Final Examination Study Guide - University of Phoenix

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ETH/376 Final Examination Study Guide

This study guide will prepare you for the Final Examination you will complete in Week Six. It contains practice questions, which are related to each week’s objectives. In addition, refer to each week’s readings and your student guide as study references for the Final Examination.

Week One: Introduction to Accounting Ethics

Objective: Evaluate the ethicality of accounting activities.

1. Wanda is faced with an ethical dilemma. She knows her supervisor, the CFO, wants to accelerate the recoding of revenue to an earlier period to make the numbers, but Wanda is convinced this would violate GAAP. If Wanda reasons at stage 4 of Kohlberg's model, she is most likely to 

a. make a decision based on what is in her own best interests

b. consider the interests of the stakeholders but decide based on what is in her best interests

c. refuse to record the transaction as desired by the CFO

d. inform the board of directors of the difference of opinion with the CFO

2. An accountant who blows the whistle on financial wrongdoing by his or her employer by going outside the entity violates 

a. the due care principle

b. confidentiality

c. one's reliability obligation

d. the Sarbanes-Oxley Act

Objective: Explain the purpose of the AICPA Code of Professional Conduct.

3. The principle of ethical behavior in the AICPA code that asks questions directly related to ethical behavior is

a. independence

b. objectivity

c. integrity

d. fraud prevention

4. Which rule of professional conduct in the AICPA code applies to external accountants but not to internal accountants who are CPAs and members of the Institute?

a. Independence

b. Confidentiality

c. Objectivity

d. Due care

Week Two: Legal and Regulatory Issues and Financial Reporting

Objective: Determine the legality of financial reporting activities.

5. The legal term for the intent to deceive, manipulate, or defraud is

a. nonfeasance

b. misfeasance

c. constructive fraud

d. scienter

6. 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 U.S. GAAS but also international GAAS

d. always follow the letter of the law when performing audits

7. 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. disallow unreasonable annual bonuses

Objective: Determine compliance of financial reporting activities with applicable financial reporting standards.

8. In regards to financial reporting, the due care principle of the articles of professional conduct, requires a member to discharge professional responsibilities with

a. confidentiality and integrity

b. objectivity and ethics

c. standard morals and ethics

d. competence and diligence

9. One concern with U.S. GAAP identified by Schipper is

a. the principles that underlie U.S. GAAP can become rules-based exercises during implementation

b. the principles that underlie U.S. GAAP do not provide any implementation guidance

c. the rules that are part of the U.S. system are not based on an underlying conceptual framework

d. the rules that are part of the U.S. system are not based on any principles

10. Given that IFRS is not currently required in the United States, foreign companies that list their stock on the New York Stock Exchange must

a. reconcile the financial statements in their home country GAAP to U.S. GAAP

b. use IFRS in their financial statements

c. either reconcile their statements to U.S. GAAP or use IFRS

d. use their home country GAAP in their financial statements listed on the NYSE

Objective: Evaluate the ethicality of financial reporting activities.

11. What is the motive behind the PCAOB Integrated Audit Concept?

a. Elevation of importance of internal controls

b. Improvement of the quality and integrity of both internal controls over financial reporting and independent financial statement audits

c. Improvement of the speed and reliability of both corporate financial reporting and independent financial statement audits

d. Elevation of importance of independent financial statement audits

12. Which of the following is an example of opinion shopping by a company?

a. Changing auditors due to the quality of work by the auditors

b. Changing auditors due to wanting desired accounting treatment

c. Changing auditors due to the size of the audit fees

d. Changing auditors due to the size of the audit firm

13. What is the auditor's responsibility with regard to illegal acts?

a. To detect and report illegal acts that have an indirect and material effect on financial statement amounts.

b. To detect and report illegal acts that have a direct and material effect on financial statement amounts.

c. To detect and report illegal acts that have a direct and immaterial effect on financial statement amounts.

d. To detect and report illegal acts that have an indirect and immaterial effect on financial statement amounts.

Week Three: Corporate Governance

Objective: Determine the legality of corporate governance activities.

14. The framework of COSO Enterprise Risk Management is to

a. incorporate enhanced internal control principles into enhanced corporate governance

b. incorporate enhanced audit sampling procedures in the testing of internal controls

c. incorporate enhanced corporate governance into internal control principles

d. incorporate enhanced audit sampling procedures in substantive testing

15. In legal terms, fraud can be defined as

a. a mistake or an error that creates an advantage over another party

b. a deliberate misrepresentation to gain an advantage over another party

c. a cover-up of a mistake made in the financial statements

d. a theft or a misappropriation of assets

16. In putting together the best audit team for a high-tech company, which of the following would be

allowed to participate under Sarbanes Oxley and independence rules?

a. Information technology consultant

b. Information technology auditor

c. Tax consultant

d. Former CFO of the company

Objective: Evaluate the ethicality of corporate governance.

17. 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 sustainability

c. corporate responsibility

d. corporate governance

18. To whom does management owe its ultimate allegiance?

a. Company employees

b. The environment

c. The federal government

d. The public

19. Sears created an ethical violation by advertising free automobile inspections and then charging

customers for unnecessary repairs. The motivating factor for corporate governance at Sears that encouraged this fraud was

a. greed

b. cover a loss from its business operations

c. improve financial performance during last quarter reporting

d. build up certain segments of its business

Week Four: Accounting and Auditing Activities and Professional Standards

Objective: Determine the legality of accounting and auditing activities.

20. Which of the following services are allowed to be performed for an attest services client by Sarbanes-

Oxley Act? 

a. financial information systems design and implementation

b. management functions or human resources

c. internal audit outsourcing services

d. pension plan audits

21. The auditor is responsible for reporting illegal acts when

a. the illegal acts have an indirect and material effect on financial statement amounts

b. the illegal acts have a direct and material effect on financial statement amounts

c. the illegal acts have a direct and immaterial effect on financial statement amounts

d. illegal acts exist regardless of the effects on the financial statements

22. Circular 230 applies to CPAs who

a. audit the financial statements of a tax client

b. practice before the IRS

c. practice before the SEC

d. practice under the criteria of the Sarbanes-Oxley Act

Objective: Determine compliance of accounting and auditing activities with applicable standards.

23. What is the role of a CPA in tax planning for a client?

a. Minimizing tax burden within legal perimeters of the Internal Revenue Code

b. Maximizing the tax refund each year within the legal perimeters of the Internal Revenue Code

c. Providing the highest pass-through of losses to owners to offset income on their individual returns

d. Providing IRS-approved tax strategies to ensure compliance with the Internal Revenue Code

24. Advertising is permitted by CPAs as long as it is

a. in print publications

b. made to an audience knowledgeable of services

c. not misleading or deceptive

d. not transmitted on airwaves

25. A corporation must fully disclose contingent liabilities if those liabilities are 

a. Material in amount, quantifiable, and possible in terms of occurrence

b. Quantifiable and probable, regardless of the amount

c. Unlikely to occur but material in amount and quantifiable

d. Material in amount, quantifiable, and probable

Objective: Evaluate the ethicality of accounting and auditing activities.

26. Which of the following is a threat by a client that impairs independence? 

a. .Lowballing

b. Skepticism

c. Lawsuit

d. Withholding information

27. Susie is an auditor with XYZ Audit firm. The senior audit member has told her that all fieldwork must

be completed by the end of the week. Susie knows that corners have been cut and certain tests not completed due to the time constraints. The integrity of the firm could be compromised. What should Susie do?

a. Do nothing.

b. Talk with the chain of command of the client to see that her concerns are dealt with.

c. Follow the chain of command of XYZ to see that her concerns are dealt with.

d. Talk with a reporter from the Wall Street Journal.

28. When would it be appropriate for an auditor to withdraw from an engagement?

a. To avoid issuing an adverse opinion

b. When that auditor cannot observe the taking of inventory or is unable to confirm receivables

c. When management has proven that it cannot be trusted

d. When the auditor has overbooked too much work

Week Five: Professional Standards-Based Decision Making

Objective: Use professional standards to make legal and ethical business decisions.

29. In the case of Ford® Pintos, the company used a quantitative analysis to justify not repairing faulty fuel tanks that were proven to explode with rear-end collisions. 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

30. The decision to backdate 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 inflates the value of stock options

Answer Key:

1. c

2. b

3. c

4. a

5. d

6. a

7. b

8. d

9. a

10. c

11. b

12. b

13. b

14. c

15. b

16. b

17. d

18. d

19. a

20. d

21. d

22. b

23. a

24. c

25. d

26. c

27. c

28. c

29. c

30. b

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