Accounting Final Exam Guide Test Bank
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Chapter 1Multiple Choice Questions
___________________________________________________
Examining the interests of stakeholders is probably required for:
A value that is almost universally respected by stakeholder groups is:
Companies attempt to manage the risk of something happening that will have a negative or positive impact on the company’s objectives, such as:
Credit risks
Litigation risk
Reputation risk
Ethics risks
All of the above
Most large corporations do not consider these risks in a broad and comprehensive way:
Operational risks
Reputational risks
Credit risks
Market risks
Ethics risks
The following are examples of ethics risks faced by employees:
Honesty and integrity
Fairness and compassion
Integrity and responsibility
Fairness and integrity
Responsibility and honesty
Not reporting environmental issues is an example of:
Lack of transparency
Lack of integrity
Lack of accuracy
All of the above
None of the above
Incomplete disclosure of the company’s revenue recognition policy is an example of:
Lack of transparency
Lack of integrity
Lack of accuracy
All of the above
None of the above
This philosophical approach requires that an ethical decision depends upon the duty, rights, and justice involved:
Consequentialism
Virtue ethics
Duty ethics
Righteousness
Deontology
The Moral Standards Approach focuses on the following dimensions of the impact of a proposed action:
Net benefit to society, fair to all stakeholders, whether it is right
Net benefit to society and whether it is legal
Net benefit to society, fair to all stakeholders, whether it is legal
Fair to most stakeholders and whether it is right
Net benefit to society, fair to most stakeholders, whether it is right
Effective crisis management could represent:
An opportunity to avoid costs
An opportunity to change employee’s perspectives on risk
An opportunity to enhance the company’s reputation
All of the above
None of the above
Chapter 2 Multiple Choice Questions
_______________________
In order to ensure an investment-grade credit rating, Enron began to emphasize the following three actions:
Reducing accruals, increasing cash flow, and lowering debt
Smoothing accruals, increasing cash flow, and lowering debt
Increasing cash flow, lowering debt, and smoothing earnings
Increasing cash flow, lowering earnings and decreasing option expense
Increasing cash flow, lowering debt, and decreasing option expense
At the time of Enron’s collapse, the prevailing treatment for employee stock option expense was:
Record stock options only when and if exercised, at exercise price
Record all stock options when issued, at exercise price
Record all stock options at market price
Record stock options only when exercised at market price
Record not exercised options at market price
Which of the following was not a conflict of interest that Arthur Andersen’s personnel encountered?
Auditing their own work as SPE consultants
Losing a very large client
A partner reviewed another partner’s work
Internal debates about Enron’s questionable accounting treatments were not discussed with the audit committee
Audit staff leaving the firm to work for Enron
Which of the following was not among Arthur Andersen’s shortcomings in conducting Enron’s audit?
Lack of competence
Failure of quality control standards
Misunderstanding of auditor’s fiduciary role
Inconclusive testing of control
Insufficient information provided by Enron’s staff
In general terms, WorldCom overstated its reported net income by:
Generating false expenses
Booking false revenue
Capitalizing line costs
Amortizing line costs quicker than allowed under GAAP
Recognizing future period’s revenue
Chapter 3 Multiple Choice Questions
_____________________________
This philosopher argued that self-interest motivates people to form peaceful civil societies:
Adam Smith
John Locke
Thomas Hobbes
Jeremy Bentham
John Rawls
Two weaknesses of the following approach are (1) it is difficult to determine who demonstrates integrity in the workplace, and (2) it is difficult to choose between compassion and not betraying somebody’s trust:
Deontology
Distributive Justice
Utilitarianism
Moral Imagination
Virtue Ethics
This approach presupposes that happiness, utility, pleasure, pain and anguish can be quantified:
Deontology
Distributive Justice
Utilitarianism
Moral Imagination
Virtue Ethics
This philosopher argued that social and economic inequalities are just if these inequalities are to everyone’s benefit:
Adam Smith
John Locke
Thomas Hobbes
Jeremy Bentham
John Rawls
According to distributive justice theory, there are three main criteria for determining the just distribution:
Need, fairness, and merit
Need, arithmetic equality, and merit
Opportunity, fairness, and merit
Opportunity, fairness, and arithmetic equality
Need, arithmetic equality, and equivalence
Chapter 4 Multiple Choice Questions
______________________________
These costs can be measured indirectly by using costs incurred in similar circumstances or mirror image alternatives:
Surrogates
Externalities
Future impacts
Collateral damages
Ethical costs
This approach incorporates the expected future impacts of a decision into the analysis:
Virtue ethics
Consequentialism
Cost-benefit analysis
Risk-benefit analysis
All of the above
(I do not understand the difference between Q8 and Q9; when are future impacts not expected in an analysis? I think that Q8 should be deleted; I’ve added a replacement question at the end.)
These values are the combinations of a value and the probability of its occurrence:
Probable values
Common values
Present values
Expected values
Risk-adjusted values
Which of the following is not one of the 5 questions in Graham Tucker’s original approach to ethical decision making?
Is it profitable
Is it right?
Is it fair?
Is it legal?
Does it demonstrate the virtues expected?
The following three standards make up the moral standards approach:
Utilitarian, Individual rights, and Justice
Utilitarian, Individual rights, and Fairness
Legal, Individual rights, and Justice
Utilitarian, Moral rights, and Justice
Legal, Moral rights, and Justice
Pastin’s approach adds the following concepts to stakeholder impact analysis:
Rule ethics
Ground rule ethics
End-point ethics
Social contract ethics
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:
5-question approach
Moral standards approach
Pastin’s approach
All of the above
(a) and (b) only
Lack of awareness of the following problem results in executives not attributing enough value to the use of an environmental resource:
Commons problem
Ethics problem
Value problem
Risk-assessment problem
Moral problem
If a decision is expected to be unfair to a particular stakeholder group, the decision may be improved by:
Using stakeholder analysis
Using a decision making approach
Increasing the compensation to that stakeholder group
Increasing the compensation to all stakeholder groups
All of the above
Which of the following is not an example of a common ethical decision-making pitfall?
Conforming to an unethical corporate culture
Focusing only on legalities
Conflicts of interests
Failure to identify all stakeholder groups
None of the above
Failure to identify all relevant stakeholder groups for a proper stakeholder impact analysis may be the result of:
Bias
Conforming to an unethical corporate culture
Conflicts of interests
Failure to consider the motivation for the decision
All of the above
Completing the following steps in this order provides a sound basis for challenging a proposed decision:
Identify facts and stakeholders, rank stakeholders and their interests, and assess the impact of the proposed action
Identify a proper ethical decision framework, rank stakeholders and their interests, and assess the impact of the proposed action
Rank stakeholders and their interests, identify facts and stakeholders, and assess the impact of the proposed action
Identify a proper ethical decision framework, identify facts and stakeholders, and assess the impact of the proposed action
Rank stakeholders and their interests, identify a proper ethical decision framework, and assess the impact of the proposed action
Frequently, decision makers have been subject to unreasonable expectations and unrealistic deadlines, this is an example of:
Conforming to an unethical corporate culture
Focusing only on legalities
Conflicts of interests
Failure to identify all stakeholder groups
Failure to rank stakeholder interests
Chapter 5 Multiple Choice Questions
_________________________________
Corporations are now increasingly realizing that they are accountable:
Legally to shareholders
Legally to all stakeholders
Strategically to additional stakeholders
(a) and (b)
(a) and (c)
The company’s internal auditors and the Ethics Officer should report:
Day-to-day to the CEO
Day-to-day to the Audit Committee of the Board of Directors
Regularly to the Audit Committee of the Board of Directors without management being present
(a) and (c)
(a) and (b)
Experience has revealed that, to be effective, a code must be reinforced by:
Tone at the top
Ethics officer and internal auditors
A comprehensive ethical culture
Principles, rules and examples
All of the above
Which of the following is not an ethics risk management principle?
Normal definitions of risk are too narrow for stakeholder accountability
Assign responsibility, develop follow-up processes and board review
Discovery and remediation are essential
The code of ethics must be reviewed by independent parties
An ethics risk exists when expectations of stakeholders may not be met
A conflict of interest exists when a given decision maker (D) and another person (P) are in the following situation:
D has to exercise judgement in P’s behalf
P has to exercise judgement in D’s behalf
D has a special interest that interferes with proper judgement
(a) and (b)
(a) and (c)
A potential conflict of interest exists when a given decision maker (D) and another person (P) are in the following situation:
P has a special interest that interferes with proper judgement
D may have to exercise judgement in P’s behalf
D has a special interest that interferes with proper judgement
(a) and (b)
(b) and (c)
This is the preferred approach to deal with conflicts of interests
Management
Disclosure
Remediation
Avoidance
Awareness
A fundamental problem examined by agency theory is how it is possible to align:
Shareholders’ and stakeholders’ goals
Manager’s and stakeholders’ goals
Shareholders’ and managers’ goals
Principal’s and shareholders’ goals
Agent’s and stakeholders’ goals
The 20/60/20 rule states that the total percent of employees who could commit a fraudulent act is:
20%
60%
80%
100%
None of the above
Which of the following is not a characteristic identified by forensic experts in prospective fraud situations?
High intelligence
Greed
Need for whatever is taken
Opportunity to take advantage
Low probability of being caught
The primary focus of a compliance-based ethics program is:
Preventing, detecting and punishing violations of the law
Define organizational values and encourage employee commitment
Improve image and relationship with stakeholders
Protect management from blame
All of the above
The primary focus of an integrity-based ethics program is:
Preventing, detecting and punishing violations of the law
Define organizational values and encourage employee commitment
Improve image and relationship with stakeholders
Protect management from blame
All of the above
The most important factor in encouraging employee observance to an ethics program is that employees perceive that it is:
- Compliance-based
- Value-based
- Achievement oriented
- Stakeholder-based
- Externally oriented
Building trust within an organization can have favourable impact on employee’s willingness to share information and ideas in a process of:
Ethical awareness
Ethical awakening
Ethical renewal
Ethical wave
None of the above
A Conference Board survey identified the following rationale for developing codes of ethics:
Make employees aware that adherence is critical to bottom-line success
Provide a statement of do’s and don’ts
Discuss what is expected in stakeholder relationships
Establish values and mission
All of the above
This code deals with ethics principles plus additional examples:
Credo
Code of ethics
Code of conduct
Code of practice
All of the above
Which of the following is not a mechanism for monitoring a code of ethics?
Ethics audit or internal audit procedures
Reviews by legal department
Awards and bonuses
Annual sign-off by employees
Employee surveys
Which of the following is not an example of emerging public accountability standards or initiatives?
SOX-404
GRI
AA-1000
FTSE4Good
All of the above
SOX imposed the following new penalties for executives:
Fines
Suspension
Criminal prosecution for executives
Return of ill-gotten gains
All of the above
Chapter 6 Multiple Choice Questions
____________________________
The following elements are essential features of a profession:
Extensive training, license or certification, and provision of important services to society
Extensive training, primarily intellectual skills, and representation by professional organizations
Extensive training, provision of important services to society, and primarily intellectual skills
License or certification, representation by professional organizations, and autonomy
License or certification, autonomy, and provision of important services to society
The following value is not necessary for an accounting professional:
Honesty
Integrity
Objectivity
A primary commitment to self-interest
All but one of the above
The following duties are essential to maintaining a fiduciary relationship in the accounting profession:
Development and maintenance of required knowledge and skills
Maintenance of trust
Maintenance of an acceptable personal reputation
All of the above
(a) and (b) only
Professional Accountants, in their fiduciary role, owe primary loyalty to:
The accounting profession
The client
The general public
Government regulations
All of the above
According to Kohlberg, at this stage of moral reasoning, fear of punishment and authorities are a motive for doing right:
Pre-conventional
Conventional
Post-conventional
Autonomous
Principled
According to Kohlberg, at this stage of moral reasoning, adherence to moral codes or to codes of law and order are a motive for doing right:
Pre-conventional
Conventional
Post-conventional
Autonomous
Principled
Which of the following is not a fundamental principle in codes of conduct for professional accountants?
Act in the client’s best interest
Objectivity and independence
Maintain the good reputation of the profession
Maintain confidentiality
Not to be associated with misleading information
If a professional accountant is billing an audit client for more hours than those actually worked, he will be violating the following fundamental principle:
Objectivity
Professional due care
Integrity
Confidentiality
All of the above
If a professional accountant is auditing a public company and she receives company shares as payment for her audit services, she will be violating the following fundamental principle:
Integrity
Objectivity
Professional due care
Confidentiality
All of the above
A professional accountant is auditing client A and providing consulting services to client B. Both clients are in the same industry. If the professional accountant uses specific information from client A’s audit to prepare a business plan for client B, he will be violating the following fundamental principle:
Integrity
Objectivity
Professional due care
Confidentiality
All of the above
The adoption of the following measures would reduce the expectation gap and lessen public misunderstanding of the auditor's role
Publish a statement of management responsibility
Auditor to report annually to audit committee
Expand audit report to clarify auditor's role and the level of assurance
(a) and (b)
(a) and (c)
The recommendation of appointment and review of the external auditors by the audit committee is an example of:
Safeguards reducing the risk of conflict of interest created by the profession, legislation, or regulation
Safeguards reducing the risk of conflict of interest between an auditor and management
Safeguards reducing the risk of conflict of interest within a professional accounting firm’s own systems and procedures
All of the above
(a) and (c) only
Using partners who do not report to audit partners for the provision of non-assurance services to an assurance client would be an example of:
Safeguards reducing the risk of conflict of interest created by the profession, legislation, or regulation
Safeguards reducing the risk of conflict of interest within a client
Safeguards reducing the risk of conflict of interest within a professional accounting firm
All of the above
(a) and (c) only
The external review of an audit firm’s quality control system is an example of:
Safeguards reducing the risk of conflict of interest within the audit profession
Safeguards reducing the risk of conflict of interest within a client
Safeguards reducing the risk of conflict of interest within a professional accounting firm
All of the above
(a) and (c) only
This organization is developing an international code of conduct for professional accountants:
International Accounting Standards Board
European Federation of Accountants
Financial Accounting Standards Board
Public Accounting Oversight Board
International Federation of Accountants
This organization issues auditing standards, carries out inspections of public accounting firms auditing U.S. public clients, and imposes sanctions when applicable:
CPAB
PCAOB
SEC
FASB
AICPA
This organization can issue auditing standards in the U.S.:
AICPA
FASB
SEC
PCAOB
All of the above
A professional accounting firm has several audit and tax clients; however, a single client represents 40% of the firm’s revenue. This situation could result in the following threat to professional independence:
Self-review
Intimidation
Advocacy
Familiarity
Over-dependence
A professional accountant has been the partner in charge of a particular audit client for the past eight years. This situation could result in the following threat to professional independence:
Self-review
Intimidation
Advocacy
Familiarity
None of the above
A new audit client was taken on by a professional accountant’s firm. The fee for this client’s audit engagement is significantly lower than that charged by the prior accountants. This situation could result in the following threat to professional independence:
Self-review
Intimidation
Advocacy
Familiarity
None of the above
Chapter 7 Multiple Choice Questions
____________________________
The following duties are essential to maintaining a fiduciary relationship in the accounting profession:
Development and maintenance of required knowledge and skills
Maintenance of trust
Maintenance of an acceptable personal reputation
All of the above
(a) and (b) only
According to Kohlberg, at this stage of moral reasoning, fear of punishment and authorities are a motive for doing right:
Pre-conventional
Conventional
Post-conventional
Autonomous
Principled
According to Kohlberg, at this stage of moral reasoning, adherence to moral codes or to codes of law and order are a motive for doing right:
Pre-conventional
Conventional
Post-conventional
Autonomous
Principled
Which of the following is not a fundamental principle in codes of conduct for professional accountants?
Act in the client’s best interest
Objectivity and independence
Maintain the good reputation of the profession
Maintain confidentiality
Not to be associated with misleading information
If a professional accountant is billing an audit client for more hours than those actually worked, he will be violating the following fundamental principle:
Objectivity
Professional due care
Integrity
Confidentiality
All of the above
If a professional accountant is auditing a public company and she receives company shares as payment for her audit services, she will be violating the following fundamental principle:
Integrity
Objectivity
Professional due care
Confidentiality
All of the above
A professional accountant is auditing client A and providing consulting services to client B. Both clients are in the same industry. If the professional accountant uses specific information from client A’s audit to prepare a business plan for client B, he will be violating the following fundamental principle:
Integrity
Objectivity
Professional due care
Confidentiality
All of the above
The adoption of the following measures would reduce the expectation gap and lessen public misunderstanding of the auditor's role
Publish a statement of management responsibility
Auditor to report annually to audit committee
Expand audit report to clarify auditor's role and the level of assurance
(a) and (b)
(a) and (c)
The recommendation of appointment and review of the external auditors by the audit committee is an example of:
Safeguards reducing the risk of conflict of interest created by the profession, legislation, or regulation
Safeguards reducing the risk of conflict of interest between an auditor and management
Safeguards reducing the risk of conflict of interest within a professional accounting firm’s own systems and procedures
All of the above
(a) and (c) only
Using partners who do not report to audit partners for the provision of non-assurance services to an assurance client would be an example of:
Safeguards reducing the risk of conflict of interest created by the profession, legislation, or regulation
Safeguards reducing the risk of conflict of interest within a client
Safeguards reducing the risk of conflict of interest within a professional accounting firm
All of the above
(a) and (c) only
The external review of an audit firm’s quality control system is an example of:
Safeguards reducing the risk of conflict of interest within the audit profession
Safeguards reducing the risk of conflict of interest within a client
Safeguards reducing the risk of conflict of interest within a professional accounting firm
All of the above
(a) and (c) only
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