Question 1

The main focus of the Con-Way case is the company's:
A)Bribery of Philippine customs officials
B)Payments to foreign officials at state-owned airlines doing business in the Philippines
C)Failure to properly record and disclose illicit payments to Philippine customs officials and officials at state-owned airlines doing business in the Philippines
D)All of the above

Accepted Answer

The Con-Way case involves multiple issues, including bribery of Philippine customs officials, payments to foreign officials at state-owned airlines, and failure to properly record and disclose these illicit payments.

Question 2

An important issue in the Hewlett Packard case was:
A)Sexting
B)Pretexting
C)Twittering
D)Financial statement fraud

Accepted Answer

The important issue in the Hewlett Packard case was pretexting. This refers to obtaining someone's personal information under false pretenses, which is illegal in many jurisdictions. In this case, HP executives ordered private investigators to use pretexting to obtain the phone records of HP board members, journalists, and others in order to find the source of board leaks. The scandal resulted in several resignations and legal consequences for those involved.

Question 3

A key consideration in deciding whether the shareholders in the Countrywide Corporation case would be successful in their lawsuit against members of the board of directors was application of:
A)Proportionate liability
B)Scienter
C)Business judgment rule
D)Privity rule

Accepted Answer

The business judgment rule is a legal principle that grants deference to the decisions of a corporation's board of directors as long as the board acts in good faith, with due care and loyalty, and with a reasonable belief that its decisions are in the best interest of the corporation. This principle provides a strong defense for the board against claims of negligence or breach of fiduciary duty by shareholders. Therefore, the application of the business judgment rule is a key consideration in assessing the likelihood of success for the shareholders' lawsuit against the board of directors in the Countrywide Corporation case.

Question 4

The best defense for an auditor is to
A)Perform audits in accordance with ethical principles when auditing standards are unclear
B)Strictly adhere to the requirements of the generally agreed auditing principles (GAAS)
C)Perform all work not only in accordance with US GAAS but also international GAAS
D)Always follow the letter of the law when performing audits

Accepted Answer

The best defense for an auditor is to perform audits in accordance with ethical principles when auditing standards are unclear. This approach helps auditors to maintain their integrity and professionalism while delivering high-quality audit services to their clients. Adhering to ethical principles enables auditors to stay on the right side of the law while carrying out their duties with due diligence and impartiality. While strict adherence to GAAS is important, auditors should also strive to apply ethical principles and judgment to ensure that their audits add value to clients and stakeholders.

Question 5

Negligent nonfeasance would be said to occur when
A)An auditor issues an unqualified opinion for financial statements he or she knows to be materially misstated
B)An auditor fails to use appropriate accounting procedures and thereby fails to discover a client's internal practices
C)An auditor fails to report an instance of financial fraud to the SEC
D)An auditor intentionally skips parts of the audit plan to cut costs and increase profitability

Accepted Answer

Negligent nonfeasance occurs when an auditor fails to perform an action that should have been performed, such as the failure to use appropriate accounting procedures to discover a client's internal practices. Option A describes fraudulent misrepresentation, Option C describes illegal acts, and Option D describes intentional misrepresentation.

Question 6

The defendant-auditors in the Anjoorian case argued, in their defense, that:
A)To be found guilty to third parties, the court must find that an accountant had contemplated a specific transaction for which the financial statement will be used and that no such transaction was contemplated.
B)They had no liability to third party shareholders.
C)The plaintiff's theory of damages is speculative and against public policy.
D)All of the above.

Accepted Answer

The defendant-auditors in the Anjoorian case argued all of the points listed: that specific transactions must be contemplated for liability, they had no liability to third party shareholders, and that the plaintiff's theory of damages was speculative and against public policy.

Question 7

Auditors deserve blame in failing to uncover fraud in the Equity Funding case due to
A)Failing to determine that some journal entries were phony
B)Failing to recognize that many insurance policy files were forged
C)Failing to meet some policyholders in person
D)Failing to secure the audit plan

Accepted Answer

The answer of Auditors deserve blame in failing to uncover...

Question 8

The Knowledgeware case dealt with which accounting issue?
A)Overstated inventory amounts
B)Sham software sales
C)Fictitious invoices
D)Overstated net realizable value of receivables

Accepted Answer

The Knowledgeware case dealt with sham software sales, which is a fraudulent accounting practice where a company records sales revenue for the sale of software that was not actually sold.

Question 9

In which type of court case is proving "due diligence" essential to the auditor's defense?
A)Court cases brought under the Securities Exchange Act of 1933
B)Court cases brought under the Securities Exchange Act of 1934
C)Court cases brought by clients under common law
D)Court cases brought by third parties under common law

Accepted Answer

Under the Securities Exchange Act of 1933, auditors can use the defense of "due diligence" to show they conducted a reasonable investigation and had reasonable grounds to believe the financial statements were accurate.

Question 10

A major allegation in the XTO Energy case was the:
A)Breach of fiduciary duties of the board of directors
B)Insider trading
C)Violation of the FCPA
D)All of the above

Accepted Answer

The answer of A major allegation in the XTO Energy...

Question 11

Which two organizations were formed to deal with the accounting profession's credibility?
A)AICPA and Macdonald
B)Treadway and SEC
C)Treadway and AICPA
D)Treadway and Macdonald

Accepted Answer

The answer of Which two organizations were formed to deal...

Question 12

What is a payment made to someone in a government agency in order to obtain approval or assistance from that individual or organization called?
A)Facilitating Payment
B)Bribe
C)Grease
D)Legal Payment

Accepted Answer

A payment made to someone in a government agency in order to obtain approval or assistance from that individual or organization is called a bribe. Facilitating payment is a payment made to expedite or secure the performance of a routine government action, while grease is a term used colloquially to describe the practice of offering incentives or compensation to facilitate business deals. Legal payment refers to any payment made in the normal course of business or in compliance with relevant laws and regulations.

Question 13

A unique aspect of the lawsuit in Welch v.Cardinal Bankshares Corporation is it:
A)Was the first case to deal with the certification of false financial statements by the CEO and CFO thereby violating the Sarbanes-Oxley Act
B)Was the first case where an individual brought a complaint against an employer under the whistle blowing provisions of the Sarbanes-Oxley Act
C)Reversed the ruling in Ultramares v.Touche
D)Reversed the ruling in Bily v.Arthur Young

Accepted Answer

Welch v. Cardinal Bankshares Corporation was the first case where an individual brought a complaint against an employer under the whistle blowing provisions of the Sarbanes-Oxley Act. The case involved the plaintiff alleging that he was terminated from his job because he reported accounting irregularities to the company's audit committee. The case ultimately settled out of court.

Question 14

Regarding criminal sentences for illegal business conduct, the recommended sentence range depends primarily upon
A)How much money investors lost as a result of the illegal conduct
B)The length of the period in which the illegal conduct took place
C)The number of investors who lost money as a result of the illegal conduct
D)The opinion of the judge as to how egregious the illegal conduct was

Accepted Answer

The answer of Regarding criminal sentences for illegal business conduct,...

Question 15

All of the following are crimes EXCEPT
A)Providing payments to foreign government officials to obtain business.
B)Bribing foreign political parties to promote enacting more advantageous trade legislation.
C)Providing monetary assistance to a foreign political candidate with the understanding that if he or she wins, the company will get a bigger contract.
D)Making payments to a ministerial government employee of a foreign country to obtain a license to do business in that country.

Accepted Answer

Payments to a ministerial government employee to obtain a license are considered "facilitating payments" and are generally not classified as bribery under the Foreign Corrupt Practices Act (FCPA), unlike the other options which involve bribery or corruption.

Question 16

Which Act requires firms who engaged in international operations to have internal controls and an audit committee?
A)The Foreign Corrupt Practices Act of 1977
B)The Foreign Exchange Regulation Act of 1973
C)The Foreign Exchange Management Act of 1999
D)The Foreign Management Practices Act of 1977

Accepted Answer

The Foreign Corrupt Practices Act of 1977 requires firms who engaged in international operations to have internal controls and an audit committee. The Act was passed to prevent bribery and corruption of foreign officials by companies operating internationally.

Question 17

Michael Trent Reznor, the lead singer in the band Nine Inch Nails, filed a lawsuit against Richard Szekelyi and the Navigent Group in the Reznor v JAM, Inc case alleging:
A)Negligence
B)Breach of fiduciary duty
C)Aiding and abetting fraud
D)All of the above

Accepted Answer

The lawsuit filed by Michael Trent Reznor against Richard Szekelyi and the Navigent Group in the Reznor v JAM, Inc case alleges negligence, breach of fiduciary duty, and aiding and abetting fraud. Therefore, option D, i.e., all of the above, is the best choice.

Question 18

The term "manipulative" connotes
A)Gross negligence
B)Constructive fraud
C)Nonfeasance which results in investor losses
D)Intentional or will conduct designed to deceive

Accepted Answer

The term "manipulative" suggests intentional or willful conduct designed to deceive.

Question 19

The difference between an auditor's services regarding reports 10Q and 10K is
A)The auditor provides "limited assurance" regarding 10Q and "reasonable assurance" regarding 10K
B)The auditor provides "reasonable assurance" regarding 10Q and "limited assurance" regarding 10K
C)The auditor provides no assurance regarding 10Q and "limited assurance" regarding 10K
D)The auditor provides "limited assurance" regarding 10Q and "absolute assurance" regarding 10K

Accepted Answer

The auditor provides "limited assurance" regarding 10Q and "reasonable assurance" regarding 10K. This is because 10Q is a quarterly report, and the auditor only performs a review of the financial statements for that quarter, whereas 10K is an annual report, and the auditor performs a full audit of the financial statements for the entire year. The level of assurance provided by the auditor is different for these two reports.

Question 20

In the case of SEC v.Halliburton & KBR, the commission charged Halliburton & KBR with:
A)Bribing Nigerian government officials to look the other way while the companies developed and presented fraudulent financial statements
B)Bribing Nigerian government officials in order to obtain construction contracts
C)Bribing Nigerian government officials to off-load merchandise at the country's piers
D)All of the above

Accepted Answer

The SEC charged Halliburton & KBR with bribery of Nigerian government officials in order to obtain construction contracts. There was no mention of developing fraudulent financial statements or off-loading merchandise at the country's piers in this case.

Quiz 6: Legal and Regulatory Obligations in an Ethical Framework

The main focus of the Con-Way case is the company's:

An important issue in the Hewlett Packard case was:

A key consideration in deciding whether the shareholders in the Countrywide Corporation case would be successful in their lawsuit against members of the board of directors was application of:

The best defense for an auditor is to

Negligent nonfeasance would be said to occur when

The defendant-auditors in the Anjoorian case argued, in their defense, that:

Auditors deserve blame in failing to uncover fraud in the Equity Funding case due to

The Knowledgeware case dealt with which accounting issue?

In which type of court case is proving "due diligence" essential to the auditor's defense?

A major allegation in the XTO Energy case was the:

Which two organizations were formed to deal with the accounting profession's credibility?

What is a payment made to someone in a government agency in order to obtain approval or assistance from that individual or organization called?

A unique aspect of the lawsuit in Welch v.Cardinal Bankshares Corporation is it:

Regarding criminal sentences for illegal business conduct, the recommended sentence range depends primarily upon

All of the following are crimes EXCEPT

Which Act requires firms who engaged in international operations to have internal controls and an audit committee?

Michael Trent Reznor, the lead singer in the band Nine Inch Nails, filed a lawsuit against Richard Szekelyi and the Navigent Group in the Reznor v JAM, Inc case alleging:

The term "manipulative" connotes

The difference between an auditor's services regarding reports 10Q and 10K is

In the case of SEC v.Halliburton & KBR, the commission charged Halliburton & KBR with: