Question 1

Which of the following was not a flaw found in LJM1 arrangements?

Accepted Answer

A) Profits were improperly recorded on treasury shares used or sheltered by non-existing hedges 
B) Enron was hiding employee stock option expense 
C) Enron was hedging itself 
D) Enron had to advance treasury shares to buy them back at preferential rates 
E) Enron officers and their helpers benefited 
A) Profits were improperly recorded on treasury shares used or sheltered by non-existing hedges 
B) Enron was hiding employee stock option expense 
C) Enron was hedging itself 
D) Enron had to advance treasury shares to buy them back at preferential rates 
E) Enron officers and their helpers benefited B

Question 2

In order to ensure an investment-grade credit rating, Enron began to emphasize the following three actions:

Accepted Answer

A) Reducing accruals, increasing cash flow, and lowering debt 
B) Smoothing accruals, increasing cash flow, and lowering debt 
C) Increasing cash flow, lowering debt, and smoothing earnings 
D) Increasing cash flow, lowering earnings and decreasing option expense 
E) Increasing cash flow, lowering debt, and decreasing option expense 
A) Reducing accruals, increasing cash flow, and lowering debt 
B) Smoothing accruals, increasing cash flow, and lowering debt 
C) Increasing cash flow, lowering debt, and smoothing earnings 
D) Increasing cash flow, lowering earnings and decreasing option expense 
E) Increasing cash flow, lowering debt, and decreasing option expense C

Question 3

Enron referred to this transactions as "monetizing" or "syndicating" its assets:

Accepted Answer

A) Buy more assets using syndicated loans 
B) Sell assets to third parties and record cash income as earnings 
C) Hedge the company's assets 
D) Lend money to third parties to buy assets 
E) Recording profits on energy derivatives trading 
A) Buy more assets using syndicated loans 
B) Sell assets to third parties and record cash income as earnings 
C) Hedge the company's assets 
D) Lend money to third parties to buy assets 
E) Recording profits on energy derivatives trading B

Question 4

This type of manipulation is known as "cookie jar" accounting:

Accepted Answer

A) Manipulation of profits through reserves or provisions 
B) Incorrect classification of long term debt as equity 
C) Incorrect classification of regular expenses as extraordinary items 
D) Manipulation of profits through booking revenue in early periods 
E) Manipulation of reserve for uncollectible amounts 
A) Manipulation of profits through reserves or provisions 
B) Incorrect classification of long term debt as equity 
C) Incorrect classification of regular expenses as extraordinary items 
D) Manipulation of profits through booking revenue in early periods 
E) Manipulation of reserve for uncollectible amounts

Question 5

After SOX, which of the following is not a prohibited non-audit service for external auditors?

Accepted Answer

A) Appraisal or valuation services 
B) Bookkeeping and other services 
C) Legal services 
D) Tax services 
E) Internal audit outsourcing 
A) Appraisal or valuation services 
B) Bookkeeping and other services 
C) Legal services 
D) Tax services 
E) Internal audit outsourcing

Question 6

Most observers agree that Enron's problems were caused by:

Accepted Answer

A) Management's failure to exercise adequate oversight 
B) Failure of the audit committee to exercise adequate oversight 
C) Auditor's lack of independence 
D) Deficiencies in audit procedures 
E) Failure of the board of directors to exercise adequate oversight 
A) Management's failure to exercise adequate oversight 
B) Failure of the audit committee to exercise adequate oversight 
C) Auditor's lack of independence 
D) Deficiencies in audit procedures 
E) Failure of the board of directors to exercise adequate oversight

Question 7

SOX increased the time requirement and legal risk for company directors.These requirements will likely:

Accepted Answer

A) Increase the number of directors in the board 
B) Reduce the number of directors in the audit committee 
C) Increase audit fees 
D) Reduce the number of boards that each director sits on 
E) All of the above 
A) Increase the number of directors in the board 
B) Reduce the number of directors in the audit committee 
C) Increase audit fees 
D) Reduce the number of boards that each director sits on 
E) All of the above

Question 8

The independence of the Enron Board of Directors was compromised by:

Accepted Answer

A) Family ties between the company and certain board members 
B) Employment ties between the company and certain board members 
C) Financial ties between the company and certain board members 
D) Fiduciary ties between the company and certain board members 
E) All of the above 
A) Family ties between the company and certain board members 
B) Employment ties between the company and certain board members 
C) Financial ties between the company and certain board members 
D) Fiduciary ties between the company and certain board members 
E) All of the above

Question 9

At the time of Enron's collapse, the prevailing treatment for employee stock option expense was:

Accepted Answer

A) Record stock options only when and if exercised, at exercise price 
B) Record all stock options when issued, at exercise price 
C) Record all stock options at market price 
D) Record stock options only when exercised at market price 
E) Record not exercised options at market price 
A) Record stock options only when and if exercised, at exercise price 
B) Record all stock options when issued, at exercise price 
C) Record all stock options at market price 
D) Record stock options only when exercised at market price 
E) Record not exercised options at market price

Question 10

Which of the following was not a strategy used by Enron to avoid taxes?

Accepted Answer

A) Deduction of losses twice 
B) Shifting depreciable assets to non-depreciable assets 
C) Tax deductions for repayment of debt principal 
D) Duplication of single economic loss 
E) Generation of fees for serving as an accommodation party for another taxpayer 
A) Deduction of losses twice 
B) Shifting depreciable assets to non-depreciable assets 
C) Tax deductions for repayment of debt principal 
D) Duplication of single economic loss 
E) Generation of fees for serving as an accommodation party for another taxpayer

Question 11

Which of the following is not a requirement imposed by the SOX Corporate Governance Framework?

Accepted Answer

A) The audit committee must be comprised solely by independent directors 
B) The audit committee is responsible for appointing the company's external auditor 
C) The audit committee must establish procedures to allow employees to submit anonymous complaints 
D) The audit committee must approve non audit services to be provided by the auditors 
E) The audit committee must be comprised solely by financial experts 
A) The audit committee must be comprised solely by independent directors 
B) The audit committee is responsible for appointing the company's external auditor 
C) The audit committee must establish procedures to allow employees to submit anonymous complaints 
D) The audit committee must approve non audit services to be provided by the auditors 
E) The audit committee must be comprised solely by financial experts

Question 12

The Board of Directors' paramount duty is:

Accepted Answer

A) To determine management's compensation 
B) To safeguard the interest of the company's stakeholders 
C) To safeguard the company's assets 
D) To formulate the company's strategy 
E) To safeguard the interest of the company's shareholders 
A) To determine management's compensation 
B) To safeguard the interest of the company's stakeholders 
C) To safeguard the company's assets 
D) To formulate the company's strategy 
E) To safeguard the interest of the company's shareholders

Question 13

Under the U.S.accounting rules, the following conditions were required to consider special purpose entities (SPEs)to be independent parties:

Accepted Answer

A) Independent investment of less than 3% of the SPE's equity and independent control of the SPE 
B) Independent investment of at least 3% of the SPE's equity and independent control of the SPE 
C) Substantive investment of at least 3% of the SPE's equity and independent control of the SPE 
D) Independent investment of at least 3% of the SPE's assets at risk and independent control of the SPE 
E) Substantive investment of less than 3% of the SPE's assets at risk and independent control of the SPE 
A) Independent investment of less than 3% of the SPE's equity and independent control of the SPE 
B) Independent investment of at least 3% of the SPE's equity and independent control of the SPE 
C) Substantive investment of at least 3% of the SPE's equity and independent control of the SPE 
D) Independent investment of at least 3% of the SPE's assets at risk and independent control of the SPE 
E) Substantive investment of less than 3% of the SPE's assets at risk and independent control of the SPE

Question 14

Which of the following was not a committee in Enron's Board?

Accepted Answer

A) Risk Management Committee 
B) Executive Committee 
C) Finance Committee 
D) Audit and Compliance Committee 
E) Nominating Committee 
A) Risk Management Committee 
B) Executive Committee 
C) Finance Committee 
D) Audit and Compliance Committee 
E) Nominating Committee

Question 15

Which of the following was not a conflict of interest that Arthur Andersen's personnel encountered?

Accepted Answer

A) Auditing their own work as SPE consultants 
B) Losing a very large client 
C) A partner reviewed another partner's work 
D) Internal debates about Enron's questionable accounting treatments were not discussed with the audit committee 
E) Audit staff leaving the firm to work for Enron 
A) Auditing their own work as SPE consultants 
B) Losing a very large client 
C) A partner reviewed another partner's work 
D) Internal debates about Enron's questionable accounting treatments were not discussed with the audit committee 
E) Audit staff leaving the firm to work for Enron

Question 16

Which of the following was not among Arthur Andersen's shortcomings in conducting Enron's audit?

Accepted Answer

A) Lack of competence 
B) Failure of quality control standards 
C) Misunderstanding of auditor's fiduciary role 
D) Inconclusive testing of control 
E) Insufficient information provided by Enron's staff 
A) Lack of competence 
B) Failure of quality control standards 
C) Misunderstanding of auditor's fiduciary role 
D) Inconclusive testing of control 
E) Insufficient information provided by Enron's staff

Question 17

The following three broad duties stem from the fiduciary status of corporate directors:

Accepted Answer

A) Obedience, loyalty, and confidentiality 
B) Obedience, loyalty, and due care 
C) Loyalty, due care, and confidentiality 
D) Obedience, loyalty, and good faith 
E) Loyalty, confidentiality, and good faith 
A) Obedience, loyalty, and confidentiality 
B) Obedience, loyalty, and due care 
C) Loyalty, due care, and confidentiality 
D) Obedience, loyalty, and good faith 
E) Loyalty, confidentiality, and good faith

Question 18

These companies are more likely to voluntarily adopt improved governance measures:

Accepted Answer

A) Larger companies 
B) Less profitable companies 
C) Foreign companies 
D) Smaller companies 
E) Private companies 
A) Larger companies 
B) Less profitable companies 
C) Foreign companies 
D) Smaller companies 
E) Private companies

Question 19

In general terms, WorldCom overstated its reported net income by:

Accepted Answer

A) Generating false expenses 
B) Booking false revenue 
C) Capitalizing line costs 
D) Amortizing line costs quicker than allowed under GAAP 
E) Recognizing future period's revenue 
A) Generating false expenses 
B) Booking false revenue 
C) Capitalizing line costs 
D) Amortizing line costs quicker than allowed under GAAP 
E) Recognizing future period's revenue

Question 20

Enron created the following SPE(s)to hide off-balance sheet liabilities, recognize revenues early , and recognize profits on own shares:

Accepted Answer

A) LJM 
B) LJM1/Rhythms 
C) LJM2/Raptors 
D) Chewco/JEDI 
E) LJM3 
A) LJM 
B) LJM1/Rhythms 
C) LJM2/Raptors 
D) Chewco/JEDI 
E) LJM3

Which of the following was not a flaw found in LJM1 arrangements?

In order to ensure an investment-grade credit rating, Enron began to emphasize the following three actions:

Enron referred to this transactions as "monetizing" or "syndicating" its assets:

This type of manipulation is known as "cookie jar" accounting:

After SOX, which of the following is not a prohibited non-audit service for external auditors?

Most observers agree that Enron's problems were caused by:

SOX increased the time requirement and legal risk for company directors.These requirements will likely:

The independence of the Enron Board of Directors was compromised by:

At the time of Enron's collapse, the prevailing treatment for employee stock option expense was:

Which of the following was not a strategy used by Enron to avoid taxes?

Which of the following is not a requirement imposed by the SOX Corporate Governance Framework?

The Board of Directors' paramount duty is:

Under the U.S.accounting rules, the following conditions were required to consider special purpose entities (SPEs)to be independent parties:

Which of the following was not a committee in Enron's Board?

Which of the following was not a conflict of interest that Arthur Andersen's personnel encountered?

Which of the following was not among Arthur Andersen's shortcomings in conducting Enron's audit?

The following three broad duties stem from the fiduciary status of corporate directors:

These companies are more likely to voluntarily adopt improved governance measures:

In general terms, WorldCom overstated its reported net income by:

Enron created the following SPE(s)to hide off-balance sheet liabilities, recognize revenues early , and recognize profits on own shares:

Ethics Expectations

Ethics & Governance Scandals

Ethical Behavior Philosophers’ Contributions

Practical Ethical Decision Making

Corporate Ethical Governance & Accountability

Professional Accounting in the Public Interest, Post Enron

Managing Ethics Risks & Opportunities

Subprime Lending Fiasco – Ethics Issues

Filters

Exam 9: The Credibility Crisis - Enron, WorldCom & SOX

Which of the following was not a flaw found in LJM1 arrangements?

In order to ensure an investment-grade credit rating, Enron began to emphasize the following three actions:

Enron referred to this transactions as "monetizing" or "syndicating" its assets:

This type of manipulation is known as "cookie jar" accounting:

After SOX, which of the following is not a prohibited non-audit service for external auditors?

Most observers agree that Enron's problems were caused by:

SOX increased the time requirement and legal risk for company directors.These requirements will likely:

The independence of the Enron Board of Directors was compromised by:

At the time of Enron's collapse, the prevailing treatment for employee stock option expense was:

Which of the following was not a strategy used by Enron to avoid taxes?

Which of the following is not a requirement imposed by the SOX Corporate Governance Framework?

The Board of Directors' paramount duty is:

Under the U.S.accounting rules, the following conditions were required to consider special purpose entities (SPEs)to be independent parties:

Which of the following was not a committee in Enron's Board?

Which of the following was not a conflict of interest that Arthur Andersen's personnel encountered?

Which of the following was not among Arthur Andersen's shortcomings in conducting Enron's audit?

The following three broad duties stem from the fiduciary status of corporate directors:

These companies are more likely to voluntarily adopt improved governance measures:

In general terms, WorldCom overstated its reported net income by:

Enron created the following SPE(s)to hide off-balance sheet liabilities, recognize revenues early , and recognize profits on own shares:

Ethics Expectations

Ethics & Governance Scandals

Ethical Behavior Philosophers’ Contributions

Practical Ethical Decision Making

Corporate Ethical Governance & Accountability

Professional Accounting in the Public Interest, Post Enron

Managing Ethics Risks & Opportunities

Subprime Lending Fiasco – Ethics Issues

Filters