delaying making needed repairs to a subsequent year) was more ethically acceptable than manipulation by accounting methods

Misstatements in the financial statements are most likely to occur when there are: Omission of the auditor's report Omission of notes to the financial statements Failure to disclose major estimates made in the financial statements Failure to disclose major judgments made in the financial statements Learning Objective: 05-01 Distinguish between audit requirements for errors, fraud, and illegal acts.

b. Omission of notes to the financial statements Misstatements in the financial statements can result from errors or fraud and may consist of any of the following: An inaccuracy in gathering or processing data from which financial statements are prepared. A difference between the amount, classification, or presentation of a reported financial statement element, account, or item and the way that it should have been reflected under GAAP. The omission of a financial statement element, account, or item. A financial statement disclosure that is not presented in conformity with GAAP. The omission of information required to be disclosed in conformity with GAAP. An incorrect accounting estimate due to oversight, misrepresentation of facts, or fraud. Management's judgments concerning an accounting estimate or the selection or application of accounting policies that the auditor may consider unreasonable or inappropriate.

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

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

Which of the following is not true of "reasonable assurance"? > The auditors have exercised due care > The audit opinion is a guarantee that material misstatements have been identified > The audit has been properly planned and supervised > The auditors have followed GAAS

b. The audit opinion is a guarantee that material misstatements have been identified

The purpose of the fraud triangle is to identify: The causes of when the audit opinion should be qualified. The causes of and reasons for fraud when there may be intentional misstatements or omissions of amounts or disclosures in the financial statements. The causes of when there is a lack of independence in performing an audit. The causes of illegal acts.

b. The causes of and reasons for fraud when there may be intentional misstatements or omissions of amounts or disclosures in the financial statements.

The auditor's responsibility with regard to illegal acts is greatest when: > The illegal acts have an indirect and material effect on financial statement amounts > The illegal acts have a direct and material effect on financial statement amounts > The illegal acts have a direct and immaterial effect on financial statement amounts > Illegal acts exist regardless of the effects on the financial statements

b. The illegal acts have a direct and material effect on financial statement amounts

Needles suggests that making judgments about what earnings management is becomes difficult because: It depends on management's intentions There is no clear limit beyond which a choice is clearly unethical A perfectly routine accounting estimate may be illegal and unethical All of the above

b. There is no clear limit beyond which a choice is clearly unethical

Accruals are potentially troublesome because: They can lead to giving an unmodified audit opinion when it should have been modified They provide an opportunity to manage earnings through aggressive or more conservative estimations They always lead to fraud in financial statements They provide an opportunity to shift debt off the books by setting up an SPE

b. They provide an opportunity to manage earnings through aggressive or more conservative estimations

What is the SEC's position on companies that communicate with investors on social media? It is illegal to do so It is legal so long as companies inform investors which outlets they intend to use It is legal so long as the postings are restricted to Facebook There are no limitations on companies communicating through social media Learning Objective: 07-01 Describe the motivation for earnings management.

b. it is legal so long as companies inform investors which outlets they intend to use

What is enterprise risk management (ERM)? > A process of evaluating internal controls to ensure operations are carried out efficiently and effectively > A process designed to identify material events that may affect the financial statements and to manage risk within the entity's risk appetite > A process, effected by an entity's board of directors, management, and other personnel designed to identify potential events that may affect the entity and to manage risk within its risk appetite > A process by which compliance with laws and regulations can be assessed Learning Objective: 05-03 Describe fraud risk assessment procedures.

c. A process, effected by an entity's board of directors, management, and other personnel designed to identify potential events that may affect the entity and to manage risk within its risk appetite ERM is defined as a process, effected by an entity's board of directors, management, and other personnel and applied in strategy settings and across the enterprise, designed to identify potential events that may affect the entity and to manage risk within its risk appetite.

Which of the following is NOT required of management under Section 302 of the SOX? Review their disclosure controls and procedures quarterly Identify key control exceptions and determine which are internal control deficiencies Assess each internal control deficiency's impact on the audit report Identify and report significant control deficiencies on material weaknesses to the audit committee and independent auditor Learning Objective: 07-03 Discuss how earnings management judgments are made.

c. Assess each internal control deficiency's impact on the audit report The essence of Section 302 of the Sarbanes-Oxley Act states that the CEO and CFO are directly reponsible for the accuracy, documentation and submission of all financial reports as well as the internal control structure to the SEC. Under Section 302 of SOX, companies are required to (1) review their disclosure controls and procedures quarterly, (2) identify all key control exceptions and determine which are internal control deficiencies, (3) assess each deficiency's impact on the fair presentation of their financial statements, and (4) identify and report significant control deficiencies or material weaknesses to the audit committee of the board of directors and to the company's independent auditor.

PCAOB Standard 7 addresses engagement quality reviews and have as its objectives to: > Assess how an audit has been conducted and the appropriateness of the audit opinion > Assess the firm's own quality controls and the appropriateness of the audit opinion > Assess how an audit has been conducted and the firm's own quality control procedures > Assess whether materiality has been properly evaluated Learning Objective: 05-04 Explain the standards for audit reports. in section "PCAOB standards and inspections" section

c. Assess how an audit has been conducted and the firm's own quality control procedures Engagement quality reviews are required and often provide a picture of how an audit has been conducted and the firm's own quality control procedures, both of which are scrutinized by the PCAOB in its inspection process.

The first step for an auditor who concludes an illegal act exists is to: > Bring the matter to the attention of the audit committee > Bring the matter to the attention of the SEC > Assess the impact of the illegal act on the financial statements > Assess the impact of the illegal act on the auditor's opinion Learning Objective: 05-01 Distinguish between audit requirements for errors, fraud, and illegal acts.

c. Assess the impact of the illegal act on the financial statements The auditor's obligation when she concludes that an illegal act has or is likely to have occurred is first to assess the impact of the actions on the financial statements, including materiality considerations. This should be done regardless of any direct or indirect effect on the statements.

Each of the following is a common revenue recognition device to manage earnings except: Multiple deliverables Channel stuffing Buy and hold Round tripping

c. Buy and hold

In the CVS acquisition of Longs Drug, the SEC concluded that the purchase price accounting (PPA) was not in compliance with GAAP because: The amount did not reflect current use of Longs personal property at the acquisition date CVS used an overly-aggressive technique to value Longs CVS did not account for its use of Long's assets to generate revenue after the acquisition date All of the above

c. CVS did not account for its use of Long's assets to generate revenue after the acquisition date

Which of the following partnerships that Enron created eventually lead to its demise? JEDI Cactus Chewco Ironman

c. Chewco

The concept that earnings management might align with conservative versus aggressive reporting is known as the: Earnings judgment Earnings accruals Earnings continuum Earnings manipulations

c. Earnings continuum

If a company is managing its earnings, which of the ethical theories are they most likely following? Rights Fairness Egoism Virtue

c. Egoism

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? Rights Theory Moral blindness Ethical Dissonance Materiality Learning Objective: 07-01 Describe the motivation for earnings management.

c. Ethical Dissonance

The Sino-Forest case centered around the: Acceleration of revenue due to channel stuffing arrangements Use of cookie jar reserves to manage earnings Existence of assets Contingent liabilities due to forestry fires

c. Existence of assets (whether the trees the clients were showing them were actually the clients property)

All of the following are in a position to commit fraud except: > Employees who have access to assets > Top management who can override internal controls > External auditors who audit the financial statements > All of the above are in a position to commit fraud Can be found in the fraud triangle section

c. External auditors who audit the financial statements

The primary accounting issue in the Royal Ahold case is: Fraudulent recording of revenues on sales to customers Fraudulent use of company resources by top management for personal purposes Fraudulent inflation of promotional allowances to increase operating income Fraudulent inflation of inventory to reduce losses on the income statement

c. Fraudulent inflation of promotional allowances to increase operating income

The framework of COSO's Enterprise Risk Management can best be characterized as: Incorporate enhanced internal control principles into enhanced corporate governance Incorporate enhanced audit sampling procedures in the testing of internal controls Incorporate enhanced corporate governance into internal control principles Incorporate enhanced audit sampling procedures in substantive testing Learning Objective: 05-03 Describe fraud risk assessment procedures.

c. Incorporate enhanced corporate governance into internal control principles The framework incorporates internal control principles that enhance corporate governance and risk management.

Confidential client information can be disclosed outside the entity without violating the AICPA Code of Professional Conduct in each of the following situations except when: It is reported to the SEC under Section 10A of the Securities Exchange Act It is to comply with the Private Securities Litigation Reform Act It protects the auditor's accounting for fraud and illegal acts It is allowed for under the Dodd-Frank Financial Reform Act Learning Objective: 05-01 Distinguish between audit requirements for errors, fraud, and illegal acts.

c. It protects the auditor's accounting for fraud and illegal acts Compliance with the Private Securities Litigation Reform Act (PSLRA) of 1995 would qualify as an exception to the bar on disclosing confidential client information, as would compliance with SOX and Dodd-Frank provisions. If the board decides not to inform the SEC, the auditor must provide the same report to the SEC within one business day or resign from the engagement within one business day. In either case, the ethical obligation of confidentiality is waived so that the auditor can provide the necessary information and the SEC can live up to its responsibility to protect investor interests

In the Imperial Valley Community Bank case, each of the following were reasons for the going concern issue except: The magnitude of loan losses Insufficient equity capital Operating losses over an extended period of time Questions about the collectability of outstanding loans

c. Operating losses over an extended period of time

Auditors need to be attuned to the red flags that fraud may exist because: Materiality judgments are based on red flags identifying possible material misstatements Audit opinions must be withdrawn when red flags indicate fraud may exist Overly-aggressive accounting and outright manipulation of earnings may exist All of the above

c. Overly-aggressive accounting and outright manipulation of earnings may exist

There are several aspects of the Enron fraud that are dealt with directly in SOX further connecting Enron to reform in the accounting profession. Which of the following is true? SOX permitted the provision of internal audit service for audit clients Off-balance-sheet financing activities were prohibited for all companies Related-party transactions require disclosure in the notes Cookie jar reserves must be disclosed in the notes

c. Related-party transactions require disclosure in the notes

Sarah's concern in the Solutions Network case is: Expenses were delayed at year-end to manage earnings Revenue was recorded at year-end before the agreement with the customer was finalized Revenue was accelerated into an earlier period through channel stuffing Off-balance sheet entities were not disclosed

c. Revenue was accelerated into an earlier period through channel stuffing "We can't recognize revenue immediately, Paul, since we agreed to buy similar software from DSS," Sarah Young stated. "That's ridiculous," Paul Henley replied. "Get your head out of the sand, Sarah, before it's too late."

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?" Dechow and Skinner Healy and Wahlen Schipper Thomas E. McKee

c. Schipper Schipper defines it as a "purposeful intervention in the external reporting process, with the intent of obtaining some private gain (as opposed to, say, merely facilitating the neutral operation of the process)."

Which of the following is NOT one of the communications that should be made by external auditors to the audit committee? Accounting estimates Threats to auditor independence and related safeguards to mitigate those threats Significant deficiencies in audit procedures The nature and scope of significant assumptions Learning Objective: 05-03 Describe fraud risk assessment procedures.

c. Significant deficiencies in audit procedures

Under which of the following set of circumstances might the auditors disclaim an opinion? > The financial statements contain a departure from generally accepted accounting principles, the effect of which is material > The auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion > There has been a material change between periods in the method of the application of accounting principles > Differences with management that lead to trust issues on the part of the auditor Learning Objective: 05-04 Explain the standards for audit reports.

c. The auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion A disclaimer of opinion is warranted when the auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion, and the auditor concludes that the possible effects on the financial statements of undetected misstatements, if any, could be both material and pervasive.

The SEC's complaint in its case against GE included a charge that the company: Used off-balance sheet entities to manipulate earnings Falsified inventory values to inflate earnings Used non-GAAP measures to meet EPS estimates Used EBITDA to obscure reported earnings

c. Used non-GAAP measures to meet EPS estimates

A common method used to smooth net income over time is: Accelerate revenue into earlier periods Delay expenses into later periods Using accrual of operating expenses and future adjustments Using nonrecurring items to increase earnings in one year and reduce it later on

c. Using accrual of operating expenses and future adjustments

When would it be appropriate for an auditor to withdraw from an engagement? > In order to avoid issuing an adverse opinion > When that auditor cannot observe the taking of inventory or is unable to confirm receivables > When the auditor concludes that management cannot be trusted >When the auditor has overbooked too much work Learning Objective: 05-04 Explain the standards for audit reports.

c. When the auditor concludes that management cannot be trusted

what ethical rules are violated when a CPA auditing a client provides inside information about the client to a friend

confidentiality and integrity

kant's categorical imperative principle suggest that?

consequences are considered ahead of rights and obligations

The auditors in the Tier One Bank case were investigated by the SEC because it: Failed to obtain sufficient competent evidential matter to support audit conclusions Failed to exercise the appropriate level of care in its audit Failed to exercise the proper degree of professional skepticism All of the above Learning Objective: 07-03 Discuss how earnings management judgments are made.

d. All of the above

Each of the following is a finding of a survey of CFOs about their perceptions of earnings quality except: CFOs believe that earnings are high quality when they are sustainable and backed by actual cash flows CFOs believe that reporting discretion has declined over time, and that current standards somewhat restrain reporting high quality earnings CFOs estimate that roughly 20 percent of firms manage earnings and the typical misrepresentation for such firms is about 10 percent of reported EPS CFOs estimate that income increasing and income decreasing devices to manage earnings show a 50:50 split Learning Objective: 07-02 Explain what earnings management seeks to accomplish.

d. CFOs estimate that income increasing and income decreasing devices to manage earnings show a 50:50 split On definition, CFOs believe that earnings are high quality when they are sustainable and backed by actual cash flows. CFOs believe that reporting discretion has declined over time, and that current GAAP standards are somewhat of a constraint in reporting high-quality earnings. The CFOs estimate that, in any given period, roughly 20 percent of firms manage earnings and the typical misrepresentation for such firms is about 10 percent of reported EPS. CFOs believe that 60 percent of earnings management is income-increasing, and 40 percent is income-decreasing, somewhat in contrast to the expected heavy emphasis on income-increasing results but consistent with the intertemporal setting up of accruals in settings like cookie-jar reserves and big baths

Which of the following is NOT something external auditors are expected to do in looking for fraud? Assessing the control environment of the organization Evaluating internal controls Considering audit risk and materiality Evaluating management's commitment to serve the public interest Learning Objective: 05-01 Distinguish between audit requirements for errors, fraud, and illegal acts.

d. Evaluating management's commitment to serve the public interest

Which of the following is not an element of COSO Enterprise Risk Management? > Enhancing risk response decisions > Reducing operating surprises and losses > Seizing opportunities > Improving deployment of information technology

d. Improving deployment of information technology According to COSO, ERM encompasses six elements: > Aligning risk appetite and strategy. > Enhancing risk response decisions. > Reducing operational surprises and losses. > Identifying and managing multiple and cross-enterprise risks. > Seizing opportunities. > Improving deployment of capital.

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? It depends on whether the misstatements were made deliberately It depends on whether a user relied on the financial statements It depends on whether the statements lead to a modified or unmodified opinion All are valid statements for Steve to support his point of view

d. It depends on whether the misstatements were made deliberately

In the Matrixx Initiatives v. Siracusano case, the Supreme Court adopted the position about materiality that: It should always be determined only through qualitative evaluations It should always be determined through quantitative evaluations It should always be determined by considering whether the amount affects past financial statements 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

Section 302 of the Sarbanes-Oxley Act requires: >Management's report on internal controls >Auditor's independent report >Auditor's assessment of management's report on internal controls >Management's certification of the financial statements Can find in "fraud considerations and risk assessment" section

d. Management's certification of the financial statements filings with the SEC are required to include certifications from the CEO and CFO related to the fairness of the financial statements and the effectiveness of the internal control over financial reporting. In addition to the statements made in traditional management representations as explained above, Section 302 requires a statement whether the report contains any material untrue statements or material omission or be considered misleading.

Which of the following is the most likely reason for an auditor to issue a modified opinion with a qualification? Inability to gather any sufficient relevant information to form the basis for the opinion Misstatements that are material and pervasive Going concern issue Misstatements that are material but not pervasive Learning Objective: 05-04 Explain the standards for audit reports.

d. Misstatements that are material but not pervasive A disclaimer of opinion is warranted when the auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion, and the auditor concludes that the possible effects on the financial statements of undetected misstatements, if any, could be both material and pervasive.

Which of the following was NOT one of the schemes used by Beazer Homes to manipulate its earnings? Improper recording of revenue on sale-leaseback transactions Fraudulently increased land inventory expense accounts to reduce earnings Over-reserving of house cost-to- complete expenses to increase reported earnings in earlier periods Recording revenue from roundtrip transactions prematurely

d. Recording revenue from roundtrip transactions prematurely

Which of the following is NOT an element of the auditor's responsibility of the AICPA's auditor's report? > States the auditor's responsibility to express an opinion on the financial statements > States the audit provides reasonable assurance that the statements are free of material misstatement > States audit provides reasonable basis for the opinion >States the audit evaluates the overall financial statement presentation Learning Objective: 05-04 Explain the standards for audit reports.

d. States the audit evaluates the overall financial statement presentation Our responsibility is to express an opinion on these consolidated financial statements based on our audits. 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. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

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

d. Swap transactions

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

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

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?" Dechow and Skinner Healy and Wahlen Schipper Thomas E. McKee

d. Thomas E. McKee

Which of the following is NOT a motivation to manage earnings? Companies try to meet or beat Wall Street earnings projections in order to grow market capitalization and increase the value of stock options Avoid the consequences of violating debt covenants To smooth net income over time To maximize employee bonuses

d. To maximize employee bonuses

The auditors' determination of whether the financial statements "present fairly" is based on: > Whether the users are able to assess the reliability of the financial statements > Whether the statements have been prepared in accordance with the same GAAP used from one year to another > Whether the auditor has been able to gather sufficient evidence to warrant the statement that the financial statements present fairly > Whether the accounting principles used are appropriate in the circumstances Learning Objective: 05-04 Explain the standards for audit reports.

d. Whether the accounting principles used are appropriate in the circumstances that the auditor's assessment of fair presentation depends on whether (1) the accounting principles selected and applied have general acceptance; (2) the accounting principles are appropriate in the circumstances; (3) the financial statements, including the related notes, are informative of matters that may affect their use, understanding, and interpretation; (4) the information presented in the statements is classified and summarized in a reasonable manner—that is, neither too detailed nor too condensed; and (5) the financial statements reflect transactions and events within a range of reasonable limits.

Gathering and objectively evaluating audit evidence requires the auditor to consider: Whether an unmodified opinion should be issued Whether a modified opinion should be issued Whether the evidence is adequate to complete the audit Whether the evidence is competent and sufficient enough to render an audit opinion Learning Objective: 05-04 Explain the standards for audit reports

d. Whether the evidence is competent and sufficient enough to render an audit opinion Gathering and objectively evaluating audit evidence requires the auditor to consider the competency and sufficiency of the evidence.

the motive of "duty" is most associated with?

deontology

ethical standards for accounting professionals come from which of the following except?

established societal ethical standards

Which of the following is NOT something external auditors are expected to do in looking for fraud?

evaluating management's commitment to serve the public interest

The accounting issues at failed savings and loan institutions included

failure to provide adequate allowances for loan losses, ailure to disclose dubious deals, The existence of inadequate controls

Overconfidence tendency

in which a person's subjective confidence in his or her judgments is reliably greater than the objective accuracy of those judgments, especially when confidence is relatively high

each of the following is an indicator of posible fraud except for?

indications of stress in ones life

A privity relationship means that: A party may be a user of the financial statements A party may sue if fraud has taken place A party's financial liability is limited A party has a contractual obligation

limited A party has a contractual obligation

the agency problem arises when?

managers may have motivations beyond increasing shareholder wealth

Availability tendency

mental shortcut that relies on immediate examples that come to mind.

SOX 404

must establish internal controls and procedures for financial reporting and document all of it

The term "true and fair view" tends to be a replacement for _________ used in the U.S.

present fairly

the motivation of ones acts can be thought of as

rationalizations for ones actions

utilitarian philosophers are divided into two types: act utilitarian and ?

rule utilitarian

Utilitarian philosophers are divided into two types: act utilitarian and

rule utilitarian.

each of the following are sources of ethical collapse in an organization according to the "Seven signs of ethical collapse" except?

stressing the letter of the law rather than the spirit

Confirmation tendency

tendency to search for or interpret information in a way that confirms one's preconceptions, leading to statistical errors

CPA's can advertise and solicit so long as

the Ad or solicitation is not false, misleading, or deceptive

in which of the following is a CPA independent in fact and appearance

the CPA seres on the board of a non-profit with the CEO of the company being audited

Teleology

the act is considered morally right or acceptable if it produces some desired result such as pleasure, the realization of self-interest, fame, utility, wealth, etc.

the purpose of an informative memo under Interpretation 102-4 is to demonstrate what

to record the scope and nature of differences on accounting matters

individuals who reason at stage 6 incorporate ethical reasoning based on

universal ethical principles

each of the following is an element of ethical relativism except for

universal norms

in stage 5 of Kohlbergs model, ethical reasoning is motivated by?

upholding the rights, values, and legal contracts of society

greatest good for the greatest number of people is the theory of

utilitarianism

the philosophical belief that you should judge the result not the action (end justifies the means) ?

utilitarianism