Midterm 2
Which of the following is not a component of the Framework for Understanding Ethical Decision Making in Business?
Internal controls
The Full Disclosure: The Case of a Morally Challenged AP clerk involves the issue of:
Embezzling money by processing fictitious invoices
The PCAOB was formed and instituted a mandatory quality inspection program. What has been the average audit deficiency rate range since the program started?
30 to 40%
A common requirement/effect of the commissions and contingent fees rule is:
A CPA is prohibited from accepting such a form of payment when engaged in attest services for a client
The 2010 Dodd-Frank Act includes additional incentives for whistleblowers. What is the act's effect on whistleblowing by accountants?
A CPA may report a violation of a public accounting firm's performance in an audit.
Which of the following is not an element of an ethical corporate culture?
A Having an effective external audit B Establishing strong internal controls C Setting a proper tone at the top D Having an effective internal audit function A
To ensure audit committee independence, the committee should meet separately with each of the following groups except:
A Senior executives B External auditors C Internal auditors D Shareholders D
Fraud can be defined as:
A deliberate misrepresentation to gain an advantage over another party
An alternative practice structure can best be described as:
A form of structure where a public company provides nonattest services for a client that is also provided with attest services by an affiliate of the public company
Section 404 of the Sarbanes-Oxley Act requires companies to:
A report of the company's internal control over financial reporting
The reporting requirements for fraud are detailed in Section 10A of the Securities Exchange Act of 1934. Which of the following steps are NOT part of a prescribed process that should be followed in deciding whether to report fraud?
A. Determine who is responsible for the fraud. B. Determine whether the violations have a material effect, quantitatively or qualitatively, on the financial statements. C. Determine whether reporting to the SEC is necessary. D. Determine whether appropriate remedial action has been taken. A
Which of the following is NOT an example of a conflict of interest?
Accepting commissions in a financial planning engagement for a nonaudit client
Jodie Fisher's allegations of sexual harassment are made believable due to Mark Hurd's:
All of the above
The stakeholder view emphasizes the obligations of management to:
All parties impacted by corporate decisions in a significant way
What is "Operation Broken Gate?"
An SEC initiative to identify auditors who neglect their duties and the required auditing standards
An ethical corporate culture includes:
An explicit statement of values.
The SEC has increased focus on identifying and penalizing misstatements in public company financials. What is one method that the SEC is using to identify companies, CEOs, and CFOs that are misstating financial statements?
Analyzing patterns of internal control problems even absent a restatement of the financials.
What is the significance of the Menendez v Halliburton, Inc.?
Appeals court panel ruled that Menendez (an internal accountant) had been retaliated against for blowing the whistle.
Under the Sarbanes-Oxley Act, the auditor's responsibility with respect to internal controls can best be stated as:
Assess management's report on internal controls
According to the ACFE survey, the most common type of occupational fraud scheme is:
Asset misappropriation
Ethics rules in the AICPA Code apply to
Individual CPAs who are licensed by state boards of accountancy, licensed accounting firms, and certain members of alternative practice structures
What non GAAP accounting method did Tony Menendez cite in blowing the whistle on Halliburton?
Bill and hold revenue recognition
The 2016 State of Compliance Study of PwC indicates that:
Compliance and ethics functions have become more visible with their Board of Directors and senior leaders
In the Loyalty to the Boss case, what is the primary ethical issue?
Capitalizing expenses as inventory
Section 302 of the Sarbanes-Oxley Act requires that management:
Certify the financial statements
The Tax Shelters case deals with:
Changing culture in the tax department of a CPA firm
Which statement is correct with respect to a CPA's ethical obligation to return client books and records and CPA workpapers?
Client-provided records in the custody or control of the CPA should be returned to the client at the client's request
Which of the following is NOT an underlying trait of character of an effective leader identified by Johnson?
Confidence
The tendency for decision-makers to put more weight on information that is consistent with their initial beliefs or preferences is called the:
Confirmation tendency
The growth in consulting services raises questions about which professional obligation?
Conflicts of interest
The Olympus case was unique from a corporate governance perspective because it deals with:
Cultural differences between Japanese management and western style of management
The level of care expected of a reasonable person under similar circumstances in meeting one's fiduciary duty is called:
Duty of care
Which of the following is NOT a common judgment tendency?
Decision making tendency
The role of a leader in an organization is to:
Determine organizational climate and define norms
Which of the following is NOT an element of internal control over financial reporting?
Developing a code of conduct and whistle-blowing procedures
An example of a management participation threat is:
Establishing and maintaining internal controls for the client
What are the five elements of the framework for understanding ethical decision making in business?
Ethical issue intensity; individual factors; organizational factors; opportunity; and business ethics intentions, behavior, and evaluations.
In the Pinto case, Ford relied on which approaches to ethical reasoning to decide on a course of action with respect to the faulty gas tank placement:
Ethical legalism and utilitarianism
Personal values link to:
Ethical sensitivity and judgment
Which of the following was NOT a finding of the ACFE Report to the Nation on Occupational Fraud?
External auditors discover about 15 percent of the frauds
Common judgment traps include:
Group think, judgment triggers, and a rush to solve problems
The global code of ethics for the accounting profession is called:
Handbook of the Code of Ethics for Professional Accountants
George has been asked by his audit client to provide income tax services including tax planning. Prior to providing such services, George should be certain that:
He assesses threats to independence
In its investigation of ZZZZ Best, the House Subcommittee on Oversight and Investigations looked into:
How the company was able to create 80% or more fictitious revenue
In the Parable of Sadhu case, Bowen T. McCoy's friend Stephen summed up the dilemma by saying:
I feel that what happened with the sadhu is a good example of the breakdown between the individual and corporate ethics
The confidentiality standard in the AICPA code provides a blanket exception to the rule in each of the following situations except:
In response to a successor auditor's request
Professional skepticism links to professional judgment through the ethical standards of:
Independent thought, objectivity, and due care
A unique aspect of Johnson & Johnson's Credo is that it:
It is an aspirational statement rather than the typical "thou shalt not" form of a code of ethics
Backdating of stock options is unethical because:
It purposefully manipulates the option criteria that determine their value
On July 1, 2015, the SEC charged Deloitte & Touche with violating auditor independence because:
Its consulting affiliate kept a business relationship with a trustee serving on the board of three funds Deloitte audited
According to the ACFE Global Fraud Study, which of the following was the most common behavioral indicator of fraud?
Living beyond means
Which of the following is least likely to be used by a manager to set the right tone to foster ethical leadership?
Make decisions that do not harm others
Safeguards implemented by the attest client include each of the following except:
Management participation in the client by the attest firm
CPAs in business face threats to independence just as CPAs in public practice. Which of the following threats do not exist for CPAs in business?
Management participation threat
Which of the following is NOT an element of the corporate governance system?
Monitoring by top management
With respect to the importance of moral issues in business, Thomas Jones posited that:
Moral issues of high intensity are more pronounced than those of low intensity
Statement on Standards for Tax Services No. 1 establishes as a basic principle of providing tax services that the CPA:
Must have a good faith belief that the tax return position has a realistic possibility of success if challenged by the IRS
To prevent subordination of judgment, a CPA should evaluate threats to:
Objectivity and Integrity
The insider trading case against Thomas Flanagan focused on:
Personally trading in securities of audit clients after receiving confidential information
Which of the following is NOT an example of a conflict situation for CPAs in business that may lead to subordination of judgment?
Preparing the financial statements and auditing the same workCorrect
The SEC's position on independence can best be characterized as:
Proscribing certain business relationships with the client
With respect to whistleblowing, the Sarbanes-Oxley Act:
Protects employees of publicly traded companies who provide evidence in fraud cases
The insider trading case against Scott London focused on:
Providing confidential information about audit clients to a friend
An example of revenue overstatement is:
Recording gross, rather than net, revenue
Which of the following is not a fraud method to overstate revenues?
Recording sales based on F.O.B. shipping point
The key fraud issue in the Franklin Industries Whistleblowing Case is:
Retaliation for reporting an embezzlement fraud
The KBC Solutions case deals with:
Whether the senior in charge of an audit can provide adequate explanations for the accounting for transactions being questioned by the review partner
In Han, Kang & Lee, LLC, the main accounting issue being discussed with the client is:
Whether to write-down inventory by 20 percent
Which of the following is NOT one of the audit committee's responsibilities?
Review all financial reporting judgments
Which of the following is NOT a component of an effective internal control environment in COSO Internal Control - Integrated Framework?
Risk abatement
Which of the following is NOT a safeguard that can help to mitigate threats to independence?
Safeguards performed by the audit firm that are the responsibility of management.
Which of the following is not considered a behavioral indicator of fraud?
Satisfaction with pay
External auditor communications with the audit committee include each of the following except:
Shareholder returns
EY partner Pamela Hartford violated Independence Rules when:
She maintained a personal relationship with a member of company management.
Corporate governance structures and relationships are shaped by internal and external mechanisms. Which of the following is an external mechanism?
State and federal statues require a baseline corporate governance system
A CPA can accept a contingent fee in providing tax services for an attest client if:
The CPA's tax services will be reviewed by a taxing authority
The most significant change in the Revised AICPA Code of Professional Conduct is:
The creation of three sections: one for members in public practice, members in business, and one for other members
Section 301 of the Sarbanes-Oxley Act requires
The establishment of procedures to accept employee complaints
The KPMG Professional Judgment Framework defines judgment as:
The process of reaching a decision or drawing a conclusion where there are a number of possible alternative solutions
The requirement that there should be reasonable support for a tax return position before a CPA recommends it to a client most directly aligns with which tax standard?
There is a realistic possibility of success if the tax position is challenged
The conceptual framework in the AICPA Code establishes a:
Threats and safeguards approach to assess whether ethics rules have been violated
One of the contributions of the Treadway Commission Report and the work of the Committee of Sponsoring Organizations (COSO) was:
To identify the tone at the top for management to create an ethical culture
In the business world, the term disgorgement means:
To return ill-gotten gains
The committee that was formed in 1985 to study and report on the factors that can lead to fraudulent financial reporting is the:
Treadway committee
During the investigations by the House Subcommittee on Oversight and Investigations, a question that was raised was:
Where were the auditors?
The Navistar International case examines:
Whether Deloitte followed all provisions of the AICPA Code
The SEC approach to independence emphasizes independence in fact and appearance in all of the following ways except:
Whether a conceptual framework approach is used for evaluating ethics violations
The BDO Seidman v. Hirschberg, 93 N.Y.2d 382 case focuses on:
Whether a firm's protective covenants are reasonable in scope.
The ethical issue in the Beauda Medical case is:
Whether an audit firm should inform one audit client about malfunctioning equipment at another client that the former plans to buy
Each of the following were themes of Congressional investigations of the accounting profession during the 1970s and 1980s except:
Whether low-balling to obtain audits impairs independence
The Family Games case deals with the following accounting issue:
Whether revenue should be accelerated into an earlier period
Did the CPA Violate any Rules of Conduct case focuses on:
Whether tax documents were properly filed with the IRS.
Impairments of independence can occur when:
all of the above
professional judgment is influenced by:
cognitive biases
A unique aspect of occupational fraud is:
misuse of company assets
What is the ethical issue in the Rite Aid Inventory Surplus Fraud case?
vice Presidents of the company were involved in a material, nine year surplus inventory sales and kickback scheme.
