An important issue in the HP case with “event hostess” Jodie Fisher is:
A. Conflict of interest of Mark Hurd
B. Alleged sexual harassment of Jodi Fisher
C. Disclosure of confidential client information by Hurd to Fisher
D. All of these
Answer:
James Doty, the chairman of the PCAOB, in his testimony before Congress on the
financial crisis of 2007-2008, admitted that auditors should have been more vigilantnot
just at Lehman Brothers, but across the board. Which audit areas did Doty signal out for
criticism?
A. Inventories and cash flow
B. Capital and operating expenses
C. Special purpose and related-party entities
D. Valuations and end-of-period transactions
Answer:
The First Community Bank case contained each of the following deficiencies except
for:
A. The loan loss reserves of the bank were understated
B. The level of impairment of existing bank loans was material
C. The collateral for loans was insufficient
D. All of these
Answer:
CPAs should always adhere to the rules of conduct of the
A. State board of accountancy
B. AICPA
C. IMA
D. All of these
Answer:
Greatest good for the greatest number of people is the theory of.
A. Rights
B. Deontology
C. Utilitarianism
D. Justice
Answer:
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
Answer:
Wanda is faced with an ethical dilemma. She knows her supervisor, the CFO, wants to
accelerate the recoding of revenue to an earlier period to “make the numbers,” but
Wanda is convinced this would violate GAAP. If Wanda reasons at stage 4 of
Kohlberg’s model she is most likely to:
A. Make a decision based on what is in her own best interests
B. Consider the interests of the stakeholders but decide based on what is in her best
interests
C. Refuse to record the transaction as desired by the CFO
D. Inform the board of directors of the difference of opinion with the CFO
Answer:
Which of the following summarizes the essence of field work standards of GAAS?
A. Quality of professionals that perform an audit
B. Criteria for judging the quality of audit work
C. Whether the auditor was independent in conducting the audit
D. Whether the auditor reviewed the client’s financial statements for adherence to
GAAP
Answer:
During the investigations by the House Subcommittee on Oversight and Investigations,
a question that was raised was:
A. Why was fraud allowed to occur at some many companies
B. Where was the board of directors in all these frauds
C. Where were the auditors
D. Why did the internal controls fail in some many frauds
Answer:
The Ultramares v. Touche case of 1933 held that a cause of action based on negligence
could not be maintained by a third party who was not in contractual privity; however, it
did leave open the possibility that:
A. Third parties that were “foreseeable” may sue for ordinary negligence
B. Third parties may sue if one of the parties in contractual privity allowed it to
C. Third parties may sue in the case of fraud or constructive fraud
D. Third parties who used the financial statements may sue
Answer:
A difficult choice between two moral principles that are in conflict with one another is
known as a/an:
A. ethical behavior
B. gray area
C. ethical dilemma
D. pragmatism
Answer:
What is a university’s equivalent of a code of ethics?
A. Honor code
B. Student Handbook
C. Faculty Handbook
D. Statement of Values
Answer:
The cost to the public to clean up 1,043 failed savings and loan institutions during the
period of 1986-1995 was:
A. $152.9 billion including $123.8 billion of U.S. taxpayer losses
B. $300 million including $123.8 million of U.S. taxpayer losses
C. $400 billion including $152.9 billion of U.S. taxpayer losses
D. $400 million including $152.9 billion of U.S. taxpayer losses
Answer:
The most relevant sources of civil liabilities for auditors failing to adhere to the
requirements of the laws in carrying out professional obligations include all of the
following except for:
A. Securities Act of 1933
B. Private Securities Litigation Reform Act of 1995
C. Securities and Exchange Act of 1934
D. Sarbanes-Oxley Act of 2002
Answer:
An ethical organization incorporates what into their decision-making process:
A. Core values
B. Strategic policies
C. Reporting responsibilities
D. All of these
Answer:
A corporate director or officer may be able to avoid liability to the corporation or to its
shareholders for poor business judgments by meeting the requirements of the
A. Business judgment rule
B. The ethical reasoning rule
C. Sarbanes-Oxley Act
D. Dodd-Frank Financial Reform Act
Answer:
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
Answer:
A major allegation in the XTO Energy case was the:
A. Insider trading
B. Violation of FCPA
C. Breach of fiduciary duties by board of directors
D. Retaliation of whistleblower
Answer:
The term disgorgement means:
A. To give up one’s meal after eating
B. To return profits earned illegally
C. To return ill-gotten gains
D. To give up one’s board position after a fraud incident
Answer:
“Disgorgement” with respect to legal rulings refers to
A. A defendant being forced to at least partially repay fraudulently gained money
B. An auditor being forced to reveal private client information because fraud has
occurred
C. An auditor being held financially liable for investor losses
D. Giving up one’s dinner after food poisoning
Answer:
The fiduciary duty of the board of directors includes all of the following except for:
A. Safeguarding corporate assets
B. Promoting shareholder interests
C. Exercising care in carrying out their responsibilities
D. Representing the interests of all stakeholders
Answer:
To whom do the accounting codes of professional conduct (either the state board of
public accountancy or AICPA) apply?
A. Those CPAs in public accounting only.
B. Those CPAs in industry, government, and education.
C. Those CPAs in public accounting, industry, government, and education.
D. Those CPAs in public accounting, doing auditing and taxation.
Answer:
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
Answer:
The main accounting issue in the Juggyfroot case is:
A. How to account for prepaid capacity
B. How to account for and report special purpose entities
C. How to account for inventory declines
D. How to account for investments in marketable securities
Answer:
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
Answer:
When applying Utilitarianism to judge actions, what is the only thing that matters?
A. Motives
B. Justice
C. Consequences
D. Rights
Answer:
Each of the following considerations should help to evaluate alternative courses of
action in the decision making model except for:
A. Whether the alternatives are consistent with professional standards
B. Whether the alternatives are consistent with firm policies and its own code of ethics
C. The stage of moral development of the decision maker
D. The potential harms and benefits of alternative courses of action
Answer:
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
Answer:
The best restatement of Kant’s categorical imperative is:
A. Do to others as you would have everyone do unto you
B. Consider others needs before you act
C. That those with a smaller stake should have a smaller say compared to those with a
bigger stake.
D. Don’t be cruel until someone is cruel to you
Answer:
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
Answer:
Kay and Lee performed an audit required for Holligan Industries to extend a loan with
Second National Bank & Trust. Kay and Lee may be liable for:
A. Second National Bank & Trust declining to extend the loan
B. Ordinary negligence to Second National Bank & Trust
C. Ordinary negligence to unknown bank that provided additional funds to Holligan
D. Holligan declaring bankruptcy without a going-concern emphasis of matter
Answer:
The PCAOB rules prohibit auditors from:
A. Providing certain aggressive tax shelters to their public company audit clients
B. Providing tax services to members of the audit client’s management who serve in
financial reporting oversight roles
C. Providing tax preparation and planning services for public company executives
D. All of these
Answer: