Ethics Final ch 5-8

Investors relied on the judgment of credit rating agencies because a. credit rating agencies are supposed to be the experts in evaluating credit risk, and they are supposed to perform a through due diligence before given a security rating b. credit rating agencies are supposed to perform a thorough due diligence before rating a given security c. credit rating agencies are supposed to be the experts in evaluating credit risk d. information directly available to investors on mortgage pools was insufficient e. all of these are correct

All of these are correct

Mark-to-market accounting is usually related to all of the following items, EXCEPT: a. Derivatives and financial instruments b. Firm's long term cash flows c. Firm's short term taxes payable d. Firm's short term cash flows e. Immediate recognition of unrealized gains and losses

d. Firm's short term cash flows

Rating agencies were exposed to a conflict of interest because: a. Credit rating agencies were rating securities and investing in those securities b. Credit rating agencies used ratings to sell securities c. Clients of the credit rating agencies used ratings to sell securities d. Investors do not want rating downgrades e. Credit rating agencies were paid by the firms who created the securities being rated

e. Credit rating agencies were paid by the firms who created the securities being rated

Mark-to-market accounting is incorrectly characterized as: a. Relevant for management compensation purposes b. Relevant for valuation purposes c. Relevant to investors d. Sometimes misleading e. Responsible for the subprime lending fiasco

e. Responsible for the subprime lending fiasco

Goldman Sachs' GSAMP Trust was able to create AAA rated securities by

separating the mortgage portfolio into tranches and designating the A-1, A-2, and A-3 tranches last in order, after the M-1 to M-7 and B-1 to B-3 tranches, to suffer losses if a default occurred

Mortgage-backed securities lost their value when

the underlying assets lost their value, and borrowers (the mortgagees) walked away without real obligation to repay

The following performance component recommended by the Global Reporting Initiative relates to customer health and safety, marketing communications, and customer privacy

Product responsibility

Most of the damage is usually done in this phase of a crisis

Uncontrolled

Most of the damage is usually done in this phase of a crisis Pre-crisis Reputation restoration Controlled Uncontrolled Post-crisis

Uncontrolled

According to Kohlberg, at this stage of moral reasoning, fear of punishment and authorities are a motive for doing right: a. Pre-conventional b. Conventional c. Post-conventional d. Autonomous e. Principled

a

The 20/60/20 rule states that the total percent of employees who could commit a fraudulent act is: a. 20% b. 60% c. 80% d. 100% e. None of the above

a

The external review of an audit firm's quality control system is an example of: a. Safeguards reducing the risk of conflict of interest within the audit profession b. Safeguards reducing the risk of conflict of interest within a client c. Safeguards reducing the risk of conflict of interest within a professional accounting firm d. All of the above e. (a) and (c) only

a

The primary focus of a compliance-based ethics program is: a. Preventing, detecting and punishing violations of the law b. Define organizational values and encourage employee commitment c. Improve image and relationship with stakeholders d. Protect management from blame e. All of the above

a

Which of the following is not a characteristic identified by forensic experts in prospective fraud situations? a. High intelligence b. Greed c. Need for whatever is taken d. Opportunity to take advantage e. Low probability of being caught

a

Which of the following is not a fundamental principle in codes of conduct for professional accountants? a. Act in the client's best interest b. Objectivity and independence c. Maintain the good reputation of the profession d. Maintain confidentiality e. Not to be associated with misleading information

a

Which of the following is not an example of emerging public accountability standards or initiatives? a. SOX-404 b. GRI c. AA-1000 d. FTSE4Good e. All of the above

a

Which of the following is not true?a.Principles are more useful than rules because principles can be interpreted as new circumstances requireb.Rules are more useful than principles because rules can be interpreted as new circumstances requirec.A blend of principles and rules is often optimald.All of the abovee.(a) and (c) only

a

These entities worked as second party consolidators, purchasing loans and reselling them to investors: a. Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac) b. Structured Investment Vehicles (SIVs) c. Credit rating agencies d. Investment banks e. All of the above

a. Federal National Mortgage Association (*Fannie Mae*) and Federal Home Loan Mortgage Corporation (*Freddie Mac*)

These regulators were aware of the problem and tried to blow the whistle in 2003: a. Security and Exchange Commission and Federal Reserve Board b. Iowa and North Carolina State Attorneys c. Office of the Comptroller of the currency and Office of Thrift Supervision d. Federal banking regulators e. None of the above

b. Iowa and North Carolina State Attorneys

According to former Federal Reserve Chairman Alan Greenspan, the Fed became concerned about subprime lending in 2000, however: a. The global demand for mortgage-backed security ended in 2005 b. The quality of mortgage products began to deteriorate in 2005 c. The global demand for mortgage-backed security started in 2003 d. The quality of mortgage products began to deteriorate in 2003 e. The global demand for mortgage-backed security ended in 2008

b. The quality of mortgage products began to deteriorate in 2005

The 1999 Gramm-Bailey Act allowed banks to

become more involved in investment bank activities

A fundamental problem examined by agency theory is how it is possible to align: a. Shareholders' and stakeholders' goals b. Manager's and stakeholders' goals c. Shareholders' and managers' goals d. Principal's and shareholders' goals e. Agent's and stakeholders' goals

c

Building trust within an organization can have favourable impact on employee's willingness to share information and ideas in a process of: a. Ethical awareness b. Ethical awakening c. Ethical renewal d. Ethical wave e. None of the above

c

If a professional accountant is billing an audit client for more hours than those actually worked, he will be violating the following fundamental principle: a. Objectivity b. Professional due care c. Integrity d. Confidentiality e. All of the above

c

Professional Accountants, in their fiduciary role, owe primary loyalty to: a. The accounting profession b. The client c. The general public d. Government regulations e. All of the above

c

The following duties are essential to maintaining a fiduciary relationship in the accounting profession: a. Development and maintenance of required knowledge and skills b. Maintenance of trust c. Maintenance of an acceptable personal reputation d. All of the above e. (a) and (b) only

d

The following value is not necessary for an accounting professional: a. Honesty b. Integrity c. Objectivity d. A primary commitment to self-interest e. All but one of the above

d

This is the preferred approach to deal with conflicts of interests a. Management b. Disclosure c. Remediation d. Avoidance e. Awareness

d

Which of the following is not an ethics risk management principle? a. Normal definitions of risk are too narrow for stakeholder accountability b. Assign responsibility, develop follow-up processes and board review c. Discovery and remediation are essential d. The code of ethics must be reviewed by independent parties e. An ethics risk exists when expectations of stakeholders may not be met

d

Mortgage-backed securities lost their value when: a. The underlying assets lost their value b. Borrowers (the mortgagees) walked away without real obligation to repay c. Mortgage originators went bankrupt d. (a) and (b) e. (b) and (c)

d. (a) and (b)

Some observers claim that the U.S. Federal Reserve Board encouraged the housing and credit bubbles by: a. Not regulating subprime mortgages b. Cutting interest rates c. Enforcing mark to market accounting d. (a) and (b) e. (a) and (c)

d. (a) and (b)

Early in 2008, mark-to-market accounting provisions caused the banks to: a. Revalue their portfolio downwards b. Be in jeopardy of falling below the regulatory capital requirements c. Restrict new loans d. All of the above e. (a) and (c) only

d. All of the above

Ethics and ethical corporate culture should likely play a vital role in setting Control environment Risk assessment Information and communication Monitoring Control activities

Control Environment

Ethics and ethical corporate culture should likely play a vital role in setting

Control environment

An important difference between anticipated and unanticipated crisis that

Anticipated crises are less costly than unanticipated crisis

Which of the following would be the least useful report of ethics risks and opportunities

By shareholder group

An employee in charge of the cash register at a busy restaurant steals small sums of money at the end of the day whenever the cash in the register exceeds the sum of the day's bills. He thinks it is fine to do so because everyday there are two or three customers that pay more than they should. This type of rationalization is based on

Denial of the Victim

An employee in charge of the cash register at a busy restaurant steals small sums of money at the end of the day whenever the cash in the register exceeds the sum of the day's bills. He thinks it is fine to do so because every day there are two or three costumers that pay more than they should. This type of rationalization is based on Everyone else is doing it Denial of the victim Condemnation of the condemners Appeal to higher loyalties Entitlement

Denial of the victim

Auditors are mandated to assess the client's risk of financial reporting fraud. Auditing standard SAS-99 considers the following a mandatory tool in fraud assessment

Discussion and brainstorming

Auditors are mandated to assess the client's risk of financial reporting fraud. Auditing standard SAS-99 considers the following a mandatory tool in fraud assessment Discussion and brainstorming Fraud triangle Interviews with management Development of fraud training programs All of the above

Discussion and brainstorming

An employee in charge of writing checks to suppliers in a manufacturing firm steal small sums of money every month by writing himself a check for the total of the discounts he negotiates with the company's suppliers. This type of rationalization is based on

Entitlement

The follow three performance indicators are recommended by the global reporting initiative

Environmental, Financial, and Social

An employee in charge of collecting tickets at the entrance of a movie theater lets her friends enter the theater without paying for tickets. She thinks it is fine to do so because the employees at the popcorn bar give free popcorn to their friends. This type of rationalization is because

Everyone else is doing it

which entities worked as second party consolidators, purchasing loans and reselling them to investors?

Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac)

The following need is at the top of Maslow's Hierarchy of Needs

Fulfillment

The following need is at the top of Maslow's Hierarchy of Needs Esteem Respect Fulfillment Safety Affinity

Fulfillment

The following performance component recommended by the Global Reporting Initiative relates to customer health and safety, marketing communications and customer privacy Labor practices Human rights Product responsibility Society Costumer rights

Product responsibility

Which of the following best describes harassment

Improper behavior considered offensive by the society in general, and the perpetrator knows that this is an offensive behavior

The movie The Big Short is the story of a few clever investors who realized that security markets were about to crash, and they

Invested in NCDS's

What is the recommended strategy when stakeholders' potential for threat is LOW and stakeholders' potential for cooperation is HIGH

Involve

Which of the following is NOT a dimension of the COSO Enterprise Risk Framework? Strategic Monitoring Operations Reporting Compliance

Monitoring

Which of the following is not a dimension of the COSO Enterprise Risk Framework

Monitoring

An employee in charge of the customer service help line needs urgently some extra cash for paying his son's hospital bills. Using the fraud triangle, this situation likely constitutes

Motive

An employee is in charge of counting and depositing cash holdings at end of the day urgently needs some extra cash to pay her son's medical bills. using the fraud triangle, this situation likely constitutes

Motive and Opportunity

An employee in charge of counting and depositing cash holdings at end of the day urgently needs some extra cash to pay her son's medical bills. Using the fraud triangle, this situation likely constitutes Motive Rationalization Opportunity (a) and (b) (a) and (c)

Motive and Opportunity (a) and (c)

An employee who thinks he is being treated unfairly because he is regularly working unpaid overtime urgently, needs some extra cash. Using the fraud triangle, this situation likely constitutes

Motive and Rationalization

What is the recommend strategy when stakeholders' potential for threat is HIGH and the stakeholders' potential for cooperation is HIGH?

None of the above

What is the recommended strategy when stakeholders' potential for threat is LOW and the stakeholders' potential for cooperation is HIGH? Monitor Involve Discuss Defend None of the above

None of the above

Which of the following is NOT an example of aggressive lending practices contributing to the subprime crisis? a. mortgagors were not required to make any down payment at the inception of the loan b. loans were given to people with poor credit histories c. loans were given to people with no income d. a borrower could get a second mortgage and use it as down-payment e. none of these are correct

None of these are correct.

Which of the following is a source of risk identified by both the AICPA/CICA and the institute of internal auditors

Operational

Which of the following is NOT a component of the COSO Enterprise Risk Framework? Risk assessment Risk review Internal environment Information and communication Control activities

Risk Review

Which of the following is not a component of the COSO Enterprise Risk Framework

Risk review

Which of the following is NOT an example of aggressive lending practices contributing to the subprime crisis? a. Mortgagors were not required to make any down-payment at the inception of the loan b. Loans were given to people with poor credit histories c. Loans were given to people with no income d. A borrower could get a second mortgage and use it as down-payment e. None of the above

a. Mortgagors were not required to make any down-payment at the inception of the loan

Late in 2008, the International Accounting Standards Board allowed firms to: a. Reclassify devaluated financial assets delaying recognition of losses b. Estimate the value of the portfolio if there is no ready market for a derivative portfolio c. Reduce their capital requirements d. Accelerate the recognition of losses through mark-to-market accounting e. None of the above

a. Reclassify devaluated financial assets delaying recognition of losses

In simple terms, a mortgage-backed security is: a. All of these are correct b. a portfolio of mortgages sold to investors through publicly issued bonds, and a contract that transfers the risk of non-collection from mortgage originators to other investors c. a contract that transfers ownership of a lender's mortgages receivable d. a contract that transfers the risk of non-collection from mortgage originators to other investors e. a portfolio of mortgages sold to investors through publicly issued bonds

a. all of these are correct

A new audit client was taken on by a professional accountant's firm. The fee for this client's audit engagement is significantly lower than that charged by the prior accountants. This situation could result in the following threat to professional independence: a. Self-review b. Intimidation c. Advocacy d. Familiarity e. None of the above

b

A potential conflict of interest exists when a given decision maker (D) and another person (P) are in the following situation: a. P has a special interest that interferes with proper judgement b. D may have to exercise judgement in P's behalf c. D has a special interest that interferes with proper judgement d. (a) and (b) e. (b) and (c)

b

According to Kohlberg, at this stage of moral reasoning, adherence to moral codes or to codes of law and order are a motive for doing right: a. Pre-conventional b. Conventional c. Post-conventional d. Autonomous e. Principled

b

If a professional accountant is auditing a public company and she receives company shares as payment for her audit services, she will be violating the following fundamental principle: a. Integrity b. Objectivity c. Professional due care d. Confidentiality e. All of the above

b

The most important factor in encouraging employee observance to an ethics program is that employees perceive that it is: a. Compliance-based b. Value-based c. Achievement oriented d. Stakeholder-based e. Externally oriented

b

The primary focus of an integrity-based ethics program is: a. Preventing, detecting and punishing violations of the law b. Define organizational values and encourage employee commitment c. Improve image and relationship with stakeholders d. Protect management from blame e. All of the above

b

The recommendation of appointment and review of the external auditors by the audit committee is an example of: a. Safeguards reducing the risk of conflict of interest created by the profession, legislation, or regulation b. Safeguards reducing the risk of conflict of interest between an auditor and management c. Safeguards reducing the risk of conflict of interest within a professional accounting firm's own systems and procedures d. All of the above e. (a) and (c) only

b

This organization issues auditing standards, carries out inspections of public accounting firms auditing U.S. public clients, and imposes sanctions when applicable: a. CPAB b. PCAOB c. SEC d. FASB e. AICPA

b

In simple terms, the securitization process is: a. A way to sell structured investment vehicles (SIVs) b. A way to sell accounts receivable by mortgage lenders to public investors c. A way to create high-yield investments with little risk d. All of the above e. (a) and (c) only

b. A way to sell accounts receivable by mortgage lenders to public investors

The following elements are essential features of a profession: a. Extensive training, license or certification, and provision of important services to society b. Extensive training, primarily intellectual skills, and representation by professional organizations c. Extensive training, provision of important services to society, and primarily intellectual skills d. License or certification, representation by professional organizations, and autonomy e. License or certification, autonomy, and provision of important services to society

c

This code deals with ethics principles plus additional examples: a. Credo b. Code of ethics c. Code of conduct d. Code of practice e. All of the above

c

Using partners who do not report to audit partners for the provision of nonassurance services to an assurance client would be an example of: a. Safeguards reducing the risk of conflict of interest created by the profession, legislation, or regulation b. Safeguards reducing the risk of conflict of interest within a client c. Safeguards reducing the risk of conflict of interest within a professional accounting firm d. All of the above e. (a) and (c) only

c

Which of the following is not a mechanism for monitoring a code of ethics? a. Ethics audit or internal audit procedures b. Reviews by legal department c. Awards and bonuses d. Annual sign-off by employees e. Employee surveys

c

The 1999 Gramm-Leach-Billey Act allowed banks to: a. Engage in subprime lending b. Sell insurance c. Become more involved in investment bank activities d. Underwrite government bonds e. Choose between commercial and investment bank activities

c. Become more involved in investment bank activities

Rating agencies were exposed to a conflict of interest because

credit rating agencies were paid by firms who created the securities being rated

A professional accountant has been the partner in charge of a particular audit client for the past eight years. This situation could result in the following threat to professional independence: a. Self-review b. Intimidation c. Advocacy d. Familiarity e. None of the above

d

A professional accountant is auditing client A and providing consulting services to client B. Both clients are in the same industry. If the professional accountant uses specific information from client A's audit to prepare a business plan for client B, he will be violating the following fundamental principle: a. Integrity b. Objectivity c. Professional due care d. Confidentiality e. All of the above

d

The company's internal auditors and the Ethics Officer should report:a.Day-to-day to the CEOb.Day-to-day to the Audit Committee of the Board of Directors c.Regularly to the Audit Committee of the Board of Directors without management being presentd.(a) and (c)e.(a) and (b)

d

Goldman Sachs' GSAMP Trust was able to create AAA rated securities by: a. Separating the mortgage portfolio into tranches and assigning the tranches to share risks of default equality b. Not disclosing the risks clearly c. Guaranteeing or protecting some tranches d. Separating the mortgage portfolio into tranches and designating the A-1, A-2, and A-3 tranches last in order, after the M-1 to M-7 and B-1 to B-3 tranches, to suffer losses if a default occurred e. All of the above

d. Separating the mortgage portfolio into tranches and designating the A-1, A-2, and A-3 tranches last in order, after the M-1 to M-7 and B-1 to B-3 tranches, to suffer losses if a default occurred

A fundamental problem with Goldman Sachs' GSAMP Trust, impeding Goldman's ability to foreclose on defaulted mortgages was that: a. Homeowners' equity in the securitized mortgages was less than 1 percent b. 40 percent of the securitized loans had little or no documentation c. Investors relied on Goldman Sachs d. The underlying assets were second mortgages e. The mortgages were allocated into thirteen tranches with different risk characteristics

d. The underlying assets were second mortgages

The 1933 Glass-Steagall Act precluded banks from: a. Subprime lending b. Selling insurance c. Underwriting insurance generating more than 10% of total banking income d. Underwriting securities generating more than 10% of total banking income e. Underwriting any securities

d. Underwriting securities generating more than 10% of total banking income

In simple terms, a mortgage-backed security is: a. A portfolio of mortgages sold to investors through publicly issued bonds b. A contract that transfers ownership of a lender's mortgages receivable c. A contract that transfers the risk of non-collection from mortgage originators to other investors d. All of the above e. (a) and (c) only

d. all of the above

An issue with mark-to-market accounting when there is a highly depressed market is that

depressed values could be only temporary, portfolios are likely to re-gain value, and thus current unrealized losses are overstated

A Conference Board survey identified the following rationale for developing codes of ethics: a. Make employees aware that adherence is critical to bottom-line success b. Provide a statement of do's and don'ts c. Discuss what is expected in stakeholder relationships d. Establish values and mission e. All of the above

e

A conflict of interest exists when a given decision maker (D) and another person (P) are in the following situation: a. D has to exercise judgement in P's behalf b. P has to exercise judgement in D's behalf c. D has a special interest that interferes with proper judgement d. (a) and (b) e. (a) and (c)

e

Corporations are now increasingly realizing that they are accountable: a. Legally to shareholders b. Legally to all stakeholders c. Strategically to additional stakeholders d. (a) and (b) e. (a) and (c)

e

Experience has revealed that, to be effective, a code must be reinforced by: a. Tone at the top b. Ethics officer and internal auditors c. A comprehensive ethical culture d. Principles, rules and examples e. All of the above

e

SOX imposed the following new penalties for executives: a. Fines b. Suspension c. Criminal prosecution for executives d. Return of ill-gotten gains e. All of the above

e

The adoption of the following measures would reduce the expectation gap and lessen public misunderstanding of the auditor's role a. Publish a statement of management responsibility b. Auditor to report annually to audit committee c. Expand audit report to clarify auditor's role and the level of assurance d. (a) and (b) e. (a) and (c)

e

This organization can issue auditing standards in the U.S.: a. AICPA b. FASB c. SEC d. PCAOB e. All of the above

e

This organization is developing an international code of conduct for professional accountants: a. International Accounting Standards Board b. European Federation of Accountants c. Financial Accounting Standards Board d. Public Accounting Oversight Board e. International Federation of Accountants

e

however, a single client represents 40% of the firm's revenue. This situation could result in the following threat to professional independence: a. Self-review b. Intimidation c. Advocacy d. Familiarity e. Over-dependence

e

Investors relied on the judgment of credit rating agencies because: a. Credit rating agencies are supposed to be the experts in evaluating credit risk b. Information directly available to investors on mortgage pools was insufficient c. Credit rating agencies are supposed to perform a thorough due diligence before rating a given security d. All of the above e. (a) and (c)

e. (a) and (c)

A fundamental problem with Goldman Sachs' GSAMP Trust was that: a. Loans were given to people with poor credit histories b. Homeowners' equity in the securitized mortgages was less than 1 percent on average c. Loans were given to people with no income d. 58 percent of the securitized loans had little or no documentation e. All of the above

e. All of the above