The Olympus case deals with which of the following accounting issues:
A. Booking impairment losses
B. Selling bad assets to make investment losses smaller
C. Concealing investment losses
D. All of these
Answer:
Some critics claim the usefulness of the audit report is limited because:
A. Auditors do not examine all of the transactions
B. Language in the audit report relies on subjective evaluations such as what is meant
by “reasonable”
C. Transactions examined are based on materiality and risk assessment determinations
D. All of these may create doubts about usefulness
Answer:
The term ‘small and medium-sized” entities in the IASB’s pronouncement on IFRS for
Small and Medium-sized Entities (SMEs) defines SMEs as:
A. Those entities with public accountability that publish general purpose financial
statements
B. Those entities without public accountability that publish general purpose financial
statements
C. Those entities that use IFRS in their general purpose financial statements
D. Those entities that use U.S. GAAP in their general purpose financial statements
Answer:
In the Computer Associates case, each of the following allegations were made against
the company except for the following:
A. Backdating software contracts into the prior month
B. Executing contracts with preprinted dates from prior quarter
C. Misusing company resources by members of top management
D. Extending quarters by at least 3 business days
Answer:
Deontology deals with
A. Emphasizes rights of others
B. Consequences of actions
C. Following prescribed virtue characteristics
D. Following the law as an element of ethical behavior
Answer:
You work for a company that always pushes the envelope with respect to reporting
revenues and expenses. You often disagree with the company because its approach to
reporting these amounts cannot be justified from a GAAP perspective. You are upset
and are considering whether this is a company that has a culture you want to be part of.
Which of the following best characterizes the ethical issues of concern?
A. Rights Theory
B. Moral blindness
C. Ethical Dissonance
D. Materiality
Answer:
Jane finds a material misstatement while auditing a client’s accounts receivables. Her
senior tells her to ignore the misstatement so that the client does not get upset. Jane
wants to be viewed as a team player in order to advance in the firm. So Jane follows her
senior’s instructions and ignores the misstatement. Which ethical theory did Jane use to
make her decision?
A. Egoism
B. Justice
C. Virtue ethics
D. Utilitarianism
Answer:
XYZ Company requires that its internal auditor must bring all accounting and financial
reporting matters of concern to the CFO and CEO before going to the audit committee.
The weakness in internal controls is most likely to lead to which element of the fraud
triangle when instances of fraud occur
A. Pressure
B. Opportunity
C. Rationalization
D. Professional skepticism
Answer:
Janice is a staff accountant in the accounting firm of Obama and Biden. She is assigned
to the audit of HealthCare Associates. On the very first day Janice noticed that the
accounting manager of the client took money out of the petty cash fund and put it in his
pocket. The best action for Janice to take is:
A. Ignore the situation because Janice doesn’t know why the manager pocketed the
money
B. Inform her immediate supervisor of what she observed
C. Tell another staff accountant who is a friend and ask for her advice
D. Tell Obama or Biden
Answer:
Each of the following is an element of trustworthiness according to the Josephson
Institute except for:
A. Reliability
B. Loyalty
C. Fairness
D. Honesty
Answer:
The aim of executive compensations is to:
A. Enrich the executive
B. Align the goals of the executive with the workers
C. Align the goals of the executive with the shareholders
D. Enrich the company
Answer:
Which is not part of the required links of the chain of command that the controller
should follow to inform of a material misstatement in the financial statements?
A. Audit Committee of Board of Directors
B. CEO
C. External auditor
D. CFO
Answer:
Which of the following is NOT considered “earnings management”?
A. “Earnings management” is done to project smoother earnings from year to year.
B. Management emphasizes achieving long-term results to meet financial goals.
C. A Management uses “cookie-jar reserves each year.”
D. The executives manipulate the earnings in order to match their predetermined target.
Answer:
The primary accounting issue in the Royal Dutch Shell case is:
A. The failure of the company to properly account for oil exploration costs
B. The failure of the company to adhere to provisions of the Foreign Corrupt Practices
Act
C. The failure of the company to adhere to SEC rules and the accounting for proved
reserves
D. All of these
Answer:
If one’s reputation is tainted it may create a:
A. Conflict of interests
B. Loss of independence
C. Lack of trust
D. All of these
Answer:
What is a cause of agency problems?
A. Information asymmetry
B. Information symmetry
C. Information technology
D. Information privacy
Answer:
Who said “the ethics issue might possibly be mitigated by clearly disclosing aggressive
accounting assumptions in the financial statement disclosures?”
A. Hopwood et al
B. Thomas E. McKee
C. Arthur Levitt
D. Belverd Needles
Answer:
A study by the SEC notes that imperfections exist when standards are established on
either a rules-based or a principles-based basis only. The SEC recommends that
standards should have all of the following characteristics except:
A. Enumerate exceptions from the standard.
B. Provide sufficient detail and structure so that the standard can be operationalized
and applied on a consistent basis.
C. Avoid use of bright lines that allow structuring of financial transactions to achieve
technical compliance while evading the intent of the standard.
Answer:
The executives of McKesson and Robbins Pharmaceuticals were able to steal about
$2.9 million in 1939 because
A. Its auditors did not follow the generally accepted auditing standards (GAAS) at the
time
B. The independent audit of financial statements was not required at the time
C. Physical inspection of inventory was not performed by the auditors
D. The auditors were not independent and conspired with management to steal the
funds
Answer:
Which tax service is still permitted by the PCAOB for audit clients following the
KPMG tax shelter case?
A. Aggressive tax shelter for audit clients
B. Auditing of deferred taxes
C. Tax services to audit client management or family members
D. Tax services for a contingent fee
Answer:
An important modern contributor to the theory of utilitarianism is:
A. Plato
B. John Rawls
C. Immanuel Kant
D. Jeremy Bentham
Answer:
In stage 5 of Kohlberg’s model, ethical reasoning is motivated by:
A. Acting in the best interests of others
B. Following the law
C. Upholding the rights, values, and legal contracts of society
D. Acting based on universal principles
Answer:
The best way to characterize the efforts of Diem-Thi Le is that of a
A. Disgruntled employee
B. Whistleblower
C. Member of the audit committee
D. The director of the DCAA
Answer:
A ‘secret” or “hidden” reserve can occur when a company does one or more of the
following
A. Deliberately measure an asset at an unsubstantiated high value
B. Deliberately measures an asset at an unsubstantiated low value
C. Sets up overstated accrual liabilities
D. All of these
Answer:
Under the Securities Act of 1933 and the Securities and Exchange Act of 1934,
accountants may be subject to criminal penalties for:
A. Obstruction of justice
B. Securities fraud
C. Willful violations of the securities acts
D. All of these
Answer:
What are the implications of reasoning at stages 3 and 4?
A. A CPA unable to apply technical accounting standards is unlikely to be influenced
by others.
B. A CPA is unlikely to be influenced by rules or authority.
C. A CPA is unlikely to be influenced or give into pressures.
D. A CPA unable to apply technical accounting standards is likely to be influenced by
others.
Answer:
Circular 230 applies to CPAs who:
A. Audit the financial statements of a tax client
B. Practice before the IRS
C. Practice before the SEC
D. All of these
Answer:
In the Lee & Han, LLC case, Barbara Strom should:
A. Report the situation to SEC under the Dodd-Frank Act.
B. Change the audit workpapers to not reflect the market decline in inventory.
C. Discuss the matter with Kate Boller.
D. Report the situation to the firm’s oversight or similar committee.
Answer:
To whom does the CPA owe ultimate allegiance in carrying out professional
obligations?
A. Stockholders
B. Public interest
C. Client
D. Stakeholders
Answer:
Larry is the controller of ABC Industries and has a difference of opinion on an
accounting matter with the CFO. Larry is told that the very survival of the company
depends on his going along with the proposed accounting treatment that has been
approved by the CEO and increases earnings 20 percent above what Larry believes it
should be. If Larry goes along with the CFO, he is reasoning at what stage in
Kohlberg’s model:
A. Stage 1
B. Stage 2
C. Stage 3
D. Stage 4
Answer:
Which of the following is NOT a motivation to manage earnings?
A. Companies try to meet or beat Wall Street earnings projections in order to grow
market capitalization and increase the value of stock options
B. Companies try to accelerate as much revenue as possible into early periods
regardless of the effects on later periods
C. To smooth net income over time
D. To maximize compensation including bonuses
Answer:
Kant’s categorical imperative principle suggests that:
A. Only equals should be treated equally
B. Everyone should be treated as a free and equal person
C. Everyone should be treated unequally
D. Only the elite are treated equally
Answer:
Many critics say the biggest fault with deontological theories is
A. no clear way to resolve conflicts between moral duties
B. the separation of consequences from duties
C. the requirement to respect people as human beings
D. not being able to treat people as only a means
Answer:
The Bennie and the Jets case deals with:
A. Proper income classification of rebates received from insurers
B. Accelerating revenues
C. Delaying expenses
D. Failing to record rebates from insurers
Answer:
A CPA who informs management of a material misstatement in the financial statements
can go to the SEC with his/her concerns if:
A. The CPA informed the client of this matter and the client did not inform the SEC
within one business day of being informed by the CPA
B. The CPA informed the client of this matter and the client refuses to correct the
financial statements
C. The CPA informs the client of this matter and the client fires the CPA
D. All of these
Answer: