Ethics Midterm 1

Which of the following is not an element of trustworthiness according to the Six Pillars of Character?

• fairness

• loyalty

• honesty

• reliability

reliability

Which of the following characteristics does not describe the behavior of Cynthia Cooper in the WorldCom fraud?

• competence

• conformity

• integrity

• persistence

conformity

Which of the following elements does not make up an integral part of what is meant by "ethics"?

• the moral point of view

• accepted standards of behavior

• knowing the difference between right and wrong

• always following the law

• always following the law

The Independence Principle in the AICPA Code applies to

• all accountants and auditors.

• all members of the audit committee.

• all CPAs regardless of professional services.

• all CPAs who render attestation services.

• all CPAs who render attestation services.

Ty is a rising star at Texas State Country & Western Stores. He is the controller of the company. His wife, Rosie, is the lead auditor of the CPA firm that examines Country & Western's financial statements and issues an audit opinion. Given the nature of the relationships, Rosie would violate what ethical standard if she is allowed to conduct the audit?

• independence

• responsibility

• due care

• integrity

• independence

The Public Interest Principle in the AICPA Code of Professional Conduct recognizes

• the importance of loyalty to one's superior.

• the importance of integrity in decision-making.

• the importance of maintaining confidentiality.

• the importance of whistleblowing when financial wrongdoing exists.

• the importance of integrity in decision-making.

Responsibility goes hand in hand with

• accountability.

• respect.

• loyalty.

• courage.

• accountability.

Objectivity requires that a CPA should

• maintain a mental attitude of intellectual honesty and impartiality.Correct

• act in accordance with the best interests of one's client.

• act in accordance with the best interests of one's employer.

• maintain a mental attitude of intellectual honesty and independence.

• maintain a mental attitude of intellectual honesty and impartiality.

Which of the following characteristics does not describe the importance of integrity in decision-making?

• not subordinating professional judgment to others

• being loyal to one's superior

• having the courage to do the right thing

• acting out of moral principle

• being loyal to one's superior

The most important duty of public accounting is to the

• management.

• Securities and Exchange Commission.

• investing public.

• current stockholders.

• investing public.

Steve is in charge of accounting for the purchase of equipment at Cal Works, Incorporated. The company has a policy that all expenditures greater than $1,000 (1% of total expenditures) have to be capitalized; less than $1,000 expensed. Steve is under pressure to report high earnings. He takes one $600 and $900 expenditure, adds them together, and records a capital expenditure for $1,500. Which of the following reasons and rationalizations might Steve use for his action?

• materiality

• standard practice

• representational faithfulness

• one-time request

• materiality

In using the GVV framework, which of the following is not a question to pose for dealing with the opposing points of view?

• What levers can you use to influence others?

• What is your most powerful and persuasive response you need to address?

• What is at stake for the key parties?

• What is the way to appeal to all parties?
  

• What is the way to appeal to all parties?

Which bias involves a belief that the world is more predictable than it actually is?

• hindsight bias

• deterministic bias

• attribution bias

• framing bias

• deterministic bias

Cognitive dissonance creates a problem that can be described as

• reducing the importance of the beliefs and attitudes on our actions.

• consistency between thoughts and beliefs and our intended actions.

• inconsistency between thoughts and beliefs and our intended actions.

• acquiring new information that outweighs the dissonant beliefs.

• inconsistency between thoughts and beliefs and our intended actions.

Gabby has just left a meeting with the partner in charge of an audit engagement and was told to ignore the typical year-end accrual entries because earnings are below financial analysts' earnings expectations. Gabby knows this is wrong and wants to act on her values but she does not want to lose her job. What is the best thing for Gabby to do in this situation if she chooses to voice her values?

• inform the SEC of the difference

• speak with the managing partner of the firm

• All of these choices are correct.

• quit the firm

• speak with the managing partner of the firm

Which bias involves a tendency to believe past outcomes were expected or known before they occurred?

• hindsight bias

• oversimplification bias

• framing bias

• authoritative bias

• hindsight bias

The philosophical methods of moral reasoning suggest that once we have ascertained the facts, we should ask ourselves certain questions when trying to resolve a moral issue. Which of the following is not one of those questions?

• Which course of action advances the common good?

• Which course of action develops moral virtues?

• What benefits and what harms will each course of action produce and which alternative will lead to the best overall consequences?

• Which course of action maximizes my net benefits?

• Which course of action maximizes my net benefits?

Which concept involves understanding each other and moving beyond simple tolerance to embracing and to celebrating the rich dimensions of individuality?

• inclusion

• sensitivity

• diversity

• equity

• diversity

In organizations, a critical component of creating an ethical organization environment includes shared values, beliefs, goals, norms, and problem-solving mechanisms. These items can be described as

• moral character.

• organizational culture.

• conventional morality.

• diversity.

• organizational culture.

In organizations, the ethical environment that is created in the workplace by the organization’s leadership is commonly called the

• organizational culture.

• moral character.

• tone at the top.

• diversity.

• tone at the top.

The seven signs of a pending ethical collapse include all but

• fear and silence.

• a strong board of directors.

• loyalty to the boss.

• innovation like no other company.

• a strong board of directors.

Which of the following best characterizes the framework of COSO’s Enterprise Risk Management (ERM)?

• Incorporating enhanced audit sampling procedures into the testing of internal control.

• Incorporating enhanced corporate governance into internal control principle.

• Incorporating enhanced audit sampling procedures in substantive testing.

• Incorporating enhanced internal control principles into improved corporate governance.

• Incorporating enhanced corporate governance into internal control principle.

One of the contributions of the Treadway Commission Report and the work of the Committee of Sponsoring Organizations (COSO) was

• to establish a voluntary process for peer review.

• to establish peer review requirements for CPAs.

• to provide a framework for internal control.

• to identify red flags that might lead to fraud.

• to provide a framework for internal control

Which of the following is not an element of an ethical corporate culture?

• establishing strong internal controls

• having an effective internal audit function

• setting a proper tone at the top

• having an effective external audit

• having an effective external audit

Fraud can be defined as

• All of the choices are correct.

• a deliberate misrepresentation to gain an advantage over another party.

• a cover-up of a mistake made in the financial statements.

• an error in preparing financial statements.

• a deliberate misrepresentation to gain an advantage over another party.

Which committee established a framework for internal control?

• Committee of Sponsoring Organizations of the Treadway Commission

• The audit committee

• House Subcommittee on Oversight and Investigations

• Cohen committee

• Committee of Sponsoring Organizations of the Treadway Commission

Which of the following is not a fraud method to overstate revenues?

• recording sales of products that are out on consignment

• recording revenues of other companies by acting as a go-between

• recording future sales in the current period

• recording sales based on F.O.B. shipping point

• recording sales based on F.O.B. shipping point

Which of the following is not an element of the corporate governance system?

• monitoring by top management

• executive compensation policies

• a board of directors

• internal controls

• executive compensation policies

Under the Sarbanes–Oxley Act, which of the following bodies must contain members that are 100 percent independent of management?

• an internal auditors

• an audit committee

• a board of directors

• a board of supervisors

• an audit committee

Section 302 of the Sarbanes–Oxley Act requires that management

• assess the company's internal controls.

• certify the financial statements.

• disclose all executive compensation.

• blow the whistle on corporate wrongdoing.

• certify the financial statements.

Which of the following is not a component of the KPMG Professional Judgment Framework?

• gather and evaluate information

• clarify issues and conclusions

• articulate and document rationale

• clarify issues and objectives

• clarify issues and conclusions

Professional skepticism links to professional judgment through the ethical standards of

• honesty, integrity, and due care.Incorrect

• independent thought, objectivity, and intelligence.

• independent thought, objectivity, and due care.

• objectivity, intelligence, and reflective thought.

• independent thought, objectivity, and due care.

The most significant change in the Revised AICPA Code of Professional Conduct is

• clarifying that all CPAs must follow the Independence rule regardless of professional services.

• a conceptual framework approach for evaluating ethics violations.Incorrect

• eliminating Code coverage for members in business.

• the creation of two conceptual frameworks: one for members in public practice and one for members in business.

• the creation of two conceptual frameworks: one for members in public practice and one for members in business.

Which of the following is not a safeguard that can help to mitigate threats to independence?

• safeguards performed by the audit firm that are the responsibility of management

• safeguards created by the corporate governance system of the attest client

• quality control safeguards created by the audit firm

• safeguards created by the Sarbanes–Oxley Act

• safeguards performed by the audit firm that are the responsibility of management

SEC regulation identifies that once an auditor includes indemnification provisions in an engagement letter for an audit, the auditor is no longer

• credible.

• independent.

• honest.

• competent.

• independent.

CPAs in business face threats to independence just as CPAs in public practice. Which of the following threats do not exist for CPAs in business?

• adverse interest threat

• advocacy threat

• self-interest threat

• management participation threat

• management participation threat

Ethical conflicts for CPAs in business can occur when

• threats from higher levels of management create constraints to providing accurate and reliable financial statements.

• relationships exist with vendors.

• All of these choices are correct.

• obstacles exist to complying with professional and legal standards.

• All of these choices are correct.

Statement on Standards for Tax Services No. 1 establishes as a basic principle of providing tax services that the CPA

• can never recommend a tax position to the client when it is more likely than not to be challenged by the IRS.

• must have a good faith belief that the tax return position will be accepted by the IRS.

• must have a good faith belief that the tax return position has a realistic possibility of success if challenged by the IRS.

• can never recommend a tax position to the client without disclosing it to the SEC.

• must have a good faith belief that the tax return position has a realistic possibility of success if challenged by the IRS.

To whom does the CPA owe ultimate allegiance in carrying out professional obligations?

• client

• stockholders

• public interest

• stakeholders

public interest

Diane is a CFO at We Do What We Want, Incorporated. She was just instructed by her boss, the CEO, to accelerate the recording of revenue into an earlier year to meet financial analysts' earnings projections. In order to meet the ethical standards of the accounting profession, Diane must be certain that she

• blows the whistle on the financial wrongdoing.

• informs the external auditors.

• reports the matter to the SEC.

• works through the chain of command within the company to avoid subordinating judgment.

• works through the chain of command within the company to avoid subordinating judgment.