Question 1

Which of the following is not an ethical issue in business?
A) Conflicts of interest
B) Maximization of profits
C) Discrimination
D) Information technology

Accepted Answer

Maximization of profits is a business objective, not an ethical issue. Ethical issues typically involve moral principles and values, such as fairness, justice, and equality, which are not directly related to the pursuit of profit.

Question 2

To ensure audit committee independence, the committee should meet separately with each of the following groups except for:
A) Senior executives
B) Internal auditors
C) External auditors
D) The audit committee should meet separately with all of these

Accepted Answer

To ensure complete audit committee independence, the committee should meet separately with all of the listed groups, including senior executives, internal auditors, and external auditors. Separate meetings allow the audit committee to gather information and perspectives without the influence or presence of others who may have a stake in the outcome of the audit.

Question 3

A strong and effective internal control environment can be enhanced by:
A) Financial statements that present fairly financial position and results of operations
B) Giving the internal auditors direct and unrestricted access to the audit committee
C) Having the internal auditors report to the external auditors
D) Having the external auditors report to the audit committee

Accepted Answer

Giving the internal auditors direct and unrestricted access to the audit committee allows for open communication and collaboration between the internal auditors and the audit committee, which strengthens the internal control environment. Financial statements that present fairly financial position and results of operations and having the external auditors report to the audit committee are also important components of a strong internal control environment, but they do not directly enhance it in the same way that giving internal auditors direct access to the audit committee does. Having the internal auditors report to the external auditors is not recommended as it undermines the independence of the internal auditors.

Question 4

The 2011 National Business Ethics Survey indicates each of the following with respect to how employees view the ethics and ethical practices of organizations they work for except for:
A) Misconduct at work has declined over the years
B) Whistleblowing is up
C) Ethical cultures are weaker
D) Pressure to cut corners is lower

Accepted Answer

The survey indicated that ethical cultures were stronger, not weaker, as organizations were improving their ethical practices.

Question 5

With respect to whistleblowing, the Sarbanes-Oxley Act:
A) Protects employees of publicly traded companies who provide evidence in fraud cases
B) Confers legal protection on managers who reported wrongdoing by top executives
C) Confers legal protection on the board of directors for fraudulent actions by management
D) All of these

Accepted Answer

The Sarbanes-Oxley Act protects employees of publicly traded companies who provide evidence in fraud cases. It does not confer legal protection on managers or the board of directors for fraudulent actions.

Question 6

The Institute of Internal Auditors Code of Ethics includes each of the following principles except for:
A) Integrity
B) Objectivity
C) Independence
D) Confidentiality

Accepted Answer

The Institute of Internal Auditors Code of Ethics includes the principles of Integrity, Objectivity, Confidentiality, and Competency, but not Independence.

Question 7

As a manager in her firm, Lucy concerns herself with the effectiveness of internal controls. Her main focus is how efficient and effective the company's internal controls are over time. Which component of internal control is Lucy engaging in?
A) Risk assessment
B) Control activities
C) Control environment
D) Monitoring

Accepted Answer

Monitoring is the component of internal control that involves assessing the effectiveness over time. Risk assessment involves identifying and analyzing potential risks, control activities involve implementing procedures to mitigate risks, and the control environment involves establishing the tone and culture of the organization regarding control. Therefore, D is the best choice for Lucy's focus on the effectiveness of internal controls.

Question 8

A troubling result of the 2011 National Business Ethics Survey is:
A) Increased witnessing of misconduct in the workplace.
B) Decline in pressure to compromise ethics.
C) Increased rate of retaliation against whistleblowers.
D) Decline in negative view of supervisors' ethics.

Accepted Answer

The 2011 National Business Ethics Survey highlighted an increased rate of retaliation against whistleblowers as a troubling result, indicating a negative trend in how organizations handle ethical reporting.

Question 9

What are the fiduciary obligations 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

Accepted Answer

The fiduciary obligations of the board of directors include safeguarding the organization's resources and interests of the company's stakeholders, which can include shareholders, employees, customers, and the community. While maximizing profits is a goal of the board, it should not be at the expense of ethical and legal obligations. Giving excessive executive compensation and allowing high risk accounting practices are not fiduciary obligations of the board.

Question 10

One failure with respect to the internal controls at Tyco and Adelphia was:
A) Falsification of bank statement balances
B) Top executives manipulated financial statement amounts
C) Top executives used hundreds of millions of dollars from interest-free loans for personal purposes
D) Top management engaged in a Ponzi scheme

Accepted Answer

Top executives at Tyco and Adelphia used hundreds of millions of dollars from interest-free loans for personal purposes. This was a failure in the internal controls and highlights the lack of oversight and accountability within these companies.

Question 11

Each of the following is part of the New York Stock Exchange listing requirements except for:
A) All directors must be independent of management
B) Audit committees must consist of at least three members all of whom are independent of management and the entity
C) The audit committee should report regularly to the board of directors
D) Each listed company must have an internal audit function

Accepted Answer

The answer of Each of the following is part of...

Question 12

Strong corporate governance relies on a strong board of directors. Which of the following would be a strong candidate to be a board director for XYZ, Inc.?
A) Community member who has already served on the board 15 years.
B) Investor who has a multi-million dollar joint venture with the CEO and CFO.
C) Retired controller of a Fortune 1000 company.
D) Community member who receives annual large consulting contracts from XYZ.

Accepted Answer

The retired controller of a Fortune 1000 company would have relevant experience and expertise to contribute to the board's decision-making process. Option A is not a strong choice as it could result in the lack of new perspectives and fresh ideas. Option B could create a conflict of interest, as the investor might prioritize their joint venture over the company's interests. Option D could also generate a conflict of interest, as the community member might prioritize their consulting contracts over the company's interests.

Question 13

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 these

Accepted Answer

Section 302 of the Sarbanes-Oxley Act requires that the CEO and CFO certify the accuracy and completeness of the financial statements.

Question 14

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

Accepted Answer

The COSO framework outlines five components of internal control objectives, which include control environment, risk assessment, control activities, monitoring, and information and communication. The option (C) Risk activities is not one of the components. Therefore, the correct answer is (C).

Question 15

The ethical dissonance model looks at the ethical fit of the organizational and individual values. The optimal fit for an individual with high individual ethics would be:
A) High-High
B) High-Low
C) Low-High
D) Low-Low

Accepted Answer

The optimal fit for an individual with high individual ethics would be high-high, meaning that their personal ethical values align with those of the organization. This ensures that the individual is able to maintain their ethical standards while also being able to contribute effectively to the organizational goals. A high-low fit (where the individual has high personal ethics but the organization does not share the same values) can create ethical dissonance, leading to dissatisfaction and conflict. A low-high fit (where the individual has low personal ethics but the organization has high ethical values) can also create problems as the individual may engage in unethical behavior to meet organizational goals. A low-low fit (where both the individual and organization have low ethical values) is not optimal as it can lead to unethical behavior and a lack of concern for values-based decision making.

Question 16

A reason that 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 these.

Accepted Answer

All of these factors contributed to Madoff's ability to keep the Ponzi scheme going for so long. He was able to gain the trust of his investors, the SEC received tips about his questionable practices but failed to take action, and the auditors either turned a blind eye or did not thoroughly investigate the fraud.

Question 17

An ethical corporate culture can best be established by:
A) Setting a proper tone at the top
B) Establishing strong internal controls
C) Having an effective internal audit function
D) All of these

Accepted Answer

All of these options are essential in establishing an ethical corporate culture. Setting a proper tone at the top involves leadership demonstrating ethical behavior and values, while establishing strong internal controls helps prevent unethical behavior and ensures compliance with laws and regulations. An effective internal audit function serves as a check on the company's ethical practices and identifies areas for improvement.

Question 18

A seemingly positive result of the 2011 National Business Ethics Survey is:
A) The percentage of employees who had reported misconduct at work is increasing
B) Pressure to compromise ethical standards has been decreasing
C) The rate of retaliation against whistleblowers has been decreasing
D) The percentage of employees who said they could question management without fear of retaliation is decreasing

Accepted Answer

The percentage of employees who had reported misconduct at work is increasing indicates that employees are more willing to speak up about unethical behavior, which is a positive sign.

Question 19

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 these

Accepted Answer

The Sarbanes-Oxley Act mandates that the audit committee must consist of members that are 100% independent of management. The board of directors and internal auditors do not have to be entirely independent, although they must have some level of independence.

Question 20

A unique aspect of Johnson & Johnson's Credo is that it:
A) It is an aspirational statement rather than the typical "thou shalt not" form of a code of ethics
B) It encourages employees to internalize the values of the company
C) It follows a stakeholder approach to decision making
D) All of these

Accepted Answer

The Johnson & Johnson Credo is an aspirational statement that encourages employees to internalize the values of the company, and it follows a stakeholder approach to decision making. Therefore, all of these options are accurate.

Quiz 3: Creating an Ethical Organization Environment and Effective Corporate Governance Systems

Which of the following is not an ethical issue in business?

To ensure audit committee independence, the committee should meet separately with each of the following groups except for:

A strong and effective internal control environment can be enhanced by:

The 2011 National Business Ethics Survey indicates each of the following with respect to how employees view the ethics and ethical practices of organizations they work for except for:

With respect to whistleblowing, the Sarbanes-Oxley Act:

The Institute of Internal Auditors Code of Ethics includes each of the following principles except for:

As a manager in her firm, Lucy concerns herself with the effectiveness of internal controls. Her main focus is how efficient and effective the company's internal controls are over time. Which component of internal control is Lucy engaging in?

A troubling result of the 2011 National Business Ethics Survey is:

What are the fiduciary obligations of the board of directors?

One failure with respect to the internal controls at Tyco and Adelphia was:

Each of the following is part of the New York Stock Exchange listing requirements except for:

Strong corporate governance relies on a strong board of directors. Which of the following would be a strong candidate to be a board director for XYZ, Inc.?

Section 302 of the Sarbanes-Oxley Act requires that management:

The COSO report states that management should enact five components related to internal control objectives including each of the following except for:

The ethical dissonance model looks at the ethical fit of the organizational and individual values. The optimal fit for an individual with high individual ethics would be:

A reason that Bernie Madoff was able to pull off the Ponzi scheme for so long was:

An ethical corporate culture can best be established by:

A seemingly positive result of the 2011 National Business Ethics Survey is:

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

A unique aspect of Johnson & Johnson's Credo is that it: