Ethics Chapter 7 and 8, Ch 1, 2, Module B and C – Flashcards
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If a company is managing its earnings, which of the ethical theories are they most likely following A. Rights B. Fairness C. Egoism D. Virtue
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C. Egoism
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Which of the following is NOT considered "earnings management"? A. "Earnings management" is done to project smoother earnings from year to year. B. Management emphasizes achieving long-term results to meet financial goals. C. A Management uses "cookie-jar reserves each year." D. The executives manipulate the earnings in order to match their predetermined target.
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B. Management emphasizes achieving long-term results to meet financial goals.
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Which of the following is NOT a motivation to manage earnings? A. Companies try to meet or beat Wall Street earnings projections in order to grow market capitalization and increase the value of stock options B. Companies try to accelerate as much revenue as possible into early periods regardless of the effects on later periods C. To smooth net income over time D. To maximize compensation including bonuses
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B. Companies try to accelerate as much revenue as possible into early periods regardless of the effects on later periods
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Which technique was used by both WorldCom and Waste Management to manage earnings? A. Manipulating asset net valuation amounts to minimize operating expenses for a period B. Accelerating the recording of revenue into an earlier period C. Delaying needed repairs to a later period D. All of these were used
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A. Manipulating asset net valuation amounts to minimize operating expenses for a period
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Which of the following author(s) emphasize(s) a "purposeful act by management in pursuit of its own self-interests as might be the case when earnings are manipulated to get the stock price up in advance of the exercise of stock options."? A. Dechow and Skinner B. Healy and Wahlen C. Schipper D. Thomas E. McKee
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C. Schipper
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Which of the following author(s) focus(es) on "management's intent to deceive the stakeholders by using accounting devices to positively influence reported earnings."? A. Dechow and Skinner B. Healy and Wahlen C. Schipper D. Thomas E. McKee
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B. Healy and Wahlen
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Which of the following author(s) link earnings management to choices made in determining earnings that may comprise aggressive, but acceptable, accounting estimates and judgments, as compared to fraudulent practices that are clearly intended to deceive others? A. Dechow and Skinner B. Healy and Wahlen C. Schipper D. Thomas E. McKee
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A. Dechow and Skinner
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Which of the following author(s) define(s) earnings management as "reasonable and legal management decision making and reporting intended to achieve stable and predictable financial results."? A. Dechow and Skinner B. Healy and Wahlen C. Schipper D. Thomas E. McKee
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D. Thomas E. McKee
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In surveys of managers, which technique to manage earnings was considered most acceptable? A. Changing inventory valuation in order to influence earnings B. Accounting manipulation C. Manipulating operating decisions D. Establishing cookie jar reserves
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C. Manipulating operating decisions
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Which of the following is NOT a qualitative factor when assessing materiality? A. A misstatement that changes a loss into income or vice versa B. The existence of statutory or regulator reporting requirements that affect materiality thresholds C. The potential effect of the misstatement on trends, especially trends in profitability D. The use of simplistic numerical thresholds and rules of thumb
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D. The use of simplistic numerical thresholds and rules of thumb
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Vorhies identities four perspectives to help CPAs identify key internal control exceptions under the Sarbanes Oxley Act including: A. An internal control deficiency caused by accounting manipulations B. A large variance in an accounting estimate compared with the actual determined amount C. A misstatement that changes a loss into income or vice versa D. All were identified
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B. A large variance in an accounting estimate compared with the actual determined amount
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SAS No. 107 identifies the following aspects of disclosure amounts deemed to be material except for: A. Disclosing an item in one year but not in the next year B. Qualitative aspects of the disclosure C. Quantitative significance of the disclosure D. Professional judgment
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A. Disclosing an item in one year but not in the next year
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Each of the following techniques was used by Gemstar TV Guide International in its accounting fraud except for: A. Created cookie jar reserves of advertising revenue to smooth net income B. Engaged in round trip transactions whereby Gemstar paid money to a third party to advertise its services and capitalized that cost while the third party used Gemstar's funds to buy advertising from Gemstar, and the company recorded 100% of that amount as revenue while capitalizing the cost of its advertising payments C. Used channel stuffing to accelerate the recording of revenue into earlier periods D. Inflated advertising revenue from nonmonetary and barter transactions
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C. Used channel stuffing to accelerate the recording of revenue into earlier periods
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The best definition of a financial restatement is: A. A company, either voluntarily or under prompting by its auditors or regulators, revises its public financial information that was previously reported B. A company, either voluntarily or under prompting by its auditors or regulators, revises its public financial information for the current period C. An adjustment of financial information due to an error correction D. All are part of the definition
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A. A company, either voluntarily or under prompting by its auditors or regulators, revises its public financial information that was previously reported
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The SEC requires stealth restatements to be A. Disclosed only in periodic reports. B. Disclosed only in an 8-K report or amended 10-K/A or 10-Q/A. C. Increased to more 50 % of restatements. D. Disclosed in ten business days after determination of need for restatement.
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B. Disclosed only in an 8-K report or amended 10-K/A or 10-Q/A.
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The SEC Advisory Committee on Improvements in Financial Reporting identified each of the following as a view of equity and credit analysts about investor's views on materiality and financial statement restatements except for: A. Bright line rules are useful in making materiality judgments B. Bright line rules are not really useful in making materiality judgments C. The disclosure provided on restatements is not adequate D. One of the major costs of restatements is the amount of time between the restatement announcement and the final resolution of the restatement
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A. Bright line rules are useful in making materiality judgments
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Which of the following is NOT an earnings management technique? A. Failing to write down or write off impaired assets B. Releasing questionable reserves into income C. Failing to record expenses and related liabilities when future obligations remain D. Creating an allowance for uncollectible accounts and adjusting it at year end
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D. Creating an allowance for uncollectible accounts and adjusting it at year end
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Which of the following was not pointed to by the SEC as a motivation for fraud in the Xerox's case? A. Xerox misled investors by polishing its reputation on Wall Street and to boost the company's stock price. B. Xerox top management overrode the internal control to manipulate earnings. C. Xerox failed to disclose GAAP violations that led to acceleration in the recognition of approximately $3 billion in equipment revenues. D. Xerox recognized a greater amount of revenue on leases in early years than warranted and didn't break out revenues that should have been deferred and recognized in future years.
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B. Xerox top management overrode the internal control to manipulate earnings.
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Which of the following earnings management techniques were not used in the Lucent Technologies, Inc.'s case? A. Shifting Current Revenue to a later period B. Boosting income with one-time gains C. Recording revenue too soon or of questionable quality D. Shifting current expenses to a later or earlier period
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A. Shifting Current Revenue to a later period
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Which of the following was not true according to the Enron case? A. Fastow developed the concept of buying up oil and gas companies to establish SPEs B. Fastow worked to structure ventures that met the conditions under GAAP to keep the partnership activities off Enron's books and on the separate books of the partnership C. Fastow created SPEs that borrowed money from banks and transferred it to Enron in a sale of an operating asset no longer need by Enron D. The SPE created by Fastow enabled Enron to keep debt off its books while benefiting from transfer and use of the cash borrowed by the SPE
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A. Fastow developed the concept of buying up oil and gas companies to establish SPEs
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Which of the following was not a technique used by Enron to manage earnings? A. Used reserves to increase earnings when reported amounts were too low. B. Deliberately over stated the allowance for uncollectibles and adjusted it downward in future years C. Used mark-to-market estimates to inflate earnings in violation of GAAP D. Selected which operating assets to "sell" to the SPEs, affecting the gain on transfer and earnings effect.
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B. Deliberately over stated the allowance for uncollectibles and adjusted it downward in future years
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What is the culture at Enron that discussed in the case? A. Employees worked later and later. B. Employees were evaluated in groups; the goal was to remove the bottom 20% of each group every year. C. Enron had a cutthroat system and encouraged a "yes" culture. D. All of these
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D. All of these
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Which of the following partnership that Enron created eventually lead to its demise? A. JEDI B. Cactus C. Chewco D. Ironman
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C. Chewco
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What was the original motivation by FASB on SPEs? A. To establish a mechanism to encourage companies to invest in needed assets while keeping related debt of its books B. To keep the large amount of debt off the books C. To sell non-producing assets to the SPE D. To select which assets to sell to the SPEs affecting the gain
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A. To establish a mechanism to encourage companies to invest in needed assets while keeping related debt of its books
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There are several aspects of Enron fraud that are dealt with directly in SOX further connecting Enron to reform in the accounting profession. Which of the following is true? A. SOX permitted the provision of internal audit service for audit clients B. Off-balance-sheet financing activities were prohibited for all companies C. Related-party transactions require disclosure in the notes D. All of these
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C. Related-party transactions require disclosure in the notes
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The best way to characterize the role of Sherron Watkins in the downfall of Enron is: A. She directed the internal auditors to examine numerous transactions that led to the discovery of the fraud B. She gave in to the pressure of Andy Fastow to go along with materially misstated financial statements C. She was sent to jail even though she cooperated with the government in its case against Enron D. She tried to alert Ken Lay about the accounting scandal at Enron
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D. She tried to alert Ken Lay about the accounting scandal at Enron
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The basic ethical principle violated by Andy Fastow in his role as Enron's CFO and involvement with SPEs was: A. He lied to top management about what he was doing for the SPEs B. He failed to exercise due care in setting up SPEs C. He had a conflict of interests in his dual roles D. All of these
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C. He had a conflict of interests in his dual roles
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Cookie jar reserves" can best be described as: A. Buying a lot of chocolate chip cookies, storing them for when you have a hunger attack, and then releasing them into your stomach. B. Overstating or understating allowances and reversing amounts in the future to smooth out net income over time. C. Accelerating the recording of revenues into an earlier year than is warranted. D. Delaying the recording of expenses to a later year to boost income in the current year.
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B. Overstating or understating allowances and reversing amounts in the future to smooth out net income over time.
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All of the following are examples of "Recording revenue too soon or of questionable quality" except for: A. Recording sales that lack economic substance. B. Recording revenue when future services remain to be provided. C. Recording revenue before shipment or before the customer's unconditional acceptance. D. Recording revenue even though the customer is not obligated to pay.
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A. Recording sales that lack economic substance.
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All of the following are examples of "Boosting Income with One-Time Gains" except for: A. Recording sales that lack economic substance B. Boosting profits by selling undervalued assets C. Including investment income or gains as part of revenue D. Including investment income or gains as a reduction in operating expenses
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A. Recording sales that lack economic substance
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The expression, "Too many corporate managers, auditors, and analysts are participants in a game of nods and winks" is attributable to: A. Barry Minkow B. Jerry Seinfeld C. Thomas E. McKee D. Arthur Levitt
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D. Arthur Levitt
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Which of the following is NOT addressed in the Waste Management's case? A. The misstatements represented 10% of pre-tax income, which was not considered material. B. The company employed aggressive accounting practices to enhance its earnings. C. The company used the gain to offset unrelated operating expenses which was not in conformity with GAAP. D. The company's auditor, Arthur Andersen, had engaged in improper professional conduct.
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A. The misstatements represented 10% of pre-tax income, which was not considered material.
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Congress passed the "Sarbanes-Oxley Act" on July 30, 2002. Which of the following is NOT true? A. All companies are required to include in their annual reports a report of management on the company's internal control over financial reporting. B. New audit standards include a prohibition against independent auditors providing many non-audit services and mandatory audit engagement partner rotation. C. Only U.S. companies are subject to the disclosure requirements of the Act. D. All public companies must change auditors every ten years.
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B. New audit standards include a prohibition against independent auditors providing many non-audit services and mandatory audit engagement partner rotation
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"Earnings management either ignores or does not consider the rights of the investors and creditors to receive accurate, reliable and transparent financial statements." This statement is from: A. A virtue perspective B. A utilitarian perspective C. A rights perspective D. A materiality perspective
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C. A rights perspective
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Inherent risk refers to: A. The possibility that a material misstatement will occur within the reporting company's accounting information system B. The possibility that a material misstatement that has occurred will not be detected on a timely basis by the company's control system C. The possibility that a material misstatement that has occurred will not be caught be the independent auditor's testing D. The possibility that a material misstatement will occur in the financial statements
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A. The possibility that a material misstatement will occur within the reporting company's accounting information system
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According to AU 320, the evaluation of whether a misstatement could influence economic decisions of users A. Is essential to determining whether to render an unmodified opinion B. Is essential to determining whether the financial statements contain fraud C. Is essential to determining whether such a misstatement is material D. Is essential to determining whether there is a failed audit
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C. Is essential to determining whether such a misstatement is material
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Accruals are potentially troublesome because: A. They can lead to giving an unmodified audit opinion when it should have been modified B. They provide an opportunity to manage earnings through aggressive or more conservative estimations C. They always lead to fraud in financial statements D. They provide an opportunity to shift debt off the books by setting up an SPE
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B. They provide an opportunity to manage earnings through aggressive or more conservative estimation
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The main difference between a discretionary and nondiscretionary accrual is: A. Discretionary accruals are items that management has full control over B. Discretionary accruals are based on changes in the fundamental performance of the firm C. Discretionary accruals arise from transactions considered normal for the firm D. Discretionary accruals always lead to an increase in earnings
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A. Discretionary accruals are items that management has full control over
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In the Matrixx Initiatives v. Siracusano case, the Supreme Court adopted the position about materiality that A. It should always be determined only through qualitative evaluations B. It should always be determined through quantitative evaluations C. It should always be determined by considering whether the amount affects past financial statements D. It should be determined by considering whether the total mix of information would be viewed by a reasonable investor as possibly accepting judgment
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D. It should be determined by considering whether the total mix of information would be viewed by a reasonable investor as possibly accepting judgment
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Your professor asks you to consider whether earnings management can be justified by arguing that the net benefits of managing earnings exceeds any harms that may occur. The professor is asking you to apply what reasoning methods to make the analysis? A. Egoism B. Act utilitarianism C. Rule utilitarianism D. Virtue
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B. Act utilitarianism
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You work for a company that always pushes the envelope with respect to reporting revenues and expenses. You often disagree with the company because its approach to reporting these amounts cannot be justified from a GAAP perspective. You are upset and are considering whether this is a company that has a culture you want to be part of. Which of the following best characterizes the ethical issues of concern? A. Rights Theory B. Moral blindness C. Ethical Dissonance D. Materiality
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C. Ethical Dissonance
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Debbie and Steve are discussing a lecture given by their ethics professor after class one day. The professor said that misstatements of earnings are always unethical. Debbie agrees with this situation but Steve does not. What statement might Steve make to best support his point of view? A. It depends on whether the misstatements were made deliberately B. It depends on whether a user relied on the financial statements C. It depends on whether the statements lead to a modified or unmodified opinion D. All are valid statements for Steve to support his point of view
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A. It depends on whether the misstatements were made deliberately
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The main accounting issues in the Nortel Networks case were: A. Premature revenue recognition and hidden cash reserves B. Capitalization of operating expenses and hidden cash reserves C. Premature revenue recognition and off-balance-sheet entities D. Capitalization of operating expenses and off-balance-sheet entities
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A. Premature revenue recognition and hidden cash reserves
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The swap transactions used in the Solutions Network case to manage earnings can best be described as: A. Going to a swap meet and capitalizing purchases instead of expensing them immediately against swap revenue B. Recording revenue on software systems transactions in an earlier period than when obligated to buy the same in a later period C. Using a cookie jar reserve to delay the recording of revenue into a later period D. Recording as operating revenue on onetime gains from the sale of underperforming assets
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B. Recording revenue on software systems transactions in an earlier period than when obligated to buy the same in a later period
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The accounting issue in the Cubbies Cable case with respect to cable installations costs is closest to the accounting issue in which case? A. Enron B. Gemstar TV Guide C. Xerox D. WorldCom
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D. WorldCom
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The Solway case looks at the accounting issue of: A. Recording of accruals to manage earnings B. Recording of asset impairments to manage earnings C. Premature revenue recognition D. Setting up SPEs
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A. Recording of accruals to manage earnings
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The accounting shenanigan used in the Dell Computer case can best be described as: A. Recording revenue from exclusivity payments too soon or of questionable quality B. Shifting current revenue from exclusivity payments to a later period C. Shifting future expenses to the current period as a special charge D. Shifting current expenses to a later period
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B. Shifting current revenue from exclusivity payments to a later period
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In the Sweat Construction case, the company tried to manipulate earnings through the use of which accounting technique A. Cookie jar reserves B. Lease capitalization C. Percentage of completion method D. The Big Bath accounting
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C. Percentage of completion method
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Which of the following was not an accounting issue in the Sunbeam case? A. Cookie jar reserves B. Channel stuffing C. Bill and hold sales D. Swap transactions
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D. Swap transactions
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The Diamond Foods case addresses each of the following issues except for: A. Crop payable recorded in the wrong year B. Increasing revenues but stagnating cash flows C. Depreciation of almond trees D. Clawbacks of stock and cash
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C. Depreciation of almond trees
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The North Face case deals with materiality and how auditors employ that metric in an audit. The following are all true except: A. North Face accounted for barter transactions with full normal margin recognized. B. Crawford devised the 1997 barter transaction so that it was just beneath material threshold. C. Crawford followed the GAAP methods that Deloitte suggested. D. Deloitte proposed an adjusting entry for the 1997 barter transaction, but "passed" it as immaterial.
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C. Crawford followed the GAAP methods that Deloitte suggested.
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The former CEO of Vivendi Universal, Jean-Marie Messier, used as his defense in the case that: A. His actions were protected by attorney-client privilege B. While some of his actions may have turned out to be wrong, there never was an intent to defraud C. While some of his actions may have turned out to be wrong, he did the best that he could to save the company for certain bankruptcy D. He adhere to the business judgment rule and met his fiduciary obligations
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B. While some of his actions may have turned out to be wrong, there never was an intent to defraud
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A common set of accounting standards on an international level can help to achieve each of the following except for: A. Facilitate the understandability of financial reports prepared outside the home country of a potential investor B. Facilitate international investment C. Provide a foundation for professional judgment and support the implementation of international financial reporting standards (IFRS) D. Facilitate the enforcement of IFRS
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D. Facilitate the enforcement of IFRS
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IFRS tends to be more ____________ than U.S. GAAP. A. rules-based B. principles-based C. consistent D. accurate
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B. principles-based
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One problem of a more principles-based system that was pointed out in an SEC study is that they: A. Tend to be rules-based more than objectives-oriented standards B. May present enforcement problems C. Use bright-line tests D. All of these
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B. May present enforcement problems
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The SEC study of a principles-based system identifies each of the following characteristics that should guide standards setting except for: A. Be based on an improved and consistently applied conceptual framework B. Clearly state the accounting objective of the standard C. Minimize exceptions from the standards D. Minimize the detail and structure so that the standard can be operationalized and applied on a consistent basis
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D. Minimize the detail and structure so that the standard can be operationalized and applied on a consistent basis
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Given that IFRS is not currently required in the U.S., foreign companies that list their stock on the New York Stock Exchange must: A. Reconcile the financial statements in their home country GAAP to U.S. GAAP B. Use IFRS in their financial statements C. Either reconcile their statements to U.S. GAAP or use IFRS D. Use their home country GAAP in their financial statements listed on the NYSE
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C. Either reconcile their statements to U.S. GAAP or use IFRS
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Gray's study uses secrecy as the preference for confidentiality and restrictions on disclosures; this is associated with all of the following except: A. Higher power distance B. Lower masculinity C. Lower individualism D. Higher uncertainty avoidance
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B. Lower masculinity
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The SEC is now calling the movement of U.S. GAAP to IFRS: A. Comparability B. Condorsement C. Convergence D. Conversion
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B. Condorsement
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The Norwalk agreement refers to: A. The commitment of the U.S. and European Union to adopt one set of accounting standards B. The commitment of FASB and the International Accounting Standards Board (IASB) to adopt one set of accounting standards C. The commitment of FASB and IASB to the convergence of U.S. GAAP and international accounting standards D. The agreement that ended World War II
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C. The commitment of FASB and IASB to the convergence of U.S. GAAP and international accounting standards
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A study by the SEC notes that imperfections exist when standards are established on either a rules-based or a principles-based basis only. The SEC recommends that standards should have all of the following characteristics except: A. Enumerate exceptions from the standard. B. Provide sufficient detail and structure so that the standard can be operationalized and applied on a consistent basis. C. Avoid use of bright lines that allow structuring of financial transactions to achieve technical compliance while evading the intent of the standard. D. Be based on a consistently applied conceptual framework.
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A. Enumerate exceptions from the standard.
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The relatively more principles-based IFRS standards requires each of the following except for: A. Professional judgment based on the substance over form concept B. Professional judgment in applying the true and fair view override C. Professional judgment at both the transaction and financial statement levels D. Professional judgment in applying the present fairly concept
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D. Professional judgment in applying the present fairly concept
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The IFAC, IAESB and IESBA ethical principles are similar to those in the AICPA Code except for: A. Integrity B. Objectivity C. True and fair view D. Professional competence
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C. True and fair view
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The reason some people are concerned about the possibility for earnings management under IFRS is: A. The principles-based system might lead preparers of financial statements to try and justify earnings by applying a substance over form concept B. The principles-based system might lead preparers of financial statements to try and justify specific accounting outcome based on commercial drivers C. It is more difficult to make materiality judgments D. It is more difficult to implement a set of generally accepted accounting and financial reporting standards
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B. The principles-based system might lead preparers of financial statements to try and justify specific accounting outcome based on commercial drivers
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The U.K. Bribery Act is enforced by the Serious Fraud Office (SFO); the agency has provided a list of corruption indicators. These include all of the following except for: A. Abnormal cash payments and lavish gifts. B. Agreeing to contracts favorable to the organization. C. Private meeting with public contractors or companies hoping to tender an offer for contracts. D. Unexplained preference for certain contractors during the tendering process.
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B. Agreeing to contracts favorable to the organization.
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Lease standards in the U.S. can be manipulated to achieve the desired goal of: A. Determining lease payments at their present values to record an asset instead of an expense B. Determining lease payments at their present values to record an expense instead of an asset C. Emphasizing form over substance D. All of these
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D. All of these
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The rules under IFRS for property, plant, and equipment differ from U.S. GAAP because: A. U.S. GAAP allows for the revaluation of property, plant, and equipment B. IFRS allows for the revaluation of property, plant, and equipment C. U.S. GAAP allows for recovery of revaluation amounts D. IFRS prohibits the revaluation of property, plant, and equipment
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B. IFRS allows for the revaluation of property, plant, and equipment
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In the U.S., the word "reserve" always means: A. Impairment B. A market value adjustment C. Provision D. A depreciation write-down
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C. Provision
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The difference between provisions and reserves can best be characterized as: A. Provisions are liabilities recognized by charges against profit whereas a reserve is an element of shareholders' equity B. Provisions are an element of shareholders' equity whereas a reserve is a liability recognized by charges against profit C. Provisions reduce assets to net realizable value whereas reserves are liabilities recognized by charges against profit D. Reserves always reduce profits
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A. Provisions are liabilities recognized by charges against profit whereas a reserve is an element of shareholders' equity
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A "secret" or "hidden" reserve can occur when a company does one or more of the following A. Deliberately measure an asset at an unsubstantiated high value B. Deliberately measures an asset at an unsubstantiated low value C. Sets up overstated accrual liabilities D. All of these
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D. All of these
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Secret reserves are designed to conceal the true financial position and earnings, which are different than shown on the balance sheet and income statement. The best statement of how secret reserves are related to fraud and ethics is: A. Secret reserves often lead to smoothing net income over time. B. Secret reserves make the information in financial statements inconsistent. C. Secret reserves are legal and normal operating practices in all countries around the world. D. Secret reserves can give the sense of financial security to the shareholders and regulators.
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A. Secret reserves often lead to smoothing net income over time.
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The term "small and medium-sized" entities in the IASB's pronouncement on IFRS for Small and Medium-sized Entities (SMEs) defines SMEs as: A. Those entities with public accountability that publish general purpose financial statements B. Those entities without public accountability that publish general purpose financial statements C. Those entities that use IFRS in their general purpose financial statements D. Those entities that use U.S. GAAP in their general purpose financial statements
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B. Those entities without public accountability that publish general purpose financial statements
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Each of the following is an example of the difference between application of full-IFRS and IFRS for SMEs except for: A. Cost or revaluation method for full-IFRS; cost method only for IFRS for SMEs B. Revaluation method for full-IFRS; cost or revaluation for IFRS for SMEs C. Expensing of all research and development costs as incurred for full-IFRS and capitalizing and amortizing development costs that meet specific criteria; expensing of all research and development costs as incurred for SMEs D. Capitalizing borrowing costs if certain criteria are met for full-IFRS; expensing all borrowing costs for IFRS for SMEs
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B. Revaluation method for full-IFRS; cost or revaluation for IFRS for SMEs
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The CIMA Code of Ethics identifies the following common threats to the fundamental principles of professional behavior except for: A. Self-motivated threat B. Self-interest threat C. Familiarity threat D. Intimidation threat
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A. Self-motivated threat
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The Global Survey on Business Ethics reports each of the following results except for: A. There has been an increase of 10 to 15% in the number of organizations providing both statements of ethical values and a code of ethics B. A "tone at the top" is followed in a majority of the companies C. Just over one-third agree or strongly agree that ethical standards are not fully monitored D. There has been an increase in those observing ethical misconduct over the course of a year
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B. A "tone at the top" is followed in a majority of the companies
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The following is a similarity between the AICPA Code of Professional Ethics and the IFAC Code: A. To engage in whistleblowing when the audit client refuses to make recommended changes in the financial report B. To report to the audit committee all differences in opinion on accounting matters C. To identify threats to independence and develop safeguards to mitigate the threats D. All of these
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C. To identify threats to independence and develop safeguards to mitigate the threats
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The 2012 Global Fraud Survey conducted by the ACFE identifies each of the following efforts to combat global fraud except for: A. Evaluate the legal and regulatory enforcement environment B. Assess risks to the company's business, brand, and reputation C. Create a level of independence from accountants and auditors so fraud can be more easily detected D. Educate the workforce about the risks of wrongdoing
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C. Create a level of independence from accountants and auditors so fraud can be more easily detected
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The 2012 Global Fraud Survey of the ACFE points to the need for management to "walk the talk" of ethics by: A. Clearly demonstrating that noncompliance will lead to firing of the guilty employee B. Treat different offenses the same to develop consistency in policies C. Encourage whistleblowing to provide a mechanism to report wrongdoing D. Being consistent for particular offenses to avoid the appearance of selective enforcement
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D. Being consistent for particular offenses to avoid the appearance of selective enforcement
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The UK Bribery Act establishes six principles to guide adequate procedures to deal with bribery including: A. Risk assessment B. Tone at the top C. Whistleblowing D. Audit committee
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A. Risk assessment
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The Serious Frauds Office in the UK identified each of the following as a "red flag" indicating corruption may exist except for: A. Abnormal cash payments B. Payments made through a third-party country C. Payments made behind schedule D. Agreeing to contracts not favorable to the organization
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C. Payments made behind schedule
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The exposure draft, Responding to a Suspected Illegal Act, states that a professional accountant who suspects some act or activity may be illegal would be required to do each of the following depending on the outcome of discussions at each stage of the process except for: A. Discuss the issue with the appropriate level of management B. Take the issue to higher levels of management C. Discuss the issue to the external auditors D. Take the issue to outside authorities if necessary
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C. Discuss the issue to the external auditors
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One feature of corporate governance in Germany that makes it stand out when compared to the U.S. is: A. A separate audit committee and a board of directors B. A unitary board of directors system C. A dual board of directors system D. Compliance with the Sarbanes-Oxley Act
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C. A dual board of directors system
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Under a dual board system, the board that carries out management directives for the benefit of various stakeholder groups is: A. The Management Board B. The Supervisory Board C. The Board of Governors D. The Board of Trustees
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A. The Management Board
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The primarily role of the Supervisory Board is to: A. Manage the enterprise for the benefit of various stakeholder groups B. Work with the auditors in their review of financial statements C. Work with the managing board in running day-to-day operations D. Oversee and advise the Managing Board on policy matters
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D. Oversee and advise the Managing Board on policy matters
question
A distinguishing characteristic(s) of corporate governance in China is the importance of: A. State investors in Chinese entities B. Family ownership of Chinese entities C. Blockholders of Chinese entities D. All of these
answer
A. State investors in Chinese entities
question
The comply or explain principle refers to: A. Certification of financial statements by CEOs and CFOs B. Explain any gaps between existing corporate governance practices and recommendations by authoritative bodies/pronouncements and actual governance policies C. Explain any gaps between existing corporate governance practices and IFRS requirements D. Certification of corporate governance practices by CEOs and CFOs
answer
B. Explain any gaps between existing corporate governance practices and recommendations by authoritative bodies/pronouncements and actual governance policies
question
A distinguishing characteristic(s) of corporate governance in India is the importance of: A. Some government ownership of Indian entities B. Family ownership of Indian entities C. A large industrial group may own shares in an Indian entity D. All of these
answer
D. All of these
question
A member body of the International Federation of Accountants (IFAC) should follow the provisions of the home country's code of ethics rather than the Code of Ethics for Professional Accountants (IFAC Code) when: A. The home country standards of the member body are more stringent than those in the IFAC Code. B. The member body disagrees with IFAC Code provisions. C. The home country standards of the member body are less strict than those in the IFAC Code. D. All of these.
answer
A. The home country standards of the member body are more stringent than those in the IFAC Code.
question
One way to characterize the term "true and fair view is" that it: A. It is used to determine which international auditing standards should be used B. It is used to assess whether the entity has met the comply or explain provisions in corporate governance codes C. It is a governing criterion by which financial statements are to be judged D. All of these
answer
C. It is a governing criterion by which financial statements are to be judged
question
According to CLSA Corporate Governance Watch 2012: A. India's corporate governance score declined by three percentage points from 2010 to 2012 B. China's corporate governance score increased by four percentage points from 2010 to 2012 C. Singapore had the highest corporate governance score D. All of these
answer
C. Singapore had the highest corporate governance score
question
Good ethics is important on a global level because A. There needs to be a mechanism to punish companies that violate ethical standards outside their home country B. International enforcement of IFRS depends on ethical behavior in the accounting and financial reporting process C. Multinational companies should strive to act ethically in all activities whether at home or abroad D. All of these
answer
C. Multinational companies should strive to act ethically in all activities whether at home or abroad
question
In the SEC v. Siemens Aktiengesellschaft case, each of the following charges were made against the company's' Managing Board except for: A. The Board failed to ensure that Siemens met the U.S. regulatory and anti-bribery provisions of the Foreign Corrupt Practices Act B. The Board failed to meet its obligations with respect to compliance procedures at Siemens C. The Board failed to adequately supervise the auditors of Siemens D. The Board created a corporate culture that contributed toward tolerating and even rewarding bribery
answer
C. The Board failed to adequately supervise the auditors of Siemens
question
The trigger event that led to the disclosure of the scandal at Parmalat was: A. Almost €4 billion of company funds that were supposed to be held in an account at Bank of America did not exist B. The company stuffed the channels with product that it eventually was not purchased by customers C. Parmalat officers violated the Foreign Corrupt Practices Act D. The company sold sour milk
answer
A. Almost €4 billion of company funds that were supposed to be held in an account at Bank of America did not exist
question
The case that deals with conflicts between management and the board of directors and the role of family members in various business entities is: A. Parmalat B. Satyam C. Olympus D. Royal Dutch Shell
answer
B. Satyam
question
The primary accounting issue in the Royal Dutch Shell case is: A. The failure of the company to properly account for oil exploration costs B. The failure of the company to adhere to provisions of the Foreign Corrupt Practices Act C. The failure of the company to adhere to SEC rules and the accounting for proved reserves D. All of these
answer
C. The failure of the company to adhere to SEC rules and the accounting for proved reserves
question
The Autonomy case deals with which of the following accounting issues: A. Valuation of the British software company B. Secret reserves C. Fraud committed by KPMG D. All of these
answer
A. Valuation of the British software company
question
The Olympus case deals with which of the following accounting issues: A. Booking impairment losses B. Selling bad assets to make investment losses smaller C. Concealing investment losses D. All of these
answer
D. All of these
question
Financial decision makers demand reliable information that is provided by accountants. TRUE OR FALSE
answer
True
question
Financial decision makers obtain their accounting information from lenders of funds. TRUE OR FALSE
answer
False
question
Four conditions that create demand for reliable information are complexity, remoteness, timeliness, and consequences. TRUE OR FALSE
answer
True
question
The lending of credibility to financial information is known as certification. TRUE OR FALSE
answer
False
question
Independent auditors are employees of the client. True False
answer
False
question
Assurance service is the systematic process of objectively obtaining and evaluating evidence. True False
answer
False
question
Evidence consists of assertions about economic actions and events. True False
answer
False
question
The purpose of obtaining and evaluating evidence is to ascertain the degree of correspondence between the assertions and established criteria. True False
answer
True
question
The AICPA Statement on Auditing Standards defines auditing more broadly than the AAA definition of auditing. True False
answer
False
question
The PCAOB audit objective related to the completeness assertion is to establish evidence that assets, liabilities, and equities actually exist. True False
answer
False
question
The ASB balance audit objective related to valuation or accuracy is to determine whether proper values have been assigned to assets, liabilities, equities, revenues, and expenses. True False
answer
True
question
The objective of internal auditing is to assist members of an organization to effectively perform their obligations. True False
answer
True
question
Internal auditors perform only operational audits. True False
answer
False
question
Government auditors perform both financial and performance audits. True False
answer
True
question
Expanded scope governmental auditing includes economy and efficiency and program results audits. True False
answer
True
question
The AICPA licenses CPAs to practice in the United States. True False
answer
False
question
Professional skepticism is an auditor's tendency not to believe anyone. True False
answer
False
question
Assurance services are independent professional services that improve the quality of information or its context for decision makers. True False
answer
True
question
The concept "professional skepticism" requires that auditors assume management is dishonest and should not be trusted. True False
answer
False
question
For independent auditors of financial statements in the United States, established criteria largely consist of the general TRue or False
answer
True
question
The audit objective of presenting all transactions and accounts in the financial statements are in fact included is related to which of the PCAOB assertions? A. Existence. B. Rights and obligations. C. Completeness. D. Valuation.
answer
C. Completeness.
question
To be proficient as an auditor, a person must first be able to accomplish which of these tasks in a decision-making process? A. Identify audit evidence relevant to the verification of assertions management makes in its unaudited financial statements and notes. B. Formulate evidence-gathering procedures (audit plan) designed to obtain sufficient, competent evidence about assertions management makes in financial statements and notes. C. Recognize the financial assertions made in management's financial statements and footnotes. D. Evaluate the evidence produced by the performance of procedures and decide whether management's assertions conform to generally accepted accounting principles and reality.
answer
C. Recognize the financial assertions made in management's financial statements and footnotes
