Ethics
Which concept promotes fairness and justice where everyone receives the same things to enjoy a full, healthy life?
equality
Which of the following elements of integrity are integral parts of the public trust? (Check all that apply)
Objectivity Due care Honesty and candidness
Ethical Judgment
-"Every act is to be judged by the intention of the agent." -is not enough, the decision maker must carry through with the ethical action
Put the stages in audit-related dispute in order
1 Loss generating event 2 Link the losses with material misstatements or omissions in the financial statements 3 The legal process 4 The final resolution of the dispute
1. Stage 3: Fairness to Others 2. Stage 4: Law and Order
2 stages of level 2 - Conventional
Which of the following is not an ethical consideration for Madison in the 3D Printing case?
Determining how best to be loyal management in the company
What is the purpose of assessing audit risk and materiality? A. Determine nature, timing, and extent of auditing procedures B. Evaluate independence issues C. To draw a conclusion about the proper opinion to issue D. Evaluate internal controls
A. Determine nature, timing, and extent of auditing procedures
Which of the following is not a type of fraud? A. Errors in financial statements B. Misappropriation of assets C. Fraudulent financial statements D. Disclosure fraud
A. Errors in financial statements
______ means to act on principle rather than expediency. A. Integrity B. Reliability C. Persistence D. Convenience
A. Integrity
An error is due to a(n) _____ misstatement or omission in the financial statements. A. unintentional B. intentional C. material
A. unintentional
In the Qwest Communications Case, the fraud was caused by management's A. pressure on employees to meet earnings targets B. deflating expense amounts C. lack of professional competence D. failure to follow GAAS
A. pressure on employees to meet earnings targets
According to COSO, a strong internal control environment that strengthens financial reporting ______. A. starts with the tone at the top B. requires an audit committee that reports to top management C. requires external auditors to be represented on the board of directors D. includes direct and unrestricted access for the external auditors to the internal auditors
A. starts with the tone at the top
The U.S. Supreme Court issued an opinion in the Digital Realty Trust case that whistleblowers are not protected against retaliation unless they report concerns to ______. A. the SEC B. internal management C. external audit
A. the SEC
IFAC Policy Position Paper #4 links the common benefit of serving the public interest through sound financial reporting to ______. A. the application of high standards of professional judgment B. the utilitarian concept C. the rules and regulations set by the AICPA D. professional bodies that determine whether the public interest is being served
A. the application of high standards of professional judgment
When applied to decision making in accounting, rights theories might best be characterized by ______. A. the duty to ensure that the financial statements "present fairly" B. justified claims of the decision maker C. ends versus means D. justifying accounting treatment based on the interests of others
A. the duty to ensure that the financial statements "present fairly"
Treating others fairly requires that we treat them ______. (Check all that apply) A. equally B. unequally C. judgmentally D. impartially
Answers: A, D
The conclusion stated in the opinion paragraph of the audit report should state whether A. the financial statements are fair representations. B. the auditors raised any matters with the audit committee. C. audit procedures have been used. D. internal controls have been evaluated.
A. the financial statements are fair representations.
What are the traits of a moral manager? A. Consistent and persuasive communication with employees B. Reward employees for performance C. Acting rightly based on provisions in the code of conduct D. Inclusiveness
A. Consistent and persuasive communication with employees
Under the Private Securities Litigation Reform Act (PSLRA), how much time does a public company have to inform the SEC that their auditor has reported to the board of directors that no that remedial action has taken place to correct an illegal act? A. 1 business day B. 10 business days C. 30 business days D. 5 business days
A. 1 business day
What is moral sensitivity? Ability to act morally Ability to recognize the situation as violating laws Ability to interpret a situation as moral Ability to reason out moral dilemmas
Ability to interpret a situation as moral
-Internal control -Disclosure
Accounting system as monitoring device:
Cognitive development is based upon 20 years of research by whom?
Lawrence Kohlberg
Identify the factors that influence organizational commitment in public accounting. A. Professional identity B. Identification with ethical systems C. Firm quality controls D. Firm leadership E. Colleague commitment
Answers: B, C, D
In stage on of Kohlberg's model, behavior is driven by the desire to
Avoid punishment
Select all of the following cultural values that influence one's belief structure. (Check all that apply) Whistle-blowing opportunities Ethical relativism Collectivist-oriented society Individualistic society Socialization of children in society
Collectivist-oriented society Individualistic society Socialization of children in society
1. Expected or Standard Practice 2. Materiality 3. Locus of Responsibility 4. Locus of Loyalty 5. Isolated Incident
Common reasons and rationalizations for GVV
In Libby and Thorne's study of virtues, each of the following were identified as instrumental virtues
Diligence Courageous Persistence
In Libby and Thorne's study of virtues, which of the following were identified as instrumental virtues? (Check all that apply) Integrity Diligence Courageous Objective Persistence
Diligence Courageous Persistence
Our views of other people (stereotypes) can cause which of the following negative behaviors? (Select all that apply) Discriminatory hiring National pride Favoritism
Discriminatory hiring Favoritism
Which group considers long-range objectives and the well being of others while their own self-interest remains paramount in decision-making?
Enlightened Egoists
Andersen's motivated blindness with respect to Enron was caused by
Enron being one of the largest accounts for Andersen High consulting fees Pressure from Enron
3: high-low (high org & low individual ethics) 4: low-high (low org & high individual ethics) -in which case person usually leaves org
Ethical Dissonance only exists in which scenarios?
Which bias describes when an individual has the tendency to view events as more predictable than they really are? Overconfidence bias Group think Hindsight bias
Hindsight bias
Which of the following are included in the IMA's overarching ethical principles? (Select all that apply)
Honesty Fairness Responsibility
Which of the following are included in the most frequent reasons and rationalizations an individual faces when speaking against an unethical situation?
It is standard practice It's not your responsibility The impact is immaterial
Morality of Whisteblowing
Org policies should be designed to encourage moral autonomy, individual responsibility, & org support for whistleblowers -If pressure exists in org not to report wrongdoing, a rational, moral person should withstand such pressure - even with perceived retaliation - because it is a moral requirement to do so
One's cognitive understanding of an ethical situation influences ____ reasoning
Prescriptive
An individuals ethical understanding of what should be done to resolve an ethical dilemma is called
Prescriptive reasoning
Match each condition for fraud with the proper example.
Pressure - Meet financial analysts' earnings estimates Opportunity - Ineffective internal controls Rationalization - One-time request
Ethical development has been shown to be an important determinant of ethical ____ by accountants and auditors
Reasoning
What is the last step in Kidder's ethical decision-making process? Revisit and reflect on the decision. Make the decision. Test for right versus wrong. Apply the ethical standards.
Revisit and reflect on the decision.
Sample Responses to Heinz Dilemma - Rights Theory
Right to life above all else -US Constitution: life, liberty, and the pursuit of happiness
1. General 2.For senior (financial) management
SOX requires corporations to have 2 formal codes of ethics:
1. Control environment 2. Risk assessment 3. Control activities 4. Monitoring 5. Information & communication systems
The COSO report states the management should enact five components related to these objectives as part of the framework:
What is the common element of ethics and moral?
The common element of ethics and morals is character.
Motivated blindness
The common failure of people to notice others' unethical behavior when seeing that behavior would harm the observer
The underlying attributes of ancient Greek Philosphy include _____ and ______.
The underlying attributes of ancient Greek Philosphy include excellence and happiness.
Giving Voice to Values
Think about arguments others might make that create barriers to expressing one's values in workplace Think how best to counteract these "reasons & rationalizations" Used post-decision making (already decided what to do)
Moral Intensity
Thomas Jones believes characteristics of moral issue affects decision making
What is the objective of applying moral judgment? To select the morally justifiable course of action Prescriptive reasoning To act consistently with one's level of moral development To recognize a situation as moral
To select the morally justifiable course of action
Being honest and acting with integrity are two dimensions of _____.
Trustworthiness
In stages five and six, auditors' behavior should be primarily influenced by ____ ethical principles
Universal
A CMA compares the harms and benefits of recording the transactions in question versus not recording them. This is an application of ______.
Utilitarianism
Weak Board of Directors
Weak Board of Directors characterizes virtually all companies with major accounting frauds in early part of 2000s -[ex. HealthSouth, Richard Scrushy]
What is the ethical dilemma facing Heinz?
Whether to steal the drug or not
What is the ethical dilemma facing Heinz? Obtaining the rights to a cancer drug Whether to steal the drug or not Borrowing the money to pay for the drug Obtaining the cancer drug at half price
Whether to steal the drug or not
Loyalty to Boss
Young people selected by CEO for positions based on inexperience, possible conflicts of interest, & unlikelihood to question CEO's decisions -[ex. Tyco, Dennis Kozlowski, Lavish Spending]
Duty of Loyalty
act in best interest of corporation; loyalty can be defined as faithfulness to one's obligations and duties
To keep an auditor's independence intact, ______.
an auditor's relationship with the client should not look like it will impair the objective judgment in the eyes of a reasonable observer
Values
are beliefs that guide behavior & support the overall organization vision; -Provide a frame of reference
_____ ethics looks at the way individuals actually behave in moral circumstances.
behavioral
The failure to live up to the terms of the contract is known as _____ of contract.
breach
Agency Problem
can never be perfectly solved, and shareholders may experience a loss of wealth due to divergent behavior of managers -Desires & goals of agents & principals may not be the -same -Difficult to verify activities of agents
Agency Costs
can occur if the board of directors fails to exercise due care in its oversight role of management -Agents likely to place personal goals ahead of corporate goals -Results in conflict of interests between agents & principals -Consistent with egoism -Information asymmetry -Occurs if Board of Directors fails to exercise due care in oversight
Social Consensus
degree of agreement among a social group that an action is good or bad -social group could be society as a whole -when an act is morally wrong it increases moral intensity
Magnitude of Consequences
degree to which an individual may be harmed or benefited by the decision maker's action -greater degree of harm or benefit results in an increase in moral intensity
Compared to System 1 thinking, System 2 is more ______. effortless deliberate emotional automatic
deliberate
Most important in instrumental virtues
diligent, alert, resourceful, careful, consultative, persistent, & courageous
Instrumental Virtues
directly influence individual's actions
Which concept describes an equal opportunity that fits an individual's personal circumstances?
equity
The perception that "our way" is normal and that other ways are inferior is commonly called ______. egoism utilitarianism ethnocentrism
ethnocentrism
The purposeful manipulation of financial statements is called financial statement _____.
fraud
Rule deontologists believe that ethical behavior is based on ______.
general moral principles
Code of conduct
goes beyond what is legal & provides normative guidelines for ethical conduct. Support for ethical behavior from top mgmt is critical for fostering an ethical climate
An auditor's responsibility for detecting illegal acts that have a direct and material effect in the statements is _____ than responsibility to detect indirect effect items. (Enter one word per blank)
greater
Ethical or Unethical Behavior
greatly influenced by the decision maker's ability to express one's values; be supported by the norms, standards, and rules of conduct in the organization; and find a way to be true to these guidelines even in the face of opposing points of view
Cognitive dissonance suggests that individuals have an inner drive to hold attitudes and beliefs in
harmony
Andersen's moral blindness with respect to Enron was caused by ______. (Check all that apply) professional skepticism high consulting fees pressure from Enron failure of professional judgment Enron being one of the largest accounts for Andersen
high consulting fees pressure from Enron Enron being one of the largest accounts for Andersen
moral person moral manager moral organization
honesty and integrity strong ethics message role of leadership
Operational Audits
how to make business operate better
The processes and procedures that management puts in place to protect company assets and to ensure company activities are conducted in accordance with the organization's policies comprise the system of _____ _____.
internal controls
The audit opinion is strengthened by independence because ______. (Check all that apply)
it enhances assurances to the public conflicts of interest are avoided independence, both in fact and appearance, must exist
An unintended consequence of rights theory is that ______.
it might lead to disastrous consequences for others
The PSLRA changes the legal liability standard for auditors from _____- and several liability to _____ liability. (Enter one word per blank)
joint, proportionate
Ethical values as well as one's knowledge of the accounting issues in question influence the professional _____ of accountants.
judgement
Consistency in words and actions underlies ethical _____.
leadership
Senior auditors were more likely to report a manager's ethical violation when they perceived personal costs of disclosure were _____ or when personal responsibility for reporting was perceived to be _____.
low, high
An ethical leader is more attuned to the _____ of _____ and uses it to mitigate any bystander effect. (Enter one word per blank)
magnitude of consequences
The decision-making model helps individuals to ______. rationalize final decisions identify the rules when they are unclear make better ethical choices pressure one's subordinates
make better ethical choices
The appropriateness of estimates in the financial statements depends on _____ _____.
management's judgement
Situational Pressure
may prompt an otherwise honest person to commit fraud -it typically occurs as a result of immediate pressure within either her internal or external environment
Stronger perceptions of the ethical environment are associated with a stronger public interest responsibility and a higher frequency of receiving _____. (Enter one word per blank)
mentoring
The Dodd-Frank Act contains _____ incentives for whistleblowers.
monetary
External governance mechanisms
monitor company's activities, affairs, & performance to ensure proper actions by insiders -Financial markets -State & federal laws & regulations -Court decisions -Shareholder proposals
A manager who serves as a role model for ethical conduct in a way that is visible to employees is referred to as a(n) _____ manager.
moral
Kohlberg developed the example of Heinz and the Drug to illustrate a _____ dilemma.
moral
Rule 301
now says confidentiality obligation does not prohibit compliance with applicable laws & government regulations
In stage 1 of Kohlberg's model, a person's behavior is influenced by ______. (Check all that apply) pursuit of self interest egoism obedience to rules avoidance of punishment
obedience to rules avoidance of punishment
The conditions in an organization that limit or permit ethical or unethical behavior are referred to as _____.
oppurtunity
Which bias describes when an auditor may be conservative in his/her risk assessment but may fail to seek additional information to confirm or update his/her knowledge about internal controls?
overconfidence bias
Each of the following are attributes of due care, except ______.
performing services regardless of one's abilities
Ethics officer
plays a critical role in helping create a positive ethical tone in organizations
One's cognitive understanding of an ethical situation influences ___________reasoning
prescriptive
An individual's ethical understanding of what should be done to resolve an ethical dilemma is called ______. prescriptive reasoning ethical judgment moral sensitivity moral development
prescriptive reasoning
Honesty, Fairness, and Objectivity are ethical _____ of the Institute of Management Accountants
principles
Decisions that emphasize procedural justice are based on ______. (Check all that apply)
processes and activities that produce a particular outcome employee support for decision makers fairness of procedures used to make decisions
Whistleblower law
protects employees who provide fraud information from retaliation
Ethical development has been shown to be an important determinant of ethical ______by accountants and auditors.
reasoning
Kohlberg asserted that development in moral _____ enables a person to become truly a moral person, both in thought and action.
reasoning
Kohlberg asserted that development in moral ________ enables a person to become truly a moral person, both in thought and action.
reasoning or judgement
The GVV methodology develops ways to confront barriers that often appear in the form of ____________________ and _________. These are the barriers one may encounter when pointing out a potential ethical conflict in the workplace.
reasons and rationalizations
Regaining respect for the profession to enhance the public interest requires ______. (Check all that apply)
rebuilding the public trust restoring confidence in financial reporting
While not specifically recognized in a philosophical reasoning model, ___________ is implied by the considerations.
reflection
A(n) ______ is a justified claim on others.
right
The duties of an accounting professional are based on the _____ of investors and creditors.
rights
In stage 5 of Kohlberg's model, a person is influenced by ______. (Check all that apply) rights and values of society evaluating harms and benefits of actions the legal contract of society acting in the best interests of others universal ethical principles
rights and values of society evaluating harms and benefits of actions the legal contract of society
A philosophical approach to decision making considers ______. (Check all that apply) egoism rights of others justice loyalty to others harms and benefits
rights of others justice harms and benefits
IMA Code of Ethics
says confidential employer information should be kept confidential except when disclosure is authorized or legally required
The intent to deceive, manipulate, or defraud is known as _____.
scienter
Our ability to spot ethical issues is known as moral ____________
sensitivity
Code of ethics
serves as a guide to support ethical decision making -Clarifies org's mission, values, & principles, linking them with standards of professional conduct
Corporate Culture
shared beliefs of top managers in org about how they should manage themselves & other employees, & how they should act in their business
Accountants who go along with fraudulent financial statements begin the slide down the ethical ______ ______.
slippery slope
Examples of moral motivation
sometimes individuals want to do the right thing but are overwhelmed by countervailing pressures that may overpower their ethical intentions because of perceived personal costs. The loss of a job or a client can be motivating factors that compromise integrity and block ethical action
Competence, Confidentiality, and Credibility are _____ of the Statement of Ethical Professional Practice of the Institute of Management Accountants.
standards
The philosopher Alasdiar MacIntyre relates virtue to community through ______. (Check all that apply)
standards of excellence internal rewards of practice
An individual being able to effectively voice his/her principles in the workplace given the proper tools is the underlying theme to ______. the Integrated Ethical Decision-Making Model Kidder's Ethical Checkpoints the Giving Voice to Values technique Rest's Ethical Decision-Making Model
the Giving Voice to Values technique
Trust in business
the cornerstone of relationships with customers, suppliers, employees, and others who have dealings with an organization -to be reliable & carry through words with deeds. -becomes pervasive only if org's values are followed & supported by top management -can be lost, even if once gained in the eyes of the public, if an org no longer follows the guiding principles that helped to create its reputation for trust
Cognitive dissonance can best be defined as ______. the difference between our perceptions and behavior the inconsistency between our perceptions and behavior the disconnect between moral sensitivity and moral judgment the correlation between moral judgment and moral behavior
the inconsistency between our perceptions and behavior
An auditor who reasons at stage 5 should emphasize ______.
the public interest
An auditor who reasons at stage 5 should emphasize ______. self-interest the interests of clients the public interest the interests of employers
the public interest
An effort was made to enhance confidence and public trust in financial reporting following ______.
the scandals at Enron and Worldcom
Cognitive development
thought process followed in one's moral development
Effective device
to ensure audit committee independence is for the committee to meet separately with the senior executives, the internal auditors, and the external auditors
Responsibilities to the key constituent groups of the ethical domain for accountants and auditors may conflict.
true
True or false: According to the "middle ground" approach, a third party user of financial statements can sue an auditor for negligence if their reliance is actually foreseen, even if the third party is unknown to the auditor.
true
BOD(Board of Directors)
ultimate responsibility for success or failure of company
In stages 5 and 6, the auditor's behavior should be primarily influenced by _____ ethical principles.
universal
In stages 5 and 6, the auditor's behavior should be primarily influenced by _____________ ethical principles.
universal
When people need to resolve issues in their daily lives, they often make decisions based on their own _____.
values
Independent directors
with one having financial expertise
Deontology is focused on the ______ of a particular behavior. A. consequences B. outcomes C. intentions
C. Intentions
What is the identifying feature of the court decision in the Maxwell case? A. All advice provided by an auditor is subject to legal liability B. Auditors failed to exercise due care C. Lack of a direct causation between obligations of KPMG and plaintiff's loss D. Dismissed the lawsuit
C. Lack of a direct causation between obligations of KPMG and plaintiff's loss
Which of the following should not be a basis for fair decisions? A. Whistleblowing B. Performance evaluations C. Loyalty D. Resource allocations
C. Loyalty
The Phar-Mor ruling builds on the concept of gross negligence by linking it to: A. Fraud B. Ordinary negligence C. Reckless disregard for the truth D. Foreseen third-party users
C. Reckless disregard for the truth
Process whether to report fraud
-Do violations have material effect on finl statements -Has mgmt or BOD taken remedial action? -If not, auditor must report to BOD. The board has one business to inform SEC & provide copy to external auditor
Key Markers of Highly Ethical Organizations
-Humility -Zero tolerance for individual & collective destructive -behaviors -Justice -Integrity -Trust -A focus on process -Structural reinforcement -Social responsibility -Values-driven organization that encourages openness, transparency, & provides supportive environment to voice values without fear of retribution or retaliation
Problems with Kohlberg's Cognitive Development Approach
-Used 75 boys 10 to 16 to develop stages -Small sample, young, all male -Denigrates the roles of religion and laws
Does obeying Dodd-Frank & other SEC laws conflict
-with Rule 301 of AICPA Code of Prof. Conduct? -with IMA Code of Ethics?
Reflection and deliberation in accounting relies on System ___ thinking.
2
1. Intellectual Virtues 2. Instrumental Virtues
2 characteristics of Libby & Thorne: Virtues Important for Auditing
Which of the following are complaints of Kohlberg's work? (Select all that apply) An over-reliance on societywide norms A disregard for human emotion Too much reliance on Rawl's Theory of Justice An over-reliance on dilemmas used to evaluate moral reasoning
A disregard for human emotion Too much reliance on Rawl's Theory of Justice An over-reliance on dilemmas used to evaluate moral reasoning
Excessive Pay Packages
A problem arises when top management purposefully manipulates earning amounts to drive up the price of stock so they can cash in more lucrative stock options
The AICPA Code of Professional Conduct focuses on ______. A. accountant interest B. firm interest C. public interest D. client interest
C. public interest
Which of the following is another way of saying that a moral meltdown has occurred at a company that has experienced an ethical collapse? A. Good people in companies do really dumb things. B. Failing to meet earnings estimates C. Unethical actions are not reported. D. Failing to be loyal to the company's interests
A. Good people in companies do really dumb things.
While working at the Defense Contract Audit Agency, Diem-Thi Le's working papers were changed by her supervisor because: A. Le concluded the contractor's system was inadequate B. Le's productivity rate was too high C. Le refused to go along with her supervisor's demands D. Le concluded the contractor's system was adequate
A. Le concluded the contractor's system was inadequate
The legal liability standard under the PSLRA is: A. Proportionate liability B. Liability only for fraud C. Liability for negligence D. Joint-and-several liability
A. Proportionate liability
Rule utilitarianism considers which of the following in decision making? (Check all that apply) A. What rule will have the best consequences? B. What is the correct moral rule in this situation? C. What action will maximize net utility? D. What rule will maximize my self-interest?
Answers: A, B
Sarbanes-Oxley was passed to (select all that apply): A. Increase transparency of financial reporting B. Foster an ethical climate C. Decrease auditor liability
Answers: A, B
Section 302 of SOX requires which of the following to certify periodic reports filed with the SEC? (Select all that apply) A. CFO B. CEO C. Internal auditor D. Audit firm E. President of the Board
Answers: A, B
Sexual harassment often involves ______. A. quid pro quo B. severe unwelcome behavior C. a friendly work environment
Answers: A, B
Dennis Kozlowski, the CEO of Tyco, selected employees based on ______. (Select all that apply) A. possible conflicts of interest B. reluctance to challenge authority C. lack of experience D. proven moral background E. proven experience
Answers: A, B, C
What might auditors be liable to clients for in addition to breach of contract? (Check all that apply). A. Failure to follow GAAS B. Fraud C. Ordinary negligence D. Failing to inform the SEC of fraud
Answers: A, B, C
Internal controls are designed to ______. (Check all that apply) A. help to ensure that laws are strictly adhered to B. help prevent and detect materially false and misleading financial reports C. help to prevent asset misappropriations D. help prevent and detect material errors in the financial statements E. help prevent an insufficient number of disclosures in the financial statements
Answers: A, B, C, E
As stated in the audit report, the auditors' responsibilities include: (Check all that apply). A. An overview of how the audit was performed B. Express an opinion on the financial statements C. Conduct an audit in accordance with GAAS D. Prepare the statements E. Express an opinion on the internal controls F. An overview of judgments made and conclusions reached
Answers: A, B, C, F
Accountants who assist in the preparation of registration statements in an IPO may be civilly liable if one of the following can be proven: (Check all that apply). A. The financial statements contain an untrue statement of material fact B. The statements omit information that if not given makes the facts stated misleading C. The plaintiff knew the statements were incorrect when the investment was made D. The statements omit material facts required by statute or regulation E. The plaintiff knew the loss was due to factors other than a material misstatement
Answers: A, B, D
The public watchdog function requires that accountants do which of the following? (Check all that apply) A. Demonstrate complete fidelity to the public trust. B. Maintain ultimate allegiance to the corporation's shareholders and creditors. C. Act out of allegiance to one's employer at all times. D. Maintain total independence from the client at all times. E. Be loyal to one's supervisor.
Answers: A, B, D
Which of the following help mitigate the risks presented by workplace social networking? (Select all that apply) A. Formal social networking policies B. Employer commitment to an ethical culture C. Company social network pages D. Training on the use of social networks
Answers: A, B, D
Why is it important that auditors communicate information about accounting estimates to those in charge of governance? (Select all that apply) A. Accounting estimates can be highly significant to the financial statements. B. Future events can affect accounting estimates in a significant way. C. Accounting estimates are typically immaterial to the financial statements. D. Accounting estimates involve subjectivity and assumptions. E. Accounting estimates are determined by the external auditor.
Answers: A, B, D
The most common social and organizational pressures that can cause well-intentioned people to make poor ethical choices are ______. A. obedience to authority B. considering multiple stakeholders C. conforming to ethical judgments of peers
Answers: A, C
What do auditors have to prove to defend against lawsuits from third-parties alleging fraud? (Check all that apply). A. No duty to the third party B. Third party did not rely on the statements C. Negligence of the third party D. Followed professional standards E. Claim is invalid because there was no privity relationship
Answers: A, C, D
Which of the following are ethical dilemmas that Diem-Thi Le faced while working for the Defense Contract Audit Agency (select all that apply): A. modified audit findings B. misallocation of bad debt expenses C. misallocation of costs to government contracts D. deleted audit working papers
Answers: A, C, D
Which of the following procedures help mitigate the inappropriate use of social networking at work? (Select all that apply) A. Codes of ethics that include proper usage of social networking sites B. Culture that encourages posting complaints online C. Consequences for those that violate company policies D. Formal social networking policies
Answers: A, C, D
Which of the following were findings in the KPMG Integrity Survey 2013 that looked at organization misconduct? A. A driving force behind misconduct was pressure to do whatever it takes to meet targets. B. A driving force behind misconduct is rewarding employees based upon the means used to achieve desired results. C. Almost 75% of employees observed misconduct in their organization within the past 12 months. D. More than 50% of employees reported the observed misconduct could cause a loss of public trust. E. Almost 60% of employees were certain they would be protected from retaliation if they blew the whistle on misconduct.
Answers: A, C, D
Executive compensation packages can be used to alleviate the agency problem because ______. (Check all that apply) A. compensation packages can be used to link executive pay to company performance B. boards of directors do not have to monitor managerial performance C. stock option plans can be used to motivate executive performance in the best interests of the company D. stock option plans may be tied to executive wealth E. compensation packages can be used to link executive pay to performance of the company's shares
Answers: A, C, E
Safeguards implemented by the attest client include ______. (Check all that apply) A. an ethical tone at the top B. external review by an audit firm of its quality control system C. an active audit committee D. peer review E. a commitment to fair financial reporting
Answers: A, C, E
The purposes of organizational values include: (Select all that apply) A. Link to the mission of the organization B. Serve as internal values of decision making C. Guide relationships with stakeholders D. Serve as a foundation for the GVV methodology E. Set the tone for the organization
Answers: A, C, E
In the case of the Ford Pinto, ______. (Select all that apply) A. Ford relied completely on utilitarian thinking B. Ford relied on the universality perspective of rights theory C. Ford employed a stakeholder orientation and adequately considered the interests of the stakeholders D. Ford complied with all the laws and safety issues
Answers: A, D
The financial statements and notes should be informative of matters that may affect: (Check all that apply). A. The audit opinion B. Materiality C. Internal controls D. User understandings
Answers: A, D
What must the accountant prove to successfully assert a due diligence defense? (Check all that apply). A. No reason existed to believe the information in the registration statement was false or misleading B. The plaintiff did not rely on the financial statements C. A prudent person would have conducted a different investigation D. A reasonable investigation of the statements was made
Answers: A, D
Which of the following were findings in the KPMG Integrity Survey 2013 related to what employees would do if they observed a violation of their organization's standards of conduct? A. More than 50% would call the ethics hotline. B. Almost 75% of employees would try to resolve the matter directly. C. 50% of employees would do nothing. D. More than 75% of employees would notify their supervisor of violations
Answers: A, D
Which of the following encourage ethical behavior in the workplace? (Select all that apply) A. Support for ethical behavior from top management B. A corporate culture that is inconsistent with individual values and beliefs C. High organizational ethics, high individual ethics D. An ethical climate in the organization
Answers: A, D Rationale: The ethical person-organization fit does not encourage organizational ethics but describes whether it is likely to occur.
Identify the possible effects when individual values do not fit the expectations of the firm. A. Individual alters behavior to conform to firm norms B. Firm alters behavior to conform to individual norms C. Individual blows the whistle on the firm D. Firing of the individual E. Voluntary departure of individual
Answers: A, D, E
Which of the following steps exist in an audit-related dispute according to Palmrose? (Check all that apply). A. Link can be made between user losses and allegations of material omissions or financial statement misstatements B. Investigation by the plaintiff attorney after filing the lawsuit C. Audit failure D. Events occurred that cause losses for financial statement users E. Filing of a lawsuit F. Final resolution of the dispute
Answers: A, D, E, F
Virtues have been described as ______. (Check all that apply) A. Character traits B. Dispositions C. Attitudes D. Loyalty obligations E. Actions
Answers: A,B, C
A correct moral rule under rule utilitarianism might be ______. (Check all that apply) A. act in a way that maximizes utility B. don't subordinate judgment C. don't mislead others D. don't ignore best consequences
Answers: B, C
In the Medicis Pharmaceutical Case, the deficiencies in EY's audit were caused by A. failure to follow GAAP B. failure to follow GAAS C. over reliance on management representations D. excessive independent audit evidence
Answers: B, C
In the economic model of CSR, business exists to ______. A. decrease value for shareholders B. create jobs C. produce goods and services for society
Answers: B, C
What increases the likelihood of trainee auditors reporting an ethical violation by an audit partner? A. A reward exists for whistleblowing B. Firm quality controls exist C. Formal structures for whistleblowing exist D. Informal structures for whistleblowing exist
Answers: B, C
Which of the following guide accountants when making a professional judgment? (Select all that apply) A. Independence B. Objectivity C. Personal values D. Professional skepticism E. Ethical awareness F. Subjectivity
Answers: B, C, D, E
The intensity of an ethical situation is based on the ______. (Select all that apply) A. relevant laws and policies B. situational pressures in the workplace C. values of those involved D. fear of retaliation E. norms in common situations
Answers: B, C, E
Characteristics of the moral point of view include ______. (Check all that apply) A. Always acting in one's own interest B. Sometimes acting in the best interests of others C. Situational ethical decision making D. Considering the consequences on stakeholders
Answers: B, D
Employees given the trappings of success who are then reluctant to speak up out of fear of losing their lavish lifestyles most likely do so because of ______. (Check all that apply) A. weak board of directors B. fear of reprisals C. pressure to maintain the numbers D. loyalty to the boss E. innovation like no other company
Answers: B, D
How does the PSLRA amend the Securities Exchange Act of 1934? (Check all that apply). A. Establishes audit requirements to detect all illegal acts with a direct and material effect on the statements B. Requires communication of illegal acts to the audit committee and board of directors C. Requires a modified opinion when illegal acts exist D. Establishes audit requirements to provide reasonable assurance of detecting illegal acts with a direct and material effect on the statements
Answers: B, D
The systematic evaluation of the moral intensity of an issue influences A. magnitude of consequences B. judgments of ethicality C. culture of the organization D. likelihood of whistleblowing
Answers: B, D
The occurrence of events that result in losses for users of the financial statements comes about as a result of which of the following loss-generating events? (Check all that apply). A. False certification of the financial statements B. Client bankruptcy C. Audit failure D. Misappropriation of assets E. Fraudulent financial reporting
Answers: B, D, E
Which of the following are included in the "social contract" accountants have? A. Commitment to serve the interest of superiors B. Commitment to a code of ethics C. Commitment to serve the interest of the client D. Commitment to lifelong learning E. Commitment to serve the interest of the public
Answers: B, D, E
Which of the following mechanisms can help prevent bribery payments? (Check all that apply). A. Audited financial statements B. An effective system of internal controls C. Certification of financial statements D. Establish an ethical corporate culture E. Strong corporate governance
Answers: B, D, E
Which of the following are pillars of corporate governance? A. Morals B. Fairness C. Values and beliefs D. Independence E. Transparency F. Accountability
Answers: B, D, E, F
The ethical responsibilities of CPAs include ______. (Check all that apply) A. Be loyal to the interests of the employer B. Be loyal to the interests of a client C. Act in accordance with the accounting profession's ethical principles D. Act with integrity so as not to subordinate judgment
Answers: C, D
How can ineffective monitoring of management create the opportunity for fraud? (Select all that apply) A. Lack of oversight by the external auditors B. Good liaison between management and statutory auditors of the organization C. Domination of management by one person D. Ineffective oversight of the internal controls E. Ineffective oversight of the financial reporting process
Answers: C, D, E
The best way to gain trust through organizational decision making is that ______. (Check all that apply) A. the ends should justify the means B. senior managers should establish the values for each decision faced C. senior managers should model the organization's values D. employees should act in accordance with ethical intent E. employees should act in accordance with established organization values
Answers: C, D, E
Unethical behavior and financial collapse sometimes go hand and hand because of ______. (Check all that apply) A. overly pessimistic financial projections B. rogue employee behavior C. an unrealistic emphasis on meeting financial projections D. loyalty to the boss E. intense pressure to maintain the numbers
Answers: C, D, E
Which of the following are two important teleological philosophies that guide decision making in business decisions? A. Reputation B. Trustworthiness C. Egoism D. Citizenship E. Utilitarianism
Answers: C, E
How does an auditor gather and objectively evaluate audit evidence? A. Apply fieldwork standards B. Consider competency and sufficiency of the evidence C. By assessing audit risk D. Consider whether internal control are effective
B. Consider competency and sufficiency of the evidence
An auditor who reasons at stage six will emphasize: (Check all that apply). A. The public trust B. Integrity and objectivity C. Retaining the client D. Harms and benefits to others E. Universality
B. Integrity and objectivity E. Universality
Once a claim against an auditor has been established, the best defense against legal liability is what? A. There is no duty to the third party B. Third party was negligent in using the information C. There is no link to the third party D. The loss of the third party was not material
B. Third party was negligent in using the information
In stage 5 of Kohlberg's model, behavior is driven by ______. A. the pursuit of self-interest B. upholding the rights and values of society C. fear of punishment D. universal ethical principles
B. upholding the rights and values of society
When a business is driven into bankruptcy because it went into debt in reliance on overstated financial statements, this is an example of: A. Damage B. Breach of Duty C. Causation D. Contributory negligence
C. Causation
The auditor's assessment of management's assertions about ICFR are intended, in part, to create an early warning system to alert financial statement users to what potential problem(s)? A. Lack of due care B. Lack of independence C. Negligence D. Material weaknesses
D. Material weaknesses
What rationalization did Dennis Kozlowski use in the Tyco fraud? A. Shareholders sanction it B. Aggressive accounting is acceptable C. It was a one-time fix D. My predecessors did it
D. My predecessors did it
Pfizer was charged by the SEC for making improper payments related to: A. Grease payments B. Concealment of improper payments C. Tax payments to foreign governments D. Obtaining regulatory and formulary approvals
D. Obtaining regulatory and formulary approvals
One of the ethical limitations of deontology is that it ______. A. relies on consequences of actions B. considers rights and duties C. allows for exceptions to rules D. relies on moral absolutes
D. relies on moral absolutes
An accountant who goes along with fraud due to the strain of meeting earnings projections is subject to ______. A. desperation B. perceived opportunity C. rationalization D. situational pressure E. aversion to internal control
D. situational pressure
The primary result of occupational fraud is ______. A. errors in financial statements B. failing to disclose financial statement information C. retaliation against the offender D. the abuse of employer trust
D. the abuse of employer trust
IFAC Policy Position Paper #4 links the common benefits of serving the public interest through sound financial reporting to ______. A. professional bodies that determine whether the public interest is being served B. the AICPA Code of Professional Conduct C. the rules and regulations set by the SEC D. the application of high standards of ethical behavior
D. the application of high standards of ethical behavior
Cognitive dissonance can best be defined as ______. A. the disconnect between moral sensitivity and moral judgment B. the correlation between moral judgment and moral behavior C. the difference between our perceptions and behavior D. the inconsistency between our perceptions and behavior
D. the inconsistency between our perceptions and behavior
Fear of Reprisals
Employees reluctant to raise issues of ethical concern because they may be ignored, treated badly, transferred or worse: -"kill the messenger syndrome"
Considering how virtue supports turning ethical intent into ethical action is an example of
Ethical behavior
Moral development Virtue Prescriptive reasoning
Ethical sensitivity Ethical motivation Ethical judgement
Kohlberg developed the example of Heinz and the Drug to illustrate
Moral reasoning Cognitive development
Which of the following are included in Kidder's checkpoints when dealing with an ethical situation?
Reflect on the decision and lessons learned Look at conflicting positive values Consider which ethical principle is most relevant
Which of the following are included in Kidder's checkpoints when dealing with an ethical situation? (Select all that apply) Reflect on the decision and lessons learned. Look at conflicting positive values. Consider which ethical principle is most relevant. Consider cultural norm in similar situations. Consider which course of action develops moral virtues.
Reflect on the decision and lessons learned. Look at conflicting positive values. Consider which ethical principle is most relevant.
What levers can you use to influence those you disagree with?
Speak to other officers, approach Matt, go to faculty advisor, jeopardizing respect
Oversight
System of checks & balances that limit employees' & mangers' opportunities to deviate from established policies & strategies aimed to prevent unethical & illegal activities
Level 2 - Conventional
The individual becomes aware of the interests of others and one's duty to society. Personal responsibility becomes an important consideration in decision making
Level 1 - Preconventional
The individual is very self-centered, rules are seen as something external imposed on the self
TF: If a client organization needs an audit to qualify for a bank loan, a conflict of interest by exist because the client pays the audit fee
True
TF: Moral motivation reflects an individual's willingness to place ethical values ahead of non ethical values
True
The Giving Voice to Values technique is used after the decision has been made. True False
True
True or false: Moral motivation reflects an individual's willingness to place ethical values ahead of nonethical values.
True
True or false: The field of behavioral ethics deals with how our minds process information and make decisions. True False
True
Sample Responses to Heinz Dilemma - Act Utilitarianism
Weigh the costs and benefits of alternative actions
Which of the following are questions included in the GVV framework?
What is at stake for those who disagree? What levers can be used to influence those in disagreement? What is the most persuasive response to barriers
Stage 1 - Obedience to Rules; Avoidance of Punishment
What is right is judged by one's obedience to rules and authority; avoidance of punishment EX: A company forbids making payoffs to government or other officials to gain business. Susan, the company's contract negotiator, might justify refusing the request of a foreign government official to make a payment to gain a contract as being contrary to company rules, or Susan might make the payment if she believes there is little chance of being caught and punished
Duty of Care
act in good faith, exercise care that an ordinarily prudent person would exercise in a similar situation
In the context of business, the decision one makes can be influenced by _____ culture.
corporate
In the context of business, the decision one makes can be influenced by ________ culture.
corporate
Fraud
deliberate misrepresentation to gain advantage over another party
Rest's model is built on Kohlberg's work and is based upon behavior related to one's level of moral _____________
development.
Tone at the top
ethical environment created in workplace by org's leadership
Directors & officers- Managers and Directors
fiduciaries of corporation as their relationship with corporation & its shareholders one of trust & confidence
The Ultramares decision established a possible legal liability for auditors if negligence was so great as to constitute _____ negligence.
gross
Which bias describes when an an auditor may yield to pressures of the majority even though their views are incorrect?
group think
Principles people use to decide what is right and wrong in the ethical decision-making process are referred to as _____ values.
indivdual
A false representation by an auditor could lead to common law liability if it was made to _____ the third party to rely on the representation. (Enter one word per blank)
induce
An individual's moral _____influences her intention to comply with her ethical judgment.
motivation
Moral development and virtue
required for ethical behavior
When the rules are unclear, ethical decision making may require a person to take an action that may not be in his/her best interest. This is best described as ______.
the moral point of view
Perceived Opportunity
the opportunity to commit fraud and conceal it must exist -people do not normally commit fraud believing they will get caught. They do it because they believe they can get away with it (i.e., have access to the underlying financial information or override internal controls).
Identify the ethical & professional issues (ethical sensitivity)
• What are the ethical & professional issues in case (i.e., GAAP & GAAS)? • Who are the stakeholders? • Which ethical standards apply (i.e., AICPA Code Principles, IMA Ethical Standards, & IFAC standards)
Organizational values Individual values
Should be visible within the organization Are internal to the being of the individual
Business vs. Personal Ethics
Should there be a difference? Follow the Golden Rule at all times & ask, "How would I like to be treated in a particular situation?" -Many people seem to have different ethics in workplace & home -Trust in business is cornerstone of relationships with customers, suppliers, employees & others who have dealings with an organization
Expected or Standard Practice
"Everyone does this, so it's really standard practice. It's even expected."
Locus of Loyalty
"I know this isn't quite fair to the customer, but I don't want to hurt my reports/team/boss/company."
Materiality
"The impact of this action is not material. It doesn't really hurt anyone."
Isolated Incident
"This is a one-time request; you won't be asked to do it again."
Locus of Responsibility
"This is not my responsibility; I'm just following orders here."
6 most observed types of misconduct:
(1) stealing or theft (2) falsifying time reports (3) falsifying expense reports (4) falsifying & manipulating financial reporting information (5) falsifying invoices, books, & records (6) accepting gifts or kickbacks.
Accounting, Whistleblowing & Confidentiality
-AICPA Code of Professional Conduct had encouraged CPAs not to divulge client confidential information unless a valid court order or subpoena exist. -Govt/SOX said AICPA wrong & took Auditing standard setting away from AICPA & gave to PCAOB
Components Interact
-All processes must take place for moral behavior to occur. -Framework not a linear decision making model: processes work through sequence of "feed-back" & "feed-forward" loops. -Individual accuracy at one level does not necessarily mean accuracy at all levels -Moral failure can occur when there is a deficiency in any one component
Which factor can influence ethical decision making and the actor may not even be aware of the effect? Organizational pressure Situational factors Cognitive dissonance
Situational factors
Kohlberg's Cognitive Development Approach
-An individual's ability to make reasoned judgments about moral matters develops in stages -These stages characterize the way people think about ethical dilemmas
An individual strongly affected by what he/she believes others within his/her social group considers morally right or wrong is an example of what? Social Sensitivity Moral Character Moral Judgment Social Consensus
Social Consensus
Rest's Model of Morality James Rest's model of ethical action
-Based upon presumption that an individual's behavior is related to her/his level of moral development. -Rest breaks down ethical decision making process into 4 major components
Importance of Good Governance
-Better access to capital -Aids economic growth -Positive impact on stock prices -Ensures that business is fair & transparent -Ensures that companies can be held accountable -Leads to sustainability -Consequences of Weak Governance
Which of the following are dimensions included in Jones's moral intensity model? (Select all that apply) Moral Judgment Social Consensus Temporal Immediacy Proximity Moral Motivation
Social Consensus Temporal Immediacy Proximity
An individual strongly affected by what they believe others within their social group consider morally right or wrong is an example of
Social consensus
An accountant has a(n) ___ ___ to act in accordance with the public interest
Social contract
Each of the following cultural values influence one's belief structure
Socialization of children in society Collectivist-oriented society Individualistic society
Innovation Makes Us Special
Some CEOs believe rules don't apply because their company is so different & more innovative than others Ex. Computer Associates, Sanjay Kumar; 35 day month: -"Standard accounting rules (were) not the best way to measure (Computer Associates) results because it had changed to a new business model offering its clients more flexibility."
Has SOX Accomplished its Intended Goal?
-CEOs & CFOS must certify financial statements contain no material misstatements -Very few defendants charged with false certification, & even fewer convicted -SEC increasingly pursues claims against CFOs by alleging CFOs subordinates violated securities laws & CFO either certified resulting reports or failed to implement adequate internal safeguards
CEOs & CFOs certify that financial statements have no material misstatements
-CEOs & CFOs almost always know of major frauds -Same legal liability existed under prior common law
Supporting Courage to Act
-Courage to withstand pressures that challenge one's commitment to act in an ethical manner -Supportive environment in organization -Ethical tone must be set by top management
Moral Intent
-Critical component of ethical decision making -Internalization of virtues -Acting in accordance with principles -One must want to make ethical decisions
Madoff's Auditors, Friehling & Horowitz (a tiny firm):
-Did not perform anything remotely resembling an audit -Did not perform procedures to confirm securities -Failed to document findings & conclusions on limited procedures, as required by GAAS -Did not test internal controls -Was not independent
COSO Framework Designed to provide reasonable assurance
-Effectiveness & efficiency of operations -Reliability of financial reporting -Compliance with laws & regulations
Dodd-Frank Act
-Encourages accts & auditors to report wrong doing, but will whistleblowers go straight to external sources instead of internal? -Protection from being fired; including reinstatement, double back pay, & special damages -Whistleblowers only reporting internally not protected -CPAs worried about client confidentiality
Role of BOD & Officers
-Establish ethical culture & code of conduct -Communicate principles within organization -Board members have fiduciary duty to safeguard assets & make decisions that promote shareholder interest
Principles must be part of culture(BOD)
-Ethical & honest behavior -Compliance with laws & regulations -Effective management of resources & risks -Accountability of personnel
Thorne & Rest Models Commonalities
-Ethical action result of rational decision-making process. -Both concerned with individual's ethical decision-making process. -Both acknowledge importance of cognition in individual's ethical decision-making process.
Empirical Studies
-Ethical reasoning may be important determinant of professional judgment -Unethical & dysfunctional audit behavior may be systematically related to auditors' level of ethical reasoning -Ethical reasoning may be an important cognitive characteristic affecting individual judgment & behavior under a wide array of conditions & events in extant professional practice
Process to organize various elements of ethical reasoning & professional judgment
-Evaluate stakeholder interests -Analyze relevant operational & actg issues -Identify alternative courses of action
Executive Compensation
-Excessive Pay Packages -Backdating Stock Options -Clawbacks -Say on Pay
His criteria for when whistleblowing is morally permitted includes
-Firm's actions will do serious & considerable harm to others -Whistleblowing justifiable once employee reports it to her supervisor & makes her moral concerns known -Absent action by supervisor, employee should pursue matter even to BOD -Documented evidence must exist to convince a reasonable & impartial observer that one's view of situation is correct & serious harm may occur -Employee must reasonably believe going public will create necessary change to protect public & is worth the risk to oneself
Johnson & Johnson: A Case of Dr. Jekyll & Mr. Hyde?
-Illegally promoted antipsychotic Risperdal -Misleading statements about recall of Motrin -Included methylene chloride, banned by FDA, in their baby shampoo -Ethicon vaginal mesh did not meet reasonable safety standards -Takes a long time to build a reputation of trust, but not long to tear it down
Cognitive Dissonance
-Inconsistency between our thoughts, beliefs, or attitudes & behavior creates the need to resolve contradictory or conflicting beliefs, values, & perceptions. -Only occurs when we are "attached" to our attitudes & beliefs. -How we think we should behave is different from how we decide to behave
Best Practices of Governance
-Independent directors enhance governance accountability -Separate duties of CEO & board chair -Separate meetings between audit committee & external auditors strengthen control mechanisms
Accountant Restrictions -Excludes 2 groups of accountants because of their pre-existing legal duty to report securities violations:
-Individuals with internal compliance or audit responsibilities at an entity, including CPAs -CPAs getting knowledge of potential violations via an audit required by federal securities laws
CPA's Integrity Considerations
-Integrity standard basis for moral action of auditors & avoids subordinating judgment -Interpretation 102-4 has reporting procedures for accountants & auditors under AICPA Code (Exhibit 3.13) -CPA should seek legal advice when difference of opinion exists on how best to handle disagreements with client & firm refuses to make required adjustments. -Auditor should possibly resigning one's position -Resignation from audit firm does not negate auditor's disclosure responsibilities to SEC
Oversight of financial reporting
-Internal audit function -External auditors -CEO & CFO financial statement certification process
Salaries & bonuses often depended on Miniscribe "making the numbers"
-Inventory hole initially $2-4 million, then $15 million -Broke into Auditors Work Trunks
Business Stakeholders
-Investors, shareholders, creditors, employees, customers, suppliers, gov't agencies, communities & others -Have a "stake" or a claim in some aspect of a org's products, operations, markets, industry & outcome
Has SOX Done its Intended Goal?
-Issue: Bernie Madoff's Ponzi Scheme -Investors $ from subsequent investors -Schemes require a consistent flow of new money -Since 2000 warnings Madoff returns impossible to get -$65 billion fraud -Madoff sentenced to 150 year prison term in 2009 -Victims trying to get at least some of their $ back -"Clawback" lawsuits to recover some of money
Johnson & Johnson: A Case of Dr. Jekyll & Mr. Hyde?
-J&J's credo emphasizes primary obligation to those who use & rely on safety of its products -1982 Tylenol cyanide Poisoning - J&J put customer safety 1st -"Good Ethics is Good Business" -J&J withdrawing from its "trust" bank in recent years - 2011 onward
Org Influence on Ethical Decision Making
-Jones-Hiltebeitel model looks at role of one's personal code of conduct in ethical behavior within an organization -Moral intensity -When one's personal code is not sufficient to make the necessary moral decision, individual will look at professional & organizational influences to resolve conflict
Behavioral Indicators of Fraud
-Living Beyond Means -Financial Difficulties -Unusual Close Association with Vendor/Client -Control Issues, Unwillingness to Share Duties -Divorce/Family Issues -Wheeler-Dealer Attitudes -Instability, Suspiciousness or Defensiveness -Addiction Problems -Complained about Inadequate Pay -Refusal to Take Vacations
Improper Asset Valuations
-Manipulating reserves -Changing the useful lives of assets -Failing to take a write-down when needed -Manipulating estimates of fair market value
Problems with executive compensation
-Manipulation of earnings -Ratio of U.S. CEO to lowest employee salary (344 to 1) -Backdating of stock options (scandal broke in 2006) ex. Apple
Morality of Whistleblowing
-Michael Davis considers whistleblowing required & a moral obligation to prevent serious harm to others if it can be done with little personal cost -Applying rule utilitarianism could lead to conclusion that a categorical imperative exists to do whatever it takes to stop bad behavior regardless of whether action might bring more harm than good to stakeholders
Kohlberg believes:
-Moral reasoning processes become more complex & sophisticated with development -Higher stages use cognitive operations not available to those at lower stages
KPMG's Integrity Survey 2013 surveyed 3,500+ U.S. workers
-Nearly 75% observed misconduct within past 12 months -Over 50% reported what they observed could cause a significant loss of public trust if discovered -Causes: Pressure to do "whatever it takes" to meet targets, not taking code of conduct seriously, fear of losing one's job for not meeting targets, rewarding employees for results & not means used to get them
External Auditors
-Obligation to public interest underlies their corp governance responsibilities -Protect interests of shareholders -Conduct audits independent of any influence of management or company -Communicate effectively with audit committee Ensures accountability for financial reporting process
Views of Employees from 2011-2013:
-Observed misconduct declined. -Pressure to compromise ethical standards declined but retaliation against whistleblowers increased; increase in ethics training programs & use of ethical conduct in employees evaluations.
Kohlberg's 6 Stages of Moral Development
-People change their decision priorities over time & with additional education & experience. -Individual's moral development can be influenced by corporate culture, especially ethics training. -Assumes stage sequence universal, same in all cultures (disagrees with Hofstede).
Leaders of Good Character
-Possess integrity, courage, & compassion -Careful & prudent -Decisions & actions inspire employees to act in an enhancing way
If auditing firm does not get a copy within one business day
-Provide copy of own report to SEC within 1 business day, or -Resign from engagement & give SEC the report within 1 business day of resigning
Expense Understatement
-Recording cost of sales as a non-operating expense -Capitalizing operating costs -Not recording some expense at all
Revenue Overstatement
-Recording gross, rather than net, revenue -Recording revenues of other corps, acting as a 'middleman' -Recording sales that never took place -Recording future sales in current period -Recording sales of products that are out on consignment
Whistleblowing program right thing to protect public interest, but concerns are
-Self-interested/opportunistic people may be induced to reveal corp data to SEC, with few safeguards about information quality -Permitting compliance officers to be whistleblowers solely on passage of time can erode corp culture & trust in compliance officials who may subvert objectives of preventing, detecting, & remediating corp misconduct on an enterprise-wide basis
The Ford Pinto Case
-Small car's unsafe gas tanks could burst into flames -Initial ethical legalism defense -Risk/cost benefit analysis -How much is a life worth? -Too costly to replace fuel tanks -Compliance with law versus ethical behavior - met all safety requirements -Act Utilitarian reasoning -Focusing on costs & benefits -Ignores rights of various stakeholders -Ignored cost of potential lawsuits
Stakeholder Perspective
-Stakeholder management requires that an individual consider issues from a variety of perspectives other than one's own or that of the organization -Reconcile the conflicts of interest between org and stakeholder groups
If an accountant is influenced by the firm's desire to keep its clients happy, the result may be what stage of Kohlberg's reasoning? Stage 3 Stage 4 Stage 6 Stage 2 Stage 5
Stage 3
If an accountant is influenced by the firm's desire to keep their clients happy, the result may be what stage of Kohlberg's reading
Stage 3
ACFE 2014 Report to Nation Occupational Fraud
-Typical business loses 5% of annual revenues to fraud; median loss of $145,000 -Frauds lasted a median of 18 months before detection -More likely detected by tip, using hotlines, than any other way -3% detected by external audit -Asset misappropriation schemes most common type -Proactive fraud prevention & detection controls vital part in managing risk of fraud
Whistleblower Rights & Duties
-Whistleblowers hope & believe their speaking out will help fix what they perceive as org wrongdoing -"Retaliatory climate" in org is primary barrier to blowing the whistle on corp wrongdoing -When orgs establish an ethical culture & anonymous channels to report wrongdoing, it creates an environment that supports whistleblowing & whistle-blowers while controlling for possible retaliation
Communicate effectively with audit committee:
-accounting policies & procedures -estimates by management -quality of financial reporting -potential violations of laws
Moral Motivation
-decision makers must be focused on taking the moral action and follow through with ethical decision making -reflects an individual's willingness to place ethical values (e.g., honesty, integrity, trustworthiness, caring, and empathy) ahead of nonethical values (e.g., wealth, power, and frame) that relate to self-interest -influences her intention to comply or not comply with her ethical judgment in the resolution of an ethical dilemma
Examples of Moral Character
-executing a plan of action Moral agents have to overcome indifference and opposition, resist distractions, cope with fatigue, and develop tactics and strategies for reaching their goals. Johnson points out that this helps to explain why there is only a moderate correlation between moral judgment and moral behavior. Many times deciding does not lead to doing
Clawbacks
-recovery of money have been on the regulatory radar screen in a big way since 2002, when SOX gave the SEC power to recover compensation and stock profits from CEOs and CFOs of public companies in the event of financial restatements cause by misconduct
Remedies for good/evil balancing act
-rethinking popular notions of social responsibility & business -rethinking corp. activities, perceptions, & realities
The results of published studies indicate that accountants reason primarily at which stages of Kohlberg's model? Stages 2 and 3 Stages 4 and 5 Stages 3 and 4 Stages 5 and 6
Stages 3 and 4
Ethical sensitivity is enhanced by identifying which ethical and professional issues
Stakeholders GAAP and GAAS
Stage 6: Universal Ethical Principles
-stage rarely occurred Person at this stage believes that right and wrong are determined by universal ethical principles that everyone should follow. Belive that there are inalienable rights, which are universal in nature and consequence. These rights, laws, and social agreements are valid not because of a particular society's laws or customs, but because they rest on the premise of universality. Justice and equality are examples of principles that are deemed universal. If a law conflicts with an ethical principle, then an individual should act in accordance with the principle. EX: Susan would go beyond the norms, law, and authority of groups or individuals. She would disregard pressure from her supervisor or the perceived best interests of the company when deciding what to do. Her action would be guided only by universal ethical principles that would apply to others in a similar situation.
Ethical sensitivity is enhanced by identifying which ethical and professional issues? (Check all that apply) Stakeholders Harms and benefits Ethical reasoning methods GAAP and GAAS
Stakeholders GAAP and GAAS
Put the following checkpoints Kidder suggests using when dealing with a confusing ethical issue in order beginning with what occurs first. Determine responsibility. incorrect toggle button unavailable Recognize that moral questions exist. correct toggle button unavailable Gather all important information. incorrect toggle button unavailable Test for right-versus-wrong issues. incorrect toggle button unavailable Determine responsibility. incorrect toggle button unavailable
1) Recognize that moral questions exist. 2) Determine responsibility 3) Gather all important information. 4) Test for right-versus-wrong issues.
Measures to establish an ethical culture
1. Clear policies on ethical conduct including a code of ethics 2. Ethics training program that instills a commitment to act ethically & explains code provisions 3. A top level officer (Chief Ethics and Compliance Officer) to oversee ethics & compliance 4. Use internal auditors to investigate whether ethics policies followed 5. Strong internal controls to prevent & detect unethical behaviors 6. Whistleblowing policies, including reporting outlets 7. Ethics hot line for anonymous tips 8. Ethics statement signed by employees 9. Enforce ethics policies fairly & take immediate action against violators 10. Reward ethical behavior & include in performance evaluation system
4 key constituent groups of accountants & auditors' domain [general stakeholders]:
1. Client organization that hires & pays for accounting services 2. Accounting firm that employs the practitioner 3. Accounting profession including various regulatory bodies -Such as SEC & PCAOB 4. General public who rely on the attestation & representation of the accounting firm
When considering the 3D Printing Case, rank the following steps for accounting professionals contemplating whistleblowing according to IMA ethical standards.
1. Discuss the matter with superiors 4. Have a coversation with an impartial
Ethical Leadership
1. Leaders of Good Character 2. Virtues 3. Role Models
Audit Committees Best Practices
1. Review formal announcements of earnings 2. Focus on fin'l reporting & strong internal controls 3. Review corp's whistleblower program 4. Understand significant risks to company 5. Consider whether corp's disclosures give investors information needed to understand business 6. Set clear expectations for internal audit function & communication with external auditors 7. Review significant financial reporting judgments 8. Ensure external auditor's independence & objectivity & effectiveness of audit process
Sample Responses to Heinz Dilemma - Egoism
Steal the drug, depending on how much Heinz likes his wife & how much risk to stealing
Sample Responses to Heinz Dilemma - Ends justify the means
Steal the drug, due to loving the wife so much & cannot watch her die
1. Stage 1 - Obedience to Rules; Avoidance of Punishment 2. Stage 2 - Satisfying One's Own Needs
2 stages of level 1 - Preconventional:
1. Stage 5: Social Contract 2. Stage 6: Universal Ethical Principles
2 stages of level 3 - Postconventional
1. Level 1 - Preconventional 2. Level 2 - Conventional 3. Level 3 - Postconventional
3 levels of Kohlberg's Cognitive Development Approach
Corporate executives are held responsible for the periodic reports filed with the SEC under section _____ of the Sarbanes-Oxley Act.
302
1. What main arguments you are trying to counter?/What reasons & rationalization must you address? 2. What's at stake for key parties, including those you disagree with? 3. What levers can you use to influences those you disagree with? 4. What's your most powerful/persuasive response to the reasons & rationalizations you need to address?
4 - Step GVV Process:
1. Whistleblower 2. Whistleblowing act 3. Party to whom complaint is made 4. Org involved with the complaint
4 elements of whistleblowing:
1: high-high (high org & high individual ethics) 2: low-low (low org & low individual ethics) 3: high-low (high org & low individual ethics) 4: low-high (low org & high individual ethics)
4 ethical dissonance model scenario/options:
1. Moral Sensitivity 2. Moral Judgment 3. Moral Motivation 4. Moral Character
4 psychological components of Rest's Model of Morality:
1. Obedience to Rules; Avoidance of Punishment 2. Satisfying One's Own Needs 3. Fairness to Others 4. Law and Order 5. Social Contract 6. Universal Ethical Principles
6 stages of Kohlberg's Moral Development
(1) Pressure to maintain numbers (2) Fear & silence (3) Young 'uns & bigger than life CEO (4) Weak board of directors (5) Conflicts of interests overlooked or unaddressed (6) Innovation like no other company (7) Goodness in some areas atones for evil in others
7 Signs of Ethical Collapse
After seeing a violation of code of conduct, employees said...
78% would notify their supervisor or another manger 54% would try resolving the matter directly 53% would call the ethics or compliance hotline 26% would notify someone outside the organization 23% would look the other way or do nothing
Why does Financial Statement Fraud Occur?
A culture is created & tone at the top established that presents image of a company willing to do whatever it takes to paint a rosy picture about financial results -Situational pressure -Perceived opportunity -Rationalization
Which of the following are criticisms of Kohlberg's work? (Select all that apply) An over-reliance on the public interest Belief that reason constitutes an individual's moral development A disregard for traits of character Makes deontological ethics superior to other ethical perspectives An over-reliance on dilemmas to measure moral reasoning
A disregard for traits of character Makes deontological ethics superior to other ethical perspectives An over-reliance on dilemmas to measure moral reasoning
In Jones's moral intensity model, which of the following increases moral intensity? (Select all that apply) An increase in education and experience A greater degree of harm or benefit A willingness to place ethical values ahead of nonethical values A strong Social Consensus that an act is morally wrong An action with immediate negative consequences
A greater degree of harm or benefit A strong Social Consensus that an act is morally wrong An action with immediate negative consequences
Davis explaining to Paul that using company money for personal reasons is never acceptable unless owners approved and it is documented is an example of
A persuasive response to reasons and rationalizations
Low organizational ethics, high individual ethics (low-high)
A reduction in job satisfaction is likely if an employee striving to be ethical perceives little top management support for ethical behavior, an unfavorable ethical climate in the organization, and/or little association between ethical behavior and job success. Once this ethical dissonance is discovered, the likelihood of employee turnover rises
In Jones' moral intensity model, which of the following increases moral intensity?
A strong social consensus that an act is morally wrong An action with immediate negative consequences A greater degree of harm or benefit
According to the ACFE Global Survey, the typical organization loses ______. A. 5% of its revenue to fraud each year B. 10% of its revenue to fraud each year C. $1 million of its assets each year D. $1 million of its revenue to fraud each year
A. 5% of its revenue to fraud each year
What is Ethical Leadership Competence? A. Ability to handle all kinds of moral problems that may arise in an organization B. Making difficult decisions C. Ability to apply a System 1 thinking to resolving ethical dilemmas D. Setting the proper tone at the top
A. Ability to handle all kinds of moral problems that may arise in an organization
Which of the following hold that actions are the proper basis used to judge morality? A. Act deontologists B. Rule Egoists C. Rule deontologists D. Act Egoists
A. Act deontologists
Which of the following is a dimension of trustworthiness? A. Acting with integrity B. Being a caring individual C. Being a good citizen D. Being respectful
A. Acting with integrity
The conclusion of Morris' research was A. Authentic leaders can help to promote an ethical culture and reduce the instances of dysfunctional auditor behavior B. A significant positive correlation exists between measures of authentic leadership and dysfunctional auditor behavior C. Authentic leaders have no influence on the ethical culture or the instances of dysfunctional auditor behavior D. Perceptions of ethicality of leaders influences views of ethical firm culture
A. Authentic leaders can help to promote an ethical culture and reduce the instances of dysfunctional auditor behavior
Which of the following must be considered when considering materiality in financial statements? A. Both quantitative and qualitative factors B. Qualitative factors but not quantitative factors C. Quantitative factors but not qualitative factors
A. Both quantitative and qualitative factors
How does an auditor gather and objectively evaluate audit evidence? A. Consider competency and sufficiency of the evidence B. Consider whether internal control are effective C. Apply fieldwork standards D. By assessing audit risk
A. Consider competency and sufficiency of the evidence
In defense to a liability claim, auditors may assert failure of a client to follow internal control procedures to properly supervise employees as examples of: A. Contributory negligence B. Causation C. Breach of Duty D. Contributory Damage
A. Contributory negligence
Which of the following is a valid defense in a malpractice lawsuit? A. Contributory negligence B. Causation C. Breach of Duty D. Contributory Damage
A. Contributory negligence
Which of the following is not one of the elements of a professional negligence lawsuit that would cause liability in a malpractice claim? A. Contributory negligence B. Breach of Duty C. Causation D. Contributory Damage
A. Contributory negligence
The objective of transformational leadership is A. Create change in individuals and social systems B. Build long-term shareholder value C. Become authentic leaders D. Adjust follower ethics to conform to organizational ethics
A. Create change in individuals and social systems
Which of the following would help prevent and detect financial statement fraud? A. Effective internal audit function B. Unethical leadership C. Ineffective external audit D. Increased moral intensity of a decision
A. Effective internal audit function
Misappropriation of assets can be reduced by: A. Establishing internal controls to safeguard assets B. Reporting fraud to the auditors C. Eliminating the opportunity to commit fraud D. Creating ethical standards to prevent it
A. Establishing internal controls to safeguard assets
Audit committee responsibilities for fraud risk assessment include: A. Evaluate management's identification of fraud risks B. Discuss fraud risk assessment with external auditors C. Consider any Dodd-Frank reporting responsibilities D. Report unresolved matters to the SEC
A. Evaluate management's identification of fraud risks
How should an auditor meet a level of reasonable assurance? A. Exercise a level of care to avoid charges of negligence B. Assess whether the management audited the internal controls C. Ensure that the independence in fact standard has been met
A. Exercise a level of care to avoid charges of negligence
Which threat to independence occurs when a close relationship is formed between the CPA and an attest client? A. Familiarity threat B. Undue influence threat C. Management participation threat D. Financial self-interest threat
A. Familiarity threat
What must be proven for an accountant to successfully assert the materiality defense? A. Information would not have affected the decision-making of a reasonable investor B. The information provided did not cause damages C. The information would have deterred the average prudent investor from purchasing the securities D. There were minor inaccuracies or erosion in matters relevant to investors
A. Information would not have affected the decision-making of a reasonable investor
Which of the following statements best describes the results of Arel's study? A. Internal auditor perceptions of the moral intensity of an issue determines whether a questionable accrual will be reported B. Strong internal audit function and weak ethical leadership have no affect on perception of moral intensity of the issue C. Joint influence of ethical leadership and internal audit quality determines whether a questionable accrual will be reported D. Strong internal audit function has no influence on whether accrued journal entries are recorded
A. Internal auditor perceptions of the moral intensity of an issue determines whether a questionable accrual will be reported
What is the most common form of management fraud? A. Management's manipulation of financial statements B. Errors in accounting estimates C. Theft by employees who handle cash D. Auditor deception of client
A. Management's manipulation of financial statements
What is the first line of defense against allegations of fraud that auditors can assert? A. No duty existed to the third party B. Third-party acted on information without the auditor's knowledge C. Loss to third party was caused by unrelated events D. Claim is invalid because statute of limitations expired
A. No duty existed to the third party
A defense that can be used by those accused of violating the FCPA is: A. Payment is lawful under the written laws of the foreign country B. Lack of knowledge that the payment was made to induce improper behavior C. Payment did not affect the final outcome of the decision of the foreign official D. Payment was made for unusual business expenses
A. Payment is lawful under the written laws of the foreign country
In being good citizens, accountants and auditors should strive to enhance the reputation of ______. A. the accounting profession B. their clients C. the Internal Revenue Service D. their CPA firm
A. The accounting profession
The PCAOB Form AP require the disclosure of which of the following? A. The name of the engagement partner B. The address of the engagement partner C. The certifications the engagement partner holds
A. The name of the engagement partner
True or false: A corporate governance system includes mechanisms to ensure that management operates the organization in the interests of shareholders. A. True B. False
A. True
True or false: An SEC rule implementing the Dodd-Frank whistleblower reward program bars companies from enforcing confidentiality agreements. A. True B. False
A. True
True or false: Internal control systems cannot guarantee all fraud will be detected. A. True B. False
A. True
An individual acting in accordance with his/her own reasons or motives and not those of organizational policies or whistleblowing legislation is demonstrating ______. A. autonomous will B. moral agency C. business judgment D. honest services
A. autonomous will
The SEC protects whistleblowers by ______. A. barring companies from threatening to enforce a confidentiality agreement B. allowing whistleblowers to take any confidential documents from the company
A. barring companies from threatening to enforce a confidentiality agreement
For a company to receive full credit for timely and appropriate remediation in FCPA matters, it must have in place an effective A. compliance and ethics program B. organizational chart C. independent external auditor
A. compliance and ethics program
Ethical expectations that society has for business can be referred to as ______. A. corporate social responsibility B. diversity C. ethical climate initiatives
A. corporate social responsibility
Whistleblowing in accounting is a duty when it is motivated by ______. A. determination to protect the public interest B. pressure from lower level coworkers C. desire to harm the organization D. a fear of future consequences
A. determination to protect the public interest
The opinion section of the audit report A. expresses the auditor's conclusions based on the audit. B. identifies the statements examined. C. explains the audit procedures used. D. explains the conclusions reached on internal controls.
A. expresses the auditor's conclusions based on the audit.
In Miceli and Near's research, the primary reason given by whistleblowers for not coming forward is ______. A. fear of retaliation B. the support of coworkers C. the fear that they wouldn't remain anonymous D. the assumption that no one else will do it E. the belief that no corrective action would be taken
A. fear of retaliation
Whenever a significant event takes place, companies whose securities are listed and traded on stock exchanges should file A. form 8-K. B. form S-K. C. form S-X. D. form 10-K.
A. form 8-K.
The person-organization fit in the Ethical Dissonance Model that creates the greatest likelihood of ethical behavior occurring is ______. A. high organizational ethics, high individual ethics B. low organization ethics, low individual ethics C. low organization ethics, high individual ethics D. high organizational ethics, low individual ethics
A. high organizational ethics, high individual ethics
The whistleblower provisions of the Dodd-Frank Act include ______. A. incentives for whistleblowers when the information they provide aids in the recovery of over $1 million B. an award of 10 to 30 percent of the amount recovered in all lawsuits against the company C. external audit requirements before whistleblowing D. incentives for whistleblowers who circumvent internal measures to blow the whistle directly to the SEC
A. incentives for whistleblowers when the information they provide aids in the recovery of over $1 million
Opportunity for unethical behavior results from conditions that ______. A. increase rewards B. decrease rewards
A. increase rewards
Having the procedures and structures in place to minimize or avoid conflicts of interest is another way of describing ______. A. independence B. transparency C. fairness D. accountability
A. independence
The state of mind that permits the performance of an attest service without being influenced in ways that compromise professional judgment is called ______. A. independence in fact B. moral independence C. independence in appearance D. integrity
A. independence in fact
Reasonable assurance in an audit A. is not an absolute guarantee that the financial statements are free of material misstatement. B. guarantees management has implemented proper internal controls over financial reporting. C. guarantees that the financial statements are free of material misstatement.
A. is not an absolute guarantee that the financial statements are free of material misstatement.
When the auditor is unable to obtain sufficient audit evidence to conclude the financial statements are free of material misstatement, the auditor should A. issue a modified opinion. B. issue an unmodified opinion. C. issue an unqualified opinion. D. include an emphasis-of-matter paragraph.
A. issue a modified opinion.
Internal compliance officers and internal auditors generally cannot receive whistleblower awards under Dodd-Frank because ______. A. it is part of their job responsibilities to report suspicion of illegal acts to management B. they are never eligible to receive an award C. they fail to wait 120 days after reporting the matter to management before reporting to the SEC D. they must first report the matter to the external auditors before qualifying for an award
A. it is part of their job responsibilities to report suspicion of illegal acts to management
The ethical person-organization fit option that is most likely to lead to unethical behavior occurring is ______. A. low individual ethics, low organizational ethics B. high individual ethics, low organizational ethics C. low individual ethics, high organizational ethics D. high individual ethics, high organizational ethics
A. low individual ethics, low organizational ethics
The ultimate obligation of CPA-members of the AICPA in resolving conflicts of interests is to ______. A. meet their responsibilities to the public B. meet their responsibilities to employers C. satisfy their own interests D. meet their responsibilities to clients
A. meet their responsibilities to the public
PCAOB Auditing Standard No. 2201 A. requires auditors to form an option on the ICFR B. requires auditors to maintain independence when assessing internal controls. C. requires auditors to act with reasonable care. D. deems control irregularities immaterial for deciding auditor liability.
A. requires auditors to form an option on the ICFR
One characteristic of virtually all frauds in the late 1990s and early 2000s was ______. A. the CEOs and CFOs knew about the materially misstated financial statements B. there was no independent audit C. the CEOs and CFOs certified that the financial statements were free of material misstatements D. there were no internal controls
A. the CEOs and CFOs knew about the materially misstated financial statements
Using rights theory, the primary ethical obligation of an accountant is to ______. A. the venture capitalists B. his own self-interests C. company executives D. his direct supervisor
A. the venture capitalists
Professional judgment may be compromised when performing attest services because ______. A. threats may exist that cannot be mitigated by safeguards B. safeguards must be used to prevent violations of independence C. no safeguards can prevent compromise D. threats will lead to subordinating judgment
A. threats may exist that cannot be mitigated by safeguards
Timely and accurate disclosure on all material matters, including the financial situation and corporate governance, are required by ______. A. transparency B. independence C. accountability D. fairness
A. transparency
The AICPA Revised Code applies to CPAs in the performance of all professional services except ______. A. when the wording of the rule indicates otherwise B. when internal pressures exist C. when the client interest is sacrificed D. when external pressures exist
A. when the wording of the rule indicates otherwise
The model of ethics standards for CPAs in the United States comes from the _____ code of professional conduct.
AICPA
The ethical standards considered in ethical sensitivity include ______. rights moral virtues utilitarianism AICPA Code Principles
AICPA Code Principles
The difference between an individual with strong ethical character and one with weak ethical character may be summarized as
Ability to withstand any pressures and act ethically
According to the Six Pillars of Character, the primary motivation for ethical action is ______.
According to the Six Pillars of Character, the primary motivation for ethical action is one's inner sense of right and wrong.
Accountants Ethical Behavior
Accounting profession's professional standards encourage ethical behavior These standards, an individual's attitudes & beliefs, & ethical reasoning capacity influence professional judgment & ethical decision making Stages 4 (law & order) & 5 (social contract) best? Goal: Act ethically even though it may go against corporate culture of, "go along to get along"
The giving voice to values technique
Addresses the pathway an individual can use to express their beliefs Is used after an individual has decided what to do in an ethical situation
The underlying features of cognitive development include
An ability to make reasoned judgements A thought process Becomes more complex and sophisticated with development Develops from childhood to adulthood
Backdating Stock Options
An executive compensation scandal erupted in 2006 when it was discovered that some companies had changed the grant dates of their options to coincide with a dip in the stock price, making the options worth more because less money would be needed to exercise them and buy stock
Stage 5: Social Contract
An individual is motivated by upholding the basic rights, values, and legal contracts of society. That person recognizes in some cases that legal and moral points of view may conflict. To reduce such conflict, individuals at this stage base their decisions on a rational calculation of benefits and harms to society. EX: Susan might weigh the alternative courses of action by evaluating how each of the groups is affected by her decision to make the payment. For instance, the company might benefit by gaining the contract. Susan might even be rewarded for her action. Susan weighs the consequences of making an illegal payment, including any resulting penalties, against the ability to gain additional business. Susan might conclude that the harms of prosecution, fines, other sanctions, and the loss of one's reputational capital are greater than the benefits
Prescriptive Reasoning
An individual's ethical cognition of what "ideally" ought to be done to resolve an ethical dilemma
In decision making, an individual should ______. A. put his/her self-interest before the public interest B. rely on his/her moral principles as a guide C. rely strictly on rules and laws
Answer B
Identify the characteristics of ethical egoism (select the best statement). A. In the strong version, it is always good to promote one's own good. B. The ethical egoist should not pursue his/her own interests at a cost to others. C. In the weak version, it is never good to promote one's own good.
Answer: A
In applying a procedural justice perspective to an earnings management situation, an accountant should ______. A. assess support for decisions on the part of the company B. have the courage to withstand the pressure imposed by management to manipulate financial statements C. identify the harms and benefits of recording transactions versus not recording them D. ask oneself if others in a similar situation would complete an accounting manipulation
Answer: A
Under utilitarianism, lying is acceptable only when it ______. A. results in maximizing the net utility B. violates the basic rule of honesty C. leads to subordination of judgment D. helps to achieve our individual goals
Answer: A
Utilitarianism may be of limited value in moral decision making because ______. A. it may be difficult to assign values to benefits and harms B. rules are ignored in decision making C. stakeholder considerations are not a factor D. harms may exceed benefits
Answer: A
The basic problem under justice theory is ______. A. implementing the ethics code B. determining who should determine the fair distribution of benefits and burdens C. assessing the rights of individuals D. determining morally relevant criteria to assess fair distribution of benefits and burden
Answer: D
A conflict of interests can occur when ______. A. personal interests do not match the interests of those that trust you B. individuals make judgment calls on behalf of others C. personal judgments are in agreement with those that trust you
Answers: A, B
Application of utilitarianism in ethical decision making can be difficult because ______. (Check all that apply) A. utilitarian costs can be difficult to determine B. utilitarian benefits can be difficult to determine C. there may not be any stakeholders in a particular situation D. consequences of actions may not exist
Answers: A, B
Characteristics of social learning theory include the A. way in which leaders influence followers B. way in which leaders become role models to followers C. influence of leader status and success on the behavior of followers D. influence of follower expectations on leader behavior
Answers: A, B
How can a risk management culture be improved? (Check all that apply). A. Senior management and the board should adopt internal control procedures B. Commitment to integrity and ethical values C. Engage the external auditors to develop the systems D. Evaluating the culture of the organization
Answers: A, B
Identify the points made by Grant Thornton in its defense of the charges of negligence and fraud in the Epic Resorts case. (Check all that apply). A. Liability for false misrepresentation exists only to those whom the auditor knows and intends to influence B. No evidence existed of a casual connection between Grant's alleged misrepresentation and the hedge fund's alleged injury C. No loss, significant or insignificant, was incurred by Epic Resorts or their investors
Answers: A, B
In communicating with those charged with governance, the auditor should consider the following regarding the reasonableness of accounting estimates (check all that apply) A. The degree of subjectivity in assumptions B. The nature of significant assumptions C. The immateriality of the estimates as a whole
Answers: A, B
In the Monroe v. Hughes case, the auditor (Select all that apply) A. issued an unqualified audit report. B. found internal control irregularities. C. was liable to investors due to negligence. D. disclosed the internal control irregularities.
Answers: A, B
Select all the reasons why diversity and inclusion are important issues. A. Global business environment benefits from a diverse workforce. B. Fair and equal treatment creates an ethical corporate culture. C. Diverse workforce limits opportunity for employees.
Answers: A, B
The reputation of a CPA is built by performing professional services ______. (Check all that apply) A. competently B. confidentially C. expediently D. deliberately
Answers: A, B
What motivated Diem-Thi Le's supervisor at the Defense Contract Audit Agency to change her working papers? A. Make it appear that audit risk was low on contractor-clients B. Make it appear the audit work was more efficient C. Branch manager signed the audit report D. Le's audit was deficient
Answers: A, B
Which of the following are important components of tone at the top? (Select all that apply) A. Communicating the importance of compliance to employees B. Enforcing disciplinary actions C. Rarely modeling company values
Answers: A, B
Which of the following are potential concerns of the whistleblowing program? (Select all that apply) A. Permitting compliance officers to become whistleblowers based on the passage of time may dissolve trust in compliance officials. B. A self-interested person may reveal company information with inadequate safeguards as to the quality of the information. C. The whistleblowing program gives incentive to employees to report fraud and protects them from retaliation. D. The whistleblowing program protects the identity of individuals who report fraud, and this may be necessary information.
Answers: A, B
Which of the following were developed as a result of the decision in the 1136 Tenants Corp. case? (Select all that apply) A. Compilations and reviews B. Engagement letters C. Due care D. Modified audit opinion
Answers: A, B
An opportunity for fraud to occur exists because of: (Check all that apply). A. Estimates and judgments that are subjective B. Unusual and complex transactions C. Significant related-party transactions D. Absence of any transactions across international borders E. Over-reliance on earnings from one geographical location
Answers: A, B, C
Auditors may be sued for negligence under which types of liability? (Select all that apply) A. Common law by clients B. Statutory law for civil liability C. Common law by third parties D. Statutory law for criminal liability
Answers: A, B, C
Each of the following is an element of reliability that enhances ethical decision making. (Check all that apply) A. Follow through B. Moral duty C. Promise-keeping D. Egoism E. Carelessness
Answers: A, B, C
Ethical leadership failure can occur because of A. Using one's position to take advantage of followers B. Trying to keep the client happy at all costs C. Applying an ends-justifies-the-means approach to ethical reasoning D. Following moral constraints for the good of the group
Answers: A, B, C
How does the culture of an organization contribute to ethical decision making? (Check all that apply) A. By the tone set by those at the top of the organization B. Through organizational relationships C. Through organizational expectations D. By including external auditors in the organization's chain of command E. By limiting the organizational relationships and expectations
Answers: A, B, C
Identify the elements of the ruling in the Burger Court opinion. (Check all that apply) A. Requires independent audits of publicly owned companies B. The independent audit provides the basis for the existence of the accounting profession in the United States. C. The public places its trust in the independent auditor. D. It established the AICPA Code of Professional Conduct. E. The existence of independent audits was unknown before passage of legislation establishing the SEC.
Answers: A, B, C
Koh and Boo found that positive ethical culture and climate produce ______. A. the ethical climate of the organization B. favorable organizational outcomes C. support for ethical behavior from top management D. unfavorable organizational outcomes
Answers: A, B, C
The application of GAAP to the financial statements can lead to mistakes in: (Check all that apply). A. Classifications B. Presentation C. Amounts D. Management representations E. Auditing
Answers: A, B, C
The outcome of responsible leadership includes A. Ethical competencies B. Ethical culture C. Ethical leadership D. Personal ethical skills E. Ethical rules of conduct
Answers: A, B, C
The ruling in the Bily case rejects the Rosenblum foreseeability approach because: (Check all that apply). A. It exposes auditors to potential liability in excess of their proportionate share B. Sophisticated plaintiffs have other ways to protect themselves from the risk of inaccurate financial statements C. The court opted for the more stringent standard of actually foreseen D. The court opted for the less stringent standard of reasonably foreseeable E. Third parties should not be able to sue auditors because there is no privity relationship
Answers: A, B, C
Utilitarianism requires that the decision maker should do the following: ______. (Check all that apply) A. determine consequences of action B. consider impartially the interests of stakeholders C. evaluate benefits and harms to stakeholders D. select the alternative that maximizes self-interest E. act in one's own self-interest
Answers: A, B, C
Which of the following are common cognitive traps that our judgment can incur? (Select all that apply) A. Groupthink B. Problem solving rush C. Judgment triggers D. Professional skepticism E. Moral biases
Answers: A, B, C
Which of the following are elements of whistleblowing? (Check all that apply) A. The act of whistleblowing B. The organization against which the complaint is lodged C. The party to whom the complaint is made D. The response by those to whom the complaint is made E. The action taken by the organization to counteract the whistleblower
Answers: A, B, C
Which of the following are various forms of egoism? (Check all that apply) A. Ethical egoism B. Rational egoism C. Enlightened egoism D. Deontological egoism
Answers: A, B, C
Without admitting or denying the FPCA violations, Halliburton agreed to the following to resolve the case (select all that apply) A. retain a compliance consultant B. payment of penalties and disgorgerment C. review and evaluate anti-corruption policies D. find a new external auditor
Answers: A, B, C
When risks of material misstatements due to fraud exist, which of the following audit procedures can be used to demonstrate professional skepticism? (Check all that apply). A. Analytical procedures B. Using specialists C. Examine documents from an independent source D. Third-party confirmations E. Inquiries of the predecessor auditor F. Communicate with the audit committee
Answers: A, B, C, D
An accountant may escape liability under Section 11 by successfully asserting one of the following defenses: (Check all that apply). A. The loss was due to factors other than the material misstatement or omission of information B. The plaintiff knew the statements were incorrect at the time of purchasing the investment C. Reasonable basis existed to believe the statements were not materially misstated D. The third party did not rely on the financial statements E. Reasonable investigation was conducted F. No damages had occurred
Answers: A, B, C, E
How should auditors obtain needed information to identify the risk of material misstatement due to fraud? (Check all that apply). A. Inquire of management to assess their views about fraud risks B. Consider information received from the predecessor auditor C. Evaluate fraud risk factors D. Discuss any concerns with the audit committee E. Consider any unusual or unexpected relationships F. Discuss any concerns with the SEC
Answers: A, B, C, E
Which management attitudinal risk factors indicate fraudulent financial reporting may exist? (Check all that apply). A. Lack of support or enforcement of entity ethical standards B. Management's unwillingness to correct significant problems with internal controls C. Committing to overly aggressive financial analysts' earnings estimates D. Ignorance of securities regulations E. Excessive interest by management in increasing share prices and earnings F. Financial management's participation in selecting accounting principles
Answers: A, B, C, E
Audit procedures selected are designed to: (Check all that apply). A. Support auditor judgments B. Evaluate the reasonableness of significant estimates C. Satisfy risk assessment concerns D. Evaluate audit committee responsibilities E. Form an opinion on the statements F. Obtain evidential matter
Answers: A, B, C, F
Safeguards that might eliminate or reduce threats to independence include those ______. (Check all that apply) A. created by the profession B. created by legislation C. implemented by the attest client D. created by the facts of a particular situation E. identified in peer reviews F. implemented by the firm
Answers: A, B, C, F
A responsible leader possess which of the following qualities (select all that apply): A. cognitive abilities B. emotional abilities C. timeliness D. moral
Answers: A, B, D
Behavioral ethics ______. (Select all that apply) A. looks at how situational and social forces influence the actual behavior of individuals B. requires explaining moral and immoral behavior in systematic ways C. looks at how individuals believe they should act D. requires understanding the consequences of actions
Answers: A, B, D
Ethical intelligence is a component of ethical leadership. Which of the following are components of ethical intelligence (select all that apply): A. Ethical sensitivity B. Moral imagination C. Professional obligation D. Reflection skills
Answers: A, B, D
Fear and silence can stifle whistleblowing in a company because of ______. (Check all that apply) A. a kill the messenger syndrome B. a culture that retaliates against whistleblowers C. clear reporting channels for matters of concern D. fear of reprisals E. the failure to meet financial estimates
Answers: A, B, D
In stage 5 of Kohlberg's model, a person is influenced by ______. (Check all that apply) A. the legal contract of society B. rights and values of society C. acting in the best interests of others D. evaluating harms and benefits of actions E. universal ethical principles
Answers: A, B, D
Near and Miceli link whistleblowing to acts that are ______. (Check all that apply) A. immoral B. illegitimate C. taken by external auditors D. illegal E. outside the control of employers
Answers: A, B, D
Select all of the following steps Uber pledged to take as a result of Susan Fowler's sexual harassment claims and the Covington report. A. Train personnel to combat implicit bias B. Create an Ethics and Culture Committee C. Mitigate bias in performance reports D. Provide an effective complaint process
Answers: A, B, D
The auditor's assessment of fair presentation includes whether the: (Check all that apply). A. statements reflect transactions and events within reasonable limits. B. accounting principles used comply with GAAP. C. detailed information in the statements is properly disclosed. D. statements and notes are informative of matters that may affect user understanding of the statements. E. accounting principles are appropriate even if they lack general acceptance.
Answers: A, B, D
Which of the following do Koh and Boo identify as measures of organizational ethics? A. Support for ethical behavior from top management B. The connection between ethical behavior and career success C. Protection of whistleblowers within the organization D. The ethical climate of the organization E. The person-organization fit
Answers: A, B, D
Which of the following has been shown to influence the moral development of a manager? (Check all that apply) A. Corporate culture B. Education C. Established decision priorities D. Ethical training E. Fear of losing one's job
Answers: A, B, D
Auditor's should look for fraud by: (Check all that apply) A. Being alert to red flags B. Assessing audit risk C. Preparing the financial statements D. Examining internal controls E. Guaranteeing that the fraud will be detected F. Evaluating the control environment
Answers: A, B, D, F
Factors that might lead to fraud include: (Check all that apply). A. Egoism B. Meet financial analysts' earnings projections C. Inadequate knowledge of the rules D. Internal Budget Pressures E. Inefficient audits F. Personal pressures
Answers: A, B, D, F
The underlying features of cognitive development include ______. (Check all that apply) A. becoming more complex and sophisticated with development B. developing from childhood to adulthood C. a hierarchical series only D. a thought process E. being set in childhood F. an ability to make reasoned judgments
Answers: A, B, D, F
An ethical workplace culture is influenced by ______. (Check all that apply) A. having an ethical code of conduct B. whistleblowing policies C. government regulation D. earnings projections E. strong internal controls
Answers: A, B, E
Heinz dealt with the dilemma by ______. (Check all that apply) A. asking the druggist to sell the drug for less B. asking the druggist if he could pay for the drug over time C. raising all the money from family and friends D. giving up on trying to obtain the drug E. stealing the drug for his wife
Answers: A, B, E
Which of the following are ways to document professional skepticism? (Select all that apply) A. Document additional corroboration of management's views B. Obtain third-party confirmations C. Maintain a materiality threshold percentage D. Document discussions with the audit committee E. Obtain direct knowledge though observation
Answers: A, B, E
Which of the following is a likely cause of action asserted by plaintiffs? (Check all that apply). A. Wrongdoing occurred B. Fraud has occurred C. Due diligence D. Substantiated performance E. Breach of contract
Answers: A, B, E
An auditor's ability to exercise professional skepticism depends on: (Check all that apply). A. Approaching the audit with a questioning mind B. Persistent questioning of management C. A critical assessment of audit evidence D. The culture of the audit firm
Answers: A, C
As a part of the oversight responsibility of the audit committee, which procedures strengthen internal controls? (Check all that apply). A. A summary of unethical conduct, follow-up and disposition is provided to those charged with governance. B. Discussions of risk factors with shareholders C. Encourage employees to report concerns about unethical behavior D. Periodic reports describing fraud and unethical conduct are sent to the SEC
Answers: A, C
Auditors should withdraw from the engagement when: (Check all that apply). A. Auditor decides management cannot be trusted B. Auditor prefers to end the engagement C. Significant conflict exists with management D. Audit report must be modified
Answers: A, C
Concerns over internal control procedures that may have contributed to the Equifax data breach include which of the following? (Select all that apply) A. The external auditors did not adequately consider problems with their information systems. B. The company had an adequate code of ethics and reporting procedures. C. The CEO did not adequately consider internal controls when certifying the internal controls.
Answers: A, C
Corporate social responsibility involves ______. (Check all that apply) A. ethical expectations that society has for business B. placing profit above all else C. responsibility to prevent harm
Answers: A, C
Ethical leadership failure can be attributed to A. organizational factors B. undefined ethical boundaries C. individual factors D. moral intensity
Answers: A, C
Fraudulent financial reporting includes: (Check all that apply). Intentional misstatements in the financial statements A. Intentional misstatements in the financial statements B. Unintentional acts to deceive others C. Intentional omissions of amounts from the statements D. Errors in the statements
Answers: A, C
From an ethical perspective, auditors can best protect themselves against lawsuits by: (Check all that apply). A. Exercising due care B. Reviewing internal controls C. Maintaining professional skepticism D. Identifying proper ethical standards
Answers: A, C
How did Michael Hudson, the former assistant treasurer at Frisch's Restaurant commit fraud? A. Programmed the company payroll computer to pay himself additional funds B. Recorded revenue for product that never shipped C. Forged vendor statements D. Delayed the recording of expenses
Answers: A, C
In accounting, the concepts closest to honesty are ______. (Check all that apply) A. Full disclosure B. Deception C. Transparency D. Loyalty
Answers: A, C
In the case of Diem-Thi Le, select all of the ways that Le identified that her identity as a whistleblower was not protected: A. Le was advised by a supervisor to seek mental health counseling B. Le was the only auditor rated as outstanding that received a performance award C. Le was transferred to another audit team
Answers: A, C
Internal controls can help to reduce fraud involving cash receipts by A. Segregating responsibilities B. Reporting fraud to to the board of directors C. Eliminating opportunities to commit fraud D. Eliminating pressures to commit fraud
Answers: A, C
Section 11 of the Securities Act provides a cause of action to investors who can prove that a registration contained which of the following (select all that apply): A. an omitted material fact B. an omitted immaterial fact C. an untrue material fact D. an untrue immaterial fact
Answers: A, C
Sims and Keenan's studies found that employees were more likely to engage in external whistleblowing if: (Check all that apply). A. They perceive that company policies suggested that such behavior was acceptable B. The internal reporting mechanisms do not exist in their companies C. They had support from their superior D. The accountability for whistleblowing is absent
Answers: A, C
The Medicis Pharmaceutical Case is a good example of an audit failure caused by a lack of A. due care B. independent auditors C. professional skepticism D. technical knowledge
Answers: A, C
The Omnicare case allowed liability under Securities Act of 1933 Section 11 when (select all that apply): A. The complaint called into question the basis for a wrong opinion. B. The plaintiff identifies immaterial omissions that make the statements misleading. C. The issuer of the opinion held a subjective belief inconsistent with the opinion.
Answers: A, C
The Private Securities Litigation Reform Act (PSLRA) places additional requirements upon public companies and their auditors when (select all that apply): A. an illegal act as a material effect on the financial statements B. the board of directors have taken appropriate remedial action C. management have not taken appropriate remedial action D. an illegal act has an immaterial effect on the financial statements
Answers: A, C
Under Omnicare, an auditor can be held liable if (select all that apply): A. if the auditor does not actually hold the opinion. B. the opinion omits a material fact that has no effect on an ordinary investor. C. the opinion contains an embedded statement of fact that is misleading.
Answers: A, C
What is the purpose of the auditor's assessment of the control environment? (Check all that apply). A. assess whether management's operating style is effective B. Support the independent auditor's opinion C. assess whether top management ethical values are understood
Answers: A, C
Which of the following actions would be protected under the National Labor Relations Act? (Select all that apply) A. An employee who complains on behalf of coworkers about safety issues B. Posting proprietary company information on social media C. Concerted efforts to improve conditions at work conducted on social media D. An employee who complains that her personal performance evaluation is unfair
Answers: A, C
Which of the following are characteristics of integrity? (Check all that apply) A. Trustworthiness B. Competence C. Self-reflection D. Non-responsiveness
Answers: A, C
Which of the following are components of the Cadbury Code? (Select all that apply) A. A majority of the board should be outside directors. B. The renumeration committee should be executive directors. C. There should be a separation of duties between the chairman of the board and the CEO.
Answers: A, C
Which of the following are components of the Cadbury Code? (Select all that apply) A. The audit committee should have a minimum of three non-executive directors. B. The CEO should also be the the chairman of the board. C. A non-executive director should not engage in day to day operations of the company. D. A majority of the board should be internal executives.
Answers: A, C
Which of the following are features of egoism? (Check all that apply) A. Consequences of actions B. Acting in the best interests of others C. Pursuit of self-interest D. Acting in the public interest
Answers: A, C
Which of the following are required of SEC registrants by the FCPA? (Select all that apply) A. Maintain internal accounting controls B. CEO and CFO certifications to the financial statements C. Maintain adequate books and records D. Maintain auditor independence
Answers: A, C
Which of the following are sections in the AICPA Revised Code of Professional Conduct? (Select all that apply) A. Members in business B. Members in audit C. Members in public practice D. Members in private practice E. Members in tax services
Answers: A, C
Which of the following must be proven by the plaintiff (third party) in cases of common law liability for fraud on the part of the auditor? A. Damages suffered by the third party B. Improper use of the information by the third-party C. A false representation by the accountant
Answers: A, C
A company's reputation for trust is enhanced when ______. (Check all that apply) A. employees follow through ethical intent with ethical action B. employee actions determine the values established C. organizational values guide actions by employees D. organizational values are supported by top management E. management overrides established values when desired
Answers: A, C, D
Andersen's moral blindness with respect to Enron was caused by ______. (Check all that apply) A. pressure from Enron B. failure of professional judgment C. Enron being one of the largest accounts for Andersen D. high consulting fees E. professional skepticism
Answers: A, C, D
Corporate governance regulation in the United States includes which of the following? (Check all that apply) A. Protection for whistleblowers B. Internal auditors must review corporate governance guidelines to ensure they have been followed. C. Auditors must attest to and report on management's certification on internal controls. D. Management must certify the internal controls over financial reporting. E. Protection for executives in fraud cases
Answers: A, C, D
The introductory paragraph of the audit report includes: (Check all that apply). A. The period covered by the statements B. The opinion reached C. The name of the entity D. The financial statements audited E. The responsibilities of the audit firm
Answers: A, C, D
The purpose of the Ethical Dissonance Model includes which of the following? (Check all that apply) A. It illustrates the interaction between the organization and the individual. B. It describes how cognitive dissonance may occur in an organization. C. It describes how the ethics of an organization influences behavior. D. It describes the ethical person-organization fit. E. It illustrates the disconnect between ethical standards and ethical behavior.
Answers: A, C, D
The risk-based approach requires a CPA to evaluate whether ______. (Check all that apply) A. a relationship would be seen as compromising professional judgment when rendering an attest service B. fraud exists in the financial statements C. threats exist that may compromise independence D. safeguards exist that can mitigate the influence of threats to independence E. a relationship would be seen as compromising the confidentiality obligation
Answers: A, C, D
What should be included in management representations? (Check all that apply). A. Affirmation that management has performed an assessment of the internal controls B. Certifications sent to the SEC C. Confirmation of providing auditor access to relevant information D. Disclosure of any deficiencies in internal controls E. Communications with the audit committee about internal control weaknesses
Answers: A, C, D
Which of the following occurred in the Lattice Semiconductor case? (Select all that apply) A. The Section 302 certifications of the CEO and CFO raised a strong inference of scienter. B. The court sided with the defendants due to the argument that all executives signing certifications would be subject to securities fraud action. C. The CEO and CFO either knew of the improper accounting or they knew the internal controls they attested to were inadequate. D. The CEO and CFO were deliberately reckless at a minimum.
Answers: A, C, D
Which of the following techniques can lead to fraud? (Check all that apply). A. Deception in the financial statements B. Audits that lack independence C. Misrepresentation of a material item in the statements D. Misapplication of GAAP to statement items E. Failure to obtain documents to detect fraud
Answers: A, C, D
The following are examples of acceptable facilitating payments: (Check all that apply). A. To obtain permits, licenses, and the official documents to do business in a foreign country B. Selection to provide services in a competitive bidding arrangement C. Processing governmental papers D. Expediting the performance of a routine governmental action E. Providing utilities service F. Influence the behavior of a foreign government official
Answers: A, C, D, E
A duty to notify outside parties may exist in each of the following situations (check all that apply) A. in response to a governmental funding agency B. in response to a shareholder inquiry C. in response to a subpoena D. when an entity reports a change in management staff E. when an entity reports a change in auditor
Answers: A, C, E
The independent auditor's public responsibility underlies its ______. (Check all that apply) A. allegiance to creditors and shareholders B. responsibility to the client C. fidelity to the public trust D. responsibility to the audit firm E. certification of public reports
Answers: A, C, E
Which of the following lead to loss of public trust in the accounting profession? (Select all that apply) A. Taking shortcuts B. Professional skepticism C. Subordination of judgment D. Due care E. Biased decision making
Answers: A, C, E
Which of the following occurred as a result of the Sarbanes-Oxley Act? (Select all that apply) A. Enhanced corporate disclosure and governance practices. B. Accounting firms must meet the independence standard. C. Accounting firms must review and assess management's report on internal controls. D. The Act specifies the definition of recklessness and due care. E. The Act specifies the scope of third parties to whom an auditor owes a duty of care.
Answers: A, C, E
Audit committee communications about difficulties encountered during the audit include: (Check all that apply). A. Significant delays by management in providing needed audit evidence B. Changes in audit personnel due to conflicts with management C. Extensive effort required to obtain adequate audit evidence D. Conclusion that a modified opinion will be issued E. Reluctance of management to provide going concern assessments when requested F. Unreasonable restrictions placed by management during the audit
Answers: A, C, E, F
Which of the following best describes the reasons for the difference in perceptions of tax and non-tax partners of organizational ethics? A. Frequency of receiving mentoring B. Non-tax partners rarely perceive unethical behavior in the organization C. Partner fit within firm culture D. Ability to describe an ethical dilemma E. Role of partner in influencing the ethical environment of their firms F. Sense of public interest responsibility
Answers: A, C, E, F
Auditors are responsible for: (Select all that apply) A. reporting material errors to the audit committee. B. reporting material errors to the SEC. C. reporting immaterial errors to the audit committee. D. detecting material errors in the financial statements. E. detecting immaterial errors in the financial statements.
Answers: A, D
In the Higginbotham v. Baxter Int'l. case, (Select all that apply) A. the plaintiffs did not provide specific proof as to the certifying executives awareness of deficiencies in internal controls. B. the plaintiffs provided evidence that the company's internal controls were inadequate. C. the court accepted the plaintiffs assertion of scienter relative to the individuals signing the Section 302 certifications. D. the court ruled in favor of the defendant because no specific proof of deficiency in internal controls was provided.
Answers: A, D
To ensure that the statements are fairly presented, the financial reporting framework: (Check all that apply). A. requires compliance with relevant laws or regulations. B. is based on materiality standards. C. acknowledges management's responsibility for the statements. D. is used to determine measurement and recognition of material items in financial statements.
Answers: A, D
Trevino suggests the pillars of ethical leadership include A. Moral manager B. Values-based leadership C. Community of people D. Moral person
Answers: A, D
Which of the following might contribute to a weak board of directors? (Check all that apply) A. Lack of independence from management B. Inadequate external audits C. Pressure to achieve desired results D. Interrelationships between board members and top management
Answers: A, D
Which of the following procedures should be performed by the audit committee to assess the potential for management override of controls? (Check all that apply). A. Compare reported information to forecasts and industry averages B. Discuss risk factors with management C. Discussions of risk factors with the predecessor auditor D. Discussions with internal auditors
Answers: A, D
According to the ACFE report, the motivation for an employee to engage in occupational fraud includes which of the following? (Check all that apply) A. To enrich oneself at the expense of the organization B. To manipulate the financial statements C. To satisfy stakeholder interests D. To steal assets from the organization such as cash E. To achieve some personal gain
Answers: A, D, E
The Tyco Board of Directors violated the corporate governance system by: (Select all that apply) A. doing business with the company. B. maintaining independence from the audit committee. C. overseeing Tyco's system of internal controls. D. not disclosing related-party relationships. E. borrowing money from the company.
Answers: A, D, E
To meet the general responsibilities related to the quality of professionals who perform an audit, an auditor should: (Check all that apply). A. Maintain independence in mental attitude B. Adequately plan the audit within a reasonable amount of time C. Adequately supervise assistants D. Have adequate technical training and proficiency E. Exercise due care in the performance of the audit and preparation of the report
Answers: A, D, E
When does legal liability exist for auditors under Rule 10b-5? (Check all that apply). A. Employ any device or other scheme to defraud B. Fail to prove the plaintiff relied on the statements C. Violate a provision of the Securities Exchange Act of 1933 D. Make an untrue statement of material fact E. Engage in a deceitful or fraudulent act in connection with the purchase or sale of a security
Answers: A, D, E
Why is the Giving Voice to Values technique critical in ethical decision making in business? (Select all that apply) A. The correct decision is often unclear. B. The results of the decision are known. C. Rules governing ethical dilemmas are clear and concise. D. Rules governing ethical dilemmas are often vague. E. The results of the decision are unknown.
Answers: A, D, E
The two broad conceptual frameworks in the AICPA Revised Code apply to which of the following? (Select all that apply) A. Members in public practice B. Members in private practice C. Members in consulting D. CPAs in tax services E. CPAs in business
Answers: A, E
Identify when common law liability may exist. (Check all that apply). AA. The plaintiff relied on the financial statements A. Auditors establish there was no substantiated performance B. An audit failure has occurred C. The client or a third-party suffers a financial loss D. The financial statements relied on leads to a loss E. The financial statements relied on are found to be materially misstated
Answers: AA, C, D, E
Authentic leaders are ethically oriented in their behavior because they A. Act conservatively at all times B. Recognize and evaluate ethical issues C. Acknowledge ethical responsibilities of their roles D. Take moral actions based on stakeholder beliefs and values
Answers: B, C
By reporting through the internal reporting process, which of the following are possible outcomes? (Select all that apply) A. Employees are protected from illegal acts. B. Others may become potential whistleblowers. C. Others in the organization become informed about concerns.
Answers: B, C
Check all of the reasons engagement letters were developed: A. Clarify reporting standards B. Clarify responsibilities of accountants C. Clarify responsibilities of auditors D. Clarify responsibilities of the board of directors
Answers: B, C
For each Critical Audit Matter (CAM), the auditor should (select all that apply): A. Disclose which audit partner signed off on the CAM B. Identify the CAM C. Describe how the CAM was addressed in the audit
Answers: B, C
Identify the characteristic behaviors of authentic leaders. A. leaders have no influence on dysfunctional auditor behavior B. leaders can help to promote an ethical culture C. leaders can reduce dysfunctional behavior D. Generally there is a positive relationship between audit senior's perceptions of ethical behavior by firms and likelihood of dysfunctional behavior
Answers: B, C
Identify the characteristic behaviors of high Individualism in workplace behavior. (Check all that apply) A. Acting in the best interests of others B. Greater possibility of blowing the whistle C.Pursuit of self-interest D. Loyalty to the group
Answers: B, C
In deciding how best to handle conflicts between rights, a useful perspective to consider is ______. (Check all that apply) A. whether any moral duties to individuals exist B. how the action would affect the basic rights of individuals C. prioritizing the rights D. weighing the consequences of actions
Answers: B, C
Our views of other people (stereotypes) can cause which of the following negative behaviors? (Select all that apply) A. National pride B. Favoritism C. Discriminatory hiring
Answers: B, C
Select the possible negative outcomes of simplifying complex issues to make decision making easier. (Select all that apply) A. Considering long-term consequences B. Failing to identify stakeholders C. Underestimating risk
Answers: B, C
The Equifax data breach involved which of the following? (Select all that apply) A. Manipulating earnings to increase stock price B. Inadequate disclosures related to its cyber security C. Failing to protect consumer information it sells to banks and other organizations
Answers: B, C
The Second and Third Court of Appeals allows scienter to be pled through particularized allegations if: (Select all that apply) A. strong circumstantial evidence of independence violations exists. B. facts show the defendant had both the motive and opportunity to commit securities fraud. C. strong circumstantial evidence of recklessness exists. D. facts show the defendant had the intent to commit securities fraud.
Answers: B, C
The ancient Greeks believed that what two things contributed to the choice of action? A. Laws B. Reason C. Thought D. Rules
Answers: B, C
The worth or dignity aspect of rights theory requires that ______. (Check all that apply) A. others should make decisions based on self-worth B. individuals should be treated as ends and not the means C. others should not use us in a way that is disrespectful D. individuals should be treated as a means to an end
Answers: B, C
What is the danger of covering up financial wrongdoing? (Check all that apply) A. It violates confidentiality. B. It violates integrity. C. It begins the slide down the ethical slippery slope. D. It violates the loyalty obligation to the client.
Answers: B, C
When should the auditor issue a modified opinion? (Select all that apply) A. The auditor finds an emphasis-of-matter situation that is fundamental to users' understanding of the financial statements. B. The auditor is unable to obtain sufficient evidence indicating the financial statements are free from material misstatement. C. The auditor obtains evidence indicating the financial statements are materially misstated. D. The auditor finds litigation uncertainty that is appropriately disclosed in the financial statements.
Answers: B, C
Which of the following are elements of the risk assessment done by auditors? (Check all that apply). A. Discuss with management any differences of opinion it had with the predecessor auditor on accounting issues B. Assessing the integrity of key management personnel C. Communications with the predecessor auditor D. Discuss with management why the previous auditors were fired E. Contact the SEC about any violations
Answers: B, C
Which of the following are important components of tone at the top? (Select all that apply) A. Rarely enforcing the code of conduct B. Reminding employees of a non-retaliation policy C. Modeling company values
Answers: B, C
Which of the following are objectives when performing an integrated audit? (Select all that apply) A. Obtain sufficient evidence to support auditor's guarantee that financial statements are free of material misstatements. B. Obtain sufficient evidence to support the auditor's control risk assessments for audit of financial statements. C. Obtain sufficient evidence to support the auditor's opinion on ICFR at year-end. D. Obtain sufficient evidence to support auditor's opinion that immaterial errors have been detected.
Answers: B, C
Which of the following sets a precedent for judges deciding similar cases moving forward? (Select all that apply) A. Federal statutory law with civil liability B. Common law liability to clients C. Common law liability to third parties D. Federal statutory law with criminal liability
Answers: B, C
All of the following are internal controls failures that led to FPCA violations in the Halliburton case (select all that apply) A. independence violations B. failure to conduct competitive bidding C. management override D. avoidance of a committee that reviews contracts
Answers: B, C, D
Auditors can best protect themselves against litigation by: (Check all that apply). A. Withdraw from an audit when risks are too high B. Exercise a proper degree of professional skepticism C. Properly assess whether material misstatements exist D. Review internal controls to determine whether they help to prevent or detect material misstatements in the financial statements E. Ensure that clients do not engage in transactions with a high level of business risk
Answers: B, C, D
Emphasis of matter issues that might be addressed in the audit report include: (Check all that apply). A. Compliance of statements with GAAP B. Going concern C. Outstanding litigation D. Subsequent events E. Internal controls
Answers: B, C, D
In addition to the existence of a loss, Restatement 552, establishes the legal liability of an auditor to a person who: (Check all that apply). A. To individuals that suffered a loss but did not rely on the financial statements B. Has a near privity relationship C. Who is a forseen third party D. Was the intended recipient of the information and was provided guidance
Answers: B, C, D
The objectives of audit procedures and evidence quality standards include (select all that apply): A. adequate planning of financial statement preparation B. obtaining sufficient understanding of internal controls C. adequate planning of audit work D. gathering sufficient evidence
Answers: B, C, D
The sources of rules that should guide ethical behavior of CPAs include which of the following? (Check all that apply) A. Voluntary organizations B. State CPA societies C. State board of accountancy regulations D. AICPA Code of Conduct E. Philosophical reasoning methods
Answers: B, C, D
Transformational leaders seek to A. Convert employees into followers through external mechanisms B. Serve as role model for followers C. Challenge followers to take greater ownership for their work D. Develop followers into leaders E. Turn follower weaknesses into strengths
Answers: B, C, D
Which of the following are factors for disclosing Critical Audit Matters? Select all that apply. A. The professional qualifications of the auditor to address the matters B. The nature an extent of audit effort required to address the matter C. The degree of auditor judgment related to areas in the financial statements D. The auditor's assessment of the risk of material misstatement
Answers: B, C, D
Which of the following conclusions were drawn from the results of the ACFE occupational fraud survey? (Check all that apply) A. Almost none of the victim organizations recovered any losses they suffered due to the fraud. B. The amount of fraud losses correlate with higher levels of authority. C. A tip is the most likely way for occupational fraud to be detected. D. Anti-fraud controls correlate to significant decreases in occupational fraud. E. Anti-fraud controls are the most likely way that occupational fraud is detected.
Answers: B, C, D
Which of the following are components of the KPMG Professional Judgment Framework? (Select all that apply) A. Maintain independence. B. Clarify issues and objectives. C. Consider alternatives. D. Articulate and document rationale. E. Gather and evaluate information. F. Report findings to SEC.
Answers: B, C, D, E
Audit committee communications should address the following matters: (Check all that apply). A. Significant changes that auditors made to the process used to develop critical accounting estimates B. Critical accounting estimates C. Significant accounting policies and practices D. Critical accounting policies and practices E. Critical audit procedures followed F. Significant unusual transactions
Answers: B, C, D, F
Which management attitudinal risk factors indicate fraudulent financial reporting may exist? (Check all that apply). A. Financial management's participation in selecting accounting principles B. Lack of support or enforcement of entity ethical standards C. Committing to overly aggressive financial analysts' earnings estimates D. Management's unwillingness to correct significant problems with internal controls E. Ignorance of securities regulations F. Excessive interest by management in increasing share prices and earnings
Answers: B, C, D, F
Enron and WorldCom both failed as going concerns a result of ______. (Check all that apply) A. failing to meet earnings estimates B. a tension between ethics and the bottom line C. an excessive emphasis on financial results at all costs D. failing to hire competent management E. pressure to maintain the numbers
Answers: B, C, E
How should an auditor consider audit risk and materiality? (Check all that apply). A. Prepare a report on internal controls B. Planning of the audit and designing audit procedures C. Determine whether the statements are in conformity with GAAP D. Maintain professional skepticism during the audit E. Evaluate whether the financial statements present fairly financial results
Answers: B, C, E
The board of directors are responsible for ______. (Check all that apply) A. the ethics of top executives B. acting in the best interests of the corporation C. acting in good faith of the organization D. evaluating the legal responsibilities of external auditors for the firm's resources E. directing the business and affairs of the corporation
Answers: B, C, E
When should a qualified opinion be issued? (Check all that apply). A. Auditor was unable to obtain sufficient appropriate evidence of undetected misstatements that could be both material and pervasive B. Auditor was unable to obtain sufficient appropriate evidence, but the possible effects could be material but not pervasive C. Misstatements in the financial statements are material but not pervasive D. Misstatements in the financial statements are both material and pervasive E. Modified opinion is appropriate
Answers: B, C, E
Which of the following promote ethical behavior in an organization? (Select all that apply) A. Whistleblower retaliation within the organization B. Effective leadership within the organization. C. Rules of conduct within the organization D. Opposing points of view within the organization E. Ethical norms and standards within the organization
Answers: B, C, E
Under Sarbanes-Oxley, the audit committee is expected to be ______. (Check all that apply) A. disengaged from the financial reporting system B. conscientious and diligent in its oversight role of the financial statements C. completely independent of management D. more than 50% independent of management E. conscientious and diligent in carrying out its responsibilities
Answers: B, C, E Rationale: The committee should be 100% independent of management.
Threats to the independence of CPAs include ______. (Check all that apply) A. unlikely influence threat B. advocacy threat C. financial self-interest threat D. management oversight threat E. familiarity threat F. self-review threat
Answers: B, C, E, F
Identify the conclusion(s) to be drawn about the results of internal auditors' work in the HealthSouth fraud. A. External auditors influenced internal audit conclusions B. The CEO pressured internal auditors as the company was under pressure to report good numbers C. Questioned ethicalness of the accounting imposed by the CEO and CFO D. A lack of ethical leadership by internal auditors stifled the moral intensity of financial reporting issues
Answers: B, D
If management appears unconcerned about ethics and more focused on the bottom line, ______. (Select all that apply) A. employees are more likely to become whistleblowers B. employees are more prone to fraudulent financial reporting C. employee trust increases D. employees are more prone to commit occupational fraud
Answers: B, D
In stage 1 of Kohlberg's model, a person's behavior is influenced by ______. (Check all that apply) A. pursuit of self interest B. avoidance of punishment C. egoism D. obedience to rules
Answers: B, D
New standards for services with non-compilation reports specify which of the following (select all that apply): A. Financial statements must be prepared using US GAAP. B. Pages of the report must specify no assurance is provided. C. An engagement letter is not required. D. Independence does not need to be determined.
Answers: B, D
Which of the following are aspects of justice theory? (Check all that apply) A. Reference to one's feelings or interests B. Distribution of benefits and burdens C. Utilitarian calculation D. Giving each person what he or she deserves
Answers: B, D
Which of the following are characteristics of competent ethical leaders? A. Motivated group of followers B. Ability to handle moral problems that arise C. System 1 decision making D. Thoughtful deliberation in decision making
Answers: B, D
Which of the following are features of enlightened egoism? (Check all that apply) A. Short-term perspective B. Considering the well-being of others C. Ignoring the interests of others D. Achievement of one's goal
Answers: B, D
Which of the following factors contribute towards ethical leadership? A. Keeping promises which are profitable B. Being reliable and dependable C. Measuring ethical competence D. Personal ethical competence
Answers: B, D
Whistleblowing can be thought of as ______. (Check all that apply) A. an act that violates norms or moral standards B. going outside the organization to report wrongdoing C. an act that violates the law D. disclosing to members of an organization practices that violate norms or the law
Answers: B, D
According to Kant, the categorical imperative requires that ______. (Check all that apply) A. ethical action precedes moral intention B. we act according to maxims that could be universally accepted C. we lie when necessary to achieve an end result D. we never lie to mask the truth E. we act according to maxims that could be universally acted on
Answers: B, D, E
Taylor and Curtis suggest which of the following relationships within accounting firms influence whether an auditor will blow the whistle on wrongdoing? A. Likelihood of retaliation B. Commitment to the firm C. Commitment to one's superior D. Commitment to professional identity E. Commitment to the accounting profession
Answers: B, D, E
To sustain an allegation of fraud against the auditor when false or misleading information exists in the registration statement, a third party must prove: (Check all that apply). A. Knowledge by the auditor that reliance would be placed on the financial statements B. The specific security purchased was offered through the registration statement C. Third party was not reckless in its use of the financial statements D. A material misstatement or omission in the financial statements existed E. Damages were incurred
Answers: B, D, E
What determines whether followers view managers as ethical leaders? A. Rating high on the ethical leadership scale B. Being a moral person C. Being a competent leader D. Being a moral manager E. Being principled and caring
Answers: B, D, E
Which of the following are included in the objectives of reporting? (Select all that apply) A. Assess the risk of material misstatement of the financial statements. B. Identify inconsistencies in application of accounting principles between current and prior period. C. Adequately plan and supervise the audit work. D. Determine if the financial statements were prepared in accordance with GAAP. E. Identify inadequate informative disclosures in the footnotes to the financial statements.
Answers: B, D, E
The following requirements exist for companies whose securities are listed and traded on stock exchanges under the Securities Exchange Act of 1934: (Check all that apply). A. File form 8-Q B. Adhere to the requirements of regulation S-X and S-K C. Follow IFRS requirements when filing reports with the SEC D. File 10-K annual reports E. File 8-K form when a significant event takes place F. File 10-Q quarterly reports
Answers: B, D, E, F
What must the plaintiff prove to successfully sue under Rule 10b-5? (Check all that apply). A. Financial statements were not accurate and reliable B. Reliance on the statements C. Auditors failed to follow GAAS D. Material, factual misrepresentation or mission of information from the statements E. Auditors intended to deceive, manipulate, or defraud F. Damages were suffered as a result of reliance on the statements
Answers: B, D, E, F
A person who acts responsibly does all of the following: ______. (Check all that apply) A. obscures the true purpose of actions B. acts with expediency C. considers alternative courses of action using ethical principles D. accepts the consequences of actions
Answers: C, D
In stage 3 of Kohlberg's model, a person is influenced by ______. (Check all that apply) A. respect for authority B. law and order C. doing what is in the best interests of others D. loyalty in relationships E. duty to the social order
Answers: C, D
The audit report states that management's responsibilities include: (Check all that apply). A. Render an opinion on the statements B. Examination of the financial statements in accordance with GAAS C. Preparation and fair presentation of the statements in accordance with GAAP D. Design, implementation, and maintenance of internal controls
Answers: C, D
The equality in the treatment of individuals under justice theory can best be expressed by ______. (Check all that apply) A. allocating resources based on preferential treatment B. equal distribution of benefits and burdens C. treating equals equally and unequals unequally D. fairly distributing the benefits and burdens
Answers: C, D
The following payments to foreign government officials are prohibited: (Check all that apply). A. Payments made when the individual making the payment is unaware of the illegality of the payment B. Facilitating payments C. Payments made when the individual making the payment knows of the illegality of the payment D. Payments intended to influence the behavior of the official in a way that is inconsistent with legal duties
Answers: C, D
The implications of the Bobek et al. study on gender factors affecting decision making in public accounting include: A. Males are more likely to recommend conceding to clients wishes B. Moral intensity may mediate context in decision-making for females C. Females are more likely to recommend conceding to clients wishes D. Moral intensity may mediate context in decision-making for males
Answers: C, D
The implications of the gender study on factors affecting decision making in public accounting include: A. Females were less likely to recommend conceding to clients wishes B. Both males and females use a deliberative approach to ethical decision making C. Females use an intuitionist approach to decision making D. Males were less likely to recommend conceding to clients wishes
Answers: C, D
The underlying principles of ethical leadership include A. Closed-mindedness and selfishness B. Loyalty C. Integrity and honesty D. Responsibility and accountability
Answers: C, D
Underlying the philosophy of rule deontology is the moral principle that ______. (Check all that apply) A. rules should be treated as guidelines in decision making B. the ends justify the means C. we should treat others the way we wish to be treated D. conformity to general moral principles should be based on logic
Answers: C, D
What is the goal of the audit committee's evaluation of fraud risk and management's oversight responsibilities? (Check all that apply). A. Support communications with the external auditor about fraud B. Meet SEC reporting requirements C. Ensure that management fulfills its responsibilities D. Serve as a deterrent to senior management engaging in fraud
Answers: C, D
When a material fact has been omitted from a registration statement, which individuals are potentially liable under Section 11 of the Securities Act (select all that apply): A. an accountant employed by the company B. a director that has not signed the registration statement C. an underwriter named in the registration statement D. a partner who signed the registration statement
Answers: C, D
Which financial or profitability risk factors might motivate fraud? (Check all that apply). A. Unclear accounting or regulatory requirements B. Estimates and judgments are made in the financial statements C. Recurring operating losses D. Inability to generate cash flows
Answers: C, D
In stage 1 of Kohlberg's model, a person is not influenced by ______. (Check all that apply) A. obedience to rules B. fear of punishment C. satisfying one's own needs D. fairness to others E. egoism
Answers: C, D, E
In teleology, an act may be considered morally right if it: ______. (Check all that apply) A. ignores self-interest B. ignores the interests of others C. produces more positive than negative consequences D. produces some desired result E. enhances self-interest
Answers: C, D, E
Internal compliance officers and internal auditors can qualify for whistleblower awards if ______. (Check all that apply) A. disclosure to the SEC is needed to circumvent the entity's compliance process B. the whistleblower immediately reports the violation to the SEC C. the whistleblower has first reported the violation internally and at least 120 days have passed D. the whistleblower reasonably believes the entity is impeding investigation of the misconduct E. disclosure to the SEC is needed to prevent substantial injury to the entity or its investors
Answers: C, D, E
Rationalizations given for fraud include: (Check all that apply). Shareholders expect us to do it A. Shareholders expect us to do it B. Lack of internal controls C. It is a temporary fix D. Aggressive accounting is acceptable E. Keep the stock price high
Answers: C, D, E
The common causes of ethical collapse include ______. (Check all that apply) A. loyalty to the public interest B. failing to have an ethics code C. conflicts of interest are ignored D. overly rapid pace of innovation and change E. loyalty to the boss
Answers: C, D, E
To which type of company does the Foreign Corrupt Practices Act apply? (Select all that apply.) A. Foreign companies not filing with the SEC B. Foreign companies not filing with the SEC, but with their respective jurisdiction C. Foreign companies filing with the SEC D. Privately held U.S. corporations E. Publicly held U.S. corporations
Answers: C, D, E
What conditions generally exist when fraud occurs by management? (Check all that apply). A. Failed audit B. Persistent operating losses C. Rationalizing the fraud act D. Pressure or incentive to commit fraud E. Opportunity to commit fraud
Answers: C, D, E
Which of the following influence the professional judgment of accountants? (Select all that apply) A. Independence requirements B. Contingent fee arrangements C. Personal behavioral traits D. Personal values E. Knowledge of the accounting issues
Answers: C, D, E
Which of the following were reasons the judge dismissed allegations against PwC in the Doral case? (Select all that apply) A. The inference that PwC was reckless was stronger than the inference that Doral deceived PwC. B. PwC took necessary steps to report the improper securitization of mortgages to the SEC. C. Allegations failed to create a strong indication of recklessness. D. Doral overrode several of its own internal controls. E. It was likely that Doral's management hid improper business practices from PwC.
Answers: C, D, E
Identify the defenses that might be raised by accountants to escape liability under Section 11. (Check all that apply). A. Lack of reliance B. Lack of reasonable care defense C. Knowledge of the falsehood by the plaintiff D. Lack of causation E. Materiality F. Due diligence
Answers: C, D, E, F
Which of the following are rules managers should follow when fostering ethical leadership? (Select all that apply) A. Choose the action that maximizes earnings. B. Always put shareholder interest first. C. Think about potential actions before making a decision. D. Do not choose actions that will harm others. E. Consider how actions will affect others. F. Make decisions that respect the rights of others.
Answers: C, D, E, F
In stage 4 of Kohlberg's model, a person's behavior is influenced by ______. (Check all that apply) A. fear of punishment B. fairness to others C. duty to the social order D. pursuit of self-interest E. law and order
Answers: C, E
-Principles of AICPA Code -Ethical Standards of the IMA -GAAS (Generally Accepted Auditing Standards)
Application of professional standards. Ex.:
High organizational ethics, high individual ethics (high-high)
Assume that you know your values and beliefs are an ethical match for the company you work for. You are likely to continue to stay employed in the organization.
A whistleblower must report concerns to the SEC within how many days of becoming aware of the violation to be eligible for whistleblower protections? A. 360 days B. 180 days C. 120 days D. 30 days
B. 180 days
Since the PCAOB was formed, a mandatory quality inspection program was implemented. What is the average audit deficiency rate range since the program started? A. 10-20% B. 30-40% C. 20-30% D. 40-50%
B. 30-40%
Which of the following starts from an initial numerical value and adjusts insufficiently in forming a final judgment? A. Confirmation tendency B. Anchoring tendency C. Judgment triggers D. Rush to judgment E. Availability tendency
B. Anchoring tendency
Which of the following is conducted primarily to satisfy the public interest? A. Bookkeeping services B. Audit services C. Tax services D. Consulting services
B. Audit services
Materiality in the context of the audit refers to A. Evaluation of internal controls in the context of the audit and procedures completed by the audit firm B. Auditor judgment of the needs of a reasonable person in relation to financial statement information C. Assessments of misstatements in the financial statements
B. Auditor judgment of the needs of a reasonable person in relation to financial statement information
Which of the following may lead to judgment based on how accessible information is rather than a thorough analysis of the current situation? A. Anchoring tendency B. Availability tendency C. Confirmation tendency D. Rush to judgment E. Judgment triggers
B. Availability tendency
Which concept in Section 10(b) makes an auditor liable for a false or misleading statement to the public? A. Negligence rule B. Bright-line rule C. Significant weakness D. Material weakness
B. Bright-line rule
Which of the following procedures is required under SOX Section 302 to protect the public against fraudulent financial reporting? A. Requiring the Chief Compliance Officer to report directly to the audit committee B. Certification of financial statements by the CEO and CFO C. A code of ethics for the independent auditors D. Certification of the financial statements by the independent auditor
B. Certification of financial statements by the CEO and CFO
Which of the following leads to public perception that auditors may not act independent of their client's interests? A. Professional skepticism B. Commercialism C. Professionalism D. Moral biases
B. Commercialism
Which type of liability occurs when an auditor willfully violates a federal statute? A. Civil liability to federal statutory law B. Criminal liability to federal statutory law C. Common law liability to third parties D. Common law liability to clients
B. Criminal liability to federal statutory law
Which of the following is not a goal of internal controls? A. Ensure that management policies are followed B. Ensure that fraud does not occur C. Help prevent and detect fraud D. Ensure that ethical systems are built into corporate governance
B. Ensure that fraud does not occur
Which estimates should be communicated to the audit committee in addition to critical accounting estimates? A. Estimates that were used by the auditor to form an opinion B. Estimates with a high degree of subjectivity C. Estimates that create changes in accounting policies D. Estimates that have been changed by management
B. Estimates with a high degree of subjectivity
If there is no specific rule of conduct addressing a particular relationship in the AICPA Code, what should the CPA do? A. Continue the relationship even though a specific rule of conduct does not address such relationships. B. Evaluate whether or not the relationship would lead an informed third party to conclude that the CPA's compliance with the rules is acceptable. C. Discontinue the relationship since a specific rule of conduct does not address such relationships.
B. Evaluate whether or not the relationship would lead an informed third party to conclude that the CPA's compliance with the rules is acceptable.
The former CEO at Qwest Communications, Joseph Nacchio, often displayed which red flag in the fraud triangle? A. Purchased expensive homes in multiple countries B. Focused only on meeting revenue targets C. Had a poor attitude D. Had a gambling addiction
B. Focused only on meeting revenue targets
Sliding down the ethical slippery slope can result from ______. A. acting with integrity B. giving in to internal pressures C. acting ethically because we believe it is the right way to behave D. being loyal to the public interest
B. Giving in to internal pressures
Leader ethicality includes each of the following traits of behavior except A. Create an environment that discourages acting unethically B. Intention to demonstrate descriptively appropriate conduct C. Create an ethical environment to serve as role models for followers D. Intention to demonstrate normatively appropriate conduct
B. Intention to demonstrate descriptively appropriate conduct
From an ethical perspective, what is the most controversial provision of the Dodd-Frank Act? A. It precludes external whistleblowing by internal compliance officers and internal auditors. B. It incentivizes whistleblowing. C. It prohibits retaliation against the whistleblower. D. It prohibits external whistleblowing on a CPA firm by external auditors.
B. It incentivizes whistleblowing.
An unintended consequence of the materiality standard is A. Items that conform with GAAP may be dismissed B. Management might manipulate amounts to fall below the materiality level C. Auditors issue adverse opinions when the opinion should be modified D. Auditors withdraw from the engagement
B. Management might manipulate amounts to fall below the materiality level
Which author suggests that the social responsibility of business is to increase profits? A. Lawrence Kolhberg B. Milton Friedman C. Mary Gentile
B. Milton Friedman
Which type of fraud accounts for nearly 40% of all types of occupational fraud? A. Misappropriation of expenses B. Misappropriation of assets C. Cash related fraud D. Inflated net earnings E. Skimming fraud schemes
B. Misappropriation of assets
Covey's principle-centered leadership approach can best be described as A. A method of making ethical decisions B. One's internal values should form the basis for external actions C. A method to align external values with external actions D. One's internal values should form the basis for self-interested behavior
B. One's internal values should form the basis for external actions
Historically, the SEC allowed the accounting profession to police itself through which process? A. Mandatory review B. Peer review C. Voluntary review
B. Peer review
How should unusual and unexpected relationships be identified? A. Communications with the audit committee B. Performing analytical procedures C. Exercising professional skepticism D. Discussing relationships with other entities with management
B. Performing analytical procedures
An auditor's affinity for and identification with the audit profession is referred to as A. Commitment to the firm B. Professional identity C. Commitment to the organization D. Commitment to colleagues
B. Professional identity
Pervasive effects on the financial statements require A. An adverse opinion B. Professional judgment by the auditor C. A disclaimer of opinion D. Withdrawal from the engagement
B. Professional judgment by the auditor
Which of the following is not a virtue? A. Truthfulness B. Rationalization C. Integrity D. Kindness
B. Rationalization
Applying ethical reasoning to identify shareholder interests and the effect of actions on shareholders is inconsistent with which cognitive judgment trap? A. Confirmation tendency B. Rush to judgment C. Availability tendency D. Judgment triggers E. Groupthink
B. Rush to judgment
What must a plaintiff prove for a private cause of action to fall under Rule 10b-5? A. Negligence B. Scienter C. Recklessness D. Negligent nonfeasance
B. Scienter
Which section of Sarbanes-Oxley requires the inclusion of a statement that management accepts responsibility for maintaining adequate internal control over financial reporting? A. Section 406 B. Section 404 C. Section 301 D. Section 806 E. Section 302
B. Section 404
Communications with the audit committee about significant and critical accounting policies and practices should include A. Quantitative effects of management's disclosures on the financial statements B. Significant modifications to management disclosures recommended by the auditor but not followed by management C. The basis for the auditor's conclusions regarding the reasonableness of critical accounting policies D. The decision process used by the auditors to assess significant policies and practices
B. Significant modifications to management disclosures recommended by the auditor but not followed by management
Which act protects the rights of employees to act together in a concerted manner to address conditions at work, with or without a union? A. The Dodd-Frank Act B. The National Labor Relations Act C. The Sarbanes-Oxley Act
B. The National Labor Relations Act
The link between the ICFR and audit of financial statements is A. ICFR is only required when a modified opinion is given B. The audit of ICFR should be integrated with the audit of financial statements C. Assessment of ICFR's is optional while audit opinions are required D. Audit reports do not have to include any references to ICFR
B. The audit of ICFR should be integrated with the audit of financial statements
Which of the following best describes scienter? A. Failure to uncover materially misstated financial statements. B. The intent to deceive, manipulate, or defraud. C. The intent to violate independence standards. D. Failure to exercise the appropriate level of due care.
B. The intent to deceive, manipulate, or defraud.
In business, which has a greater influence on decision making? A. The individual's values B. The organization's values
B. The organization's values
How did the Ultramares decision expand the auditor's liability to third parties? A. Ordinary negligence was a cause of action against the auditor B. The third party could successfully sue if gross negligence can be proven C. Privity is required for third parties to successfully sue the auditor D. Third parties could successfully sue if they demonstrated an economic loss
B. The third party could successfully sue if gross negligence can be proven
Dennis Kozlowski's rationalization for committing fraud at Tyco was A. Because he could get away with it B. To keep up with the masters of the universe C. The board of directors approved it D. The auditors didn't care
B. To keep up with the masters of the universe
Ethical leaders should be guided by A. Self-interest B. Virtues and values C. Costs and benefits to the community D. Profits to the community
B. Virtues and values
What was an underlying theme in nearly all of the companies with major accounting frauds in the early 2000s? A. Pressure to maintain the numbers B. Weak board of directors C. Fear of reprisals D. Loyalty to the boss
B. Weak board of directors
The basic tenet of deontology is ______. A. enlightened egoism B. a duty to respect rights of others C. to maximize net benefits over harms D. a duty to satisfy employer interests
B. a duty to respect rights of others
As a community of people, an ethical organization seeks to achieve A. benefits to the individual B. a level of excellence C. respect from the public D. external rewards of the practice
B. a level of excellence
The Categorical Imperative in Kant's ethical system implies ______. A. a rational, moral person will report wrongdoing for fear of future consequences B. a rational, moral person will report wrongdoing regardless of perceived retaliation because it is a moral requirement to do so C. a rational, moral person will not report wrongdoing due to social pressure within the organization D. a rational, moral person will not report wrongdoing due to existing pressures within the organization
B. a rational, moral person will report wrongdoing regardless of perceived retaliation because it is a moral requirement to do so
The underlying motivation for fraud is to ______. A. satisfy stakeholder interests B. achieve a gain over another party that would not otherwise exist C. cover up an error in the financial statements D. maximize profits
B. achieve a gain over another party that would not otherwise exist
All of the following are examples of effective compliance programs except: A. the compliance program has been tailored to the company's risk profile B. an unclear reporting structure C. significant company resources dedicated to compliance D. auditing of the program to ensure its effectiveness
B. an unclear reporting structure
When state board rules differ from those of the AICPA with respect to withholding client records pending fee payment, the licensed CPA is expected to ______. A. comply with either the state board or AICPA rules B. comply with the state board's rules C. comply with AICPA rules D. withhold client records pending fee payment
B. comply with the state board's rules
According to the 2013 NBES Survey of Reporting of Observed Misconduct, all instances of observed misconduct ______. A. have stayed the same B. have declined C. have increased
B. have declined
Ethical decisions in the workplace are often made jointly in work groups or ______. A. independent of others B. in organizational settings
B. in organizational settings
One's commitment to ethical standards and sense of professional identity is directly affected by A. professional skepticism B. persistence C. independence D. due care
B. persistence
A self-review threat occurs when a CPA ______. A. reviews her own audit work for a client B. prepares source documents that are used to generate the client's financial statements C. is threatened by a client because of a disagreement on a matter pertaining to the financial statements D. evaluates internal controls
B. prepares source documents that are used to generate the client's financial statements
Section 1.000.010 of the AICPA Revised Code applies to members in public practice and ______. (Select all that apply) A. evaluates the CPA's independence related to audit matters B. provides a foundation to evaluate whether safeguards should be developed to prevent a violation of the rules of conduct C. outlines the evaluation of a CPA's relationship with a client and the related risk level
B. provides a foundation to evaluate whether safeguards should be developed to prevent a violation of the rules of conduct
A conflict of interest may occur when a person holds a position of trust that ______. A. requires judgment for only oneself B. requires judgment on behalf of others
B. requires judgment on behalf of others
The lasting legacy of COSO is ______. A. the development of ethical standards for accountants B. the development of an integrated framework for internal control C. the development of professional skepticism guidelines in accounting D. the development of Board of Director guidelines related to audits
B. the development of an integrated framework for internal control
The ethical environment that is created in an organization by its leadership is known as ______. A. duty of good faith B. the tone at the top C. leader orientation D. the stewardship theory
B. the tone at the top
While she was working at the Defense Contract Audit Agency, Diem-Thi Le's annual performance evaluation was changed: A. to downgrade her performance from fully successful to successful B. to downgrade her performance from outstanding to fully successful C. because she was unable to complete the audit on a timely basis D. and she was put on a performance improvement plan
B. to downgrade her performance from outstanding to fully successful
The AICPA Revised Code applies to CPAs in the performance of all professional services except ______. A. when external pressures exist B. when the wording of the rule indicates otherwise C. when internal pressures exist D. when the client interest is sacrificed
B. when the wording of the rule indicates otherwise
The "middle ground" approach covers third parties who can sue auditors for negligence to those A. with a near-privity relationship between third parties and the accountant. B. whose reliance is actually foreseen, even if unknown to the auditor. C. whose reliance is reasonably foreseeable. D. third parties who fall under common law liability.
B. whose reliance is actually foreseen, even if unknown to the auditor.
Organizational pressures may lead to altering one's beliefs to fit
Behavior
____ ethics looks at the way individuals actually behave in moral circumstances
Behavioral
_____________ ethics looks at the way individuals actually behave in moral circumstances.
Behavioral
______ looks at the way individuals actually make decisions, rather than the way individuals would make decisions in an ideal world.
Behavioral ethics
Giving Voice to Values
Behavioral ethics approach emphasizing development of capacity to effectively express one's values in a way that positively influences others
Being _____ is not the same as following the law.
Being ethical is not the same as following the law.
In stage three of Kohlberg's model, behavior is driven by
Being fair to others
Which of the following best describes perceptions of organizational ethics in a self-identified ethical dilemma? A. Non-tax partners were more likely to describe an actual dilemma than tax partners B. The group (tax/non-tax partners) that described the dilemma rated the ethical environment as stronger C. A disconnect exists between tax and non-tax partners D. Non-tax partners rated the ethical environments of their firms as stronger than tax partners
C. A disconnect exists between tax and non-tax partners
Which of the following is not a mechanism of corporate governance? A. Stock exchange listing requirements B. Oversight by the SEC C. AICPA Code of Conduct D. Internal controls
C. AICPA Code of Conduct
The lack of strong organizational ethical leadership can lead to A. Doing what is expected B. Lack of a moral compass C. Acting out of self-interest D. Following ethics codes
C. Acting out of self-interest
How were the tests to establish negligence to third parties demonstrated in the Credit Alliance case? A. Losses incurred by Credit Alliance were linked to false financial statements B. Demonstrated that a privity relationship existed C. Andersen was aware Credit Alliance was relying on the statements prior to extending credit D. Andersen did not know Credit Alliance would rely on the statements
C. Andersen was aware Credit Alliance was relying on the statements prior to extending credit
What motivated the FCPA? A. Lack of requirements for internal control over financial reporting. B. Payments made to political parties to help ensure their election. C. Bribes and other questionable payments made to win foreign contracts. D. The goal to implement ethics requirements under the due care principle.
C. Bribes and other questionable payments made to win foreign contracts.
Which concept is identified as an operation of a control that does not allow management to detect misstatements on a timely basis in the normal course of performing their assigned functions? A. Negligence B. Material weakness C. Deficiency D. Significant weakness
C. Deficiency
Compared to System 1 thinking, System 2 is more ______. A. emotional B. automatic C. deliberate D. effortless
C. Deliberate
Common law liability is determined based on the auditor's ability to meet which standard? A. Business judgment B. Fiduciary responsibility C. Due care D. Loyalty
C. Due care
The ability to understand, be sensitive to, and care about the feelings of other is the definition of ______. A. respect B. responsibility C. empathy D. citizenship
C. Empathy
Which of the following is a benefit of using the Ethical Leadership Scale? A. Evaluates ethical decision making B. Measures effectiveness of teaching ethical competence C. Encourages self-reflection on one's leadership skills D. Provides a measuring stick of whether one's values consistently direct behavior
C. Encourages self-reflection on one's leadership skills
In the case of the Ford Pinto, the company applied which principle? A. Ethical relativism B. Deontology C. Ethical legalism
C. Ethical legalism
Which allegation would have been sufficient to establish scienter in the Doral case? A. Violation of GAAS B. PwC had unlimited access to Doral operations C. Evidence of corresponding fraudulent intent D. Violation of GAAP
C. Evidence of corresponding fraudulent intent
Unmodified opinions can be given on the audit of the financial statements when A. Auditor is unable to obtain sufficient appropriate evidence on which to base the opinion B. Differences exist with management on GAAP issues C. Financial statements fairly present the financial position D. Management has met all of its responsibilities
C. Financial statements fairly present the financial position
While working for the Defense Contract Audit Agency, Diem-Thi Le was faced with an ethical dilemma when: A. Her supervisor took credit for Le's audit conclusions B. The contractor-client threatened to report Le to the regional manager C. Her supervisor deleted the audit findings from Le's working papers D. The contractor-client threatened to go to her supervisor unless the audit opinion was changed
C. Her supervisor deleted the audit findings from Le's working papers
Which of the following is not a factor that influences trainee auditors' willingness to report wrongdoing? A. Situational variables B. Audit firm organizational structures C. Personal characteristics of target of whistleblowing D. Personal characteristics of whistleblowers
C. Personal characteristics of target of whistleblowing
If the client wants to claim a $3,000 charitable deduction for the current year's taxes but has no receipts or acknowledgment of the contribution, the CPA should ______. A. Withdraw from the engagement B. Contact the IRS and report the client C. Refuse to use the deduction and explain the criteria for the deduction to be taken D. Help the client create receipts so the deduction can be taken
C. Refuse to use the deduction and explain the criteria for the deduction to be taken
Recklessness looks at what the actor knew or should have been thinking when an act occurred is an example of a: A. Contributory negligence B. Causation C. Subjective test D. Objective test
C. Subjective test
PCAOB Form AP requires disclosure of which of the following? A. A listing of all Critical Audit Matters B. The names of junior auditors on the engagement C. The name of network firms that completed work on the audit
C. The name of network firms that completed work on the audit
Which of the following is not an element of ethical relativism? A. Societal norms B. Cultural norms C. Universal moral standards D. Situation specifics
C. Universal Moral Standards
An example of a direct effect illegal act is: A. Violations of worker discrimination laws B. Errors committed in the statements C. Violations of tax laws D. Operational matters
C. Violations of tax laws
Social learning theory can be defined as A. how leaders alter their behavior to meet follower expectations B. a way to understand parallel deviance C. a way to understand how leaders influence followers in a general way D. a way to understand how followers influence leaders in a general way
C. a way to understand how leaders influence followers in a general way
Sarbanes-Oxley requires the audit committee ______. A. be somewhat dependent on management B. include at least one member of upper management C. be completely independent of management
C. be completely independent of management
The objectives of reporting is to A. decide on the opinion to be issued. B. assess the qualities of the auditor. C. guide auditors in rendering the audit report. D. assess the quality of internal control.
C. guide auditors in rendering the audit report.
The ethical person-organization fit refers to ______. A. how top management can act in an ethical manner B. how an organization can align its goals with ethical behavior C. how ethical behavior might occur within an organization D. how ethical behavior influences one's personal code of conduct
C. how ethical behavior might occur within an organization
Professional skepticism A. provides absolute assurance that the financial statements are free of material misstatements. B. provides absolute assurance of effectiveness of internal controls. C. is evidenced through audit documentation as it provides evidence of following GAAS. D. is a state of mind and cannot be documented throughout the audit.
C. is evidenced through audit documentation as it provides evidence of following GAAS.
All of the following are acceptable payments to foreign governments except: A. providing police protection B. obtaining permits and licenses C. payments to expedite routine governmental action D. processing visas and work orders
C. payments to expedite routine governmental action
Auditor judgments of the needs of users of financial information are made in relation to A. management assertions about financial statement amounts. B. audit opinions. C. possible effects of misstatements on user decisions as a group. D. auditor assertions about financial statement amounts
C. possible effects of misstatements on user decisions as a group.
An accountant who believes fraud is in the best interest of the company and believes everything will go back to normal after the fraud occurs is subject to ______. A. situational pressure B. internal control C. rationalization D. opposition E. perceived opportunity
C. rationalization
The most frequently observed misconduct in organizations in the 2013 National Business Ethics Survey was ______. A. inflating hours worked B. violating company Internet policy C. stealing or theft D. falsifying expense reports
C. stealing or theft
The AICPA Code of Professional Conduct prohibits CPAs from directly disclosing information to outside parties unless A. the client approves the disclosure B. the SEC has been informed first C. the auditors have a legal duty to do so
C. the auditors have a legal duty to do so
1. Accountability 2. Oversight 3.Control
Characteristics of Corporate Governance Systems:
Characteristics of the moral _____ _____ _____ include considering the consequences on stakeholders and sometimes acting in the best interest of others.
Characteristics of the moral point of view include considering the consequences on stakeholders and sometimes acting in the best interest of others.
What is your most powerful/persuasive response to reasons/ rationalizations?
Cheating, Big 4 job, loyalty to club, consequences to club & officers in cover up
The thought process followed in one's moral development is
Cognitive development
Betty Vinson changed her attitudes and behavior enabling her to reduce what? Cognitive dissonance Moral intensity Bystander effect Diversity
Cognitive dissonance
Rest believes that ethical actions result from
Cognitive structures and psychological processes
Which of the following are included in the "social contract" accountants have? Commitment to lifelong learning Commitment to serve the interest of the public Commitment to a code of ethics Commitment to serve the interest of superiors Commitment to serve the interest of the client
Commitment to lifelong learning Commitment to serve the interest of the public Commitment to a code of ethics
Rest's conception suggests that an accountant should do which of the following when there are ambiguities in accounting standards? (Select all that apply) Deviate from norms and rules when preparing financial statements Comply with laws and standards Recognize the importance of laws and standards Present fairly all financial statements
Comply with laws and standards Recognize the importance of laws and standards Present fairly all financial statements
1. Frame ethical issue 2. Gather all facts 3. Identify stakeholders & obligations 4. Identify accounting & auditing issues 5. Identify operational issues 6. Identify relevant accounting ethics standards in situation 7. List all possible alternatives of what you can or cannot do 8. Compare & weigh alternatives 9. Decide on course of action 10. Reflect on decision
Comprehensive Ethical Decision-Making Model(10):
Business Ethics
Comprise principles, values, & standards that guide behavior in business -No one set of standards that all companies follow; ethical standards for accounting profession embodied in its codes of conduct
Opportunity
Conditions that limit or permit ethical or unethical behavior
Culture of Conflicting Interests
Conflict of interest arises because investment bank serves these 2 client groups at the same time - -Firms for which it issues securities, & -Investors to whom it sells these securities
Ethical Decision-Making Models
Consciously thinking about & analyzing what one did (or is doing).
In step 2 of the Integrated Ethical Decision Making Model, which of the following should be considered when evaluating the ethical decisions at Ace Manufacturing
Consider if the matter should only be reported to Jack Jones, Paul's dad, or report the matter to all owners Consider letting Jack Jones deal with the matter Consider the legal issues including the violation of GAAP and improper taxable income
In step 2 of the Integrated Ethical Decision-Making Model, which of the following should be considered when evaluating the ethical decisions at Ace Manufacturing? (Select all that apply) Consider letting Jack Jones deal with the matter. Consider if Smith and Williams are also stakeholders or only the Joneses. Consider if the matter should only be reported to Jack Jones, Paul's dad, or report the matter to all owners. Consider the legal issues including the violation of GAAP and improper taxable income.
Consider letting Jack Jones deal with the matter. Consider if the matter should only be reported to Jack Jones, Paul's dad, or report the matter to all owners. Consider the legal issues including the violation of GAAP and improper taxable income.
Behavioral Ethics
Considers how individuals make decisions in real world versus in an ideal world
1. Stakeholders 2. Management 3. Board of Directors
Corporate Governance defines relationships between: -Influences how company operates -Issues of separation of ownership & control
Virtues
Courage, temperance, wisdom, justice, optimism, integrity, humility, reverence & compassion
Makes deontological ethics superior to other ethical perspectives
Criticism of Kohlberg - Many, including:
Gilligan's Ethics of Care
Criticizes Kohlberg Care-&-response orientation that characterizes female moral judgment Females look for ways of resolving a dilemma where no one will experience pain Criticism: Implication that men lack a caring response when compared to females
What do the amendments to Section 10A of the Securities Exchange Act of 1934 address? A. Opinion requirements B. Due care requirements C. Independence requirements D. Audit requirements
D. Audit requirements
Gross negligence that constitutes fraud occurs when: A. There is no privity relationship B. Negligence of the auditor is so extreme that it goes beyond the fraud standard C. Constructive fraud standard does not exist D. Auditor acts so carelessly that it implies reckless disregard of the due care standard
D. Auditor acts so carelessly that it implies reckless disregard of the due care standard
The text identifies all of the following accounting professionals as individuals who demonstrated leadership qualities and were successful in putting an end to wrongdoing in their organizations except for: A. Cynthia Cooper B. Anthony Menendez C. Diem-Thi Le D. Betty Vinson
D. Betty Vinson
What is the goal of an authentic leader? A. Satisfy the needs of others B. Beat quarterly earnings estimates C. Maximize earnings D. Build long-term shareholder value
D. Build long-term shareholder value
Obeying laws, being informed, and voting in elections are all important parts of ______. A. loyalty B. fairness C. caring D. citizenship
D. Citizenship
Due care requires A. An opinion whether such care has been exercised B. An opinion whether the statements conform to GAAP C. Independence in mental attitude D. Diligence and competence
D. Diligence and competence
To which third-parties does the Restatement (Second) of the Law of Torts expand auditors' legal liability for negligence? A. Reasonably foreseeable third parties B. All third parties C. Actually foreseen third-parties D. Foreseen third-parties
D. Foreseen third-parties
The Murphy ruling identified a class of plaintiffs called: A. Indirect plaintiffs B. Foreseen plaintiffs C. Foreseeable plaintiffs D. Grapevine plaintiffs
D. Grapevine plaintiffs
Michael Hudson, the former assistant treasurer at Fricsh's Restaurant, exhibited which pressure that should have been a red flag in the fraud triangle? A. Purchased expensive cars B. Focused on stock price only C. Had a poor attitude D. Had a gambling problem
D. Had a gambling problem
______ means to act on principle rather than expediency. A. Convenience B. Reliability C. Persistence D. Integrity
D. Integrity
Which of the following is not a part of the ethical domain for accountants and auditors? A. General public B. Accounting profession C. Regulatory bodies (SEC, PCAOB) D. Legal profession
D. Legal Profession
Auditors render an independent opinion on the financial statements prepared by A. The PCAOB B. The audit firm C. The SEC D. Management
D. Management
Auditors can't guarantee that fraud will be detected because A. Auditors are not always independent of management B. Audits are not designed to detect fraud C. Management prepares the statements D. Management may hide it from auditors
D. Management may hide it from auditors
Which concept is identified as a deficiency in internal control over financial reporting such that there is a reasonable possibility that a material misstatement in the company's annual financial statements will not be detected on a timely basis? A. Negligence B. Significant weakness C. Recklessness D. Material weakness
D. Material weakness
Having a questioning mind and making a critical assessment of audit evidence relate to what? A. Risk management B. Due care C. Reasonable assurance D. Professional skepticism
D. Professional skepticism
What is the purpose of auditing standards? A. Necessary to ensure financial statements are in conformity with GAAP B. Steps taken by the auditor during the course of the audit to comply with GAAS C. Decide on the opinion on the financial statements D. Provide a measure of audit quality and objectives to be achieved in the audit
D. Provide a measure of audit quality and objectives to be achieved in the audit
The legal liability of auditors was expanded under Rosenblum to include which following approach? A. Actually foreseen third party B. Actually foreseeable C. Foreseen third party D. Reasonably foreseeable third party
D. Reasonably foreseeable third party
When a person knowingly takes a risk that they should have been aware of it is called: A. Contributory negligence B. Breach of Duty C. Causation D. Recklessness
D. Recklessness
Which of the following statements best describes the link between followership and leadership? A. Servant leaders use coercion to influence followers' behavior B. Followers are expected to take their cue from servant leader behavior C. Followership helps to create an ethical, trusting organizational climate D. Servant leaders should put the needs of followers before their own needs
D. Servant leaders should put the needs of followers before their own needs
Which individual from the text identifies that the "CEO must have pristine ethics if there is to be any hope of ethical behavior from employees." A. Cynthia Cooper B. Anthony Menendez C. Betty Vinson D. Sherron Watkins
D. Sherron Watkins
When should an auditor give an unmodified opinion? A. Statements were prepared by management B. Differences exist with management over financial reporting issues C. There are no internal control concerns D. Statements present fairly financial position, results of operations, and cash flows
D. Statements present fairly financial position, results of operations, and cash flows
A common reason why management has the opportunity to commit fraud is A. The auditors fail to meet their obligations B. It only occurs one time C. The audit committee is ineffective D. They can override internal controls
D. They can override internal controls
The auditor should communicate asset misappropriations to A. The SEC B. Attorneys to determine legal obligations C. The offending employee D. Those charged with governance
D. Those charged with governance
Which threat to independence occurs when a member of management attempts to coerce the CPA? A. Financial self-interest threat B. Management participation threat C. Familiarity threat D. Undue influence threat
D. Undue influence threat
When are senior auditors more likely to report a manager's ethical violation? A. When they perceive personal costs of disclosure are low and when personal responsibility for reporting is low B. When they perceive personal costs of disclosure are high or when personal responsibility for reporting is high C. When they perceive personal costs of disclosure are high or when personal responsibility for reporting is low D. When they perceive personal costs of disclosure are low and when personal responsibility for reporting is high
D. When they perceive personal costs of disclosure are low and when personal responsibility for reporting is high
The unintentional omission of a material amount in financial statements is referred to as A. an illegal act. B. fraud. C. a restatement. D. an error.
D. an error.
Directing the business and affairs of the corporation is the ultimate responsibility of the ______. A. CFO B. CEO C. external auditors D. board of directors
D. board of directors Rationale: The CFO and CEO answer to the board.
SOX was designed to A. ensure accountants maintain independence. B. legislate ethics. C. prevent financial crises and recessions. D. ensure that accounting rules are followed.
D. ensure that accounting rules are followed.
CPAs should avoid circumstances that might lead informed third-party users to conclude ______. A. financial statements are not accurate and reliable B. independence in fact has been compromised C. attest services should not be performed D. integrity, objectivity, or professional skepticism has been compromised
D. integrity, objectivity, or professional skepticism has been compromised
One of the accomplishments of SOX, according to Lynn Turner, is A. better enforces world-wide accounting standards B. better legislates ethics. C. ensure accountants maintain their professional qualifications. D. it mitigated the force of the financial crisis.
D. it mitigated the force of the financial crisis.
Decision making in an organization is influenced by its culture through ______. A. conflicts between auditors and top management B. financial results C. financial projections D. organizational relationships and expectations for behavior
D. organizational relationships and expectations for behavior
Which of the following should occur in step 4 of the Integrated Ethical Decision-Making Model when evaluating the ethical decisions at Ace Manufacturing? (Select all that apply) Davis should determine who all the stakeholders are and inform them. Davis must insist that steps be taken to correct the improper accounting performed by Paul. Davis should give Paul the opportunity to explain his actions. Davis should identify the legal issues involved. Davis must have the courage to stand up for what he believes to be the proper accounting treatment.
Davis must insist that steps be taken to correct the improper accounting performed by Paul. Davis should give Paul the opportunity to explain his actions. Davis must have the courage to stand up for what he believes to be the proper accounting treatment.
Which of the following are potential levers of influence in the Ace Manufacturing case?
Davis requesting supporting documentation from Paul Davis threatening to go to all the owners if Paul does not take corrective action Davis declaring his loyalty to the three owners, not Paul
Dodd-Frank Act
Defines whistleblower as anyone who voluntarily gives information to SEC relating to violation of federal securities laws - past, present, or future
Ethical judgement helps to resolve decision making dilemmas through
Defining the problem and gathering information Evaluating alternative courses of action Applying ethical standards and values
Compared to System 1 thinking, System 2 is more
Deliberate
Enron and Arthur Andersen
Demonstrates the failure of professional judgment and ethical reasoning in the period of accounting frauds of the late 1990s and early 2000s
Which social and organizational pressure has lead to poor ethical judgments in financial reporting? Loss aversion choosing the most conservative position Desire to please authority Integrity
Desire to please authority
Matt saying this is a one time event and won't happen again falls under which portion of the GVV framework?
Determine potential arguments being countered
Becca considering Matt's reputation is on the line falls under which portion of the GVV framework?
Determine stakes for key parties
Which of the following are important when identifying and evaluating alternative courses of action in the ethical decision making process?
Determine what legal issues exist Determine what ethical reasoning methods apply
Which of the following are important when identifying and evaluating alternative courses of action in the ethical decision-making process? Determine the magnitude of the consequences. Determine who the stakeholders are. Determine which ethical reasoning methods apply. Determine which professional standards apply. Determine what legal issues exist.
Determine which ethical reasoning methods apply. Determine what legal issues exist.
Students often recognize cheating as an undesirable behavior but justify and rationalize cheating under certain circumstances, reflecting a _____ ethic.
Students often recognize cheating as an undesirable behavior but justify and rationalize cheating under certain circumstances, reflecting a situational ethic.
In step 3 of the Integrated Ethical Decision-Making Model, which of the following should Davis answer when evaluating the ethical decisions at Ace Manufacturing? (Select all that apply) Do I, Davis, want to be responsible for Paul getting into trouble? What legal issues are applicable and need to be considered? Will my actions do irreparable harm to others? Who are all the stakeholders involved?
Do I, Davis, want to be responsible for Paul getting into trouble? Will my actions do irreparable harm to others?
Sample Responses to Heinz Dilemma - Rule Utilitarianism; justice
Do not steal the drug, since stealing is against the law
In step 1 of the Integrated Ethical Decision Making Model, which one of the following should Davis answer when evaluating the ethical decisions at Ace Manufacturing?
Do the disbursements to Paul violate GAAP? Who are the stakeholders at ACE Manufacturing Have I, Davis, exercised due care?
1. What are main arguments to counter; or reasons/rationalizations to address? 2. What's at stake for key parties? 3. What levers can you use to influence those you disagree with? 4. What is your most powerful/persuasive response to reasons/ rationalizations?
Doing Good GVV Analysis:
In stage three of Kohlberg's model, a person is influenced by
Doing what is in the best interests of others Loyalty in relationships
The responsibility for preventing and detecting fraud belongs to whom? A. The external auditor B. The AICPA C. The internal auditor D. The IRS E. Management
E. Management
Which of the following has been shown to influence the moral development of a manager?
Education Corporate culture Ethical training
In stage two of Kohlberg's model, a person is influenced by
Egoism Satisfy one's own needs
The essence of caring is _____.
Empathy
Stage 4: Law and Order
Emphasizes the morality of law and duty to the social order. One's duty to society, respect for authority, and maintaining the social order become the focus of decision making EX: Susan might refuse to make the illegal payment, even though it leads to a loss of jobs in her company (or maybe even the closing of the company itself), because she views it as her duty to do so in the best interests of society. She does not want to violate the law
Whistleblowing
Employees (former or current) who report suspected violations -CANNOT be one who already gave the information to govt, self-regulatory org, or PCAOB
Dodd-Frank Whisteblower Act
Employees have loyalty obligation to their employers, but loyalty should not mask one's ethical obligation to maintain integrity & protect public interest -sets aside confidentiality requirement Benefits for whistleblowers who aid in recovery of $1M or more, can get 10-30% of amount
Moral blindness
Enron paid Andersen $52 million is services, Andersen's second largest account and the largest client in the Houston office. Their judgment was compromised by this relationship and led to ______________ with respect to Enron's accounting for so-called special-purpose entitiies (SPEs)--entities set up by the firm and kept off the balance sheet
Which brand of egoism claims that the promotion of one's own good is in accordance with morality?
Ethical Egoism
Framework for Ethical Decision Making in Business
Ethical Issue Intensity Individual Factors Organizational Factors Opportunity ---> Lead to: Business Ethics Evaluations and Intentions --->Lead to: Ethical or Unethical Behavior
Ace Manufacturing: Davis insisting that steps be taken to correct the accounting for Paul's misdeeds falls under which step of the Integrated Ethical Decision-Making Model? Ethical behavior Ethical judgment Ethical sensitivity Ethical intent
Ethical behavior
Davis insisting that steps be taken to correct the accounting for Paul's misdeeds falls under which step of the integrated ethical decision making model
Ethical behavior
Deciding on a course of action consistent with an individual's professional obligations is an example of
Ethical behavior
Pressure to Maintain Numbers
Ethical collapse occurs when there is an unreasonable & unrealistic obsession with meeting quantitative goals -"financial results at all costs" [Enron, WorldCom]
_____ decision making centers on how we act when no one is looking.
Ethical decision making centers on how we act when no one is looking.
Ace Manufacturing: Davis considering the general consensus among accountants related to Paul's misdeeds, falls under which step of the Integrated Ethical Decision-Making Model? Ethical behavior Ethical sensitivity Ethical judgment Ethical intent
Ethical intent
Evaluating the magnitude of consequences related to an ethical decision is an example of what? Ethical judgment Ethical behavior Ethical sensitivity Ethical intent
Ethical intent
Evaluating the magnitude of consequences related to an ethical decision is an example of?
Ethical intent
Reflecting on the moral intensity of the situation is referred to as what in the Integrated Ethical Decision Making Process
Ethical intent
Reflecting on the moral intensity of the situation is referred to as what in the Integrated Ethical Decision-Making Process? Ethical judgment Ethical sensitivity Ethical intent Ethical behavior
Ethical intent
Requirements of Ethical Decision Making:
Ethical intent Moral reasoning skills Decision making process -Identifying issues -Analyze ethical issues -Affects of alternative courses of action -Courage to act
Kidder believes
Ethical issues can create complex issues Ethical issues have an underlying structure related to the decision making process Ethical issues can have unexpected consequences
Davis considering who to report Paul's misappropriation of assets to falls under which step of the integrated ethical decision making process
Ethical judgement
Identifying and evaluating alternative courses of action is referred to as what in the Integrated Ethical Decision Making Process?
Ethical judgement
Ace Manufacturing: Davis considering who to report Paul's misappropriation of assets to falls under which step of the Integrated Ethical Decision-Making Process? Ethical intent Ethical sensitivity Ethical judgment Ethical behavior
Ethical judgment
Considering what legal issues exist is an example of what? Ethical sensitivity Ethical behavior Ethical judgment Ethical intent
Ethical judgment
Identifying and evaluating alternative courses of action is referred to as what in the Integrated Ethical Decision-Making Process? Ethical sensitivity Ethical intent Ethical behavior Ethical judgment
Ethical judgment
Ethical relativism is the belief that morality is relative to the _____ of one's culture.
Ethical relativism is the belief that morality is relative to the norms of one's culture.
Ace Manufacturing: Davis not allowing his relationship with Paul to interfere with making the right choice falls under which step of the Integrated Ethical Decision-Making Process? Ethical judgment Ethical intent Ethical behavior Ethical sensitivity
Ethical sensitivity
Davis not allowing his relationship with Paul to interfere with making the right choice falls under which step of the integrated ethical decision making process
Ethical sensitivity
Identifying the ethical and professional issues is referred to as what in the Integrated Ethical Decision-Making Process? Ethical behavior Ethical intent Ethical sensitivity Ethical judgment
Ethical sensitivity
Indentifying the ethical and professional issues is referred to as what in the Integrated Ethical Decision Making Process?
Ethical sensitivity
Which of the following has been shown to influence the moral development of a manager? (Check all that apply) Established decision priorities Ethical training Education Corporate culture Fear of losing one's job
Ethical training Education Corporate culture
Professional judgement requires not only technical competence, but also depends on auditors' _____ and _____.
Ethics Virtues
Kohlberg suggests that individuals may change their decision priorities over time. Select all of the following that may influence moral development. Ethics training Education Corporate culture Family status
Ethics training Education Corporate culture
Very few defendants charged with false certification, & even fewer convicted
Ex.: Richard Scrushy, former HealthSouth Corporation CEO Scrushy indicted but found not guilty on false certification HealthSouth CFO, pleaded guilty, sentenced to 27 months in jail
Frequency of Anti-Fraud Controls
External audit of financial statements - 82% Code of conduct - 77% Internal audit department - 71% Mgmt certification of finl statements - 70% External audit of internal controls - 66% Management review - 63% Independent audit committee - 62%
The requirement that all companies registered with the SEC maintain internal accounting controls to ensure that all transactions are authorized by management and are recorded properly was established by the _____.
FCPA
Select the possible negative outcomes of simplifying complex issues to make decision making easier. (Select all that apply) Failing to identify stakeholders Underestimating risk Considering long-term consequences
Failing to identify stakeholders Underestimating risk
True or false: Auditors should only communicate material fraud to those charged with governance
False
True or false: Withdrawal from the engagement is not allowed by SEC because the auditor was hired to do an audit and render an opinion.
False
1. Revenue Overstatement 2. Expenses Understatement 3. Improper Asset Valuations
Financial Statement Fraud Methods include:
Financial Statement Fraud
Fraud schemes occur because an employee - usually top mgmt - causes a misstatement or omission of material information in orgs' financial reports
The expression of an opinion by the auditors is based on an audit in accordance with _____.
GAAS
The approach that focuses on individuals effectively expressing their beliefs in a way that positively influences others is known as what? Giving Voice to Values Integrated Ethical Decision Making Virtue Based Decision Making Cognitive Development
Giving Voice to Values
COSO Framework
Groupon ex. of internal control failure: restated financials because of material weakness in internal control's; management caught internal control, not auditors
Cognitive dissonance suggest that individual's have an inner drive to hold attitudes and beliefs in
Harmony
In Libby and Thorne's study of virtues, which of the following were identified as intellectual virtues? (Check all that apply) Healthy skepticism Diligence Persistence Dependability Integrity Truthfulness
Healthy skepticism Dependability Integrity Truthfulness
Heinz & the Drug
Heinz's wife has a rare cancer A radium drug could help Druggist charged 10 times what drug cost ($200 cost; $2,000 for small dose of drug) Heinz could only get together $1,000 Druggist makes no exceptions to drug price What should Heinz do?
CEOs & CFOS must certify financial statements contain no material misstatements
Helps protect the public against fraudulent financial statements?
Taking ethical action should be based on which of the following?
How I can strengthen my position How virtue helps to turn ethical intent to ethical action How I can strengthen my arguments
1. Consider how your actions affect others. 2. Do no harm. 3. Make decisions that are universal. 4. Reflect before deciding.
How managers can set ethical tone at the top:
Taking ethical action should be based on which of the following? (Select all that apply) Maximizing stakeholder interests when it violates professional obligations How virtue helps to turn ethical intent to ethical action How I can strengthen my arguments How I can strengthen my position
How virtue helps to turn ethical intent to ethical action How I can strengthen my arguments How I can strengthen my position
Which of the following is not one of the questions in an ethical decision-making model? What are the rights of stakeholders? How will I best satisfy my own interests? Which course of action results in a fair distribution of benefits and burdens? What benefits and harms will each course of action produce?
How will I best satisfy my own interests?
-Executive compensation -Controlling management through Board of Directors' actions -Accounting System as monitoring device -Audited financial statement
If primary or sole goal of org is to make $, then use things like:
Ethical Issue Intensity
Importance of issue to individual, work group &/or organization (intensity) based on values, beliefs & norms involved & pressures in workplace.
In accounting, the values of the profession are embedded in its codes of _____ that guide the actions of accountants and auditors in meeting their professional responsibilities.
In accounting, the values of the profession are embedded in its codes of ethics that guide the actions of accountants and auditors in meeting their professional responsibilities.
Reflection and deliberation in accounting relies on _____ thinking
System 2
CPAs must avoid relationships that might otherwise impair audit _____.
Independence
Stage 3: Fairness to Others
Individual is not only motivated by rules but seeks to do what is in the perceived best interests of others, especially those in a family, peer group, or work organization. There is a commitment to loyalty in the relationship. EX: Susan wants to be liked by others. She might be reluctant to make the payment but agrees to do so, not because it benefits her interests, but in response to the pressure imposed by her supervisor, who claims that the company will lose a major contract and employees will be fired if she refuses to go along
High organizational ethics, low individual ethics (high-low)
Individual possesses lower ethics than that which is held by the organization, the discovery of an individual's lack of person-organization fit is often pointed out by socialized members within the ethical organization. Those assimilated members of the organization may attempt to socialize the individual to the ways of the organization to alleviate the ethical dissonance.
Virtues that influence actions
Instrumental virtues
1. Identify the ethical & professional issues (ethical sensitivity) 2. Identify & evaluate alternative courses of action (ethical judgment) 3. Reflect on core professional values, ethics, & attitudes to help carry through with ethical action (ethical intent) 4. Take action (ethical behavior)
Integrated Decision-Making Model(4):
Virtues that indirectly influence an individual's intentions to exercise professional judgement are
Intellectual virtues
There is an important link between moral ____ and ethical decision making
Intensity
Moral motivation includes
Intention to comply with ethical judgement Willingness to place ethical values ahead of nonethical values
Ethical Dissonance Model
Interaction between individual & org based upon ethical fits of relationship in 4 potential ethical fit scenarios/options
Unlike System 2 thinking, System 1 is more
Intuitive
Professional Judgment in Accounting
Judgment exercised with due care, objectivity, & integrity within framework provided by professional standards, by experienced & knowledgeable people -necessary for decisions to be made in accordance with the values of the profession as embodied in its codes of conduct -requires not only technical competence, but also depends on auditors' ethics and virtues
Giving each person what he/she deserves is a way to describe _____.
Justice
In stage six of Kohlberg's model, a person is influenced by
Justice Rights of others Equality
System 1 & System 2
Kahneman's 2 modes of decision making:
Ends vs. Means
Kant: The ends do not justify the means Financial Crisis of 2007 - 2008 -Investment Banks, Mortgage Companies, Banks - Often packaged loans together & lied about their quality -Ex. How to Verify Income of owner of a mariachi band? -Those selling loans make huge profits
______ believes the ethical decision-making process has an underlying structure based on nine steps. Rest Johnson Velasquez Kohlberg Kidder
Kidder
1. Recognize there is a moral issue. 2. Determine actor. 3. Gather relevant facts. 4. Test for right-versus-wrong issues. 5. Test for right-versus-right paradigms. 6. Apply ethical standards & perspectives. 7. Look for a third way. 8. Make decision. 9. Revisit & reflect on decision.
Kidder's Ethical 9 Checkpoints:
Example of Moral Sensitivity
Kozlowski the CEO of Tyco was convicted with fraud was blinded by his ambition and never remotely thought about the ethics of his actions. He was not sensitive to these issues because of a desire to keep up with "The Masters of the Universe," by which he meant other CEOs who, at the time, were ranking in hundreds of millions of dollars in execuitve compensation
In stage 4 of Kohlberg's model, a person's behavior is influenced by
Law and order Duty to the social order
Cognitive development is based upon 20 years of research by whom? Immanuel Kant Aristotle Lawrence Kohlberg Josephson Institute of Ethics
Lawrence Kohlberg
Laws and ethical obligations can be characterized as follows: _____ _____ informs ethical obligations and _____ crate a minimum set of standards.
Laws and ethical obligations can be characterized as follows: moral philosophy informs ethical obligations and laws crate a minimum set of standards.
In stage five of Kohlberg's, a person is influenced by
Legal contract of society Rights and values of society Evaluating harms and benefits of actions
Which of the following is not a part of the ethical domain for accountants and auditors? General public Accounting profession Regulatory bodies (SEC, PCAOB) Legal profession
Legal profession
Becca telling Matt that she will go to the faculty advisor falls under which portion of the GVV framework?
Levers available to influence those with whom Becca disagrees
Executive Compensation
Link managerial compensation to: -Overall corp finl performance (to maximize US GAAP profit) -Stock price performance (to maximize stock price)
Which of the following are included in ethical intent of the ethical decision making process?
Look at how virtue motivates ethical actions Look at the likelihood and magnitude of possible consequences Determine if anyone's rights are at stake
Which of the following are included in ethical intent of the ethical decision-making process? (Select all that apply) Look at how virtue motivates ethical actions. Look at the likelihood and magnitude of possible consequences. Look at how virtue can support turning ethical intent into ethical action. Determine who the stakeholders are. Determine if anyone's rights are at stake.
Look at how virtue motivates ethical actions. Look at the likelihood and magnitude of possible consequences. Determine if anyone's rights are at stake.
Loyalty issues sometimes arise because ______. A. conflicts exist between honesty and integrity B. ethical values may conflict C. the controller and CFO adopt the same position D. self-interest overrides the employer's interests
Loyalty issues sometimes arise because (B) ethical values may conflict.
What are main arguments to counter; or reasons/rationalizations to address?
Loyalty, materiality, isolated incident, student graduating
The decision making model helps to
Make better ethical choices
Character & Leadership in Workplace
Managers are people who do things right and leaders are people who do the right thing
Higher stages
Many believe that ________ ______ are better because they are consistent with certain philosophical theories of rights & justice
Teleologists evaluate the moral worth of behavior by looking at its _____.
Teleologists evaluate the moral worth of behavior by looking at its consequences.
Which of the following are dimensions included in Jones' moral intensity model?
Temporal immediacy Proximity Social consensus
Select all the following shortcomings that contributed to poor moral behavior at Volkswagen during the "Dieselgate" scandal. (Select all that apply) Quickly notifying the public of carbon dioxide emissions Miscalculating the consequences of not fixing the problem Overconfidence in its ability to absorb losses Underestimating risk
Miscalculating the consequences of not fixing the problem Overconfidence in its ability to absorb losses Underestimating risk
1. Magnitude of Consequences 2. Temporal Immediacy 3. Social Consensus 4. Proximity 5. Probability of Effect 6. Concentration of Effect
Model links moral intensity to Rest's Model (6):
_______ _________ describes the common failure of people to notice others' unethical behavior when seeing that behavior would harm the observer. (Enter one word per blank.)
Moral Blindness
__________________ ___________________ determines whether an individual behaves in accordance with their ethical intention.
Moral Character
_____ _____ describes the common failure of people to notice others' unethical behavior when seeing that behavior would harm the observer. (Enter one word per blank.)
Moral blindness
Within the cognitive-developmental paradigm, what is the most influential factor of an individual's moral behavior? Laws and rules Satisfying self interest Moral judgment Fairness to others
Moral judgment
Organizations with ethically rewarding environments have a large degree of
Moral motivation
An individual's ability to identify when an ethical situation exists is an example of
Moral sensitivity
-Person's actions be rational -Motivated by purpose or intent -Carried out with autonomous free will
Morality requires:
An individual's moral ___ influences her intention to comply with her ethical judgement
Motivation
Ethical Collapse
Occurs when any organization has drifted from the basic principles of right & wrong
Organizational Factors
Org's values have a greater influence than a person's own values
Business Ethics Intentions, Behavior, & Evaluations
Organizational ethical culture shaped by effective leadership
Compliance Function
Organizations ethics officer: -Ensures org in compliance with laws/regulations, including SEC laws, SOX, & Dodd Frank -Addresses existing requirements & anticipates regulatory changes & their likely impact
Moral Sensitivity
Our ability to identify an ethical situation enables us to focus on how alternative courses of action might affect ourselves and others. Kozlowski acted without reflecting on the ethics of the situation. He failed even the most basic test of ethical behavior, which is ethics is all about how we act when no one is looking
Which bias describes when an auditor may be conservative in his/her risk assessment but may fail to seek additional information to confirm or update his/her knowledge about internal controls? Group think Hindsight bias Overconfidence bias
Overconfidence bias
An individual being able to effectively voice their principles in the workplace given the proper tools is the underlying theme to
The Giving Voice to Values technique
The Golden Rule is best seen as a _____ principle.
The Golden Rule is best seen as a consistency principle.
In applying the GVV technique to the Ace Manufacturing case, which of the following should be considered in the consideration of what is at stake for the key parties?
The ability of the company to secure the $100,000 loan
The full disclosure of information leads to _____.
The full disclosure of information leads to honesty.
Which of the following are included in the most frequent reasons and rationalizations an individual faces when speaking against an unethical situation? Due care has been exercised. The impact is immaterial. Moral judgment It is standard practice "It's not your responsibility."
The impact is immaterial. It is standard practice "It's not your responsibility."
Which of the following are potential reasons/rationalizations in the Ace Manufacturing case?
Paul tells Davis it was an isolated incident and will not happen in the future Paul tries to convince Davis that taking cash for personal use is a standard practice at Ace Manufacturing Paul argues that the amount of money he took is immaterial and therefor does not matter
KPMG's Integrity Survey 2013
People of integrity are self-driven to do right thing
Rationalization
People who commit financial statement fraud are able to rationalize the act -being able to justify the act makes it possible -individual must first convince herself that the behavior is temporary or is acceptable
Level 3 - Postconventional
Principled morality underlies decision making at this level. The individual recognizes that there must be a society wide basis for cooperation. There is an orientation to principles that shape whatever laws and role systems a society may have
Control
Process of auditing & improving org decisions & actions, relying on internal audit & internal control processes
Virtue plays an essential role in determining
Professional judgement
In Libby and Thorne's study of virtues, each of the following were identified as intellectual virtues
Professional skepticism Integrity Truthfulness Dependability
Which brand of egoism claims the promotion of one's own self-interest in accordance with reason?
Rational Egoism
Which factors influenced Betty Vinson's behavior in the Worldcom case?
Rationalization of actions as a one time event Others knew better what was the right thing to do Pressure from superiors
Which factors influenced Betty Vinson's behavior in the WorldCom case? (Check all that apply). Courage of her convictions Rationalization of actions as a one-time event Pressure from superiors Desire to cook the books Belief that others had more knowledge of accounting than her
Rationalization of actions as a one-time event Pressure from superiors Belief that others had more knowledge of accounting than her
Kohlberg asserted that development in moral _____ enables a person to become truly a moral person, both in thought and action
Reasoning
The GVV methodology develops ways to confront ____ and ____. These are the barriers one may encounter when pointing out a potential ethical conflict in the workplace.
Reasons Rationalizations
An individual avoiding responsibility by saying "I am just doing what I was told" is using ____ as a way to justify unethical behavior
Reasons and rationalizations
Put the following check points Kidder suggests using when dealing with a confusing ethical issue in order
Recognize that moral questions exist Determine responsibility Gather all important information Test for right v wrong issues
What is the first step in Kidder's ethical decision-making process? Determine the actor. Recognize that there is a moral issue. Gather the relevant facts. Test for right versus wrong.
Recognize that there is a moral issue.
Which of the following are ways Festinger assumes will reduce dissonance? (Select all that apply). Increase the importance of the beliefs and/or attitudes. Reduce the importance of the beliefs and/or attitudes. Change one or more of the attitudes, behaviors, or beliefs so the two align. Acquire new information that outweighs the beliefs that are not in harmony. Assume moral blindness and ignore the dissonance.
Reduce the importance of the beliefs and/or attitudes. Change one or more of the attitudes, behaviors, or beliefs so the two align. Acquire new information that outweighs the beliefs that are not in harmony.
Regardless of their circumstances in life, all people should be treated with _____.
Regardless of their circumstances in life, all people should be treated with dignity.
Which of the following are true regarding regulation? (Select all that apply)
Regulation must be transparent. Regulation must be objectively determined.
Accountability
Relationship between workplace decisions, strategic direction, & compliance with legal & ethical considerations
_____ cannot be established if the damages or loss suffered by the plaintiff would have occurred regardless of whether the audited financial statements were misstated (Enter one word per blank)
Reliance
Community Involvement Offsets Bad
Remedies for good/evil balancing act Be skeptical about: 'Doing well by doing good' Solution: Rely on virtues: truth, honesty, fairness, & egalitarianism [Ex.: Adelphia, John Rigas, Treated as personal piggy bank]
What's at stake for key parties?
Reputation, leadership stake, faculty advisor & community
Stage 2: Satisfying One's Own Needs
Rules and authority are important only if acting in accordance with them satisfies one's own needs (egoism) EX: Susan might make the payment even though it is against company rules if she perceives that such payments are a necessary part of doing business. She view the payment as essential to gain the contract. Susan may believe that competitors are willing to make payments, and that making such payments are part of the culture of the host country. She concludes that if she does not make the payment, it might jeopardize her ability to move up the ladder within the organization and possibly forgo personal rewards of salary increases, bonuses, or both. Because everything is relative, each person is free to pursue her individual interests
Which of the following are reasons why rules in accounting cannot replace the auditors' professional judgment? (Check all that apply) Rules may be unclear or nonexistent. Auditors need only be technically competent. Rules cannot be made to fit every situation. Transactions need only be structured around rules to be ethical.
Rules may be unclear or nonexistent. Rules cannot be made to fit every situation.
CEO & CFO Codes of Ethics
SEC focusing more on identifying & penalizing misstatements in public company financials -Analyzes patterns of internal control problems even absent a restatement of the financials
What is the objective of applying moral judgement?
Select the morally justifiable course of action
Our ability to spot ethical issues is known as moral
Sensitivity
The philosophical view that there are no universal moral standards that are applied to all people at all times is associated with ethical _____.
The philosophical view that there are no universal moral standards that are applied to all people at all times is associated with ethical relativism.
In accounting when there are ambiguities within accounting and auditing standards, an accountant may not be able to make good decisions. Rest argues the accountant should seek what in this type of situation?
The presentation of financial information in a way that benefits the public interest
In accounting, when there are ambiguities within accounting and auditing standards, an accountant may not be able to make good decisions. Rest argues the accountant should seek what in this type of situation? The presentation of financial information in a way that benefits the accountant The presentation of financial information in a way that benefits the public interest The presentation of financial information in a way that benefits the client
The presentation of financial information in a way that benefits the public interest
An auditor who reasons at stage six will emphasize
The public interest Universality Integrity and objectivity
COSO Internal Control - Integrated Framework
The system of internal controls and whether it operates as intended enables the auditor to either gain confidence about the internal processing of transactions or create doubt for the auditor that should be pursued -Emphasizes roles of BOD, management & personnel
Which of the following are criticisms of Kohlberg's work?
Too much reliance on Rawl's Theory of Justice A disregard for human emotion and traits of character An over reliance on dilemmas used to evaluate moral reasoning
Research suggests that individuals will act less ethically if they are not being watched. Which situational factor is this most related to? Time pressure Integrity Transparency
Transparency
Responsibilities to the key constituent groups of the ethical domain for accountants and auditors may conflict. True False
True
Individual Factors
Values of individuals Org & social forces shape behavioral intentions & decision making
While not specifically recognized in a philosophical reasoning model, ____ is implied by the conserations
Virtue
Thorne develops a model of individuals' ethical decision process that integrates Rest's components with what? Egoism Moral intensity characteristics Virtue-based characteristics Utilitarianism
Virtue-based characteristics
Individuals do not always behave in accordance with their ethical intention due to which of the following? (Check all that apply) Weak ethical character Being a person of integrity Ability to avoid distractions Lack of alignment of intention and actions Lack of a plan to carry out ethical intent with ethical action Inability to withstand pressures
Weak ethical character Lack of alignment of intention and actions Lack of a plan to carry out ethical intent with ethical action Inability to withstand pressures
Which of the following are questions that should be addressed when following the GVV framework? (Select all that apply) Is this argument a one-time incident? What are the main arguments that need to be addressed? What is the material impact of the argument being made? To whom should the argument be made? When and in what context should the argument be made?
What are the main arguments that need to be addressed? To whom should the argument be made? When and in what context should the argument be made?
Which of the following are questions included in the GVV framework? (Select all that apply) What is the most persuasive response to barriers? What is at stake for those who disagree? What is the magnitude of the potential consequences? What levers can be used to influence those in disagreement? Who are all the stakeholders involved in the situation?
What is the most persuasive response to barriers? What is at stake for those who disagree? What levers can be used to influence those in disagreement?
Low organizational ethics, low individual ethics (low-low)
When both the individual and organization possess low moral and ethical development, the fit is there, but it is turns in a negative direction. A culture of corruption is difficult to change, and for the employee, it takes more conscious effort to stop the corruption than to participate in it. You might say that the employee adopts the attitude of going along to get along.
In step 1 of the Integrated Ethical Decision-Making Model, which of the following should Davis answer when evaluating the ethical decisions at Ace Manufacturing? (Select all that apply) Do I, Davis, want to be responsible for Paul getting in trouble? Who are the stakeholders at ACE Manufacturing? What are the consequences of reporting the disbursements to Paul? Have I, Davis, exercised due care? Do the disbursements to Paul violate GAAP?
Who are the stakeholders at ACE Manufacturing? Have I, Davis, exercised due care? Do the disbursements to Paul violate GAAP?
In step 3 of the integrated ethical decision making model, which of the following should Davis answer when evaluating the ethical decisions at Ace Manufacturing?
Will my actions do irreparable harm to others? Do I, Davis, want to be responsible for Paul getting into trouble
A CPA should decline to perform audit services for a client when ______. (Check all that apply)
a conflict exists due to certain non-audit services performed for a client independence has been compromised
Audit Committee
a conscientious and diligent committee is an essential ingredient of an effective corporate governance system-one that takes its role in financial statement oversight to heart and follows basic principles of responsibility, accountability, and transparency -Seen as a body that should be able to prevent identified fraudulent financial reporting -Committee should meet separately with senior executives, internal auditors, & external auditors
Moral Sensitivity
ability to identify what is moral & amoral -absent the ability to recognize that one's actions affect the welfare of others, it would be virtually impossible to make the most ethical decision when faced with a moral dilemma
Moral Judgment
ability to reason through several courses of actions & making right decision when faced with ethical dilemma -relates to developing moral reasoning abilities over time
The difference between an individual with a strong ethical character and one with a weak ethical character may be summarized as the ______. inability to behave in accordance with ethical intention inability to withstand pressures and act ethically ability to withstand any pressures and act ethically ability to cave in to pressures and act unethically
ability to withstand any pressures and act ethically
An act that causes embarrassment to the accounting profession is called ______.
acts discreditable
Principles
are specific & pervasive boundaries for behavior that are universal & absolute
Agency Theory
argues that management will fulfill its duty to shareholders, not so much out of any sense of moral duty to shareholders, but because doing what shareholders have provided incentives for maximizes their own utility -Corp managers & directors are agents -Shareholders are the principal -Construct rules & incentives to align behavior of agents with desires of principals
Heinz dealt with the dilemma by ______. (Check all that apply) giving up on trying to obtain the drug asking the druggist if he could pay for the drug over time asking the druggist to sell the drug for less raising all the money from family and friends stealing the drug for his wife
asking the druggist if he could pay for the drug over time asking the druggist to sell the drug for less stealing the drug for his wife
The Principles of the AICPA Code of Professional Conduct can best be described as ______.
aspirational statements
In stage 1 of Kohlberg's model, behavior is driven by the desire to ______.
avoid punishment
In stage 1 of Kohlberg's model, behavior is driven by the desire to ______. avoid punishment always be friendly always act ethically satisfy one's own needs
avoid punishment
Organizational pressures may lead to altering one's beliefs to fit ______. moral sensitivity cognitive dissonance behavior moral judgment
behavior
When a staff accountant is aware of financial statement fraud, but does not report it because he/she believes his/her supervisor will correct the situation, this is an example of ______.
bystander effect
When a staff accountant is aware of financial statement fraud, but does not report it because he/she believes his/her supervisor will correct the situation, this is an example of ______. utilitarianism effect bystander effect deontological norms
bystander effect
When an individual has the tendency to not report incidents of wrongdoing because he/she believes others will report it, this is commonly called ______.
bystander effect
When an individual has the tendency to not report incidents of wrongdoing because he/she believes others will report it, this is commonly called ______. bystander effect deontology egoism effect
bystander effect
Organizational ethics
can be thought of as the generally accepted principles and standards that guide behavior in business and other organizational contexts -sound moral princples -Critical component -Shared Values, Beliefs, Goals, & Problem-solving Mechanisms -Focuses on issues of right & wrong
The exercise of due care with respect to the scope and nature of services performed requires the CPA firm to ______. (Check all that apply)
carry out its responsibilities in a professional manner establish adequate internal quality control procedures adequately supervise the performance of services
The expression "Act only according to that maxim by which you can at the same time will that it should become universal law" is known as the _____ _____.
categorical imperative
The thought process followed in one's moral development is _____ _____.
cognitive development
The thought process followed in one's moral development is _____ ______
cognitive development
Rest believes that ethical actions result from ______. cognitive structures and psychological processes a single, unitary decision process external actions Kohlberg's model
cognitive structures and psychological processes
The longer an individual persists in attempting to resolve an issue, the more likely one's commitment to a _____ versus the organization becomes an influencing factor in determining whether to report wrongdoing. (Enter one word per blank)
colleague
The type of commitment that is dependent on a sense of responsibility and readiness to support others within the organization is _____ commitment.
colleague
The due care standard calls for continued improvement in the level of _____ and quality of services.
competency
Virtue
comprises ethical motivation, which describes an individual's willingness to place the interests of others ahead of her own interest; and ethical character, which leads to ethical behavior
moral development
comprises sensitivity to the moral content of a situation or dilemma and prescriptive reasoning, or the ability to understand the issues, think them through, and arrive at an ethical judgments
In considering whether to go outside the company, an accountant should be most concerned with his/her _____ obligation.
confidentiality
Each of the following are characteristics of objectivity, except ______.
conflicts of interest
The most common social and organizational pressures that can cause well-intentioned people to make poor ethical choices are ______. conforming to ethical judgments of peers obedience to authority considering multiple stakeholders
conforming to ethical judgments of peers obedience to authority
The reckless disregard for the truth standard in Phar-Mor links auditor behavior to gross negligence or _____ fraud. (Enter one word per blank)
constructive
A _____ _____ system includes mechanisms to ensure that the agent (management) runs the firm for the benefit of one or more principals (shareholders, creditors, and other stakeholders).
corporate governance
Virtuous character traits developed in one's youth should include ______. (Check all that apply)
courage and wisdom, good habits of character
Effective system of internal controls
critical to establish an ethical corporate culture supported by the tone at the top
Stakeholder orientation
degree to which an org understands & addresses stakeholder demands -Generating data about stakeholder groups & assessing firm's effects on these groups -Distributing this information throughout org -Responsiveness of entire org to information
Which social and organizational pressure has lead to poor ethical judgments in financial reporting?
desire to please authority
The underlying features of cognitive development include ______. (Check all that apply) developing from childhood to adulthood a thought process becoming more complex and sophisticated with development being set in childhood an ability to make reasoned judgments a hierarchical series only
developing from childhood to adulthood a thought process becoming more complex and sophisticated with development an ability to make reasoned judgments
Which concept involves treating individuals with respect and celebrating the rich dimensions of individuality?
diversity
In stage 3 of Kohlberg's model, a person is influenced by ______. (Check all that apply) respect for authority law and order doing what is in the best interests of others loyalty in relationships duty to the social order
doing what is in the best interests of others loyalty in relationships
Culture of Conflicting Interests
dual relationship between investment bankers & financial analysts -Issuers benefit from optimistic research -Investors desire unbiased research
The requirement that a director or officer acts in the best interest of the corporation while exercising good faith is known as the standard of _____ _____.
due care
In stage 4 of Kohlberg's model, a person's behavior is influenced by ______. (Check all that apply) fear of punishment fairness to others duty to the social order law and order pursuit of self-interest
duty to the social order law and order
The ethics of whistleblowing have been questioned because Dodd-Frank _____ the practice.
encourages
In stage 6 of Kohlberg's model, a person is influenced by ______. (Check all that apply) equality satisfying one's own needs loyalty to one's peer group justice rights of others
equality justice rights of others
Corporate governance systems
establish control mechanisms to ensure org values guide decision-making & ethical standards followed -separation of ownership and control in corporations -the ways in which the suppliers of finance to corporations assure themselves of getting a return on their investment -process of supervision and control intended to ensure that the company's management acts in accordance with the interests of shareholders
Internal Controls
established by management should help prevent and detect fraud, including materially false and misleading financial reports, asset misappropriations, and inadequate disclosures in the financial statements -Ensure management policies followed -Ethical systems built into corp governance -Can be overridden by top management -Required by SOX, Auditor must give opinion if internal controls adequate
Audit committee communications should include critical accounting policies and practices and critical accounting _____.
estimates
Internal reporting mechanisms are strengthened by developing _____ systems to facilitate such reporting. (Enter one word per blank)
ethical
Giving Voice to Values builds on traditional philosophical reasoning methods to effectively express one's values to ensure what occurs? ethical action is taken Harm is minimized Kidder's Ethical Checkpoints are followed Moral sensitivity is evaluated
ethical action is taken
Considering how virtue supports turning ethical intent into ethical action is an example of ______. ethical sensitivity ethical intent ethical judgment ethical behavior
ethical behavior
Deciding on a course of action consistent with an individual's professional obligations is an example of ______. ethical judgment ethical intent ethical sensitivity ethical behavior
ethical behavior
The moral atmosphere of the work environment and the level of ethics practiced within a company is referred to as _____ _____.
ethical climate
Kidder believes ______. (Select all that apply) ethical issues are based on a clear right and wrong decision ethical issues can have unexpected consequences ethical issues can create complex issues ethical issues have an underlying structure related to the decision making process
ethical issues can have unexpected consequences ethical issues can create complex issues ethical issues have an underlying structure related to the decision making process
Professional judgment requires not only technical competence, but also depends on auditors' virtues and ______________
ethics
Ethical judgment helps to resolve decision-making dilemmas through _______ following the rules in accounting evaluating alternative courses of action defining the problem and gathering information applying ethical standards and values taking ethical action
evaluating alternative courses of action defining the problem and gathering information applying ethical standards and values taking ethical action
Compliance Audits
ex. With regulations
The virtues of truthfulness, trust, justice, courage, and honesty are the standards of _____ that characterize relationships within accounting practice.
excellelence
Internal Accountants' Eligibility
excluded from receiving whisteblower awards because of their pre-existing legal duty to report securities violations -includes individuals with internal compliance or audit responsibilities at an entity who receive information about potential violations since it is part of their job responsibilities to report suspicion of illegal acts and fraud to management
One of the biggest issues that corporate boards of directors face is, _____ _____ and it has been found that most boards spend more time on this than ensuring the integrity of financial reporting.
executive compensation
The disconnect between the actual role of the external auditor in detecting fraud and the public expectation of the external auditor to detect fraud is referred to as the _____ _____.
expectations gap
Business Judgment Rule
expected to exercise due care & to use their best judgment in guiding corporation management, but not insurers of business success; honest mistakes & poor business decisions do not make them liable to corporation for resulting damages
FCPA does not prohibit "grease payments," which are referred to as permissible _____ payments. (Enter one word per blank)
facilitating
Payments designed to speed up routine governmental action that are not intended to influence the outcome of the official's action are referred to as _____ payments.
facilitating
True or false: Auditing standards are the steps taken by the auditor during the course of audit to comply with GAAS.
false
True or false: The outcome of the Omnicare case allows a successful claim by investors when an opinion is wrong.
false
Ethics & Compliance Officer Association (ECOA)
has recognized its increased responsibilities resulting from SOX -mission is to promote "ethical business practices and [serve] as a global forum for the exchange of information and strategies among organizations and individuals responsible for ethics, compliance, and business conduct programs
Moral Character
having one's ethical intentions match actions taken -will be more likely to carry out their ethical intentions with ethical action than individuals with a weak ethical character because they are better able to withstand any pressures (i.e., have courage and maintain integrity to do otherwise)
Internal control
includes all processes & procedures that mgmt puts in place to help make sure its assets are protected & company activities are conducted in accordance with org's policies & procedures
Which concept involves motivating employees so that they feel a part of the organization?
inclusion
Auditors render an _____ opinion on the conformity of the financial statements with _____.
independent, GAAP
Intellectual Virtues
indirectly influence individual's intentions to exercise professional judgment
Virtues that directly influence an individual's actions are ______. judgment virtues moral virtues intellectual virtues instrumental virtues
instrumental virtues
The guiding principle used to resolve conflicts that may exist between the interests of the client or one's employer and the public interest is acting with _____.
integrity
Most important in intellectual virtues
integrity, truthful, independent, objective, dependable, principled, & healthily skeptical
Virtues that indirectly influence an individual's intentions to exercise professional judgment are ______. instrumental virtues intentional virtues moral virtues intellectual virtues
intellectual virtues
Fraud always entails a(n) _____ decision.
intentional
To sustain a criminal conviction against a defendant, it must be shown that a wrongful act exists, which means _____ violating a provision of the Securities Act of 1934. (Enter one word per blank)
intentionally
Internal Auditors
interact with top management and, as such, should assist them to fulfill their role in developing accurate and reliable financial statements, ensure the effectiveness of internal control systems, and monitor compliance with laws and regulations -Monitor corp gov activities & compliance with org policies -Review effectiveness of code of ethics & whistle-blower provisions -Should have direct & unrestricted access to Board of Director's Audit Committee - be their "Eyes and ears" Ex. Cynthia Cooper & WorldCom -Assess audit committee effectiveness & compliance with laws -Oversee internal controls & risk management processes -Assurance on how effectively org assesses & manages its risk -Assurance on data security & privacy controls
Virtue ethics addresses ______. (Check all that apply)
internal traits of character, intentions of the decision maker
Whistleblowing through the disclosure of wrongdoing to parties can be characterized as either _____ or _____ whistleblowing. (Enter one word per blank.)
internal, external
System 1
intuitive system of processing info; fast, automatic, effortless, & emotional decision processes
An individual who follows decision-making guidelines ______. (Select all that apply) is a person of high moral character is equipped to defend his/her decisions will find an automatic solution to moral problems is equipped to make better ethical choices
is equipped to defend his/her decisions is equipped to make better ethical choices
Moral Agency
is important for determination of moral behavior
The process of reaching a decision or drawing a conclusion where there are a number of possible alternative solutions is referred to as _____.
judgement
When evaluating the risk of material misstatements in financial statements, professional _____ is imperative for accountants.
judgement
When a company retaliates against an employee for bringing bad news to the attention of top management, a _____ the _____ syndrome exists.
kill, messenger
When it comes to preventing fraud, CFOs are in a position of ethical _____.
leadership
Temporal Immediacy
length of time between the action and its consequences. An action with immediate negative consequences will cause a greater increase in moral intensity than an action for which the consequences are delayed
Internal governance mechanisms
manage, direct, & monitor corp governance activities to create sustainable stakeholder value -Independent directors -Audit committee -Management -Internal controls -Internal audit
Business Judgment Rule
managers & BOD immune from liability so long as decisions made in good faith & with reasonable skill & prudence
Stewardship theory
managers are viewed as stewards of their companies, predominately motivated to act in the best interests of the shareholders -directors have a fiduciary duty to act as stewards of the shareholders' interest -Managers are stewards - so enable them to do what is best for the org & they will do it?
The term _____ describes the kind of information that an average prudent investor would want to have to make an informed decision to buy or sell a security. (Enter one word per blank)
material
The fact that some matters are important to fair presentation of the financial statements, while other matters are not, is recognized by the concept of _____.
materiality
Kohlberg developed the example of Heinz and the Drug to illustrate a ________ dilemma.
moral
Organizational ethical climate
moral atmosphere of the work environment and the level of ethics practiced within a company -determined by leaders who establish the character and define norms
When a situation has higher ______, an individual is more influenced in his/her ethical decision making process. moral sensitivity moral motivation moral intensity moral character
moral intensity
Within the cognitive-developmental paradigm, what is the most influential factor of an individual's moral behavior?
moral judgement
Organizations having policies and procedures in place making it easy to report unethical behavior is an example of ______. moral character moral sensitivity moral motivation moral judgment
moral motivation
`Organizations with ethically rewarding environments have a large degree of ______. moral sensitivity moral judgment moral motivation moral character
moral motivation
A corporate executive who spends company money on lavish parties and travel later claims he did nothing wrong. The executive's lack of responsibility falls under ______.
moral sensitivity
An individual's ability to identify when an ethical situation exists is an example of ________________________
moral sensitivity
A plaintiff must allege facts demonstrating a concrete and personal benefit that could be realized through the fraud in order to establish _____.
motive
Proximity
nearness of the decision maker to the individuals potentially affected by the consequences. -results in an increase of moral intensity -an auditor who becomes too close to a client and is dealing with fraudulent financial statements is likely to feel more pressure from the client because of their close relationship
A Texas Supreme Court decision in the case of Grant Thornton LLP v Prospect High Income Fund et al, has strengthened defenses available to auditors for _____ misrepresentation. (Enter one word per blank)
negligent
Internal control systems
no matter how well conceived & operated, only provide reasonable - not absolute - assurance to mgmt & board of directors regarding achievement of an entity's objectives
Objectivity in auditing is related to the justice theory by ______. (Check all that apply)
not subordinating judgment making impartial judgments
The moral atmosphere of the work environment and the amount of ethics practiced is referred to as the _____ ethical climate.
organizational
A way should be found to voice one's values with the intent of changing hearts and minds when _____ _____ and actions differ from what one truly believes in. (Enter one word per blank)
organizational values
When a third-party establishes a case sufficient to win against a CPA unless successfully rebutted, a _____ _____ case has been established. (Enter one word per blank)
prima facie
When rights come into conflict, they need to be ______.
prioritized
The contractual relationship between the auditor and client is known as a _____ relationship.
privity
Virtue plays an essential role in determining ______________________
professional judgement
A questioning mind is essential to due care because it requires ______.
professional skepticism
The exercise of professional judgment is dependent on a mindset of _____ _____.
professional skepticism
To approach an audit with a questioning mind requires _____ _____.
professional skepticism
External Auditor Eligibility
prohibited from blowing the whistle on their clients because the information gained during a mandated audit would not be considered to derive from an individual's independent knowledge or analysis -Whistleblower rules allow auditor or auditor employees to be a whistleblower alleging firm failed to assess, investigate or report legal wrongdoings
Say on Pay
provisions (Section 951) that require SEC-registered issuers to provide shareholders at least once every three calendar years a separate nonbinding say-on-pay vote regarding the compensation of the company's named executive officers (i.e., CEO and CFO) and the company's three other most highly compensated officers
The foundation of the Principles in the AICPA Code includes ______. (Check all that apply)
public trust values of the profession
The allegiance of independent auditors to the interests of the public is known as the _____ _____ function. (Enter one word per blank)
public watchdog
Trainee auditors are more likely to report wrongdoing internally when a firm has a system of _____ _____ to report internally. (Enter one word per blank)
quality controls
An individual avoiding responsibility by saying "I am just doing what I was told," is using ______ as a way to justify unethical behavior. ethical reasoning moral intensity cognitive dissonance reasons and rationalizations
reasons and rationalizations
Objections an individual may hear from coworkers when trying to point out a potential ethical problem are referred to as ______. ethical checkpoints moral motivation motivational factors reasons and rationalizations
reasons and rationalizations
Stewardship advocates
recognize that directors need to consider a broader range of interests, including employees, customers, suppliers, and other legitimate stakeholders, but under the law their first responsibility is to the shareholders
The underlying concept of moral sensitivity is ______. the ability to make moral judgments reflecting on the outcomes of decisions recognizing alternative actions affecting ourselves recognizing the effect of one's actions on the welfare of others recognizing the effect of one's actions on the individual
recognizing the effect of one's actions on the welfare of others
Probability of Effect
refers to the likelihood that the predicted consequences and the expected level of harm/benefit will occur -increases moral intensity -pressure increase on auditors when harm to the public interest intensifies with the likelihood of fraudulent financial statements
Ethical and professional behavior can be promoted and achieved through well designed _____.
regulations
Concentration of Effect
relationship between the number of people affected and the magnitude of harm. -increase moral intensity -fraudulent financial statements issued by a publicly owned company that is also using the statements for a significant loan creates additional pressures on auditors to make the most ethical decision possible
Giving Voice to Values Questions
relies on developing arguments, action plans, & rehearsing how to voice/enact moral values. How you get it done effectively & efficiently? What do you need to say, to whom, & in what order? What will the objectives or push-back be, &, then What will you say next? What data/examples do you need to support your view?
The degree of responsibility that the auditor is taking with respect to the opinion they issue on the financial statements is determined by the objectives of _____.
reporting
Duty of Good Faith
requires an honesty of purpose that leads to caring for well-being of constituents of fiduciary
Behavioral ethics ______. (Select all that apply) requires explaining moral and immoral behavior in systematic ways looks at how individuals believe they should act looks at how situational and social forces influence the actual behavior of individuals requires understanding the consequences of actions
requires explaining moral and immoral behavior in systematic ways looks at how situational and social forces influence the actual behavior of individuals requires understanding the consequences of actions
Discussions with predecessor auditors about accounting and financial reporting differences with management are part of _____ _____.
risk assessment
All those who enter a practice such as the accounting profession ______. (Check all that apply)
seek out the internal rewards of the practice accept the authority of professional standards
A firm will hire and promote individuals who fit into the prevailing firm culture as a result of the _____-_____ bias.
selection-socialization
Trusted member of management
should be organizations ethics officer to create a positive ethical tone
Moral judgment
single most influential factor of a person's moral behavior
System 2
slower, conscious, effortful, explicit, & a more reasoned decision process
Leader ethicality is assessed in the context of _____ prescriptions. (Enter one word per blank)
social
An accountant has a(n) _____ _____ to act in accordance with the public interest.
social contract
An accountant has a(n) __________ ______to act in accordance with the public interest.
social contract
Corporate culture
starts with an explicit statement of values, beliefs, & customs from top management
Libby and Thorne
surveyed members of the Canadian accounting community with the help of the Canadian Institute of Chartered Accountants (CICA), the equivalent of the AICPA in the United States, to develop a set of virtues important in the practice of auditing.
System 2 thinking in accounting relies on ______. (Check all that apply) systematic analysis immediate responses to dilemmas consideration of stakeholder interests intuitive decision making deliberate reasoning
systematic analysis consideration of stakeholder interests deliberate reasoning
The primary ethical obligation of an accounting professional when financial wrongdoing exists is to ______.
take the necessary steps to correct the matter
Moral motivation includes ______. (Check all that apply) the intention to comply with ethical judgment the interpretation of the situation as moral lack of ethical character the willingness to place ethical values ahead of nonethical values prescriptive reasoning
the intention to comply with ethical judgment the willingness to place ethical values ahead of nonethical values
Miniscribe Fraud
the unethical behavior at the highest levels of management that created a culture of blindness to what was right and wrong and led to the perpetuation of the fraud -Top mgmt committed fraud & overrode internal controls -No independent members on Board of Directors EX: bought bricks to disguise as hard drives & conceal as inventory worth $4 million -Repeatedly signed mgmt letter stating fin'l reports accurate & truthful
True or false: An engagement letter is required for non-compilation reports that include preparation of financial statements.
true
True or false: Audit committee communications about estimates in the financial statements are based on their reasonableness.
true
True or false: Facilitation payments intended to speed up foreign official's actions are an exception to the anti-bribery prohibitions of the FCPA.
true
True or false: Foreign companies and nationals operating in the US are held to the same standards under the FCPA as domestic entities.
true
True or false: Respondents to the Deloitte Survey entitled "Global Human Capital Trends" believe that diversity creates a competitive advantage.
true
True or false: Responsible leaders encourage auditors to exercise professional skepticism
true
True or false: SSARS 21 provides CPAs the opportunity to prepare financial statements without the burden of submitting a compilation report.
true
True or false: SSARS 21 separates the reporting on financial statements from the preparation of financial statements.
true
True or false: Section 32(a) of the Securities Exchange Act of 1934 provides that any person who willfully violates any provision of the Act can be charged with a crime.
true
True or false: Seriousness of an unethical or illegal act can be more important than one's commitment to the firm and profession.
true
True or false: Servant leaders use collaboration and persuasion to influence followers rather than control.
true
True or false: The Murphy ruling established a class of plaintiffs that relied indirectly on information from non-auditors, so long as the auditors would have reasonably foreseen the non-auditors would tell other people.
true
True or false: The auditor's assessment of fair presentation depends on whether the information presented in the statements is classified and summarized in a reasonable manner.
true
True or false: The due diligence defense essentially requires proof of the absence of fraud or negligence.
true
True or false: The outcome of the Omnicare case allows for auditor liability when the opinion omits a fact that makes the opinion misleading to an ordinary investor.
true
In stage 6 of Kohlberg's model, behavior is driven by ______. universal ethical principles maximizing net benefits to others loyalty to others always following the law
universal ethical principles
In stage 5 of Kohlberg's model, behavior is driven by ______. fear of punishment universal ethical principles upholding the rights and values of society the pursuit of self-interest
upholding the rights and values of society
The Giving Voice to Values technique ______. (Select all that apply.) is used before an individual has decided what to do in an ethical situation uses traditional philosophical reasoning addresses the pathway an individual can use to express his/her beliefs is used after an individual has decided what to do in an ethical situation.
uses traditional philosophical reasoning addresses the pathway an individual can use to express his/her beliefs is used after an individual has decided what to do in an ethical situation.
One difference between virtue theory and other moral philosophies is ______.
virtue applies both to the decision maker and the act under consideration
Reflect on core professional values, ethics, & attitudes to help carry through with ethical action (ethical intent)
• Consider how virtue considerations (i.e., moral virtues: intellectual & instrumental) motivate ethical actions. • Consider how standards (i.e., independence, objectivity, integrity, professional skepticism) motivate ethical actions & behaviors.
Take action (ethical behavior)
• Decide on course of action consistent with one's professional obligations. • How can virtue considerations support turning ethical intent into ethical action? • What steps can I take to strengthen my position & argument?
Identify & evaluate alternative courses of action (ethical judgment)
• What can & cannot be done in resolving conflict under professional standards? • Which ethical reasoning methods apply to help reason through alternatives (i.e., rights theory, utilitarianism, justice, & virtue)?
