Question 1

The statement made by Lynn Turner, former SEC chief accountant, "Are the auditors going to serve management, or are they going to serve the best interests of the investing public?", refers to concerns about:

Accepted Answer

Lynn Turner's statement implies a conflict between the auditors' professionalism and commercial interests, as they may prioritize serving management over the interests of the investing public. Opinion shopping and low-balling audit bids are related to pricing and marketing concerns, while fraud in financial statements is a separate issue of unethical behavior.

Question 2

The House Subcommittee on Oversight and Investigations made its recommendations after looking into failures at each of the following companies except:

Accepted Answer

The House Subcommittee on Oversight and Investigations investigated failures at ESM Government Securities, Continental Illinois National Bank and Trust, and Penn Square Bank but did not investigate Enron as their investigation took place in the early 2000s, whereas the failures of the other companies occurred in the 1980s.

Question 3

Common judgment traps include:

Accepted Answer

Group think, judgment triggers, and a rush to solve problems are common judgment traps as they can lead to poor decision-making by limiting critical thinking and encouraging hasty conclusions.

Question 4

Professional skepticism can best be defined as having:

Accepted Answer

Professional skepticism involves having an inquiring mind and questioning assumptions, but also suspending belief until sufficient evidence is gathered to support a conclusion. This approach encourages auditors and other professionals to remain objective and avoid making assumptions or accepting information at face value. Careful observation and virtue-based decision making may be important components of professional skepticism, but they do not encompass the full scope of this concept.

Question 5

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

Accepted Answer

The KPMG Professional Judgment Framework includes clarifying issues and objectives, gathering and evaluating information, and articulating and documenting rationale, but not clarifying issues and conclusions.

Question 6

Professional skepticism links to professional judgment through the ethical standards of:

Accepted Answer

The ethical standards of independent thought, objectivity, and due care are all directly linked to professional skepticism. Professional judgment, in turn, is based on these same ethical standards, particularly objectivity and due care. Therefore, choice C is the best answer.

Question 7

Which of the following is NOT a common judgment tendency?

Accepted Answer

"Decision making tendency" is not a commonly recognized judgment tendency. The other three options (availability, confirmation, and overconfidence tendencies) are all well-established tendencies that can influence our judgments and decision making processes.

Question 8

In its investigation of ZZZZ Best, the House Subcommittee on Oversight and Investigations looked into:

Accepted Answer

The answer of In its investigation of ZZZZ Best, the...

Question 9

The global code of ethics for the accounting profession is called:

Accepted Answer

The Handbook of the Code of Ethics for Professional Accountants is the global code of ethics for the accounting profession. It is issued by the International Ethics Standards Board for Accountants (IESBA) and provides ethical guidance and requirements for professional accountants worldwide. AICPA Code of Professional Conduct and IMA Ethical and Professional Standards are specific codes of ethics for the American Institute of Certified Public Accountants and Institute of Management Accountants respectively. Public Interest Framework for the Accountancy Profession is not a recognized global code of ethics for the accounting profession.

Question 10

Jacob just joined the firm of Gordon & Towns LLC. Prior to beginning his first group audit assignment, Jacob asks to meet with his mentor, Isaac. He asks Isaac how making judgments in an audit team setting differs from running an audit oneself. What is the best advice for Isaac to give to Jacob?

Accepted Answer

Groups can sometimes make quick decisions to avoid conflict, which can lead to judgment traps and biases.

Question 11

The International Federation of Accountants (IFAC) Policy Position Paper #4, entitled A Public Interest Framework for the Accountancy Profession was designed to accomplish which of the following?

Accepted Answer

The IFAC Policy Position Paper #4 was designed to better evaluate whether the public interest is being served through actions of the profession. It establishes a framework for professional accountants to use when determining their responsibilities concerning the public interest. It also provides guidance for standard-setters, regulators, and policy-makers to evaluate the impact of their decisions on the public interest. It does not attempt to create an international CPA certificate, establish global corporate disclosure standards, or develop guidelines for auditors to express professional judgment.

Question 12

The committee that was formed in 1985 to study and report on the factors that can lead to fraudulent financial reporting is the:

Accepted Answer

The Treadway committee, also known as the National Commission on Fraudulent Financial Reporting, was formed in 1985 to study and report on the factors that can lead to fraudulent financial reporting. The committee’s report, known as the Treadway Commission Report, has become a widely recognized reference for understanding and preventing fraudulent financial reporting. The Cohen committee was formed in 1992 to investigate allegations of waste, fraud, and mismanagement in Department of Defense programs. The House Subcommittee on Oversight and Investigations is a standing subcommittee of the United States House Committee on Energy and Commerce focused on reviewing and investigating government activities and programs. The Mintz and Morris committee is a fictional entity and is not associated with any actual committee or commission.

Question 13

Personal values link to:

Accepted Answer

The answer of Personal values link to:
...

Question 14

Professional judgment is influenced by:

Accepted Answer

The answer of Professional judgment is influenced by:
...

Question 15

The KPMG Professional Judgment Framework defines judgment as:

Accepted Answer

The KPMG Professional Judgment Framework defines judgment as "the process of reaching a decision or drawing a conclusion where there are a number of possible alternative solutions." Therefore, option A is the most appropriate choice. Option B does not apply here, as the process of making a judgment where there are a number of possible virtues would refer to ethical decision making rather than professional judgment. Option C is also incorrect, as the process of acting in accordance with the AICPA Code would be a component of professional behavior, but not necessarily judgment. Option D is also incorrect, as it is only one aspect of personal behavior, and not necessarily applicable in the context of professional judgment.

Question 16

The tendency for decision-makers to put more weight on information that is consistent with their initial beliefs or preferences is called the:

Accepted Answer

The confirmation tendency, also known as confirmation bias, is the tendency for decision-makers to seek out and give more weight to information that confirms their initial beliefs or preferences, while ignoring or discounting information that contradicts those beliefs or preferences. This can lead to flawed decision-making and a lack of consideration for alternative perspectives or evidence.

Question 17

During the investigations by the House Subcommittee on Oversight and Investigations, a question that was raised was:

Accepted Answer

The question specifically addresses the role of auditors in the occurrence of fraud, indicating that this was a key area of interest for the House Subcommittee on Oversight and Investigations. Therefore, choice C is the best answer. While the other choices may also be relevant questions in relation to fraud, they are not specifically mentioned in the prompt.

Question 18

The anchoring tendency relates to:

Accepted Answer

The anchoring tendency is the cognitive bias where people start with an initial numerical value (the anchor) and then adjust insufficiently away from it in forming a final judgment. This can lead to errors and inaccurate decision-making.

Question 19

Madison is in the process of gathering evidence to support the audit opinion on Jefferson & Adams, Inc. She's a new staff accountant and wants to make sure she exercises the appropriate level of professional skepticism. Madison asks for your advice as the senior on the audit. How best might you guide her as to the skepticism issues?

Accepted Answer

Madison should always review the evidence she gathers to assess its persuasiveness, which is a key aspect of exercising professional skepticism.

Question 20

Each of the following were themes of Congressional investigations of the accounting profession during the 1970s and 1980s except:

Accepted Answer

The answer of Each of the following were themes of...

Quiz 4: Ethics and Professional Judgment in Accounting