Deck 3: Creating an Ethical Organization Environment and Effective Corporate Governance Systems

Question 1

According to the 2012 Global Fraud Study of the ACFE, which fraud scheme posed the greatest risks to organizations throughout the world:

A) Corruption and billing schemes
B) Improper use of social media
C) Illegal facilitating payments
D) Economic extortion

Answer 1

A

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

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

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

Answer 3

D

Question 4

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 these

Question 5

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 6

In the Ethical Dissonance Model, a high person-organization fit requires:

A) High organizational ethics, low individual ethics
B) High organizational ethics, high individual ethics
C) Low organizational ethics, high individual ethics
D) Low organizational ethics, low individual ethics

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

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 9

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 these

Question 10

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) Adhering to company policies and procedures

Question 11

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 12

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 these

Question 13

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 these

Question 14

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 these

Question 15

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 16

The seven signs of a pending ethical collapse include all but:

A) Pressure to make numbers
B) Whistleblowing hotline
C) Bigger than life CEO
D) Doing good in the community

Question 17

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 these

Question 18

According to the 2012 Global fraud Study of the ACFE, the most common method of initial detection of occupational fraud is:

A) Internal audit
B) Management review
C) External audit
D) Tip

Question 19

Assume you are an ethical person and feel uncomfortable about the way your company is reporting earnings. You believe it is deliberately overstated. If you want to bring your concerns to upper management, in which person-organization fit is it most likely that you will do so?

A) High organizational ethics, low individual ethics
B) Low organizational ethics, high individual ethics
C) Low organizational ethics, low individual ethics
D) High organizational ethics, high individual ethics

Question 20

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 21

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 22

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 these

Question 23

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 24

The 2011 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) Whistleblowing is up
C) Ethical cultures are weaker
D) Pressure to cut corners is lower

Question 25

With respect to whistleblowing, 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 these

Question 26

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 27

As a manager in her firm, Lucy concerns herself with the effectiveness of internal controls. Her main focus is how efficient and effective the company's internal controls are over time. Which component of internal control is Lucy engaging in?

A) Risk assessment
B) Control activities
C) Control environment
D) Monitoring

Question 28

A troubling result of the 2011 National Business Ethics Survey is:

A) Increased witnessing of misconduct in the workplace.
B) Decline in pressure to compromise ethics.
C) Increased rate of retaliation against whistleblowers.
D) Decline in negative view of supervisors' ethics.

Question 29

What are the fiduciary obligations of the board of directors?

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

Question 30

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 31

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 32

Strong corporate governance relies on a strong board of directors. Which of the following would be a strong candidate to be a board director for XYZ, Inc.?

A) Community member who has already served on the board 15 years.
B) Investor who has a multi-million dollar joint venture with the CEO and CFO.
C) Retired controller of a Fortune 1000 company.
D) Community member who receives annual large consulting contracts from XYZ.

Question 33

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 these

Question 34

The COSO report states that management should enact five components related to internal control objectives including each of the following except for:

A) Control environment
B) Risk assessment
C) Risk activities
D) Monitoring

Question 35

The ethical dissonance model looks at the ethical fit of the organizational and individual values. The optimal fit for an individual with high individual ethics would be:

A) High-High
B) High-Low
C) Low-High
D) Low-Low

Question 36

A reason that 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 these.

Question 37

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 these

Question 38

A seemingly positive result of the 2011 National Business Ethics Survey is:

A) The percentage of employees who had reported misconduct at work is increasing
B) Pressure to compromise ethical standards has been decreasing
C) The rate of retaliation against whistleblowers has been decreasing
D) The percentage of employees who said they could question management without fear of retaliation is decreasing

Question 39

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 these

Question 40

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 these

Question 41

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 42

Compensation of executives has soared over the last forty plus years to more than 400 times the pay for average workers. Suggested remedies to rein in executive compensation especially during time of corporate wrongdoing include each of the following except for:

A) Say on Pay rules
B) Disgorgement
C) Limits on executive compensation
D) Clawbacks

Question 43

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 44

Which is a questionable ethical work behavior of an employee?

A) Handing in all assignments on time.
B) Taking time off without pay to attend to a family crisis.
C) Using social media during the work day to update your Facebook page.
D) Giving your best effort during work time.

Question 45

An ethical organization incorporates what into their decision-making process:

A) Core values
B) Strategic policies
C) Reporting responsibilities
D) All of these

Question 46

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 47

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 48

What is a cause of agency problems?

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

Question 49

To whom does the management owe its ultimate allegiance?

A) Employees
B) Creditors
C) Shareholders
D) Government

Question 50

The 2010 Dodd-Frank Act includes additional incentives for whistleblowers. What is the act's effect on whistleblowing by accountants?

A) No accountant, internal or external, whether by job title or certification may receive a reward.
B) All accountants who whistle-blow are protected against retaliation.
C) Internal auditors who whistle-blow may receive a reward.
D) A CPA may report a violation of a public accounting firm's performance in an audit.

Question 51

A similarity between the Bernie Madoff situation and that of R. Allen Stanford is they both were:

A) The head of a major U.S. stock exchange
B) The CEO of a company that went out of business after a major financial statement fraud
C) Involved in Ponzi schemes
D) Exonerated in a trial because of lack of evidence of wrongdoing

Question 52

The most important values included in corporate values statements include:

A) Pursuit of self-interests
B) Commitment to beating the competition
C) Diversity
D) Integrity and ethical behavior

Question 53

Financial statement fraud includes all but:

A) Overstating revenues.
B) Understating expenses.
C) Overstating warranties on new product.
D) Improper asset valuations.

Question 54

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 55

The Act that enables a whistleblower to receive compensation for blowing the whistle if the claims are deemed to be valid and the individual is not precluded from receiving such an award is:

A) The Sarbanes-Oxley Act
B) The Foreign Corrupt Practices Act
C) The Private Securities Litigation Reform Act
D) The Dodd-Frank Financial Reform Act

Question 56

A code of ethics for financial professionals is important under Sarbanes-Oxley because:

A) It strengthens the relationship between financial professionals and shareholders
B) It supports the certification of financial statement requirement
C) It decreases the likelihood of whistleblowing
D) It enhances the ethics of the audit committee

Question 57

The primary ethical concern when contemplating whistleblowing as an accountant is:

A) It may violate my ethical obligations
B) It may fail to correct the matter
C) It may not be considered ethical by my employer
D) All of these

Question 58

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 59

Henry is the chief accounting office of XYZ Co. He believes the financial statements are accurate but he has been asked by the CFO to accelerate the recording of revenue at the end of the year to push a material amount that should be reported next year into the current year. If Henry is an ethical accountant he should react by:

A) Going along with the request as a one-time concession to the CFO
B) Refuse to go along with the request and report the matter to the board of directors
C) Discuss the matter with the CEO
D) Firing the CFO

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

In the Amgen case, former employees, Shawn O'Brien and Kassie Westmoreland, sued the company for:

A) Wrongful termination
B) Fraudulent actions
C) Discrimination
D) Retaliation

Question 62

Explain the ethical dissonance model and what a high ethics individual should look for in finding an ethical employer.

Question 63

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 2013 even though the sale was not made until January 3, 2014. Assume Hubbs decides not to go along with Franks' dictum. What steps should he take in trying to resolve the matter?

Question 64

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

Question 65

A major allegation in the XTO Energy case was the:

A) Insider trading
B) Violation of FCPA
C) Breach of fiduciary duties by board of directors
D) Retaliation of whistleblower

Question 66

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 67

The case of Steve Jobs's Health deals with:

A) Disclosure issues beyond financial information
B) Disclosures required of members of board of directors
C) Fiduciary obligations of a CEO
D) Fiduciary obligations of a board of directors

Question 68

In the Parable of Sadhu case, Bowen T. MCoy'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 these

Question 69

What is whistleblowing? Distinguish between internal and external whistleblowing including the parties that might be contacted in each case. Is it ethical to provide incentives or rewards for people to whistle-blow?

Question 70

An important issue in the Hewlett Packard pretexting case was:

A) Using false pretenses to obtain confidential information about members of the board of directors
B) Disclosing confidential client information without the approval of the client
C) Producing fraudulent financial statements
D) Twittering about a competitor and driving him out of business

Question 71

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 72

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 73

An important issue in the HP case with "event hostess" Jodie Fisher is:

A) Conflict of interest of Mark Hurd
B) Alleged sexual harassment of Jodi Fisher
C) Disclosure of confidential client information by Hurd to Fisher
D) All of these
Essay Questions

Question 74

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

Question 75

The Bennie and the Jets case deals with:

A) Proper income classification of rebates received from insurers
B) Accelerating revenues
C) Delaying expenses
D) Failing to record rebates from insurers

Question 76

The IRS whistleblowing Case deals with

A) Ethics of retaliation
B) Professional whistleblowing for gain
C) Revenge whistleblowing
D) Ethics of whistleblowing

Question 77

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 2013 even though the sale was not made until January 3, 2014. Describe Hubbs's ethical responsibilities in this matter if he is a CPA?

Question 78

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.

Question 79

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 80

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