The duty of loyalty requires directors to
A. Act in the best interests of the corporation
B. Act in the best interests of the shareholder
C. Act in the best interests of management
D. All of these
Answer:
Each of the following is an example of the difference between application of full-IFRS
and IFRS for SMEs except for:
A. Cost or revaluation method for full-IFRS; cost method only for IFRS for SMEs
B. Revaluation method for full-IFRS; cost or revaluation for IFRS for SMEs
C. Expensing of all research and development costs as incurred for full-IFRS and
capitalizing and amortizing development costs that meet specific criteria; expensing of
all research and development costs as incurred for SMEs
D. Capitalizing borrowing costs if certain criteria are met for full-IFRS; expensing all
borrowing costs for IFRS for SMEs
Answer:
Martha Stewart was sent to jail in the InClone Systems insider trading scandal because
A. She acted on tip information to sell InClone stock prior to the FDA’s announcement
that it had rejected a company product
B. She tipped off a friend about the FDA’s announcement that it had rejected a
company product
C. She obstructed justice
D. She wears gaudy clothing
Answer:
The standard of due care requires that a director or officer
A. Act in good faith
B. Exercise the care that an ordinarily prudent person would in similar circumstances
C. Act in a way that is in the best interests of the corporation
D. All of these
Answer:
To avoid violating independence when engaged in nonattest services for an audit client,
a CPA must:
A. Make all management decisions and perform all management decisions
B. Evaluate the adequacy and results of the services performed
C. Avoid being biased when providing nonattest services for the audit client
D. Avoid being pressured by the client when providing nonattest services for the audit
client
Answer:
The UK Bribery Act establishes six principles to guide adequate procedures to deal with
bribery including:
A. Risk assessment
B. Tone at the top
C. Whistleblowing
D. Audit committee
Answer:
Cynthia Cooper’s actions in the WorldCom case can be best characterized as
demonstrating:
A. Persistence and independence
B. Persistence and courage
C. Courage and loyalty
D. Persistence and loyalty
Answer:
The ethical reasoning method that is based on treating equals, equally and unequals,
unequally is:
A. Enlightened egoism
B. Act utilitarianism
C. Justice
D. Virtue
Answer:
In the “Heinz and the Drug” case described in the chapter, Heinz’s actions falls into
which of Kohlberg’s stages?
A. Stage 1
B. Stage 2
C. Stage 3
D. Stage 4
Answer:
Which of the following is NOT addressed in the Waste Management’s case?
A. The misstatements represented 10% of pre-tax income, which was not considered
material.
B. The company employed aggressive accounting practices to enhance its earnings.
C. The company used the gain to offset unrelated operating expenses which was not in
conformity with GAAP.
D. The company’s auditor, Arthur Andersen, had engaged in improper professional
conduct.
Answer:
If a company is managing its earnings, which of the ethical theories are they most likely
following?
A. Rights
B. Fairness
C. Egoism
D. Virtue
Answer:
Which of the following is the most likely reason for an auditor to issue a modified
opinion with a qualification?
A. Inability to gather any sufficient relevant information to form the basis for the
opinion
B. Misstatements that are material and pervasive
C. Going concern issue
D. Misstatements that are material but not pervasive
Answer:
The Securities and Exchange Act of 1934
A. Limits the financial liability of independent auditors except in the case of gross
negligence
B. Requires the filing of audited annual statements and reviewed quarterly statements
C. Regulates the initial offering financial statements of securities
D. Regulates which services may be performed for a publicly-traded company by an
audit firm
Answer:
James Rest’s model of ethical action involves four components inherent to the ethical
decision-making process. Which of the following relates to a person’s moral judgment?
A. Interpreting a situation as a moral dilemma
B. Willingness to place ethical values ahead of non-ethical values
C. Intention to act ethically aligning to his values
D. Outcome of one’s prescriptive reasoning
Answer:
All of the following are in a position to commit fraud except for:
A. Employees who have access to assets
B. Top management who can override internal controls
C. External auditors who audit the financial statements
D. All of these are in a position to commit fraud
Answer:
The corporate governance system includes each of the following elements except for:
A. Board of directors
B. Internal controls
C. Executive compensation policies
D. Monitoring by top management
Answer:
What should be the first step in decision making when faced with an ethical dilemma?
A. Choose an ethical theory to follow
B. Discuss with others your options
C. Get the facts surrounding the problem
D. Determine consequences
Answer:
In the ESM fraud discussed in this chapter, Jose Gomez violated the Independence
standard because he:
A. Had loans outstanding from the client
B. Engaged in a business relationship with the client
C. Had family members who owned stock directly in the client
D. All of these
Answer:
PricewaterhouseCoopers was investigated by the SEC for independence violations due
to:
A. Reporting systems that relied on self-reporting of violations
B. Ownership of client stock
C. Investments by PwC professionals in bank accounts of audit clients
D. All of these
Answer:
One of the duties of a board of directors is to protect the interests of stakeholders.
Which of the following is an example of protecting such interests?
A. Back dating options for executives
B. Deceptive business practices
C. Off balance sheet financing
D. Transparent financial reporting
Answer:
In which of the following is a CPA independent in fact and appearance?
A. The CPA’s brother is the controller of the company being audited.
B. The CPA serves on the board of a non-profit with the CFO of the company being
audited.
C. The CPA borrowed money for a new car from the CEO of the company being
audited.
Answer:
The IFAC, IAESB and IESBA ethical principles are similar to those in the AICPA Code
except for:
A. Integrity
B. Objectivity
C. True and fair view
D. Professional competence
Answer:
Each of the following describes the behavior of Cynthia Cooper in the WorldCom fraud
except for:
A. Persistence
B. Competence
C. Integrity
D. Hesitance
Answer:
Internal control over financial reporting includes each of the following elements except
for:
A. Maintaining accurate financial records
B. Providing reasonable assurance that receipts and expenditures are recorded based on
proper authorization by management
C. External audit conducted in accordance with generally accepted auditing standards
D. Adhering to company policies and procedures
Answer:
In the ZZZZ best case, Barry Minkow was sentenced to 5 years for his involvement in
A. A fraudulent insurance restoration scam
B. Insider trading on Lennar stock
C. Stealing from a San Diego church
D. Overcharging a LA housewife for carpet cleaning services
Answer:
The framework of COSO Enterprise Risk Management is to
A. Incorporate enhanced internal control principles into enhanced corporate
governance
B. Incorporate enhanced audit sampling procedures in the testing of internal controls
C. Incorporate enhanced corporate governance into internal control principles
D. Incorporate enhanced audit sampling procedures in substantive testing
Answer:
The former CEO of Vivendi Universal, Jean-Marie Messier, used as his defense in the
case that:
A. His actions were protected by attorney-client privilege
B. While some of his actions may have turned out to be wrong, there never was an
intent to defraud
C. While some of his actions may have turned out to be wrong, he did the best that he
could to save the company for certain bankruptcy
D. He adhere to the business judgment rule and met his fiduciary obligations
Answer:
The relatively more principles-based IFRS standards requires each of the following
except for:
A. Professional judgment based on the substance over form concept
B. Professional judgment in applying the true and fair view override
C. Professional judgment at both the transaction and financial statement levels
D. Professional judgment in applying the present fairly concept
Answer:
Each of the following is an element of the operational issues to be considered in the
decision making model except for the:
A. Culture of the organization
B. Method of moral reasoning
C. Internal controls
D. Corporate governance system
Answer:
Moral sensitivity can be summarized as
A. Being able to think of others first
B. Being able to identify the best course of action
C. Being able to identify an ethical situation
D. Being able to react quickly
Answer: