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Ethics

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Accounting 411

Quiz 1 – Fall 2011

Professor Jones

Chapter 01
Ethical Reasoning Implications for Accounting

Multiple Choice Questions 1. Each of the following characteristics describes the importance of integrity in decision making except for:
A. Acting out of moral principle
B. Being loyal to one's superior
C. Having the courage to do the right thing
D. Not subordinating professional judgment to others 2. Ethical relativism can best be described as a:
A. Point of view that morality is relative to the norms of one's culture.
B. Concept that holds that integrity should be maintained in the face of pressure by others.
C. An ethical reasoning method that holds one should always act out of self-interest.
D. An ethical reasoning method that holds one should always consider the effect of one's actions on others.

3. When is it appropriate to contact the audit committee about a difference of opinion with the CFO over an accounting or financial reporting manner?
A. If the CFO does not agree to correct the financial statements
B. The CEO supports the CFO and does not agree to correct the financial statements
C. The external auditors support the CEO and do not agree to correct the financial statements
D. The audit committee should always be the first to be informed about such a difference of opinion 4. An internal accountant should always take the following step after exhausting all avenues of appeal within the organization when there is a difference of opinion with top management on an accounting or financial reporting matter:
A. Inform the SEC
B. Terminate employment with the entity
C. Seek legal advice before taking any action
D. All of the above
5. The Public Interest Principle in the AICPA Code of Professional Conduct recognizes:
A. The importance of integrity in decision making
B. The primacy of stakeholder groups
C. The need to be independent of the client
D. The importance of exercising objectivity in decision making
7. The Independence Principle in the AICPA Code applies to:
A. All accountants and auditors
B. All CPAs regardless of professional services
C. All CPAs who render attestation services
D. All members of the audit committee 8. A CPA would violate the Due Care Principle if he/she:
A. Undertook a professional engagement without having the requisite background, knowledge and experience.
B. Discloses confidential information about a client.
C. Violates the Public Interest Principle.
D. Performs tax services for an audit client without audit committee approval.

9. The most important duty of public accounting is to the:
A. Securities Exchange Commission
B. Current stockholders
C. Management
D. Investing public

10. 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

11. Greatest good for the greatest number of people is the theory of __________.
A. Rights
B. Deontology
C. Utilitarianism
D. Justice

12. A difficult choice between two moral principles that are in conflict with one another is known as a/an:
A. ethical behavior
B. gray area
C. ethical dilemma
D. pragmatism

Essay Questions 1. Why do ethicists consider integrity to be the foundation of ethical behavior?

Chapter 02
Accountants' Ethical Decision Process and Professional Judgment

Multiple Choice Questions 1. The failure of Andersen's audit of Enron can be attributed to all of the following except for:
A. Failure to approach the audit with professional skepticism
B. Lack of audit independence
C. Failure to assign a sufficient number of staff to the audit
D. Having a conflict of interests 2. Professional skepticism means:
A. Approaching the audit with an independent attitude
B. Approaching the audit with a questioning mind
C. Being objective in decision making
D. Maintaining one's integrity 3. 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 the above 4. Kohlberg's model can best be described as:
A. The various phases in one's moral development and related levels of moral reasoning
B. A model of ethical action that is based on one's moral development
C. A predictive tool to determine how a person will reason ethically based on one's moral development
D. A model of age-specific levels of moral reasoning 5. The ethical domain in accounting and auditing refers to:
A. The important constituent groups affected by accounting and auditing work
B. The stages of the moral development of accountants and auditors
C. The decision making process followed by accountants and auditors
D. All of the above 6. Rest's "Four Component Model of Morality" can best be described as:
A. A description of the values that influence ethical decision making
B. A model of the relationship between ethical action and one's level of moral development
C. A model of moral judgment based on one's possession of certain virtues of behavior
D. All of the above
7. Thorne's "Integrated Model of Ethical Decision Making" can best be described as:
A. A depiction of a model of moral development
B. A depiction of how the Principles in the AICPA Code of Professional Conduct influences decision making
C. A model of the role of virtue in decision making
D. A model of the role of moral development and virtue in decision making 8. The need to exercise professional skepticism in auditing can be linked to:
A. Maintaining an attitude of independence in decision making
B. Considering and responding to the risk of material misstatement in the financial statements due to fraud
C. Considering and responding to pressures that might be imposed on auditors in decision making
D. All of the above 9. In Cherron and Lowe's study of the link between professional skepticism and management accountants, the authors identified the importance of:
A. Understanding the motivation and integrity of evidence providers
B. Understanding the nature of the corporate culture
C. Understanding the way in which decisions are made
D. All of the above 10. The ethical decision making model described in the chapter helps to:
A. Organize the various elements of ethical reasoning and professional judgment
B. Evaluate stakeholder interests using ethical reasoning
C. Identify and select alternative courses of action
D. All of the above

11. The importance of framing the ethical issue in the decision making model is:
A. Identify the stakeholders affected by intended actions
B. Evaluating alternative courses of action using moral reasoning methods
C. Identify the accounting issues present in a case
D. Providing a perspective to apply the decision making model to specific facts of the case 12. Wanda is faced with an ethical dilemma. She knows her supervisor, the CFO, wants to accelerate the recoding of revenue to an earlier period to "make the numbers," but Wanda is convinced this would violate GAAP. If Wanda reasons at stage 4 of Kohlberg's model she is most likely to:
A. Make a decision based on what is in her own best interests
B. Consider the interests of the stakeholders but decide based on what is in her best interests
C. Refuse to record the transaction as desired by the CFO
D. Inform the board of directors of the difference of opinion with the CFO 13. Leroy audits the financial statements of a small business. During the course of his audit he notices that all five members of top management have purchased new BMWs. Given that each manager's salary is less than $100,000 per year, Leroy becomes suspicious about how all five of them were able to buy such an expensive automobile. He decides to double check the bank statements for the year and postings to expense accounts that might indicate improper expenditures. Leroy's actions demonstrate:
A. Professional skepticism
B. Objective decision making
C. Due care
D. All of the above 14. Keesha is the CEO of a publicly-owned company. She was informed by the CFO that the company's earnings were down 30 percent from the prior year due to the recession. The company's stock price has declined by 20 percent. The CFO comes up with a scheme to hide debt and inflate revenues by selling underperforming assets to a special purpose entity affiliated with the company. Keesha is concerned about possible affects on the creditors but ultimately she agrees to the accounting. Keesha is reasoning at:
A. Stage 1
B. Stage 2
C. Stage 3
D. Stage 4
15. What needs to be coupled with moral motivation to act on moral judgment?
A. Courage
B. External pressures
C. Loyalty
D. Internal pressures

Essay Questions 1. Distinguish between each stage of ethical reasoning in Kohlberg's Model of Moral Development.

Chapter 03
Corporate Governance and Ethical Management

Multiple Choice Questions

1. A unique aspect of occupational fraud is:
A. The misuse of company assets
B. The falsification of financial statements
C. The failure to disclose full and complete information
D. All of the above 2. The ACFE found that the most way that fraud is first detected is:
A. Internal audit
B. Internal controls
C. External audit
D. Tip 3. 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. Providing reasonable assurance that the financial statements are prepared in accordance with generally accepted accounting principles
4. 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
5. Backdating of stock options is unethical because:
A. It favors top executives over other company employees with respect to the number of options
B. It purposefully manipulates the option criteria that determine their value
C. It changes the exercise price on options to benefit top executives
D. All of the above
6. The term disgorgement means:
A. To give up one's meal after eating
B. To return profits earned illegally
C. To return ill-gotten gains
D. To give up one's board position after a fraud incident
7. The fiduciary duty of the board of directors includes all of the following except for:
A. Safeguarding corporate assets
B. Promoting shareholder interests
C. Exercising care in carrying out their responsibilities
D. Representing the interests of all stakeholders
8. Under the Sarbanes-Oxley Act, which of the following bodies must contain members that are 100% independent of management?
A. Board of directors
B. Audit committee
C. Internal auditors
D. All of the above
9. Each of the following is a component of internal control under SAS 55 except for:
A. The control environment
B. Risk assessment
C. Control activities
D. Transparency 10. The Institute of Internal Auditors Code of Ethics includes each of the following principles except for:
A. Integrity
B. Objectivity
C. Independence
D. Confidentiality 11. Section 302 of the Sarbanes-Oxley Act requires that management:
A. Assess the company's internal controls
B. Certify the financial statements
C. Disclose all executive compensation
D. All of the above

12. One of the reasons Bernie Madoff was able to pull off the Ponzi scheme for so long was:
A. He was trusted by those who invested with him
B. The SEC failed to act on tips about Madoff's questionable practices
C. The auditors either looked the other way or didn't look too hard to find the fraud
D. All of the above.

13. The expectation gap is the difference between what the public perceived as the responsibilities of accountants and __________________.
A. What accountants see as their responsibilities
B. What managers see as their responsibilities
C. What clients see as their responsibilities
D. What bankers see as their responsibilities
14. What are the fiduciary obligations of the board of directors?
A. Maximize profits for the company
B. Give excessive executive compensation
C. Safeguard the interests of the company's stakeholders
D. Allow high risk accounting practices
15. 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.
16. The Act that enables a whistleblower to receive compensation for blowing the whistle if the claims are deemed to be valid is:
A. The Sarbanes-Oxley Act
B. The Foreign Corrupt Practices Act
C. The Private Securities Litigation Reform Act
D. The Federal False Claims Act Essay Questions 1. What is meant by corporate governance? Describe the elements of a governance system and how it can help to enhance financial reporting.

Chapter 04
AICPA Code of Professional Conduct

Multiple Choice Questions 1. The committee that first recommended that the profession institute a voluntary program for peer review was:
A. Metcalf committee
B. Cohen committee
C. The House Subcommittee on Oversight and Investigations
D. Mintz and Morris committee
2. One of the Contributions of the Treadway Commission Report and the work of the Committee if Sponsoring Organizations (COSO) was:
A. To establish a voluntary process for peer review
B. To identify red flags that might lead to fraud
C. To identify the tone at the top for management to create an ethical culture
D. All of the above 3. Interpretation 102-4 in the AICPA Code of Professional Conduct calls for differences of opinion between the controller and CFO to be first taken up with:
A. The CEO
B. The board of directors
C. The external auditors
D. The SEC 4. The principle of ethical behavior in the AICPA Code that asks questions directly related to ethical behavior is:
A. Independence
B. Objectivity
C. Integrity
D. Fraud prevention 5. 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

6. Assume the external auditor of a client entity also served on the client's board of directors. What aspect of independence would be violated?
A. The auditor may be exposed to an intimidation threat by the client
B. The auditor is involved in a business relationship with the client
C. The auditor serves in a management decision making position with the client
D. All of the above
7. The due care principle in the AICPA code:
A. Addresses the quality of the individual who performs professional services
B. Addresses the quality of services performed by the CPA
C. Addresses whether the independence standards has been met
D. All of the above
8. 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 client of this matter and the client did not inform the SEC within one business day of being informed of 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 the above
9. The PCAOB rules prohibit auditors from:
A. Providing certain aggressive tax shelters to their public company audit clients
B. Providing tax services to members of the audit client's management who serve in financial reporting oversight roles
C. Providing tax preparation and planning services for public company executives
D. All of the above 10. What is the primary fiduciary responsibility of professional accountants?
A. Stockholders
B. Public interest
C. Client
D. Stakeholders 11. Sarbanes-Oxley Act (SOX) sets new standards for governance that will ultimately impact on which of the following?
A. Foreign companies listed on US exchanges only.
B. SEC registrant companies, including foreign companies listed on US.
C. NYSE listing companies.
D. NASDAQ listing companies.

12. To whom do the accounting codes of professional conduct (either the state board of public accountancy or AICPA) apply?
A. Those CPAs in public accounting only.
B. Those CPAs in industry, government, and education.
C. Those CPAs in public accounting, industry, government, and education.
D. Those CPAs in public accounting, doing auditing and taxation. 13. 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. 14. 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.
D. The CPA owes an office building that he leases to the client.
15. Which of the following would be an example of due care?
A. Audit documentation all supplied by the client.
B. Audit documentation is a copy of last year's work papers.
C. Audit documentation with reviews by senior, manager, and partner.
D. Audit documentation with misapplication of GAAP.

Essay Questions 1. Explain how the Principles of the AICPA Code of Professional Conduct establish standards of behavior for CPAs that are similar to those discussed in chapters 1 and 2.

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...Email: College and Semester: TESC, February 2014 Course Code: PHI-384-GS004 Course Name: Ethics & Business Professional Assignment 1 Questions for Thought Answer each of the following items thoroughly. Each numbered item should require no more than one page (250 words) as a response. 1. What does the term ethics mean to you? Do you see a difference between ethics and morality? Explain your answer. The term ethics to me can be very in-depth but very simply, elaborates on what is right and what is wrong. I consider myself as having ethics because I know right from wrong and because it was instilled upon me at a young age. Very simply, my values guide me along the right paths, eliminating possible gray areas. Both ethics and morality are about doing the right thing in everyday life to better the world but there are some differences even though they very much coincide. Ethics displays rules and guidelines over all, in hopes that these guidelines will become the social norm. Ethics permeates every facet of our life, whether it be at our home or workplace. It sets many different ways to look at situations and helps justify what is good and what is bad. Morality is more of a focus on what we do as individuals, in hopes of promoting the greater good. Ethics tells us that if someone needs help we should help them. Morality is shown when a person decides to hone in on the ethics that they know and step up to the plate and help that person. Morality is also deciding to help...

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Ethics

...Ethical Theories Essay Charlotte McGuffey ETH/316 October 28, 2013 Philip Reynolds Ethical Theories Essay There are three normative approaches to ethics; Utilitarianism, deontological, and virtue theory. These three approaches have similarities and differences. This paper will go over those similarities and differences. This paper will also include how each theory details ethics, morality and will illustrate a personal experience that shows that correlation between moral, values, and virtue as they relate to these three theories of ethics. Utilitarianism relies on the predictability of the consequences of an action for the good of the many. “Utilitarianism is a theory that suggests that an action is morally right when that action produces mare total utility for the group than any other alternative” (Boylan, 2009). Another word, utilitarianism does not, in any way, relate to morality or ethics because the action is taken for the most usefulness, no matter what the outcome. Without knowing the end result of an action we cannot ascertain if it is ethical or not. Deontological theory judges the morality of any action dependent on the action’s devotion to rules, obligations, or duty. Deontology is based on whether the action taken is right or wrong. This theory is practical in places where adherence to rules or duty are to be followed; such as the military or religion. The principle of deontology judges the activity and whether that activity sticks with the guidelines or...

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Premium Essay

Ethics

...Critical Thinking and Ethics Aliya Johnson GEN/201 April 28th, 2015 Critical Thinking and Ethics Critical thinking and ethics are concepts that are very important to use in order to be successful either academically and/or professionally. When it comes to critical thinking and ethics both are very universal; and allow for creative views and ideas to collaborate. In order to get better understandings of how critical thinking and ethics can affect your career both professionally and academically we must first analyze these skills. Critical Thinking One analysis I would like to make is how critical thinking and ethics can impact our lives; which means that we have to first understand the definition of critical thinking. According to D.C. Phillips, “critical thinking is referred to generalized standards and principles of reasoning on which reasons for judgements could be based.” (Norris.S, 2014) In other words, people usually base their judgements on what they believe are generally right. Critical thinking allows us to be able to determine whether or not something is ethically right or wrong or maybe in between. There are six steps one can take towards critical thinking. The first step to critical thinking is being able to remember all events that may have taken place. Then, you have to understand the situation that’s going on around you. For example, you may want to “ask yourself if you can explain the situation in your own word.” (D.Ellis...

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