Deck 4: Ethics, Internal Control, and Cash

Question 1

In a broad sense, fraud is the use of deception or trickery for personal gain.

Answer 1

True

Question 2

Persons who report unethical behavior are known as __________.

Answer 2

whistleblowers

Question 3

Fraudulent financial reporting typically involves:

A) management.
B) employees.
C) the board of directors.
D) the shareholders.
E) employees and their friends.

Answer 3

management.

Question 4

Besides using an overstatement of earnings to inflate a company's share price, overstating earnings may also be used to:

A) deflate the amount of taxes the corporation pays.
B) avoid paying raises to employees.
C) ensure larger bonuses to upper management at year-end.
D) avoid paying dividends to shareholders.
E) avoid bonuses to management.

Question 5

A code of ethics should be:

A) verbal and communicated to all members of the organization.
B) written and provided to potential new employees.
C) enforced.
D) written, communicated, and enforced.
E) kept private.

Question 6

In dealing with ethics, saying "Do as I say, not as I do" works very well.

Question 7

To ensure that the guidelines for right behavior are followed, a corporation should follow:

A) ethical principles.
B) accounting law.
C) the leaders in their category of business.
D) the corporate culture.
E) competitive law.

Question 8

Fraud is always committed against an organization.

Question 9

Ethics is defined as principles of right and wrong.

Question 10

The goal of overstating earnings by using fraud is:

A) to deflate the amount of taxes the corporation pays.
B) to overstate the cost of goods sold.
C) that it may help to increase the stock price of the company.
D) to overstate receivables.
E) to deflate accounts payable.

Question 11

Being unethical is the same thing as being unlawful.

Question 12

Which statement is False about ethics?

A) Ethics are rules.
B) Ethics are guidelines for how we perceive right and wrong.
C) Ethics are a vital part of the accounting profession.
D) Things may be unethical but still be legal.
E) Ethics are only important in Canada.

Question 13

Review the activities below and determine if the activities are ethical or create an ethical dilemma.

Question 14

Name the two forms of fraud explained in your textbook.

Question 15

A code of behaviour defines the standards of behaviour that all members of an organization are expected to follow.

Question 16

Fraud is one of the fastest-growing crimes.

Question 17

Whistleblowers must be allowed to report ethics violations:

A) by giving their name in their report, no matter what the consequences.
B) but only with the support of another witness.
C) by giving their name in their report, yet without fear of punishment or retaliation.
D) anonymously, without fear of punishment or retaliation.
E) and to face the accused.

Question 18

Honesty, fairness, and integrity are all a part of:

A) ethical law.
B) ethical behavior.
C) accounting law.
D) GAAP.
E) IFRS principles.

Question 19

Ethical behaviour is encouraged because:

A) our society expects ethical behaviour.
B) ethics and legality are the same things.
C) laws are the same as ethics.
D) it makes the company happy.
E) it makes the world a better place.

Question 20

An organization's employees are usually responsible for fraud that is committed by a business organization.

Question 21

Overbilling the company for parking fees or cab fare would be an example of a(n) __________.

Question 22

Cash register schemes are a form of __________.

Question 23

An employee authorizing payments to a supplier for goods not delivered to the employer would be an example of a __________.

Question 24

__________ embezzlement is a form of fraud committed against an organization.

Question 25

Recording assets that the company does not possess is an example of: __________.

Question 26

The primary form of fraud committed against an organization is usually done by __________.

Question 27

Establishing fake companies, then having the company pay for goods or services that will never be delivered, and then intercepting and cashing the cheques would be an example of a(n) __________.

Question 28

An employee who pockets cash received from a customer without recording the transaction is conducting a __________.

Question 29

Embezzlement usually involves the misappropriation of business:

A) equity by an employee.
B) liabilities by an employee.
C) assets by an employee.
D) information by an employee.
E) equity by non-employees.

Question 30

The fraud triangle is used to show the connection of the factors necessary to commit fraud by or against an organization.

Question 31

Based on the fraud triangle, finding good reasons for doing things that we really know are wrong is an example of __________.

Question 32

________ can be reduced through a good system of internal control.

A) Realization
B) Perceived opportunity
C) Rationalization
D) Perceived pressure
E) Fraud opportunity

Question 33

For fraud to occur, three things must exist. Identity the three things.

Question 34

Receiving favours from a supplier by turning a blind eye to the delivery of inferior goods is a form of __________.

Question 35

A business has great control over perceived pressure felt by an employee.

Question 36

Based on the fraud triangle, the chance to commit a fraud, conceal it, and avoid punishment is an example of __________.

Question 37

An employee may embezzle by taking bribes or kickbacks from:

A) suppliers.
B) customers.
C) both suppliers and customers.
D) shareholders of the company.
E) management.

Question 38

Attempting to justify your actions is an example of __________.

Question 39

Granting customers a lower sales price for something that benefits you in return would be an example of a __________.

Question 40

The primary form of fraud is employee embezzlement. Employees engage in disbursement schemes. This includes cheque tampering schemes, cash register schemes, and expense schemes. Match the disbursement scheme with the event below.

Question 41

A company may be limited in its internal control procedures because the cost of hiring enough people to implement the procedures:

A) outweighs the benefits of the system.
B) has nothing to do with the effectiveness of the internal control system.
C) can prevent collusion.
D) can limit employee distractions.
E) can make employees scared.

Question 42

An organization's employees are responsible for the design and implementation of the internal control system.

Question 43

Identify each of the following as an example of perceived opportunity, rationalization, and perceived pressure.

Question 44

Details that support business transactions make up a(n) __________.

Question 45

Having security measures, proper authorization channels, and restricted access to assets is an example of what element of internal control?

Question 46

Safeguarding assets and ensuring proper reporting of financial information are two of the objectives of having an internal control system.

Question 47

The delegation of authority and leadership is part of the control environment of an internal control system.

Question 48

Internal control systems:

A) are the same from company to company.
B) are regulated by the Securities and Exchange Commission.
C) vary from company to company.
D) guarantee the safeguard of assets.
E) are regulated by Canadian law.

Question 49

Small companies' internal control is always inferior.

Question 50

Separation of duties is part of the control environment of an internal control system.

Question 51

Internal control is a comprehensive system that helps an organization do all of the following EXCEPT:

A) safeguard assets.
B) safeguard liabilities.
C) operate efficiently and effectively.
D) ensure compliance with applicable laws and regulations.
E) ensure happy employees.

Question 52

A good internal control system does which of the following?

A) Guarantees the efficiency and effectiveness of operations
B) Reduces the risk of undetected errors
C) Provides absolute assurance that no errors will occur
D) Guarantees that fraud will be prevented
E) Reduces the risk of breaking the law

Question 53

Identify each of the following as an example of perceived pressure (PP), perceived opportunity (PO), or rationalization (R) in the fraud triangle.

Question 54

Provide examples of good control activities.

Question 55

List the four parts of a well-defined internal control system.

Question 56

Identify each of the following as an example of perceived pressure (PP), perceived opportunity (PO), or rationalization (R) in the fraud triangle.

Question 57

Employing competent employees would be an example of what element of internal control?

Question 58

Internal control systems are the same in all companies.

Question 59

Just like anything in accounting, internal control systems are not perfect, although they do reduce the risk of undetected errors and irregularities.

Question 60

One objective of an internal control system is to safeguard the assets of a company.

Question 61

The Audit Committee's responsibilities are assigned by the:

A) Chief Executive Officer.
B) Chief Financial Officer.
C) Board of Directors.
D) company Controller.
E) Finance Manager.

Question 62

One of the biggest factors in implementing SOX was:

A) reviewing the financial reports.
B) establishing internal control procedures.
C) disclosing deficiencies in internal controls.
D) the cost of implementing the system.
E) government approval.

Question 63

Identify each of the following examples as an element of internal control.

Question 64

Mike Fences, a controller, has an accounting staff of ten. Jeremy, his accounts payable supervisor, never takes more than an occasional day of vacation. The employee is very hard working, and likes to receive the cash payout for vacation. This works well for Mike; it reduces his expenses and the other employees do not have to be trained to help out in his absence.
Do you agree with Mike?

Question 65

Under SOX, the Chief Executive Officer and Chief Financial Officer must sign off on:

A) all annual reports by the company.
B) all quarterly reports by the company.
C) all annual or quarterly reports by the company.
D) the external auditor's opinion.
E) monthly expenses.

Question 66

Prior to SOX, external auditors often reported to a company's upper management.

Question 67

There are five key elements that affect an organization's internal control system. Name the elements.

Question 68

The positions of Treasurer and Controller directly report to the:

A) Audit Committee.
B) Vice-President of Accounting and Finance.
C) Chief Executive Officer.
D) Chief Financial Officer.
E) Accounting Manager.

Question 69

Identify the element of internal control in the below chart.

Question 70

Under Sarbanes-Oxley, those officers signing off on the reports must have evaluated the company's internal control within the previous __________.

Question 71

Under SOX, the external auditors must now report to __________.

Question 72

The responsibility of external and internal auditing is assigned by the __________.

Question 73

The outcome of an audit is an audit opinion. There are four types of audit opinions. List the four types of options, and determine the preferred audit option.

Question 74

For each of the following independent situations, identify the internal control element and make a recommendation to improve internal control.
1. Graphic Games is a very busy small company. The blank cheques are available in the box beside the printer for easy access to printing.
2. At Patel's Plumbing, the accounting clerk issues and authorizes the payments.

Question 75

Sarbanes-Oxley has not influenced Canadian standards.

Question 76

In Canada, external auditors must now report to __________.

Question 77

In order to get a handle on accounting fraud, the U. S. Congress in 2002 passed the __________.

Question 78

Canada formed a new accounting supervisory body after 2002. Name the accounting body.

Question 79

The Sarbanes-Oxley Act in the United States applies to __________-.

Question 80

During an audit, who is responsible for confirming and validating the accounting record?