The Private Securities Litigation Reform Act of 1995 applies the practice of ______ to
auditor liability determinations.
A. Risk assessment
B. Fraud triangle
C. Lowballing
D. Proportionate liability
Answer:
Responsibility goes hand in hand with:
A. Respect
B. Loyalty
C. Courage
D. Accountability
Answer:
Why don’t auditors prepare financial statements, as well as audit them?
A. It would take away a job from the controller of the company.
B. It would not eliminate errors in the financial statements.
C. It would be a conflict of interest and violates ethical standards.
D. It would streamline the process and be effective.
Answer:
What is the agency problem?
A. Managers place corporate goals ahead of personal goals.
B. Managers place personal goals ahead of corporate goals.
C. Managers place social goals ahead of personal goals.
D. Managers place corporate goals ahead of social goals.
Answer:
In the HealthSouth case, the auditors failed to meet their ethical and professional
obligations because they failed to uncover fraud in which account?
A. Inventory
B. Contractual allowance
C. Sales returns
D. All of these
Answer:
According to Kant, individuals may be treated as:
A. means to an end
B. an end and never as a means only
C. other mammals since we are all equal
D. an end and never as a means, in some circumstances
Answer:
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
Answer:
Which of the following is not an ethical issue in business?
A. Conflicts of interest
B. Maximization of profits
C. Discrimination
D. Information technology
Answer:
Fannie Mae’s financial statements were investigated because of allegations that the
company:
A. Deferred derivative losses on the balance sheet thereby inflating profits
B. Used derivatives to hid subprime loans
C. Sold derivatives to increase cash flows prior to bank financing
D. All of these
Answer:
Aristotle defined __________ as a trait of character manifested in habitual action.
A. Virtue
B. Ethics
C. Morals
D. None of these
Answer:
The cognitive development approach refers to:
A. The thought process followed in one’s moral development
B. The method of moral reasoning used in decision making
C. The exercise of professional judgment in decision making
D. All of these
Answer:
In the Vertical Pharmaceuticals case, Deloitte & Touche was sued because
A. Vertical claimed the firm’s false accusations of fraudulent conduct led to the
withdrawal of another public company’s planned acquisition of Vertical
B. Deloitte failed to issue an audit report on a timely basis thereby leading to the
withdrawal by another public company’s planned acquisition of Vertical
C. Vertical claimed Deloitte committed fraud in its audit of Vertical
D. Deloitte issued a modified opinion (adverse) on Vertical’s financial statements
thereby leading to the withdrawal by another public company’s planned acquisition of
Vertical
Answer:
The method of ethical reasoning that evaluates actions in terms of harms and benefits
is:
A. Act Utilitarianism
B. Rights Theory
C. Justice
D. Virtue
Answer:
The country with the highest Power Distance score is
A. United States
B. United Kingdom
C. Japan
D. Russia
Answer:
Heinz stole the drug because:
A. He loved his wife
B. He couldn’t come up with all the money to pay for it
C. He was afraid his wife would die without the drug
D. All of these
Answer:
A study conducted of financial statement restatements during the period of 2007
through 2009 indicated a decline in the number of restatements that were attributed to
each of the following except for:
A. Improved audits of financial statements
B. Improved reliability of internal controls
C. A more relaxed approach of the SEC regarding materiality and the need to file
restatements
D. Companies making and reporting fewer mistakes or catching fewer mistakes
Answer:
In the SEC case of James Gansman:
A. Gansman traded on inside information for his own benefit
B. Gansman tipped off a co-worker about the stock of a client
C. Gansman tipped off his girlfriend about nonpublic information about a client
D. Gansman told a co-worker about the impending bankruptcy of a client
Answer:
Individuals who reason at stage 6 incorporate ethical reasoning based on:
A. The morality of law and duty to the social order
B. A rational calculation of benefits and harms to society
C. Universal ethical principles
D. All of these
Answer:
The conceptual framework for the AICPA Independence standards can best be
characterized as:
A. A model to prevent fraud from occurring
B. An approach to identify threats to independence
C. An approach to identify fraud risks
D. A model to assist controllers in dealing with differences of opinion with top
management on accounting issues
Answer:
One concern in the Armadillo Foods case in the text of the chapter is:
A. The failure of internal controls
B. Pressure to go along with the misappropriation of assets
C. The failure of the external auditors to catch fraud
D. Pressure to meet financial analysts’ earnings estimates
Answer:
Which of the following summarizes the essence of general standards of GAAS?
A. Quality of professionals that perform an audit
B. Criteria used to judge whether the audit has met quality requirements
C. The standards that guide auditors in issuing the audit report
D. Whether the auditor obtained sufficient competent evidential matter to render an
opinion
Answer:
What is the common characteristic of Aristotle’s virtues and ethical standards for
CPAs?
A. Truthfulness
B. Integrity
C. Loyalty
D. Due care
Answer:
One of the rules of professional conduct and repeated in GAAS, due care, requires a
member to discharge professional responsibilities with _____________.
A. Confidentiality and integrity
B. Objectivity and ethics
C. Standard morals and ethics
D. Competence and diligence
Answer:
Which theory is based on doing what is right despite the consequences?
A. Deontology
B. Virtue ethics
C. Teleology
D. Egoism
Answer:
An alternative practice structure can best be described as:
A. A form of ownership where a CPA firm owns a public company and audits that
company
B. A form of structure where a public company provides nonattest services for a client
that is also provided with attest services by an affiliate of the public company
C. A form of structure where a CPA firm provides nonattest services for a client that is
also provided with attest services by a public company
D. A form of structure other than LLP and LLC
Answer:
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
Answer:
The Securities Act of 1933
A. Regulates the auditing of financial statements for publicly-traded companies
B. Limits the financial liability of independent auditors except in the case of gross
negligence
C. Regulates the initial offering of securities
D. Regulates which services may be performed for a publicly-traded company by an
audit firm
Answer:
The fraud at Tyco included each of the following acts except for:
A. Benefits given to certain members of the board of directors to secure their silence
about the fraud
B. Corporate assets used by members of top management for personal purposes
C. Setting up special-purpose-entities to keep debt off Tyco’s books
D. Related party transactions that were not adequately disclosed
Answer:
Rosie is the external auditor of Texas Two Steps, a privately-owned dance company in
Texas. Rosie believes the owner of the company is skimming cash off the top. She
approaches the owner who explains that the money will be replaced in the following
month after he refinances his house. Rosie accepts the owner’s explanation but
reclassifies the expenditure as a receivable of the company from Rosie. Rosie’s
reasoning best reflects:
A. Stage 1
B. Stage 2
C. Stage 3
D. Stage 4
Answer:
The legal term for the intent to deceive, manipulate or defraud is
A. Nonfeasance
B. Misfeasance
C. Constructive fraud
D. Scienter
Answer:
Which of the following situations would be considered ethical?
A. The cashier at Wal-Mart gives you $5 more than you were supposed to receive and
you don’t do anything about it
B. You accidentally back into a car at Wal-Mart and leave your information for them to
call
C. Receiving fake $20 bills and using them in a store while knowing they are fake
D. Finding a phone in a restaurant and keeping it
Answer:
Rajat Gupta was sentenced to two years in prison and ordered to pay a $5 million fine
for
A. Trading on inside information
B. Leaking tips to Raj Rajaratnam, a hedge-fund billionaire
C. Committing fraud in the sale of securities in an IPO
D. Committing fraud in the theft of assets from the company he head
Answer:
In the Cleveland Custom Cabinets case, the owner of the company thought it was all
right to manipulate the financial statement numbers primarily because
A. He wanted to improve earnings to increase the share price of company stock
B. The treatment recommended by the owner for estimating overhead conformed to
GAAP
C. He was the sole owner of the company and controlled the board of directors
D. All of these
Answer: