Deck 4: Ethics and Financial Reporting

Question 1

In a 2003 survey of 153 Boards of Directors, _________ considered that SOX had a postive impact on firms

A) 15%
B) 60%
C) 27%
D) 18%

Answer 1

B

Question 2

All of the following are principles on which the American Institute of Certified Public Accountants current code of conduct is based except

A) The public interest
B) Objectivity and independence
C) Management interest
D) Due care

Answer 2

C

Question 3

_____________ consists of an inspection of the accounting records and other information deemed necessary to express an opinion on the fairness and adequacy of the financial statements.

A) An exploration
B) A compilation
C) A debate
D) An audit

Answer 3

D

Question 4

Which of the following is NOT one of the three potential conflicts of interest that can take place during the audit process?

A) Auditor-shareholder conflict of interest
B) Auditor-firm conflict of interest
C) Shareholders-management conflicts of interest
D) Self-interests-professional standards

Question 5

Which is not one of the five philosophical prepositions of external financial reporting ?

A) External realism
B) Subjective judgement
C) Insider trading practices
D) Commitment to rationalism

Question 6

One of these terms is not a form of insider trading, that is, using nonpublic information to make decisions based on an individual's self-interests rather than those of the firm.

A) Traditional theory
B) Temporary insiders
C) Ponzi schemes
D) Tippers and tippees

Question 7

Which of the following is not an ethical perspective that affects accounting-based decisions? a Self-interest
B Universal rules
C Economic efficiency
D Creative accounting

Question 8

____________ can be defined as the deviation from the traditional methods used to interpret an accounting rule or standard.

A) Unvalidated accounting
B) Stealth accounting
C) Creative accounting
D) Fragmented accounting

Question 9

The role of financial reporting is needed to provide information to investors and others with 3 out of the following objectives. Which is the odd one out?

A) make investment and related decisions applicable to the firm
B) help determine cash flows in the firm
C) identify economic resources and obligations available to the firm
D) establish employee remuneration packages

Question 10

Which of the following occurs when the individual is hesitant to reject a biased proposal from someone else?

A) The halo effect
B) Selective perception
C) Plausible deniability
D) Escalation of commitment

Question 11

______________ is when an individual is selective pertaining to the information given to him or her when a decision needs to be made.

A) The halo effect
B) Selective perception
C) Plausible deniability
D) Escalation of commitment

Question 12

A formal audit is required to be conducted each _____________ for companies that are publicly traded.

A) Fiscal month
B) Fiscal quarter
C) Fiscal year
D) Decade

Question 13

In 2002, the following firms except one were awarded the Ig Nobel Prize for the development and application of the concept of "imaginary numbers" that are used in creative accounting in the business world, except

A) Enron
B) ExxonMobil
C) Arthur Andersen
D) WorldCom

Question 14

In the opening case, HSBC held more than _______ accounts with connections to the United States.

A) 400
B) 4,000
C) 40,000
D) 100,000

Question 15

All of the following are heuristics that would bias the evaluation of the financial statements except

A) The halo effect
B) Selective perception
C) Plausible deniability
D) Escalation of commitment

Question 16

In direct response to the corporate scandals of Enron and WorldCom, the U.S. Congress passed the _______________.

A) Sarbanes-Oxley Act
B) Foreign Corrupt Practices Act
C) Robinson Patman Act
D) Sherman Antitrust Act

Question 17

_______________ is based on the belief that additional commitment is needed for a course of action even if this is not the correct course of action.

A) The halo effect
B) Selective perception
C) Plausible deniability
D) Escalation of commitment

Question 18

Auditors are considered the ______________ for the stakeholders.

A) Influencers
B) Decision makers
C) Gatekeepers
D) Specifiers

Question 19

As a consequence of the French government investigation following receipt of eight DVDs of encrypted data, $250 to $300 million was recovered from the proceeds of

A) Illegal arms sales
B) Money laundering
C) Tax evasion
D) Blood diamond extraction

Question 20

______________ is geared toward public companies and was established to help increase transparency, integrity, and accountability of public companies.

A) Sarbanes-Oxley Act
B) Foreign Corrupt Practices Act
C) Robinson Patman Act
D) Sherman Antitrust Act

Question 21

Which of the following statements is false?

A) As the top level managers get older they are less likely to take risks and are not as concerned about short term gratification.
B) As the level of experience of the top level managers increase, the likelihood of the top level managers committing fraud increases.
C) The higher the level of formal education of the top level executive, the higher the level of moral development by the executive.
D) The higher the level of self-control, the lower the likelihood that the executive will commit unethical behavior.

Question 22

An audit is required to be conducted each fiscal quarter for companies that are publicly traded.

Question 23

Auditors are considered gatekeepers for the stakeholders.

Question 24

______________ is the purposeful intervention in the process of reporting income numbers with the objective of dampening the fluctuations of those numbers around their trend.

A) Stakeholder management
B) Income smoothing
C) Cookie jar accounting
D) Off-shore financing

Question 25

Which of the following refers to the rate of speed and unpredictability of change within the industry?

A) Level of industry concentration
B) Environmental hostility
C) Environmental dynamism
D) Level of environmental heterogeneity

Question 26

Creative accounting can be defined as the deviation from the traditional methods used to interpret an accounting rule or standard.

Question 27

_____________ refers to the competitive environment of the industry.

A) Level of industry concentration
B) Environmental hostility
C) Environmental dynamism
D) Level of environmental heterogeneity

Question 28

In direct response to the corporate scandals of Enron and WorldCom, the U.S. Congress passed the Sarbanes-Oxley Act in 2002.

Question 29

______________ financing creates separate legal entities from the parent company. Since these entities are not wholly owned subsidiaries they can be hidden from the investors by keeping the entities off the financial statements.

A) Off-balance sheet
B) Off-shore
C) Cookie jar
D) Virtual

Question 30

Which of the following are not Section 404 internal controls ?

A) An internal code of ethics
B) Independent board members
C) Remuneration committees
D) Creation of processes for reporting concerns

Question 31

Plausible deniability is based on the belief that additional commitment is needed for a course of action even if this is not the correct course of action.

Question 32

As an industry increases in concentration, the chance that collusion will take place in the industry also increases.

Question 33

The ________________ refers to the level of diversity of the markets and customers, which must be addressed by the firm.

A) Level of industry concentration
B) Environmental hostility
C) Environmental dynamism
D) Level of environmental heterogeneity

Question 34

Escalation of commitment occurs when the individual is hesitant to reject a biased proposal from someone else.

Question 35

A good example of a company that violated the use of off-balance sheet arrangements is ______________.

A) ExxonMobil
B) Enron
C) Microsoft
D) Google

Question 36

The fundamental flaw of a Ponzi scheme is that it never ends until the person committing the fraud is caught and disappears.

Question 37

Corporate-level fraud refers to fraud which benefits the individual while occupational management fraud would focus on making materially misleading information pertaining to the financial status of the firm.

Question 38

All of the following are criteria that revenues must meet according to the SEC Staff Accounting Bulletin No. 101 except

A) Persuasive evidence of an arrangement
B) Delivery or services planned but not necessarily rendered
C) Price fixed or readily determinable
D) Collectability reasonably assured

Question 39

All of the following are industry-based issues related to the antecedents of fraud except

A) Level of industry concentration
B) Environmental hostility
C) Environmental dynamism
D) Characteristics of the organization

Question 40

______________ accounting comes from the concept that management can manipulate the financial results of a company by adding or taking away reserves depending on the circumstances.

A) Hypothetical
B) Lease accounting
C) Cookie jar
D) Virtual

Question 41

Under the cookie jar system, management will build up financial reserves in profitable years and release the financial reserves into the financial statements during unprofitable years.

Question 42

In a short essay, list the six sets of industry factors that affect the industry based antecedents of fraud.

Question 43

As top level managers get older they are less likely to take risks and are not as concerned about short term gratification.

Question 44

In a short essay, discuss how the practices of one time charges and cookie jar accounting enable managers to manipulate financial statements or manage earnings.

Question 45

Off-balance sheet financing creates separate legal entities from the parent company.

Question 46

In a short essay, list and discuss the three primary objectives of financial reporting.

Question 47

In a short essay, list and discuss the three potential conflicts of interest that can take place during the auditing process.

Question 48

As the level of environmental dynamism increases, the potential for top level managers to commit fraud decreases.

Question 49

In a short essay, list and discuss the five individual moderators that affect the individual-level antecedents of fraud.

Question 50

As the level of experience of the top level managers increase, the likelihood of the top level managers commit fraud also increases.

Question 51

Earnings management is the purposeful intervention in the process of reporting income numbers with the objective of dampening the fluctuations of those numbers around their trend.