Ethics Final MCQ

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To whom does the management owe its ultimate allegiance? a. Employees b. Creditors c. Shareholders/Stakeholders d. Government

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BUSI 4305

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1

To whom does the management owe its ultimate allegiance? a. Employees b. Creditors c. Shareholders/Stakeholders d. Government

c

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2

An individuals personal rights are more important than those of an employer, unless the employer's interest is:

reasonable, legitimate, morally acceptable

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3

By which means were most frauds reported or discovered, according to the survey conducted by ACFE (Association of Certified Fraud Examiners)? a. Internal Audit b. Management Review c. External Audit d. Tips

d

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4

Why is it necessary to use the Integrating Philosophical and Stakeholder Impact Analysis? a. To make sure the stakeholders aren't losing a lot of profit b. So you can consider everyone who might be at risk depending on your decision c. For a comprehensive analysis of an ethical decision d. So you can identify all the facts of a certain situation

c

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5

What is the primary goal of corporate/Board of Directors governance?

Balancing interests of stakeholders

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6

What course of action is optimal in crisis management?

Make decisions quickly, Focus attention on crisis, Shorten the uncontrollable phase, Decisions should benefit ALL stakeholders and enhance organization's reputation

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7

What regulatory agency has been created to monitor SEC reporting by certified public accountants after 2002?

PCAOB

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8

One ethical dilemma for professional accountants is a conflict between the interests of a stakeholder. Who or what is a stakeholder? a) Everyone but the people within the company b) People who are affected by the outcomes of decisions that are made c) Supervisor of an accountant d) Employees only

b

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9

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

c

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10

What issues are required in implementing a Code of Conduct in an organization?

deals with principles plus additional examples, etc; Values is the most important part of this

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11

According to Kohlberg's stages of moral development, what happens at stage 1?

Obedience of Rules; Avoidance of punishment

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12

Which of the following is not an influences on ethical decision making?

Influences on ethical decision making: personal moral philosophy, stage of moral development, motivation, and other personal factors such as gender, age, and experience; Not an influence: upbringing

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13

Which of the following is NOT a factor in the ethical decision-making model? a) individual factors b) employee benefits packages c) organizational factors d) ethical issue intensity e) opportunity

b

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14

Which one of the Stakeholder Impact analysis & Decision-Making Approaches sets Ground Rule, End-Point, Rule and Social Contract Ethics?

Pastin's Approach

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15

Which of the following best states how Rawl's would argue for situations in which?

Rawls does not argue that all persons should benefit equally but that, if inequalities exist, that the least advantaged person must end up better off than before

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16

CPAs in accounting for public practice provides numerous accounting and financial services, attest, tax, and management advisory services. Other members prepare financial statements in the employment of others, perform internal auditing services, and serve in financial and management capacities in industry, education, and government, Regardless of service and capacity, what should members do at all times?

Protect the integrity of their work, maintain objectivity, and avoid any subordination of their judgement

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17

The best sources for ethical guidence are?

Standard Setters (IFAC, PCAOB, FASB, IASB); GAAP; GAAS; SEC, OSC, NYSE, Court Decisions

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18

What course of action should a CPA in public accounting do when confronted with a situation where his competence or skill level is not strong enough and not experienced enough to perform the accounting related service (due care question)?

Recommend another practitioner/CPA; refer the client to another person who possesses the competence to adequately handle the situation / assignment

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19

Which theory is based on the way you live your life/the kind of person you are? a. Deontology b. Virtue ethics. c. Teleology d. Egoism

b

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20

How did Minkow of ZZZ Best, stay under Ernst & Whinney's radar? a. Threatened to take away his business and give it to other auditors b. Clamied a random half-constructed building as one of ZZZZ bests restorations jobs c. Got on the auditors' good side by inviting them to his house to wine and dine d. All of the above

d

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21

At what level of Kohlberg's Stages of moral Development is an individual self centered?

Level 1 - Pre-conventional Moral Development

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22

How did MCI allow Walt Pavlo to commit the fraud? a. They trusted him b. Unethical tone at the top c. Weak internal controls d. All of the above.

d

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23

What is the most important factor in encouraging employees to observe ethical guidelines? a. Compliance-based b. Value-based c. Achievement based d. Stakeholder-based e. Externally oriented

b

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24

Under the AICPA Code of Preofessional Conduct, which of the following is correct to be independent in fact and appearance when discharging professional responsibilities? a) All CPAs. b) A CPA in public practice providing auditing and other attestation services. c) A CPA in public practice providing tax and management advisory services. d) A CPA not in public practice.

b

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25

Which of the following is NOT a Universal Hypernorm? a) Honesty. b) Compassion. c) Predictability. d) Performance. e) Fairness.

d

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26

HYPERNORMS

Honesty, Fairness, Compassion, Integrity, Predictability, Responsibility (HFCIPR)

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27

From which perspective one might be able to rationalize the ethics of earnings management? a. From a virtue perspective b. From an egoistic perspective c. From a rights perspective d. From an ethical perspective

b

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28

What are the four pillars of Corporate governance? a. Respect, accountability, fairness and transparency. b. Responsibility, accountability, firmness and transparency. c, Responsibility, accountability, fairness and transparency. d. Respect, accountability, firmness and transparency.

c. Responsibility, Accountability, Fairness, Transparency

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29

Which actual event led to the Tyco fraud discovery? a. A researcher issued a report criticizing Tyco's accounting principles b. SEC launched an investigation on Dennis Kozlowski for tax evasion c. External Auditors wrote a qualified opinion audit report d. None of the above

b

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30

Rests components of moral model include all but: a) Moral sensitivity b) Moral development c) Moral judgment d) Moral character e) Moral motivation

b

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31

Rest's Model of Morality

Moral Sensitivity, Moral Judgment, Moral Character, Moral Motivation

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32

Deontologists focus on: a) The obligations or duties motivating a decision or actions rather than on the consequences of the actions. b) Maximizing the utility produced by a decision c) The motivating aspects of moral character demonstrated by decision makers d) Those character traits that dispose a person to act ethically

a

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33

Which of the following is NOT an earnings management technique? a) Failing to write down or write of impaired assets b) Releasing questionable reserves into income c) Failing to record expenses and related liabilities when future obligations remain d) Creating an allowance for uncollectible accounts and adjusting it at year end

d

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34

Aristotle defined ______ as a trait of character manifested in habitual action: a. Virtue b. Ethics c. Morals d. None of these

a

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35

What major fraud scandal did Parlamat create and was eventually uncovered? a) A fictitious BOA account in the Cayman Islands of 5 billion dollars not initially recognized by the auditors because bank confirmations were confiscated by employees, forged, and returned to the auditors b) AR kitting of 3 billion $ c) Filing a false petition with the italian securities exchange commission d) By winning a lawsuit with exempted them from following the Draghi law

a

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36

What was Helen Sharkey's failure as a CPA at Dynegy?

Not going to the external auditor, not contacting the proper authorities, not seeking legal advice

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37

Enrons Andy Fastow and many cases from that era rationalizied and embraced unethical financial decisions because of:

a) The CEO, COO, the Board, CPAs & the legal team approved

b) It was immaterial

c) It was a time when other firms were doing the same and Enron lead the charge

d) It was rewarded and recognized

e) All of the Above

e

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38

What is the most important act to follow when CPA's or anyone is faced with a situation where unethical decisions in accounting are present?

Express concerns to supervisor; Bring concerns to higher levels; Consider: Continued employment, Responsibilities to external auditors, Responsibilities to outsiders; Seek legal advice

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39

Which theory is based on doing whats rights despite the consequences? a. Deontology b. Virtue ethics c. Teleology d. Egoism

a

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40

_______ focuses on the character or integrity of the moral actor and looks to moral communities, such as professional communities, to help identify ethical issues and guide ethical action.

Virtue Ethics

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41

Many critics say the biggest fault with utilitarianism is that it:

Impossible to foresee all consequences; Consequences difficult to measure

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42

Many critics say the biggest fault with Deontolological 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

a

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43

Which one of the following most correctly describes a Utilitarian approach to ethical decision making?

Greatest good for the greatest number

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44

________ is the critical value added by professional accountants in the newer assurance services as well as traditional ones.

Credibility

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45

Which is not a practical approach to decision making? Any answer not including:

Five Question Approach, Moral Standards Approach, Pastin's Approach

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46

The following are questions that are included in the 5-Question Approach except for: Is it ________ ? Any answer not including

Profitable, Legal, Fair, Right, Going to Further Sustainable Development

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47

WorldCom overstated their profit by doing which of the following? a. Understated depreciation expenses b. Capitalized operating expenses c. Overstated Assets d. Made up Investment profits

b

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48

Which of the following is not a question in the five question approach? Any answer not including

Is it Profitable? Is it Legal? Is it Fair? Is it Right? Is it Going to further Sustainable Development?

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49

Michael Josephson, founder of the Josephson Institue of Ethics, is credited for the Pillars of Character. Describe the best answer below.

Trustworthiness, Respect, Responsibility, Fairness, Caring, Citizenship (TRRFCC)

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50

Corporate reputation is based on what 4 determinants?

Trustworthiness, credibility, reliability, responsibility (TCRR)

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51

Common pitfalls with the use of an ethical decision making model?

Focus on short-term profit and shareholder only impacts; Focus only on legalities; Limits to fairness; Limits to scrutinizing all stakeholder rights; Conflicts of interest; Interconnection of stakeholders; Failure to identify all stakeholder groups; Failure to rank specific interests of stakeholders; Exclusion of well-offness, fairness, or rights; Failure to consider the motivation for the decision; Failure to consider virtues expectations

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52

Egoists maintain a general principle of the following sort: a. “One ought always act in others' interest" b. "One ought always act in one's and others' interests" c. "One ought always act in peer group's interest" d. "One ought always act in one's own interest"

d

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53

What is the primary fiduciary obligation of the board of directors? a. Maximize profits for the company and its shareholders b. Give excessive executive compensation c. Safeguard the organization's resources and interests of the company's stakeholders d. Allow high risk accounting practices

c

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54

When applying Utilitarianism to judge actions, what is the only thing that matters? a. Motives b. Justice c. Consequences d. Rights

c

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55

What is ethics risks?

The risks of failing to meet the expectations of stakeholders

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56

Aristotle emphasized which 4 virtues?

Wisdom, courage, Temperance, Justice (WCTJ)

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57

What document did Arthur Andersen propose to Waste Management to cover the accounting irregularities and to address these irregularities later?

Summary of Action Steps

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58

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

b

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59

In an ethical decision making model, the first step is:

Frame the ethical issue

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60

What areas or practice did Arthur Andersen participate in that led to their downfall? a) Aggressive tax planning b) Shredding of evidence c) Practicing auditing and consulting on the same clients, independence & objectivity were challenged d) Disclosing confidential client information to other firms e) B & C

e

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61

Which of the following is used for examining the impact of the decision on shareholders and other affected stakeholders?

Stakeholder Impact analysis

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62

What was Arthur Andersen's only concern?

Revenue; profit; timeliness of audits

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63

The Right's Theory emphasizes:

People should never be a means only

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64

Utilitarian philosophers are divided int two types: act utilitarian and? a. Rule utilitarian b. Individual utilitarian c. Ethical utilitarian d. Benefit utilitarian

a

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65

Deontology is different from Utilitarianism in that:

utilitarianism focuses on the consequences while deontology focuses on the duty or means of achieving a goal

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66

A company establishes a set of formalized rules and standards that describe what a company expects of its employees. This is called?

Code of Conduct

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67

What was the major flaw in HealthSouth's governance and operations? a. No accountability b. Weak control environment and tone at the top c. Auditors did not follow auditing standards d. Organizations chart and the reporting nature were flawed

b

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68

Which of the following is NOT considered earnings management? a) Failing to write down or write of impaired assets b) Releasing questionable reserves into income c) Failing to record expenses and related liabilities when future obligations remain d) Creating an allowance for uncollectible accounts and adjusting it at year end

d

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69

In an ethical decision making model, the final step is?

Reflect on your Decision

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70

What is an inspirational short statement on key values?

Credo

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71

A company retains a CPA with the appropriate knowledge, skills and abilities to prepare timely financial statements and effective reporting. Which principal of effective internal control would apply? a. Integrity & ethical values b. Management philosophy & operating style c. Accountability d. Financial reporting competencies.

d

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72

An auditor concludes that a client's illegal act, which has a material effect on the financial statements has not been properly accounted for or disclosed. Depending on the pervasiveness of the effect on the financial statements, the auditor should express either a (an): a) Unmodified (Unqualified) opinion b) Modified (Qualified) or adverse opinion c) Disclaimer of opinion

b

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73

Which of the following statements best describes an auditor's responsibility to detect errors and fraud? a) An auditor should design and audit to provide reasonable assurance of detecting errors and fraud that are material to the financial statements. b) An auditor is responsible to detect material fraud but has no responsibility to detect fraud that is concealed through employee collusion or management override of internal control. c) An auditor has no responsibility to detect errors and fraud because an auditor is not an insurer and an audit does not constitute a guarantee.

b

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74

Which of the following is NOT an element of the scope paragraph of the auditor's report? a) States the auditor's responsibility to express an opinion on the financial statements b) States the audit provides reasonable assurance that the statements are free of material misstatement c) States audit provides reasonable basis for the opinion d) States the audit evaluates the overall financial statement presentation e) All of the above are elements of the scope paragraph of the auditor's report

a

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75

To whom does the CPA owe ultimate allegiance in carrying out professional obligations? a. Stockholders b. Public interest c. Client d. Stakeholders

b

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76

Which of the following is the most likely reason for an auditor to issue a qualified opinion? a. Inability to gather sufficient relevant information to form the basis for the opinion b. Differences with management that lead to trust issues on the part of the auditor c. Going concern issue d. Difference of opinion with management on the application of generally accepted account-ing principles

d

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77

Deliberately underbidding for an audit engagement to obtain a client and secure more lucra-tive management advisory or consulting services is known as: a. Opinion shopping b. High-balling c. Low-balling d. Client shopping

c

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78

When would it be appropriate for an auditor to withdraw from an engagement? a. In order to avoid issuing an adverse opinion. b. When that auditor cannot observe the taking of inventory or is unable to confirm receivables. c. When the management cannot be trusted. d. When the auditor has overbooked too much work.

c

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79

Which of the following is not correct about materiality? a. The concept of materiality recognizes that some matters are more important for fair presentation of financial statements b. Materiality judgments are made in light of surrounding circumstances and necessarily involve quantitative and qualitative judgments c. Materiality should be predictable from audit to audit so that the readers of financial statements know what constitutes materiality d. An auditor's consideration of materiality is influenced by the auditor's perception of the need of the readers of the financial statements

c

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80

The auditor's responsibility with regard to illegal acts is greatest when: a. The illegal acts have an indirect and material effect on financial statement amounts b. The illegal acts have a direct and material effect on financial statement amounts c. The illegal acts have a direct and immaterial effect on financial statement amounts d. Illegal acts exist regardless of the effects on the financial statements

b

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81

If a company is seeking out views of different accounting firms until they find one with a desired accounting treatment, it would be called ______. a. Low-balling. b. Under bidding. c. Opinion shopping. d. Option pricing.

c

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82

The expectations gap refers to: a. The space that exists between a train coming into the station and the platform used to board the train b. The difference between what the public expects an audit to uncover and what the profession believes is the purpose of an audit c. The difference between projected earnings based on analysts' expectations and actual earnings d. The difference between what the audit sets out to discover and what it actually does discover

b

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83

Because of the risk of material misstatement, an audit of financial statements in accordance with GAAS should be planned and performed with an attitude of a. Objective judgment b. Professional skepticism c. Independent integrity d. Impartial conservatism

b

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84

The Committee of Sponsoring Organizations of the Treadway Committee (COSO) analyzed the financial reporting of public companies during the 1987-1997 periods when business failures due to accounting fraud were high and found that: a. Top management was frequently involved in the fraud with the CEO being the person most frequently involved b. Top management was frequently involved in the fraud with the CFO being the person most frequently involved c. The audit committee always sanctioned the fraud d. A minority of audit reports issued during the fraud period contained unqualified audit opinions

a

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85

Which of the following is considered a negative auditor's opinion? a. Standard opinion b. Qualified opinion c. Unqualified opinion d. Adverse opinion

d

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86

If a client refuses to accept an auditors' report that has been modified, the public accounting firm should withdraw from the engagement and give its reasons in writing to the board of directors except when: a. The auditor is unable to obtain sufficient appropriate evidence about a suspected illegal act b. The client fails to account for or disclose properly a material amount connected with an illegal act c. The auditor is unable to estimate amounts involved in an illegal act d. The auditor is unable to observe the physical inventory

d

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87

Section 302 of the Sarbanes-Oxley Act provides certifications by ____ and _______ that financial reports do not contain untrue material fact or omissions: a) CEO and board b) Controller and CFO c) CEO and the CFO d) Auditors and CFO

c

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88

Which committee recommend that all public companies have adequate internal controls, a recommendation that is now required by SOX? a) Metcalf Committee b) Cohen Commission c) House Oversight Sub-Committee d) Gamble Commission e) Treadaway Commission

e

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89

Which of the gollowing are NOT types of Common Law liability? a) Client liability b) Third Party liability c) Civil liability d) Criminal Liability e) C and d are not types of Common Law Liability

e

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90

What types of companies are covered by Dodd Frank?

Financial Institutions

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91

When courts find accountants liable for constructive fraud, the implication is that a. Auditors should always be liable when investors lose money due to deceit b. Accountants may be liable for fraud even when they had no knowledge of deceit c. Auditors should be able to detect all deceit by management d. Accountants may be held liable even to third parties to whom they did not have a duty

b

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92

The most relevant sources of civil liabilities for auditors failing to adhere to the requirements of the laws in carrying out professional obligations include all of the following except for: a. Securities Act of 1933 b. Private Securities Litigation Reform Act of 1995 c. Securities and Exchange Act of 1934 d. Sarbanes-Oxley Act of 2002

b

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93

Under the Private Securities Litigation Reform Act, if an auditor concludes that an illegal act with a material effect on the financial statements has been reported to, but not dealt with by senior management, the auditor should then report his/her conclusions to a. The Securities and Exchange Commission b. The company's board of directors c. The office of the controller/comptroller for the appropriate state d. The Federal Bureau of Investigation

b

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94

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

c

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95

Under the Securities Act of 1933, if damages were incurred and there was a material misstatement or omission in the financial statements, the CPA will most likely lose the lawsuit unless a. the management intentionally deceived the auditors b. The damages were incurred to a third party that was not a signatory to the contract c. The CPA can shift the burden of proof to the investors d. The CPA rebuts the allegations

d

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96

What are the two defenses a CPA can use against Section 11 of the Securities Act of 1933?

due diligence, knowledge of falsehood

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97

The Ultramares v. Touche case of 1933 held that a cause of action based on negligence could not be maintained by a third party who was not in contractual privity; however, it did leave open the possibility that: a. Third parties that were "foreseeable" may sue for ordinary negligence b. Third parties may sue if one of the parties in contractual privity allowed it to c. Third parties may sue in the case of fraud or constructive fraud d. Third parties who used the financial statements may sue

c

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98

The legal precedent that evolves from legal opinions issued by judges in deciding a case and guides judges in deciding similar cases in the future is referred to as: a. Business law b. Tort law c. Common law d. Statutory law

c

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99

Which of the following would normally be considered sufficient to demonstrate due care on the part of the auditor? a. The auditor had its work reviewed by another audit firm b. The auditor cites adherence to generally accepted auditing standards (GAAS) c. No omissions or misstatements have been found in the client's financial statements d. The auditor signs a statement expressing its unmodified opinion as to the fairness of the financial statements

b

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100

The COSO report states that management should enact five components related to internal control objectives including each of the following except for: a. Control environment b. Risk assessment c. Risk activities d. Monitoring

c

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