Thorne’s “Integrated Model of Ethical Decision Making” can best be described as:
A. A depiction of a model of moral development
B. A depiction of how the Principles in the AICPA Code of Professional Conduct
influences decision making
C. A model of the role of virtue in decision making
D. A model of the role of moral development and virtue in decision making
Answer:
The auditors’ responsibility to communicate findings with respect to fraud can best be
summarized as:
A. Communicate to the audit committee the existence of fraud but not the amount
involved
B. Communicate to the audit committee both material and immaterial amounts of fraud
that are detected
C. Communicate to the SEC the existence of fraud but not the amount involved
D. Communicate to the SEC both material and immaterial amounts of fraud that are
detected
Answer:
In stage 3 of Kohlberg’s model, ethical reasoning is motivated by:
A. Satisfaction of one’s needs
B. Acting in the best interests of others
C. Upholding the rights, values, and legal contracts of society
D. Acting based on universal principles
Answer:
In the case of SEC v. Halliburton & KBR, the SEC charged Halliburton & KBR with
A. Bribing Nigerian government officials to look the other way while the companies
developed and presented fraudulent financial statements
B. Bribing Nigerian government officials in order to obtain construction contracts
C. Bribing Nigerian government officials to off-load merchandise at the country’s piers
D. All of these
Answer:
PCAOB Auditing Standard No.4 requires that the external auditors should take each of
the following steps when reporting on whether a material weakness still exists in the
internal controls except for:
A. Evaluate whether management has accepted responsibility for the effectiveness of
internal control
B. Evaluate whether management asserts whether the controls are effective in
correcting the material weakness
C. Evaluate whether management has obtained sufficient evidence to support its
assessment
D. Evaluate whether management has conducted an audit of internal controls
Answer:
The AOL case described in the text focused mainly on:
A. Proper accounting for line costs
B. Proper accounting for advertising costs
C. Proper accounting for special purpose entities
D. All of these
Answer:
Under the Sarbanes-Oxley Act, the auditor’s responsibility with respect to internal
controls can best be stated as:
A. Develop a system of internal controls that helps to prevent and detect fraud
B. Assess whether the internal controls helps to prevent and detect fraud
C. Assess management’s report on internal controls
D. All of these
Answer:
Because of the risk of material misstatement, an audit of financial statements in
accordance with GAAS should be planned and performed with
A. Objective judgment
B. Professional skepticism
C. Internal controls
D. Due care
Answer:
In the Fund of Funds case discussed in this chapter, the external auditors violated which
rule of conduct?
A. Due care
B. The financial statements were certified as being in conformity with GAAP when
that was not the case
C. The financial statements were certified as being in conformity with generally
accepted auditing standards when that was not the case
D. Confidentiality
Answer:
The credibility standard in the Statement of Ethical Professional Practice of the IMA
requires that an accounting professional should:
A. Communicate information fairly and objectively
B. Disclose all relevant information that might affect the intended user’s understanding
of the reports, analyses or recommendations
C. Disclose delays or deficiencies in information, timeliness, processing or internal
controls in conformance with organization policy and the law
D. All of these
Answer:
Which of the following is not an element of COSO Enterprise Risk Management?
A. Enhancing risk response decisions
B. Reducing operating surprises and losses
C. Seizing opportunities
D. Improving deployment of information technology
Answer:
The method of ethical reasoning that requires selecting the correct moral rule that
produces the greatest benefits over harms is:
A. Act Utilitarianism
B. Rule Utilitarianism
C. Rights Theory
D. Justice
Answer:
The business judgment rule applies to audit committee acts in each of the following
instances except for:
A. Decisions on hiring the auditor
B. Approving audit services
C. Preparing the audit report
D. Responding to deficiencies in internal controls
Answer:
Which rule of professional conduct in the AICPA code does not apply both to internal
and external accountants who are CPAs and members of the Institute?
A. Independence
B. Integrity
C. Objectivity
D. Due care
Answer:
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
Answer:
In the U.S., if the auditor can demonstrate having performed services with the same
degree of skill and judgment possessed by others in the profession, it can be said to
have exercised:
A. Prudence
B. Scienter
C. Nonfeasance
D. Due Care
Answer:
Members of the audit committee are responsible for each of the following except for:
A. Considering risks identified by the external auditor
B. Assessing whether management has set the appropriate ethical tone for the
organization
C. Discussing with the external auditors financial reporting matters of concern
D. Rendering an audit opinion after examining the entity’s financial statements and
internal controls
Answer:
“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.
Answer:
Which is not a permitted form of organization for a CPA practice?
A. Sole proprietorship with name of sole proprietor
B. Limited liability partnership
C. Professional corporation
D. Corporation
Answer:
The biggest problem in implementing an utilitarian approach to decision making is:
A. The interests of others may be subservient to self-interests
B. It fails to consider the interests of others
C. It can be difficult to evaluate the consequences of actions
D. It relies on moral absolutes
Answer:
The Livingston & Haynes case involves the audit firm
A. Engaging in illegal acts in covering for a failed audit
B. Resigning from an engagement
C. Failing to follow procedures designed to provide reasonable assurance of detecting
illegal acts
D. All of these
Answer:
A troubling result of the 2011 National Business Ethics Survey is:
A. Increased witnessing of misconduct in the workplace.
B. Decline in pressure to compromise ethics.
C. Increased rate of retaliation against whistleblowers.
D. Decline in negative view of supervisors’ ethics.
Answer:
Which of the following is not an essential area of fraud considerations assessed by the
auditors?
A. Assessing the possibility of fraud
B. Whether management deliberatively committed fraud
C. Identifying risks of fraud
D. Evaluating the characteristics of fraud
Answer:
The Rights Theory incorporates all of the following elements except for:
A. Act based on the consequences of one’s actions on others
B. Treat people as an end and not merely as a means to an end
C. Act in a way you would want others to act in similar situations
D. All of these
Answer:
Under the Sarbanes-Oxley Act, which of the following bodies must contain members
that are 100% independent of management?
A. Board of directors
B. Audit committee
C. Internal auditors
D. All of these
Answer:
Each of the following is an outright restriction on providing nonattest services for an
attest client except for:
A. Tax services
B. Financial information systems design and implementation
C. Appraisal or valuation services
D. Internal audit outsourcing services
Answer:
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
Answer:
The results of studies indicate that CPAs reason primarily at:
A. Stages 1 and 2
B. Stages 2 and 3
C. Stages 3 and 4
D. Stages 4 and 5
Answer:
Clawback provisions under Dodd-Frank differ from those under SOX because:
A. Dodd-Frank requirement extends to current or former executive officers versus
CEO only under SOX.
B. Dodd-Frank is a three-year period versus the one-year period under SOX.
C. Dodd-Frank applies to any restatement as a result of material noncompliance with
financial reporting requirements versus restatements caused by fraud or misconduct
under SOX.
D. All of these
Answer:
Pfizer was investigated by the SEC for violating the FCPA because it allegedly
A. Made improper payments to foreign officials to obtain regulatory and formulary
approvals
B. Made improper payments to foreign officials to obtain sales
C. Made improper payments to foreign officials to obtain increased prescriptions for
the company’s pharmaceutical products
D. All of these
Answer:
What are the four pillars of corporate governance?
A. Respect, accountability, fairness and transparency.
B. Responsibility, accountability, firmness and transparency.
C. Responsibility, accountability, fairness and transparency.
D. Respect, accountability, firmness and transparency.
Answer: