A client asks his accountant to ignore a mistake which overstated the accounts
receivable account. The accountant decides that the accounts receivable account has to
be corrected to state the correct amount. The accountant makes his decision based on
his duty to society, respect for authority, and maintaining the social order. Which stage
of Kohlberg’ Stages of Moral Development is the accounting reasoning?
A. Stage 2
B. Stage 3
C. Stage 4
D. Stage 5
Answer:
The Caremark opinion dealt with which element of directors’ obligations?
A. Audit obligations
B. Financial reporting obligations
C. Fiduciary obligations
D. All of these
Answer:
Negligent nonfeasance would be said to occur when
A. An auditor issues an unmodified opinion on financial statements he or she knows to
be materially misstated
B. An auditor fails to use appropriate accounting procedures and thereby fails to
discover a client’s fraudulent practices
C. An auditor fails to report an instance of financial fraud to the SEC
D. An auditor intentionally skips parts of the audit plan to cut costs and increase
profitability
Answer:
The cultural value of Individualism reflects
A. The degree a society reinforces individual or collective achievement
B. Tolerance for uncertainty and ambiguity in society
C. The degree of equality between people in a society
D. Whether a society has a long-term or short-term orientation
Answer:
A privity relationship means that
A. A party may be a user of the financial statements
B. A party may sue if fraud has taken place
C. A party’s financial liability is limited
D. A party has a contractual obligation
Answer:
The primary issue discussed in the Krispy Kreme case was:
A. Use of special-purpose-entities to keep debt off the books
B. Use of “round trip” transactions to accelerate the recording of earnings
C. Internal controls over operating activities
D. Internal controls over the making of doughnuts
Answer:
How does Gilligan evaluate the solution to Heinz’s dilemma?
A. Women think saving a life is more important than keeping the law.
B. Men think keeping the law is more important than saving a life.
C. Men tend to think in terms of justice, and women in terms of caring.
D. Men misunderstand and women understand.
Answer:
In an audit, the auditor has a requirement to address risk assessment with respect to:
A. The design and performance of audit procedures to respond to assessed risks
B. Whether the standards close the expectation gap
C. The role and responsibilities of the audit committee in preventing fraud
D. All of these
Answer:
Assume you are taking an exam and you see that your friend is cheating. Your professor
does not notice it. What should you do if you are trustworthy person?
A. You pretend not to know it.
B. You tell your professor immediately.
C. You also cheat the exam because your friend does.
D. You talk to the friend and advise him or her to confess.
Answer:
What needs to be coupled with moral motivation to act on moral judgment?
A. Courage
B. External pressures
C. Loyalty
D. Internal pressures
Answer:
All of the following proof can be used in an auditor’s defense against third party
lawsuits for fraud except for:
A. The third party was not in contractual privity
B. The auditor did not have a duty to the third party
C. The third party was negligent
D. The third party did not suffer a loss
Answer:
In the case of Equity Funding, the audit client
A. Fraudulently recorded inventories that did not in fact exist
B. Inflated its earnings by recording fictitious sales of insurance policies
C. Moved liabilities off the balance sheet by using thousands of subsidiaries
D. Recorded inventory below cost, therefore understating costs of goods sold and
overstating net income
Answer:
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
Answer:
A unique aspect of Johnson & Johnson’s Credo is that it:
A. It is an aspirational statement rather than the typical “thou shalt not” form of a code
of ethics
B. It encourages employees to internalize the values of the company
C. It follows a stakeholder approach to decision making
D. All of these
Answer:
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
Answer:
With respect to the director duty of good faith, former Delaware Chancery Court Chief
Justice Veasey defined good faith as
A. Acting in the best interests of the corporation
B. An honesty of purpose that leads to caring for the well-being of one’s constituents
C. Acting in the best interests of the shareholders person
D. Exercising due care in carrying out one’s responsibilities
Answer:
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:
The primary ethical concern when contemplating whistleblowing as an accountant is:
A. It may violate my ethical obligations
B. It may fail to correct the matter
C. It may not be considered ethical by my employer
D. All of these
Answer:
The Audit Client Consideration case deals with issues related to:
A. Acceptance of new clients
B. Issues that arise between the predecessor audit firm and the client
C. Going concern issues raised by previous auditors
D. All of these
Answer:
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
Answer:
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
Answer:
Fraud can be defined as:
A. A deliberate misrepresentation to gain an advantage over another party
B. A cover-up of a mistake made in the financial statements
C. An error in preparing financial statements
D. All of these
Answer:
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
Answer:
How long do management and the audit committee have to act if the independent
auditor reports possible illegal acts to them?
A. One week
B. One month
C. Three business days
D. One business day
Answer:
The question that arises in the First Community Church case is whether:
A. The financial statements have been materially misstated
B. There has been a misappropriation of assets
C. The auditors lacked independence
D. All of these
Answer:
In the Harvard Cheating Scandal case, using ethical reasoning who is at fault for
situation?
A. The professor
B. Teaching assistants
C. Students who cheated
D. All of these
Answer:
Management’s attitude toward aggressive financial statement reporting and its emphasis
on meeting projected profit numbers would significantly influence an entity’s control
environment when
A. Internal auditors report to the audit committee
B. The audit committee is active in overseeing the entity’s financial reporting
C. Management is dominated by one shareholder with little other governance
D. Management does not have a stock option plan
Answer:
Auditors may be held liable to both their clients and third parties under common law.
a. What must a client prove to recover its losses from a client under common law?
b. What must a third party prove to recover losses from an auditor under common law?
c. How does an auditor’s ethical obligations and liability under common law intersect?
Answer:
A CPA can accept a contingent fee in providing tax services for an attest client if:
A. The CPA discloses this fact to the tax client
B. The CPA receives the permission of the client to accept such a form of payment
C. The CPA’s tax services will be reviewed by a taxing authority
D. All of these
Answer:
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.
Answer:
Each of the following is part of the New York Stock Exchange listing requirements
except for:
A. All directors must be independent of management
B. Audit committees must consist of at least three members all of whom are
independent of management and the entity
C. The audit committee should report regularly to the board of directors
D. Each listed company must have an internal audit function
Answer:
Rest’s components of a moral model include all but
A. Moral sensitivity
B. Moral development
C. Moral judgment
D. Moral character
Answer:
An auditor concludes that a client has committed an illegal act that has not been
properly accounted for or disclosed. The auditor should withdraw from the engagement
if the
A. Auditor is precluded from obtaining sufficient competent evidence about the illegal
act
B. Illegal act has an effect on the financial statements that is both material and direct
C. Auditor cannot reasonably estimate the effect of the illegal act on the financial
statements
D. Client refuses to take the remedial steps deemed necessary by the auditors
Answer: