Deck 3: Organizational Ethics and Corporate Governance

Question 1

Trust in business is important because:

A) Management needs to feel confident that employees will carry out organizational objectives
B) Stakeholders need to feel confident that relationships with organizations will be consistent and reliable
C) Stakeholders rely on management to produce shareholder returns
D) Management needs to feel confident that those with relationships with the organization do what they say

Answer 1

B

Question 2

The role of a leader in an organization is to:

A) Establish principles and standards of behavior that guide business decisions
B) Enforce violations of code rules of conduct
C) Determine organizational climate and define norms
D) Develop the principles and strategic initiatives to guide ethical action

Answer 2

C

Question 3

Which of the following is NOT an underlying trait of character of an effective leader identified by Johnson?

A) Confidence
B) Temperance
C) Reverence
D) Compassion

Answer 3

A

Question 4

The stakeholder view emphasizes the obligations of management to:

A) The shareholders
B) The shareholders and creditors
C) All parties impacted by corporate decisions in a significant way
D) The board of directors

Question 5

What are the five elements of the framework for understanding ethical decision making in business?

A) Ethical issue sensitivity; individual factors; organizational factors; opportunity; and business ethics intentions and evaluations.
B) Individual factors; organizational factors; opportunity; moral character; and business ethics intentions, behavior, and evaluations.
C) Ethical issue intensity; individual factors; organizational factors; opportunity; and business ethics intentions, behavior, and evaluations.
D) Organizational factors; opportunity; moral judgment; individual values; and business ethics intentions, behavior, and evaluations.

Question 6

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

Question 7

The 2013 Ethics Resource Center National Business Ethics Survey indicates each of the following results with respect to how employees view the ethics and ethical practices of organizations they work for except:

A) Misconduct at work has declined over the years
B) Whistleblowing percentages are unchanged
C) Ethical cultures are weaker
D) Falsifying expense reports is declining

Question 8

Which of the following is least likely to be used by a manager to set the right tone to foster ethical leadership?

A) Consider the implications of one's actions on themselves
B) Make decisions that do not harm others
C) Make decisions that are universal
D) Reflect before deciding

Question 9

Organizational ethics can be thought of as:

A) Descriptions of how ethics occurs at a company
B) Principles and standards of behavior that guide business decisions
C) Rules of conduct that establish legal requirements for businesses
D) Standards of reporting ethical violations

Question 10

The Ethical Dissonance Model helps to evaluate:

A) Whether the organization sets an ethical tone at the top
B) Whether the organization has ethical leadership
C) Whether the organization has a whistle-blowing process
D) Whether the organization's ethics aligns with individual ethics

Question 11

In the Pinto case, Ford relied on which approaches to ethical reasoning to decide on a course of action with respect to the faulty gas tank placement:

A) Egoism and utilitarianism
B) Enlightened egoism and rights theory
C) Ethical legalism and utilitarianism
D) Justice and rights theory

Question 12

An ethical corporate culture includes:

A) Zero tolerance for individual and collective mistakes
B) An explicit statement of values.
C) A focus on results over process
D) A culture of do what I say, not what I do

Question 13

With respect to the importance of moral issues in business, Thomas Jones posited that:

A) Moral issues of high intensity are more pronounced than those of low intensity
B) Moral issues of high intensity are subtler and difficult to evaluate
C) Moral issues of low intensity are more pronounced because they are difficult to identify
D) Moral issues of high and low intensity have equal effects on decision making

Question 14

An ethical climate is enhanced by all of the following except:

A) A values driven organization
B) Openness and transparency
C) Fear of retaliation
D) Supportive environment

Question 15

Which of the following is not a component of the Framework for Understanding Ethical Decision Making in Business?

A) Ethical issue intensity
B) Individual and organizational factors
C) Internal controls
D) Business ethics intentions, behaviors, and evaluations

Question 16

A troubling result of the 2013 National Business Ethics Survey is:

A) Decreased witnessing of misconduct in the workplace
B) Decline in pressure to compromise ethics
C) No change in the likelihood to report misconduct
D) a high percentage of misconduct is conducted by management

Question 17

A common ethical problem where there is an unrealistic expectation to meet expected results and the ends justifies the means can be best described as:

A) Pressure to maintain the numbers
B) Fear of reprisal
C) Loyalty to the boss
D) Weak board of directors

Question 18

The seven signs of a pending ethical collapse include all but:

A) Pressure to make numbers
B) Whistleblowing hotline
C) Bigger than life CEO
D) Conflicts of interest overlooked

Question 19

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

A) Setting a proper tone at the top
B) Establishing strong internal controls
C) Having an effective internal audit function
D) Having an effective external audit

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 interpret the values of the company
C) It follows an agency approach to decision making
D) It establishes general guidelines for ethical behavior when the code's ethics rules are unclear

Question 21

According to the ACFE survey, the most common type of occupational fraud scheme is:

A) Corruption
B) Fraudulent billing
C) Illegal gratuities
D) Asset misappropriation

Question 22

Which of the following was the most frequent anti-fraud control identified in the 2014 ACFE Global Fraud Survey?

A) External audit of financial statements
B) Management certification of financial statements
C) Internal audit department
D) External audit of internal controls over financial reporting

Question 23

The difference between occupational and financial statement fraud is:

A) Occupational fraud is generally committed by employees
B) Occupational fraud is generally committed by external auditors
C) Financial statement fraud occurs either by accident or deliberation
D) Financial statement fraud always starts with non-executive decisions

Question 24

Which of the following is NOT an ethical or legal responsibility of officers and directors?

A) Duty of Care
B) Duty of Good Faith
C) Duty of Loyalty
D) Duty of Fair Pay

Question 25

An example of revenue overstatement is:

A) Manipulating reserves
B) Recording gross, rather than net, revenue
C) Reporting cost of sales as a non-operating expense
D) Deferring revenue

Question 26

Examples of improper asset valuation includes all of the following except:

A) Manipulating reserves
B) Changing the useful life of assets
C) Recording sales that never took place
D) Manipulating estimates of fair market value

Question 27

The ACFE found that the most common way that fraud is first detected is:

A) Internal audit
B) Internal controls
C) External audit
D) Tip

Question 28

The level of care expected of a reasonable person under similar circumstances in meeting one's fiduciary duty is called:

A) Duty of loyalty
B) Duty of care
C) Transparency
D) Fairness

Question 29

A unique aspect of occupational fraud is:

A) The misuse of company assets
B) The falsification of financial statements
C) The failure to disclose full and complete information
D) The failure to resolve conflicts of interest

Question 30

According to the ACFE Global Fraud Study, which of the following was the most common behavioral indicator of fraud?

A) Living beyond means
B) Financial difficulties
C) Addiction problems
D) Refusal to take vacations

Question 31

The business judgment rule refers to:

A) Faithfulness to one's obligations and duties
B) Honesty of purpose and caring
C) Decision making under uncertainty
D) Acting with due care and good faith

Question 32

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

A) Recording future sales in the current period
B) Recording sales of products that are out on consignment
C) Recording sales based on F.O.B. shipping point
D) Recording revenues of other companies by acting as a middleman

Question 33

Which of the following was not a finding of the ACFE Report to the Nation on Occupational Fraud?

A) Fraud is more likely to be detected by tips than any other way
B) Frauds lasted a medium of 16 months before detection
C) Asset misappropriation schemes was the most common type of occupational fraud
D) External auditors discover about 15 percent of the frauds

Question 34

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

A) Board of directors
B) Internal controls
C) Executive compensation policies
D) Monitoring by top management

Question 35

Fraud can be defined as:

A) A deliberate misrepresentation to gain an advantage over another party
B) A cover-up of a mistake made in the financial statements
C) An error in preparing financial statements
D) All of the above

Question 36

What is the main fiduciary duty of the board of directors?

A) Maximize profits for the company
B) Monitor executive compensation
C) Safeguard the interests of corporation and its shareholders
D) Allow high risk accounting practices

Question 37

The Clawback rule allows:

A) protection for whistleblowers from retaliation
B) recovering compensation from CEOs who engage in financial statement misconduct
C) compensation for whistleblowers
D) protections for CEOs who act in good faith

Question 38

The relationship between the shareholders, directors, and management of a company, as defined by the corporate charter, bylaws, formal policy and rule of law is known as:

A) Code of ethics.
B) Corporate leadership.
C) Corporate responsibility.
D) Corporate governance.

Question 39

Which of the following is not considered a behavioral indicator of fraud?

A) Refusal to take vacations
B) Satisfaction with pay
C) Financial difficulties
D) An unwillingness to share duties

Question 40

Corporate governance structures and relationships are shaped by internal and external mechanisms. Which of the following is an external mechanism?

A) State and federal statues require a baseline corporate governance system
B) Audit committees must consist of at least three members all of whom are independent of management and the entity
C) All directors must be independent of management
D) Each listed company must have an internal audit function

Question 41

Which of the following is NOT a component of an effective internal control environment in COSO Internal Control - Integrated Framework?

A) The control environment
B) Risk abatement
C) Control activities
D) Information and communication

Question 42

Has SOX accomplished its intended goal of reliable financial reporting by public companies?

A) Yes, as the CEO and CFO are certifying that financial statements contain no material misstatements.
B) Maybe, as very few defendants have been charged with false certification, and fewer still have been convicted.
C) Maybe, as laws are needed but they serve as only a minimum standard of ethical conduct and may not lead to ethical conduct.
D) No, as the SEC has unsuccessfully sought to collected disgorgement of bonuses and other compensations of officers.

Question 43

Section 404 of the Sarbanes-Oxley Act requires

A) The establishment of procedures to accept employee complaints
B) The principle executive to certify that they have reviewed the financial statements
C) A report of the company's internal control over financial reporting
D) Code of ethics requirements for senior officers

Question 44

Research by Miceli and Near indicates that:

A) Whistleblowers hope their speaking out achieves the correction of an organization wrongdoing
B) Whistleblowers hope those who violate the rules are prosecuted
C) Whistleblowers are motivated to report under Dodd-Frank to receive an award
D) Whistleblowers always blow the whistle because of altruistic reasons

Question 45

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) Blow the whistle on corporate wrongdoing

Question 46

Proper tone at the top includes all of the following except:

A) Communicating compliance and ethics messaging to employees
B) Regularly reminding employees of the importance of ethical behavior
C) Rarely enforcing the code of conduct
D) Modeling the company's values

Question 47

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

Question 48

Compensation of executives has soared over the last forty plus years to more than 271 times the pay for average workers. Remedies to rein in executive compensation include all but:

A) Say on pay provisions
B) More diligent board oversight of compensation packages
C) Restrictions by the law as to the maximum total compensation allowable
D) Clawbacks of compensation when it can be shown executives knew of fraud

Question 49

Which of the following is NOT one of the audit committee's responsibilities?

A) Monitor the integrity of the financial statements
B) Review all financial reporting judgments
C) Review whistleblowing and compliance processes
D) Review and monitor the effectiveness of the external audit process

Question 50

Which of the following is NOT an element of internal control over financial reporting?

A) Maintaining accurate financial records
B) Providing reasonable assurance that receipts and expenditures are recorded based on proper authorization by management
C) Developing a code of conduct and whistle-blowing procedures
D) Providing reasonable assurance that the financial statements are prepared in accordance with generally accepted accounting principles

Question 51

Section 301 of the Sarbanes-Oxley Act requires

A) The establishment of procedures to accept employee complaints
B) The principle executive to certify that they have reviewed the financial statements
C) A report of the company's internal control over financial reporting
D) Code of ethics requirements for senior officers

Question 52

The 2016 State of Compliance Study of PwC indicates that:

A) Compliance and ethics functions have become more visible with their Board of Directors and senior leaders
B) A compliance officer works with the external auditors to ensure accurate and reliable financial reporting
C) Compliance officers always are part of the internal audit group
D) Compliance officers should never be part of the management team

Question 53

External auditor communications with the audit committee include each of the following except:

A) Matters related to why certain accounting policies are considered critical
B) Shareholder returns
C) Significant estimates made by management
D) Significant unusual transactions

Question 54

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 for 15 years.
B) Investor who has a multi-million-dollar joint venture with the CEO and CFO.
C) Retired controller of a Fortune 500 company.
D) Community member who receives annual large consulting contracts from XYZ.

Question 55

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) Board of supervisors

Question 56

Backdating of stock options is unethical because:

A) It favors top executives over other company employees with respect to the number of options
B) It purposefully manipulates the option criteria that determine their value
C) It changes the exercise price on options to benefit top executives
D) It changes the exercise date on options to benefit top executives

Question 57

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

Question 58

DeGeorge thinks that "corporations have a moral obligation not to harm." Which of the following would be one of his criteria for morally permitted whistleblowing?

A) Documented evidence exists that would convince a reasonable and impartial observer that one's view of the situation is correct but that serious harm is unlikely to occur.
B) The employee must reasonably believe that going public will not create the necessary change to protect the public and is worth the risk to oneself.
C) The employee should report a firm's actions that will do serious and considerable harm to others to her supervisor, and keep reporting all the way up to board until the actions are corrected.
D) The employee must first report wrongdoing to the external auditor before going public.

Question 59

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

A) Senior executives
B) Internal auditors
C) External auditors
D) Shareholders

Question 60

In the business world, the term disgorgement means:

A) To give up one's meal after eating
B) To return profits earned illegally
C) To return ill-gotten gains
D) To give up one's board position after a fraud incident

Question 61

The primary ethical issue in United Thermostatic Controls is:

A) Misappropriation of corporate assets
B) Accelerating the recording of revenue into an earlier period
C) Delaying the recording of expenses into a later period
D) Failure to fully disclose all information

Question 62

Tommy Hubbs is the new controller of XYZ Corporation. Recently, Hubbs was approached by Carol Franks, the CFO, and told in no uncertain terms to record $100,000 in revenue at the end of 2015 even though the sale was not made until January 3, 2016. Hubbs contacts a good friend who used to be the controller of XYZ and is told the environment of the company is one of loyalty at all costs. His friend shares that he left the company because of differences on numerous accounting issues. The friend advises Hubbs to let it go this one time to show he is a team player.
Assume Hubbs decides not to go along with Franks' dictum. Prepare an outline to help him give voice to his values and attempt to change hearts and minds of those in XYZ that might block proper accounting.
Use the following to guide students on what is expected of them in answering this question.
As you read the case, think about the following series of questions for the protagonist to address after identifying the right thing to do including:
• How can they get it done effectively and efficiently?
• What do they need to say, to whom, and in what sequence?
• What will the objections or push-back be and, then?
• What would they say next? What data and examples do they need?

Question 63

The Full Disclosure: The Case of a Morally Challenged AP clerk involves the issue of:

A) Embezzling money by processing fictitious invoices
B) Lowering the rate of rebates to increase operating income
C) Falsifying utility rates to decrease expenses
D) Lowering the rate of return on utility sales

Question 64

The SEC has increased focus on identifying and penalizing misstatements in public company financials. What is one method that the SEC is using to identify companies, CEOs, and CFOs that are misstating financial statements?

A) Utilizing the whistleblower provisions of the Dodd-Frank Act to provide a hot line.
B) Analyzing patterns of internal control problems even absent a restatement of the financials.
C) Analyzing whether the CFO has implemented adequate internal controls and safeguards over the financial reporting function.
D) Utilizing the company's ethics code to spot misstatements.

Question 65

Under certain situations, internal accountants are eligible to become Dodd-Frank whistleblowers. Which of the following is not one of those situations?

A) Disclosure to the SEC is needed to prevent "substantial injury" to the financial interest of an entity or its investors
B) The whistleblower "reasonably believes" the entity is impeding investigation of the misconduct
C) The whistleblower has first reported the violation internally and at least 120 days have passed with no action
D) Disclosure to the SEC is needed to prevent "substantial injury" to the audit firm

Question 66

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) Protects auditors who blow the whistle to the SEC

Question 67

Analyze the reaction of Toyota from an ethical perspective to disclosures that occurred in late 2009 and early 2010 that the accelerator in some brands might get stuck and result in unintended acceleration of the car. How does Toyota's reaction relate to that of Ford with the Pinto and Johnson & Johnson with the Tylenol poisoning?

Question 68

What was the result of the annual inventory audit of the inventory shrinkage and improper accounting at Walmart?

A) Inventory shrinkage doubled year-over-year
B) Inventory shrinkage increased by 90 percent
C) Inventory shrinkage decreased by 90 percent
D) There was no change in inventory shrinkage

Question 69

What is the significance of the Menendez v Halliburton, Inc.?

A) Halliburton was able to preserve and show that their bill and hold method was in accordance with GAAP.
B) Menendez was awarded his position back at Halliburton, but the actions of Halliburton were retaliatory.
C) Appeals court panel ruled that Menendez (an internal accountant) had been retaliated against for blowing the whistle.
D) The SEC agreed with Menendez about the bill and hold method; Halliburton restated their financial statements and paid penalties.

Question 70

Tommy Hubbs is the new controller of XYZ Corporation. Recently, Hubbs was approached by Carol Franks, the CFO, and told in no uncertain terms to record $100,000 in revenue at the end of 2015 even though the sale was not made until January 3, 2016. Describe Hubbs's ethical responsibilities in this matter if he is a CPA?

Question 71

Jodie Fisher's allegations of sexual harassment are made believable due to Mark Hurd's:

A) Conflict of interests
B) Misuse of company assets
C) Inaccurate expense reports
D) All of the above

Question 72

What non GAAP accounting method did Tony Menendez cite in blowing the whistle on Halliburton?

A) Recording sales that lack economic substance
B) Failing to write off impaired assets
C) Bill and hold revenue recognition
D) Releasing cookie jar reserves to smooth income

Question 73

In September 2015, Volkswagen disclosed it had sold hundreds of thousands of diesel cars in the U.S. with software specifically designed to evade government pollution tests. The company disclosed that the irregularities on diesel-emission readings extend to some 11 million vehicles globally. The company has admitted that it rigged diesel vehicles using a "defeat device" to pass lab tests, even though they emitted as much as 40 times the legal limit of pollutants on the road.
In November 2015, VW set a November 30 deadline for staff with knowledge about its diesel emissions test cheating to come forward. Workers who get in touch with internal investigators by then would be exempt from dismissal. VW said it would not sack workers for what they might reveal, but they might be transferred to other duties. "Employees covered by collective bargaining agreements who get in touch promptly, but no later than November 30, 2015... and... may rest assured that the company will waive consequences under labor law such as the termination of employment, and will not make any claim for damages," according to the letter sent to workers.
Evaluate VW's actions from an ethical perspective.

Question 74

The 2010 Dodd-Frank Act includes additional incentives for whistleblowers. What is the act's effect on whistleblowing by accountants?

A) No accountant, internal or external, whether by job title or certification may receive a reward.
B) All accountants who whistle-blow are protected against retaliation, but may not receive a reward.
C) Internal auditors who whistle-blow may not receive a reward.
D) A CPA may report a violation of a public accounting firm's performance in an audit.

Question 75

In the Loyalty to the Boss case, what is the primary ethical issue?

A) Recording sales that lack economic substance
B) Capitalizing expenses as inventory
C) Bill and hold revenue recognition
D) Releasing cookie jar reserves to smooth income

Question 76

In the Parable of Sadhu case, Bowen T. McCoy's friend Stephen summed up the dilemma by saying:

A) I feel that what happened with the sadhu is a good example of the breakdown between ethics in different cultures
B) I feel that what happened with the sadhu is a good example of the breakdown between the individual and corporate ethics
C) People tend to inevitably act in their own best interest
D) All of the above

Question 77

The key fraud issue in the Franklin Industries Whistleblowing Case is:

A) Fraudulent financial statements were covered-up
B) Corporate culture pressured an employee to go along with fraud
C) Retaliation for reporting an embezzlement fraud
D) Recording revenues too soon led to fraudulent statements

Question 78

The Olympus case was unique from a corporate governance perspective because it deals with:

A) A board of directors that was completely under the influence of the CEO
B) Cultural differences between Japanese management and western style of management
C) Cultural differences between U.S. and non-U.S. companies
D) A company that consistently overrides its internal controls and commits fraud

Question 79

What is the ethical issue in the Rite Aid Inventory Surplus Fraud case?

A) The surplus inventory sales and kickback involved collusion between two officers of the company. When Foster wanted to stop the scheme, he was blackmailed in continuing the fraud.
B) Rite-Aid had a comprehensive corporate governance system that complied with all the requirements of Sarbanes-Oxley.
C) The internal auditor found and blew the whistle on the surplus inventory sales and kickback cover-up.
D) Vice Presidents of the company were involved in a material, nine year surplus inventory sales and kickback scheme.

Question 80

The reporting requirements for fraud are detailed in Section 10A of the Securities Exchange Act of 1934. Which of the following steps are NOT part of a prescribed process that should be followed in deciding whether to report fraud?

A) Determine who is responsible for the fraud.
B) Determine whether the violations have a material effect, quantitatively or qualitatively, on the financial statements.
C) Determine whether appropriate remedial action has been taken.
D) Determine whether reporting to the SEC is necessary.