Deck 3: Corporate Governance and Ethical Management

Question 1

Each of the following is a pillar of corporate governance except for:

A)Responsibility
B)Accountability
C)Fairness
D)Independence

Answer 1

D

Question 2

Each of the following is an ethical issue in business except for:

A)Honesty and fairness
B)Independence
C)Conflicts of interest
D)Fraud

Answer 2

B

Question 3

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

A)Corruption
B)Fraudulent billing
C)Illegal gratuities
D)Economic extortion

Answer 3

A

Question 4

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)All of the above

Question 5

The term "co-determination" refers to:

A)The representation of shareholders and creditors on the board of directors
B)Employee representation on the board of directors
C)Sharing power by top management and the board of directors
D)The fiduciary duties of the board of directors

Question 6

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 7

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 8

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)All of the above

Question 9

Internal control over financial reporting includes each of the following elements except for:

A)Maintaining accurate financial records
B)Providing reasonable assurance that receipts and expenditures are recorded based on proper authorization by management
C)External audit conducted in accordance with generally accepted auditing standards
D)Providing reasonable assurance that the financial statements are prepared in accordance with generally accepted accounting principles

Question 10

The Agency Theory can best be described as:

A)The relationship between top management and the board of directors
B)The relationship between the board of directors and shareholders
C)The relationship between top management and the board of directors, and shareholders
D)The relationship between the external auditors and top management

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

Agency costs refer to:

A)The costs incurred in monitoring managerial performance
B)The costs incurred because there is information asymmetry between the corporation and outsiders
C)The costs incurred because insiders know more about a company than do outsiders
D)All of the above

Question 13

The motivating factor for Sears to charge customers for repairs that were not needed was:

A)Cover a loss from its business operations
B)Greed
C)Build up certain segments of its business
D)All of the above

Question 14

The corporate governance system includes each of the following elements except for:

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

Question 15

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)All of the above

Question 16

Each of the following is an element of fairness in accounting except for:

A)Intellectual honesty
B)Unbiased
C)Transparency
D)Due care

Question 17

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

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

Question 18

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 19

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)All of the above

Question 20

The fiduciary duty of the board of directors includes all of the following except for:

A)Safeguarding corporate assets
B)Promoting shareholder interests
C)Exercising care in carrying out their responsibilities
D)Representing the interests of all stakeholders

Question 21

Each of the following is part of the New York Stock Exchange listing requirements except for:

A)All directors must be independent of management
B)Audit committees must consist of at least three members all of whom are independent of management and the entity
C)The audit committee should report regularly to the board of directors
D)Each listed company must have an internal audit function

Question 22

What is an inspirational short statement on key values?

A)Code of ethics
B)Code of conduct
C)Code of practice
D)Credo

Question 23

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 internalize the values of the company
C)It follows a stakeholder approach to decision making
D)All of the above

Question 24

In the survey of corporate values discussed in the chapter, which of the following was the most frequent value included in corporate values statements:

A)Ethical behavior/integrity
B)Commitment to customers
C)Honesty/openness
D)Accountability

Question 25

One failure with respect to the internal controls at Tyco and Adelphia was:

A)Falsification of bank statement balances
B)Top executives manipulated financial statement amounts
C)Top executives used hundreds of millions of dollars from interest-free loans for personal purposes
D)Top management engaged in a Ponzi scheme

Question 26

What are the fiduciary obligations of the board of directors?

A)Maximize profits for the company
B)Give excessive executive compensation
C)Safeguard the interests of the company's stakeholders
D)Allow high risk accounting practices

Question 27

SAS 78 describes internal control as a process, effected by an entity's board of directors, management and other personnel, designed to provide reasonable assurance regarding achievement of:

A)Effectiveness and efficiency of operations
B)Reliability of financial reporting
C)Compliance with applicable laws and regulations
D)All of the above

Question 28

Section 404 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)All of the above

Question 29

Each of the following is a component of internal control under SAS 55 except for:

A)The control environment
B)Risk assessment
C)Control activities
D)Transparency

Question 30

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)All of the above

Question 31

The expectation gap is the difference between what the public perceived as the responsibilities of accountants and __________________.

A)What accountants see as their responsibilities
B)What managers see as their responsibilities
C)What clients see as their responsibilities
D)What bankers see as their responsibilities

Question 32

The 2009 Ethics Resource Center National Business Ethics Survey indicates each of the following with respect to how employees view the ethics and ethical practices of organizations they work for except for:

A)Misconduct at work has declined over the years
B)Whistle blowing is up
C)Ethical cultures are weaker
D)Pressure to cut corners is lower

Question 33

With respect to whistle blowing, 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)All of the above

Question 34

Which of the following is not an ethical issue in business?

A)Conflicts of interest
B)Maximization of profits
C)Discrimination
D)Information technology

Question 35

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

A)Senior executives
B)Internal auditors
C)External auditors
D)The audit committee should meet separately with all of the above

Question 36

The Institute of Internal Auditors Code of Ethics includes each of the following principles except for:

A)Integrity
B)Objectivity
C)Independence
D)Confidentiality

Question 37

One of the reasons Bernie Madoff was able to pull off the Ponzi scheme for so long was:

A)He was trusted by those who invested with him
B)The SEC failed to act on tips about Madoff's questionable practices
C)The auditors either looked the other way or didn't look too hard to find the fraud
D)All of the above.

Question 38

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 39

What is the most important factor in encouraging employees to observe ethical guidelines?

A)Employees perceive the program is compliance based.
B)Employees perceive the program to be stakeholder based.
C)Employees perceive the program to be based on Management needs.
D)Employees perceive the program is values based.

Question 40

An ethical corporate culture can best be established by:

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

Question 41

In putting together the best audit team for a high tech company, which of the following would be allowed under SOX and independence rules?

A)IT consultant
B)IT auditor
C)Tax consultant
D)Former CFO of the company

Question 42

In the Parable of Sadhu case, Bowen T.McCoy's friend Steve 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 43

By which means were most frauds reported or discovered, according to the survey conducted by the ACFE (Association of Certified Fraud Examiners)?

A)Accidental
B)Internal Audit
C)External Audit
D)Tip

Question 44

In an ethical decision making model, the first step is

A)Know how to protect yourself
B)Look at the stakeholders involved
C)Frame the ethical issue
D)Determine all alternative actions

Question 45

In an ethical decision making model, the final step is

A)Know how to protect yourself
B)Reflect on the decision
C)Frame the ethical issue
D)Determine all alternative actions

Question 46

In the Amgen case, one former employee, Shawn O'Brien, sued the company for:

A)Wrongful termination
B)Fraudulent actions
C)Discrimination
D)All of the above

Question 47

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

Question 48

What is a university's equivalent of a code of ethics?

A)Honor code
B)Student Handbook
C)Faculty Handbook
D)Statement of Values

Question 49

What is a cause of agency problems?

A)Information asymmetry
B)Information symmetry
C)Information technology
D)Information privacy

Question 50

The aim of executive compensations is to:

A)Enrich the executive
B)Align the goals of the executive with the workers
C)Align the goals of the executive with the shareholders
D)Enrich the company

Question 51

What is the agency problem?

A)Managers place corporate goals ahead of personal goals.
B)Managers place personal goals ahead of corporate goals.
C)Managers place social goals ahead of personal goals.
D)Managers place corporate goals ahead of social goals.

Question 52

One of the duties of a board of directors is to protect the interests of stakeholders.Which of the following is an example of protecting such interests?

A)Back dating options for executives
B)Deceptive business practices
C)Off balance sheet financing
D)Transparent financial reporting

Question 53

Which is an ethical work behavior of an employee?

A)Taking office supplies home for personal use.
B)Using the photocopier for personal documents.
C)Being paid for time you did not work.
D)Giving your best effort during work time.

Question 54

To whom does the management owe its ultimate allegiance?

A)Employees
B)Environment
C)Stakeholders
D)Government

Question 55

Which would be an example of a company using an ethical decision making model and taking ethical actions?

A)Ford Pinto
B)Exxon Valdez oil spill
C)Johnson & Johnson Tylenol poisoning
D)Chevy trucks' side-saddle gas tanks

Question 56

Top values included in corporate values statements include:

A)Being top in the field
B)Commitment to beating the competition
C)Diversity
D)Integrity and ethical behavior

Question 57

What are the four pillars of corporate governance?

A)Respect, accountability, fairness and transparency.
B)Responsibility, accountability, firmness and transparency.
C)Responsibility, accountability, fairness and transparency.
D)Respect, accountability, firmness and transparency.

Question 58

A company establishes a set of formalized rules and standards that describe what a company expects of its employees.This is called a

A)Strategic plan
B)Guideline
C)Moral philosophy
D)Code of ethics

Question 59

What is the goal of accounting in association with business?

A)Producing accurate budgets
B)Producing accurate forecasts
C)Producing reliable financial statements
D)Producing reliable pro forma statements

Question 60

Which of the following is not used to overcome the agency problem?

A)Executive compensation
B)Audited financial statements
C)Related party transactions
D)Internal controls

Question 61

The Bubba Tech case deals with:

A)Whether the auditors exercised the proper degree of professional skepticism
B)Operational and corporate governance issues related to Bubba Tech's becoming a public company
C)Operational and corporate governance issues related to Bubba Tech's reporting under the Sarbanes-Oxley Act
D)Whether the auditors conducted an audit in accordance with generally accepted auditing standards

Question 62

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 63

Pension benefits that are protected under the Pension Benefit Guaranty Corporation can become an ethical issue because:

A)The individual company with a pension plan may not be able to meet all of its obligations
B)The PBGC may not be able to meet all company pension obligations if a company goes bankrupt
C)The PBGC may be underfunded and unable to meet its obligations
D)All of the above

Question 64

Compare and contrast the agency and stakeholder theories of corporate governance from the perspective of those involved in and affected by managerial decision making.

Question 65

An Internet Company has a chance to expand its business into a developing country.This chance would make money for its shareholders, as it would be the first Internet Company allowed in the country.However, the conditions demanded by the country is that the Internet Company must turn over to the government the history of Internet sites visited by its citizens.Additionally the Internet Company must also censor Internet sites requested through the search engine.In the United States and other countries, the Internet Company would not monitor, censor, or turn over a history of Internet sites to any government.
What should the Internet Company do? Use ethical theories and ethical decision making model to back up your decision.

Question 66

The Act that enables a whistleblower to receive compensation for blowing the whistle if the claims are deemed to be valid is:

A)The Sarbanes-Oxley Act
B)The Foreign Corrupt Practices Act
C)The Private Securities Litigation Reform Act
D)The Federal False Claims Act

Question 67

Refer to question 4, assume Hubbs decides not to go along with Franks' dictum.What steps should he take in trying to resolve the matter?

Question 68

Tommy Hubbs is the 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 2010 even though the sale was not made until January 3, 2011.Describe Hubbs' ethical responsibilities in this matter if he is a CPA?

Question 69

What is whistle blowing? Distinguish between internal and external whistle blowing including the parties that might be contacted in each case.

Question 70

What is meant by corporate governance? Describe the elements of a governance system and how it can help to enhance financial reporting.

Question 71

A school district decided to add an ethics officer to its administration.The district had watched how often the district was dealing with ethically sensitive situations.After doing research into how many organizations used an ethics officer and the desired education and background for such an officer, the district advertised for a person with the following qualifications: education in accounting, finance, or criminal justice; CPA preferred; and experience with compliance or audits.The district hired a person with a CPA license, degree in accounting and experience as an internal auditor doing compliance audits.
At the press conference to introduce the new ethics officer, a local news reporter pointedly asked about the candidate's background.The ethics officer stated as a CPA he knew how to handle ethical issues and he had the highest integrity.The reporter decided to a little more background research before writing the article.The state board of public accountancy of that state maintained an online database for the public to verify that a CPA was currently licensed.When the reporter could not find the ethics officer as a currently licensed CPA, he called the district and the ethics officer for a comment.
What should the district and ethics officer do? Use the ethical decision making model to defend your answer.

Question 72

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 73

As part of a required ethics course, students were required to take an online 90 minute ethics final.Facing graduation and many pressures with starting new jobs and moving, the students worked together to complete the final.Since the essays were all closely worded the same, the instructor could determine that some sort of cheating on the ethics exam had taken place.Using ethical decision making model, what should the school, instructor and students do? Would the suggested solution be different if the school had an honor code?
The students used an egoism approach to rationalize cheating on the final.The school and the instructor have the dilemma of what to do.Although many would agree with punishment for the cheating, the dilemma is what is the goal/role of a school and course.As an educational institute, the goal is probably to educate the students.Is the cheating incident a failure of the students or the program? One solution that the students may not think of is that the cheating students would have to use ethical reasoning and ethical decision making model to justify the solution to the problem they caused.

Question 74

Which case that deals with exercising the proper degree of professional skepticism?

A)United Thermostatic Controls
B)SEC v Jeanne M.Rowzee
C)SEC v Nanette Miller
D)Bubba Tech

Question 75

The SEC case against Jeanne M.Rowzee involved:

A)Fraudulent financial statements
B)Misappropriation of assets
C)A Ponzi scheme
D)Failure of corporate governance

Question 76

In the Bhopal case, in evaluating its exposure to possible future liability due to technology failures, Union Carbide used which of the following concepts:

A)Professional skepticism
B)Business risk
C)Cost-benefit analysis
D)Rights Theory

Question 77

What was the accounting issue in the Bhopal, India case?

A)Transparent disclosures
B)Lack of safety measures
C)Sustained injuries from leak of toxic gas
D)Settlement of claims filed by victims
Essay Questions

Question 78

What are the most important values to include in a corporate code of ethics or credo and why are these important values?

Question 79

The board of directors in the Hollinger case violated its:

A)Financial reporting responsibilities
B)Code of ethics
C)Fiduciary obligations
D)All of the above

Question 80

A strong and effective system of internal controls can help to create an ethical corporate culture.Explain how the internal control system can enhance ethical decision making.