Deck 10: Ethical Decision Making: Corporate Governance, Accounting, and Finance

Question 1

Financial analysts rely on gatekeepers but are not gatekeepers themselves.

Answer 1

False
Explanation: Several important business professions, for example, attorneys, auditors, accountants, and financial analysts function as gatekeepers.

Question 2

Risk assessment provides assessment capabilities to uncover vulnerabilities of a firm.

Answer 2

False
Explanation: Risk assessment addresses risks that may hinder the achievement of corporate objectives.

Question 3

While the Sarbanes-Oxley Act is an internal mechanism to ensure ethical corporate governance, the Committee of Sponsoring Organizations (COSO) is an external mechanism.

Answer 3

False
Explanation: Sarbanes-Oxley and the European Union 8^th Directive are external mechanisms that seek to ensure ethical corporate governance, but there are internal mechanisms as well. One way to ensure appropriate controls within the organization is to utilize a framework advocated by the Committee of Sponsoring Organizations (COSO).

Question 4

The Sarbanes-Oxley Act is intended to provide protection where oversight did not previously exist.

Question 5

Which of the following is true of gatekeepers?

A)They are not bound to ethical duties.
B)Investors and boards are examples of gatekeepers.
C)They serve as intermediaries between market participants.
D)They are not responsible for ensuring conformance to fairness in the marketplace.

Question 6

Which of the following rely on gatekeepers for fair and effective functioning of economic markets?

A)Bankers
B)Auditors
C)Accountants
D)Financial analysts

Question 7

The function of auditors as gatekeepers is to:

A)verify a company's financial statements so that investors' decisions are free from fraud and deception.
B)evaluate a company's financial prospects or creditworthiness, so that banks and investors can make informed decisions.
C)ensure that decisions and transactions conform to the law.
D)function as intermediaries between a company's stockholders and its executives.

Question 8

In terms of ethical theory, lofty compensation packages have a utilitarian function when they act as incentives for executives to produce greater overall results.

Question 9

Risk assessment and ongoing monitoring are elements that comprise the control structure of the Sarbanes-Oxley Act.

Question 10

Board members are permitted to act in a way that is inconsistent with the central goals of the organization.

Question 11

The most basic ethical issue facing professional gatekeepers and intermediaries in business contexts involves conflicts of interest.

Question 12

A large boost in share price decreases a firm's equity leverage for external expansion.

Question 13

The COSO controls and the Sarbanes-Oxley requirements must be supported by a culture of accountability.

Question 14

Identify the gatekeepers who ensure that decisions and transactions conform to the law.

A)Accountants
B)Attorneys
C)Auditors
D)Analysts

Question 15

COSO is one of the first efforts to address corporate culture in a quasi-regulatory framework in recognition of its significant impact on the satisfaction of organizational objectives.

Question 16

Laying-off of employees is one of the slowest ways to increase stock price.

Question 17

Identify the gatekeepers who evaluate a company's financial prospects or creditworthiness, so that banks and investors can make informed decisions.

A)Investors
B)Attorneys
C)Auditors
D)Analysts

Question 18

Since audits are paid for by audited clients, there is an inherent conflict found in that financial arrangement.

Question 19

The board can prohibit actions to protect the long-term sustainability of a firm.

Question 20

Insider trading is considered patently fair and ethical because it encourages employees to work hard to get access to company information.

Question 21

Which of the following is a criticism of the Sarbanes-Oxley Act?

A)It excludes requirements for certification of documents by officers.
B)It imposes extraordinary financial costs on the firms.
C)It does not require lawyers to report concerns of wrongdoing if not addressed.
D)It does not require codes of ethics for senior financial officers.

Question 22

Which of the following provisions of the Sarbanes-Oxley Act requires lawyers to report concerns of wrongdoing if not addressed?

A)Section 407
B)Section 301
C)Section 406
D)Section 307

Question 23

Which of the following gatekeepers guarantee that executives act on behalf of the stockholders' interests?

A)Accountants
B)Board of directors
C)Auditors
D)Analysts

Question 24

A ____ exists where a person holds a position of trust that requires that he exercise judgment on behalf of others, but where his personal interests conflict with those of others.

A)duty of care
B)community of interest
C)conflict of interest
D)duty of loyalty

Question 25

Section 406 of the Sarbanes-Oxley Act addresses the:

A)rules of professional responsibility for attorneys.
B)codes of ethics for senior financial officers.
C)management assessment of internal controls.
D)services outside the scope of auditors.

Question 26

Identify the gatekeepers who function as intermediaries between a company's stockholders and its executives.

A)Accountants
B)Auditors
C)Board of directors
D)Financial analysts

Question 27

Which of the following elements of COSO sets the tone or culture of a firm?

A)Ongoing monitoring
B)Information and communications
C)Risk assessment
D)Control environment

Question 28

Identify the external mechanism that seeks to ensure ethical corporate governance.

A)The Sarbanes-Oxley Act
B)The COSO framework
C)The European Union 7^th Directive
D)The European Union 4^th Directive

Question 29

Which of the following statements is true of the Committee of Sponsoring Organizations?

A)It improves financial reporting through a combination of controls and governance standards called the External Control-Integrated Framework.
B)It is an external mechanism that seeks to ensure ethical corporate governance.
C)It describes control as encompassing those elements of an organization that, taken together, support people in the achievement of the organization's objectives.
D)It replaced the Sarbanes-Oxley Act to ensure ethical corporate governance.

Question 30

_____ of the Sarbanes-Oxley Act addresses the disclosure of audit committee financial expert.

A)Section 404
B)Section 301
C)Section 407
D)Section 307

Question 31

Section 307 of the Sarbanes-Oxley Act addresses the:

A)rules of professional responsibility for attorneys.
B)codes of ethics for senior financial officers.
C)management assessment of internal controls.
D)services outside the scope of auditors.

Question 32

Section 201 of the Sarbanes-Oxley Act addresses the:

A)rules of professional responsibility for attorneys.
B)codes of ethics for senior financial officers.
C)management assessment of internal controls.
D)services outside the scope of auditors.

Question 33

A professional is said to have _____ if he has a professional and ethical obligation to clients rooted in trust that overrides his personal interests.

A)statutory duties
B)executive rights
C)creditor claims
D)fiduciary duties

Question 34

Which of the following is an internal mechanism that seeks to ensure ethical corporate governance?

A)European Union 8^th Directive
B)The Sarbanes-Oxley Act
C)The COSO framework
D)European Union 7^th directive

Question 35

Which of the following statements is true of the Sarbanes-Oxley Act?

A)It is also known as the Financial Services Modernization Act of 2002.
B)It is enforced by the Financial Accounting Standards Board.
C)It was passed by Congress because corporate boards failed to police themselves.
D)It fails to provide oversight in terms of direct lines of accountability and responsibility.

Question 36

Which of the following statements is true of conflicts of interests?

A)Self-interest makes it easy for individuals to fulfill their gatekeeper duties.
B)Legal protection cannot shield professionals from conflicts of interests.
C)Cross-selling of consulting services reduces conflicts of interests.
D)Excessive executive compensation involves conflicts of interests.

Question 37

Which of the following provisions of the Sarbanes-Oxley Act mandates majority of independents on any board and total absence of current or prior business relationships?

A)Section 407
B)Section 301
C)Section 406
D)Section 307

Question 38

Section 404 of the Sarbanes-Oxley Act addresses the:

A)rules of professional responsibility for attorneys.
B)codes of ethics for senior financial officers.
C)management assessment of internal controls.
D)services outside the scope of auditors.

Question 39

Which of the following elements of COSO refers to policies and procedures that support the cultural issues such as integrity, ethical values, competence, philosophy, and operating style?

A)Ongoing monitoring
B)Information and communications
C)Control activities
D)Risk assessment

Question 40

Which provision of the Sarbanes-Oxley Act prohibits various forms of professional services that are determined to be consulting rather than auditing?

A)Section 201
B)Section 301
C)Section 307
D)Section 404

Question 41

Identify the COSO element that is directed at supporting the control environment through fair and truthful transmission of facts.

A)Risk assessment
B)Information and communications
C)Control activities
D)Ongoing monitoring

Question 42

Which of the following COSO elements provides assessment capabilities and uncovers vulnerabilities?

A)Risk assessment
B)Information and communications
C)Control activities
D)Ongoing monitoring

Question 43

Which of the following are additional ethical responsibilities board members should have beyond legal obligations?

A)They should maintain closed conversations within the firm.
B)They should refrain from providing oversight.
C)They should be critical in their inquiries about corporate vulnerabilities.
D)They should pay out a significant amount of the company's sustainable growth dollars to its chief executives in compensation.

Question 44

_____ refers to cultural issues such as integrity, ethical values, competence, philosophy, and operating style.

Question 45

Executive compensation packages based on _____ create huge incentives to artificially inflate stock value.

Question 46

Tom, an employee of Electronixx, adjusted credits and debits of the company's ledger to show high profits. He also created false documents, underreported his income, and evaded paying taxes for a year. Tom can be convicted for ____.

A)unethical insider trading
B)conflicts of interest in corporate governance
C)conflicts of interest in accounting
D)unfair executive excessive compensation

Question 47

Which of the following is true of the COSO controls and the Sarbanes-Oxley requirements?

A)They result in less transparency in ensuring ethical corporate governance.
B)They encourage greater accountability for financial stewardship.
C)They result in a lesser emphasis to prevent any financial misconduct.
D)They do not impact executives, boards, and internal audits.

Question 48

Which of the following scenarios gives rise to conflicts of interests in corporate governance?

A)Senior executives determining the compensation received by board members
B)Board members hand-selecting employees in their company
C)A CEO not chairing the board of directors
D)The absence of cross-fertilization of boards

Question 49

The Public Accounting Reform and Investor Protection Act of 2002 is commonly known as the ____.

Question 50

Which of the following is true of Federal Sentencing Guidelines for boards?

A)The board must be knowledgeable about the objectives and process of the ethics program rather than simply the mere contents of a training session.
B)The board should avoid exercising reasonable oversight with respect to the effectiveness and implementation of the ethics program.
C)The board should leave the evaluation of all board policies, procedures, governance structure, and position descriptions to the executives.
D)The board need not work with executives to analyze the incentives for ethical behavior.

Question 51

Which of the following exemplifies insider trading?

A)Underreporting income
B)Falsifying account documents
C)Misappropriation of proprietary knowledge
D)Illegally evading income taxes

Question 52

The role of _____ is to ensure that those who enter into the marketplace are playing by the rules and conforming to the very conditions that ensure the market functions as it is supposed to function.

Question 53

_____ is a voluntary collaboration designed to improve financial reporting through a combination of controls and governance standards called the Internal Control-Integrated Framework.

Question 54

Identify the duty of obedience according to which board members should strive toward corporate objectives, and are not permitted to act in a way that is inconsistent with the central goals of the organization?

A)Duty of care
B)Duty of good faith
C)Duty of candor
D)Duty of loyalty

Question 55

According to Kevin Bahr, which of the following is a cause for conflicts in the financial markets?

A)The independence and lack of expertise of audit committees
B)The presence of shareholder activism
C)Long-term executive greed versus short-term shareholder wealth
D)Self-regulation of the accounting profession

Question 56

According to the COSO framework, which of the following is true of internal control?

A)It is not geared to the achievement of objectives in overlapping categories.
B)It can provide absolute assurance to an entity's board.
C)It is an end in itself, not a means to an end.
D)It is affected by people at every level of an organization.

Question 57

Which of the following duties of board members suggests that conflicts of interest are always to be resolved in favor of the corporation?

A)Duty of care
B)Duty of good faith
C)Duty of candor
D)Duty of loyalty

Question 58

Sara, an employee of PentaComp Inc., passed on confidential information of her company to her friend. Her friend benefitted from selling PentaComp's stock based on the information shared by Sara. In this scenario, Sara can be convicted of ____.

A)insider trading
B)falsifying documents
C)underreporting income
D)evading taxes

Question 59

Which of the following legal duties of board members suggests that a director does not need to be an expert or actually run the company?

A)Duty of care
B)Duty of good faith
C)Duty of candor
D)Duty of loyalty

Question 60

Which of the following is true of excessive compensation packages?

A)When executive compensation is tied to stock price, executives have a strong incentive to focus on long-term corporate interests rather than short-term stock value.
B)When huge amounts of compensation depend on quarterly earnings reports, there is a strong incentive to manipulate those reports in order to achieve the money.
C)Economic fairness and personal morality always exists in executives receiving lofty compensation packages.
D)Excessive compensation packages serve corporate interests when they provide an incentive that is not based on executive performance or accomplishments.

Question 61

How does the lack of shareholder activism and the conflicts between services offered by public accounting firms cause conflicts in financial markets?

Question 62

Discuss how conflicts of interests can arise in a profession.

Question 63

Explain Enterprise Risk Management-Integrated Framework.

Question 64

The _____ Guidelines offer boards some specifics regarding ways to mitigate eventual fines and sentences in carrying out duties by paying attention to ethics and compliance.

Question 65

Explain the Federal Sentencing Guidelines for boards.

Question 66

Discuss the conflicts surrounding accounting practices.

Question 67

COSO developed _____ to serve as a framework for management to evaluate and improve their firms' prevention, detection, and management of risk.

Question 68

How can lofty executive compensation serve corporate interests?

Question 69

What is control environment?

Question 70

Discuss the duties of care and good faith.

Question 71

Which provisions of the Sarbanes-Oxley Act have the most impact on corporate governance and boards?

Question 72

What are the ethical responsibilities of board members?

Question 73

What are the requirements of and the most significant criticism of the Sarbanes-Oxley Act?

Question 74

Insider trading may be based on a claim of unethical misappropriation of ____, that is, knowledge only those in the firm should have.

Question 75

Briefly discuss the conflicts of interests involved in excessive executive compensation.

Question 76

In order to prevent accountants from being put into conflicts, the _____ publishes professional rules.

Question 77

What is insider trading?

Question 78

Discuss the control structure elements of the COSO framework.

Question 79

Explain the significance of gatekeepers.

Question 80

The _____ standards for internal controls moved audit, compliance, and governance from a numbers orientation to concern for the organizational environment.