This organization is developing an international code of conduct for professional
accountants:
a. International Accounting Standards Board
b. European Federation of Accountants
c. Financial Accounting Standards Board
d. Public Accounting Oversight Board
e. International Federation of Accountants
In order to ensure an investment-grade credit rating, Enron began to emphasize the
following three actions:
a. Reducing accruals, increasing cash flow, and lowering debt
b. Smoothing accruals, increasing cash flow, and lowering debt
c. Increasing cash flow, lowering debt, and smoothing earnings
d. Increasing cash flow, lowering earnings and decreasing option expense
e. Increasing cash flow, lowering debt, and decreasing option expense
According to Kohlberg, at this stage of moral reasoning, fear of punishment and
authorities are a motive for doing right:
a. Pre-conventional
b. Conventional
c. Post-conventional
d. Autonomous
e. Principled
This philosophical approach requires that an ethical decision depends upon the duty,
rights, and justice involved:
a. Consequentialism
b. Virtue ethics
c. Duty ethics
d. Righteousness
e. Deontology
If managers use moral imagination to determine ethical alternatives, the decisions need
to be good for:
a. The individual
b. The firm
c. Society
d. (a) and (b) only
e. All of the above
The Moral Standards Approach focuses on the following dimensions of the impact of a
proposed action:
a. Net benefit to society, fair to all stakeholders, whether it is right
b. Net benefit to society and whether it is legal
c. Net benefit to society, fair to all stakeholders, whether it is legal
d. Fair to most stakeholders and whether it is right
e. Net benefit to society, fair to most stakeholders, whether it is right
The U.S. Government created the Trouped Asset Relief Program (TARP) to:
a. Bail out investors in U.S. financial firms and institutions.
b. Avoid a worldwide financial crisis.
c. Stimulate the U.S. economy
d. Resolve the financial crisis in Iceland.
e. Make a profit on the ultimate sale assets bought at a low value.
Which of the following is not a trend described in Chapter 1 as having an impact on the
ethics of business?
a. Directors’ legal liability
b. Management’s stated intention to protect reputation
c. Auditors’ legal liability
d. Management’s assertions to shareholders on the adequacy of internal controls
e. Management’s stated intention to manage risk
Frequently, decision makers have been subject to unreasonable expectations and
unrealistic deadlines, this is an example of:
a. Conforming to an unethical corporate culture
b. Focusing only on legalities
c. Conflicts of interests
d. Failure to identify all stakeholder groups
e. Failure to rank stakeholder interests
The Board of Directors’ paramount duty is:
a. To determine management’s compensation
b. To safeguard the interest of the company’s stakeholders
c. To safeguard the company’s assets
d. To formulate the company’s strategy
e. To safeguard the interest of the company’s shareholders
Minority rights may be violated under this approach:
a. Deontology
b. Distributive Justice
c. Utilitarianism
d. Moral Imagination
e. Virtue Ethics
Which of the following is not an example of aggressive lending practices contributing
to the subprime crisis?
a. Mortgagors were not required to make any down-payment at the inception of the loan
b. Loans were given to people with poor credit histories
c. Loans were given to people with no income
d. A borrower could get a second mortgage and use it as down-payment
e. None of the above
What is the recommended strategy when stakeholders’ potential for threat is HIGH and
the stakeholders’ potential for cooperation is HIGH?
a. Monitor
b. Involve
c. Discuss
d. Defend
e. None of the above
Which of the following was not a committee in Enron’s Board?
a. Risk Management Committee
b. Executive Committee
c. Finance Committee
d. Audit and Compliance Committee
e. Nominating Committee
The costs of environmental clean-ups absorbed by downstream individuals, companies,
or municipalities are referred to as:
a. Surrogates
b. Externalities
c. Future impacts
d. Collateral damages
e. Ethical costs
An employee in charge of collecting tickets at the entrance of a movie theatre lets her
friends enter the theatre without paying for tickets. She thinks it is fine to do so because
the employees at the popcorn bar give free popcorn to their friends. This type of
rationalization is because:
a. Denial of responsibility
b. Denial of the victim
c. Everyone else is doing it
d. Appeal to higher loyalties
e. Entitlement
Which of the following is not a sign of an ethical collapse within an organization,
according to Marianne Jennings?
a. Pressure to meet financial goals
b. Hubris
c. Nepotism, favoritism and hiring sycophants
d. An open and candid organizational culture
e. Weak boards of directors
The most important factor in encouraging employee observance to an ethics program is
that employees perceive that it is:
a. Compliance-based
b. Value-based
c. Achievement oriented
d. Stakeholder-based
e. Externally oriented
Enron created the following SPE(s) to hide off-balance sheet liabilities, recognize
revenues early , and recognize profits on own shares:
a. LJM
b. LJM1/Rhythms
c. LJM2/Raptors
d. Chewco/JEDI
e. LJM3
Which of the following was not among Arthur Andersen’s shortcomings in conducting
Enron’s audit?
a. Lack of competence
b. Failure of quality control standards
c. Misunderstanding of auditor’s fiduciary role
d. Inconclusive testing of control
e. Insufficient information provided by Enron’s staff
Which of the following would be the least useful report of ethics risks and
opportunities?
a. By hypernorm value
b. By shareholder group
c. By product or service
d. By corporate objective
e. By reputation driver
Companies attempt to manage the risk of something happening that will have a negative
or positive impact on the company’s objectives, such as:
a. Credit risks
b. Litigation risk
c. Reputation risk
d. Ethics risks
e. All of the above
A difficulty in applying this approach is identifying all possible stakeholders impacted
by the decision:
a. Deontology
b. Distributive justice
c. Utilitarianism
d. Procedural justice/Consequentialism
e. Virtue Ethics
A Conference Board survey identified the following rationale for developing codes of
ethics:
a. Make employees aware that adherence is critical to bottom-line success
b. Provide a statement of do’s and don”ts
c. Discuss what is expected in stakeholder relationships
d. Establish values and mission
e. All of the above
The following approach does not specifically incorporate a thorough review of the
motivation for the decisions involved, or the virtues or character traits expected:
a. 5-question approach
b. Moral standards approach
c. Pastin’s approach
d. All of the above
e. (a) and (b) only
Due diligence programs developed to reduce penalties levied under the U.S. Federal
Sentencing Guidelines for environmental harm did not include:
a. Awareness programs for employees.
b. Guidelines for employees.
c. Compliance oversight by corporate officials.
d. Rewards for non-compliance.
e. Encouragement for whistleblowers.
Which of the following is not an example of a common ethical decision-making pitfall?
a. Conforming to an unethical corporate culture
b. Focusing only on legalities
c. Conflicts of interests
d. Failure to identify all stakeholder groups
e. None of the above
The following three broad duties stem from the fiduciary status of corporate directors:
a. Obedience, loyalty, and confidentiality
b. Obedience, loyalty, and due care
c. Loyalty, due care, and confidentiality
d. Obedience, loyalty, and good faith
e. Loyalty, confidentiality, and good faith
An important difference between anticipated and unanticipated crises is that:
a. Unanticipated crises are easier to control than anticipated crises
b. Unanticipated crises have a less negative reputational impact than anticipated crises
c. Anticipated crises start much earlier than unanticipated crises
d. Anticipated crises are less costly than unanticipated crises
e. Anticipated crises have a longer uncontrolled period than unanticipated crises
In general terms, WorldCom overstated its reported net income by:
a. Generating false expenses
b. Booking false revenue
c. Capitalizing line costs
d. Amortizing line costs quicker than allowed under GAAP
e. Recognizing future period’s revenue
The recommendation of appointment and review of the external auditors by the audit
committee is an example of:
a. Safeguards reducing the risk of conflict of interest created by the profession,
legislation, or regulation
b. Safeguards reducing the risk of conflict of interest between an auditor and
management
c. Safeguards reducing the risk of conflict of interest within a professional accounting
firm’s own systems and procedures
d. All of the above
e. (a) and (c) only
Professional Accountants, in their fiduciary role, owe their primary loyalty to:
a. The accounting profession
b. The client
c. The general public
d. Government regulations
e. All of the above
These entities worked as second party consolidators, purchasing loans and reselling
them to investors:
a. Federal National Mortgage Association (Fannie Mae) and Federal Home Loan
Mortgage Corporation (Freddie Mac)
b. Structured Investment Vehicles (SIVs)
c. Credit rating agencies
d. Investment banks
e. All of the above
Lack of awareness of the following problem results in executives not attributing enough
value to the use of an environmental resource:
a. Commons problem
b. Ethics problem
c. Value problem
d. Risk-assessment problem
e. Moral problem