Question 1

A defendant is liable for injuries when he acted with willfulness. Another term for willfulness is:

Accepted Answer

A)  Negligence 
B)  Recklessness 
C)  Strict Liability 
D)  Intent 
A)  Negligence 
B)  Recklessness 
C)  Strict Liability 
D)  Intent D

Question 2

When an auditor acts so carelessly in the application of professional standards that it implies a reckless disregard for the standards of due care is referred to as:

Accepted Answer

A)  Scienter 
B)  Fraud 
C)  Constructive fraud 
D)  Negligence 
A)  Scienter 
B)  Fraud 
C)  Constructive fraud 
D)  Negligence C

Question 3

Under the Securities Act of 1933, accountants who assist in the preparation of the registration statement are civilly liable if the registration statement:

Accepted Answer

A)  Contains untrue statements of material fact 
B)  Omits material facts required by statute or regulation 
C)  Omits information that if not given makes the facts stated misleading 
D)  All of the above 
A)  Contains untrue statements of material fact 
B)  Omits material facts required by statute or regulation 
C)  Omits information that if not given makes the facts stated misleading 
D)  All of the above D

Question 4

Lotus Hospitality, a U.S. publicly-owned company doing business in China, deals with state-owned enterprises in a variety of countries. It is common for Chinese companies to pay custom officials in these countries amounts ranging from $100-$500 to enable their goods to be off-loaded at the receiving docks in each country. To show its appreciation for the many years of doing business in these countries, Lotus invited 50 government officials and employees of state-owned enterprises to attend the Olympic Games in China at the company's expense, and ultimately paid for such guests as well as some spouses and others who attended along with them. Sponsored guests were primarily from countries in Africa and Asia, and they enjoyed three- and four-day hospitality packages that included event tickets, luxury hotel accommodations, and sightseeing excursions valued at $12,000 to $16,000 per package. In return for the generosity of Lotus Hospitality, the state-owned enterprises promised to give preference to Chinese companies when multi-million dollar contracts are awarded.
Describe the nature of these payments under the Foreign Corrupt Practices Act (FCPA) and assess their legality. What are the potential ethical issues of allowing certain types of payments under the Act?

Accepted Answer

The payments of $100-$500 to expedite of

Question 5

In the Miller Energy Resources case, the SEC found that:

Accepted Answer

A)  Held the auditors were not liable because they exercised due care and professional skepticism. 
B)  Held the auditors liable because they failed to gather sufficient, competent evidential matter to assess the value of assets on the financial statements. 
C)  Held the auditors liable because they colluded with management to misrepresent the value of assets on the financial statements. 
D)  The auditors were not liable because they met all professional standards. 
A)  Held the auditors were not liable because they exercised due care and professional skepticism. 
B)  Held the auditors liable because they failed to gather sufficient, competent evidential matter to assess the value of assets on the financial statements. 
C)  Held the auditors liable because they colluded with management to misrepresent the value of assets on the financial statements. 
D)  The auditors were not liable because they met all professional standards.

Question 6

The Securities Act of 1933:

Accepted Answer

A)  Regulates the auditing of financial statements for publicly-traded companies 
B)  Limits the financial liability of independent auditors except in the case of gross negligence 
C)  Regulates the initial offering of securities 
D)  Regulates which services may be performed for a publicly-traded company by an audit firm 
A)  Regulates the auditing of financial statements for publicly-traded companies 
B)  Limits the financial liability of independent auditors except in the case of gross negligence 
C)  Regulates the initial offering of securities 
D)  Regulates which services may be performed for a publicly-traded company by an audit firm

Question 7

The ethical dilemma in the TransWays' case can best be described as:

Accepted Answer

A)  The external auditors are being blocked by the client in attempting to verify accounting treatment of oil drilling services 
B)  The Director of International Accounting questions the revenue recognition for oil drilling overseas 
C)  Gross negligence on behalf of the auditors to account for oil inventory 
D)  Whether payments made to customs officials are can be properly recorded as facilitating payments 
A)  The external auditors are being blocked by the client in attempting to verify accounting treatment of oil drilling services 
B)  The Director of International Accounting questions the revenue recognition for oil drilling overseas 
C)  Gross negligence on behalf of the auditors to account for oil inventory 
D)  Whether payments made to customs officials are can be properly recorded as facilitating payments

Question 8

In Grant Thornton v. Prospect High Income Fund, the Texas Supreme Court held:

Accepted Answer

A)  Auditors were not liable for accurate accounting to anyone who reads and relies upon the audit report 
B)  Auditors were not liable for ordinary negligence 
C)  Auditors are not guarantors of accurate and reliable financial statements 
D)  Management is responsible for the financial statements 
A)  Auditors were not liable for accurate accounting to anyone who reads and relies upon the audit report 
B)  Auditors were not liable for ordinary negligence 
C)  Auditors are not guarantors of accurate and reliable financial statements 
D)  Management is responsible for the financial statements

Question 9

The FCPA requires all SEC registrants to have each of the following except:

Accepted Answer

A)  Maintain internal accounting controls 
B)  Ensure all transactions are authorized by management and recorded properly 
C)  Maintain information systems that prevent fraudulent activities that violate the FCPA 
D)  Maintain adequate books and records to fairly reflect an issuer's transactions and disposition of assets 
A)  Maintain internal accounting controls 
B)  Ensure all transactions are authorized by management and recorded properly 
C)  Maintain information systems that prevent fraudulent activities that violate the FCPA 
D)  Maintain adequate books and records to fairly reflect an issuer's transactions and disposition of assets

Question 10

Under section 302 of the SOX the financial statement certifying officials must include in their certification that:

Accepted Answer

A)  A list of all deficiencies in the internal controls and information on any fraud that involves employees who are involved with internal activities has been created 
B)  The auditors are responsible for the internal controls and have evaluated and reported on them 
C)  All changes in internal controls or related factors that could have a negative effect on the internal controls have been made 
D)  The audit report was unmodified 
A)  A list of all deficiencies in the internal controls and information on any fraud that involves employees who are involved with internal activities has been created 
B)  The auditors are responsible for the internal controls and have evaluated and reported on them 
C)  All changes in internal controls or related factors that could have a negative effect on the internal controls have been made 
D)  The audit report was unmodified

Question 11

In Grant Thornton v. Prospect High Income Fund, Grant used each of the following points to defend itself against legal liability except:

Accepted Answer

A)  There was no evidence of a causal connection between Grant's alleged misrepresentation and the funds' alleged injury 
B)  There was no evidence of actual and justifiable reliance 
C)  There was no evidence of the loss suffered by the plaintiffs 
D)  Liability for fraudulent misrepresentations runs only to those whom the auditor knows and intends to influence, all of which was not present 
A)  There was no evidence of a causal connection between Grant's alleged misrepresentation and the funds' alleged injury 
B)  There was no evidence of actual and justifiable reliance 
C)  There was no evidence of the loss suffered by the plaintiffs 
D)  Liability for fraudulent misrepresentations runs only to those whom the auditor knows and intends to influence, all of which was not present

Question 12

Which of the following is NOT a requirement of Section 10A of the Securities Exchange Act of 1934 for auditors of public companies with respect to illegal acts?

Accepted Answer

A)  Determine whether it is likely that an illegal act has occurred 
B)  Determine what the possible effect of the illegal act is on the financial statements 
C)  Determine whether management participated in the illegal act 
D)  Inform management and assure that the audit committee knows about any material illegal act that has been detected 
A)  Determine whether it is likely that an illegal act has occurred 
B)  Determine what the possible effect of the illegal act is on the financial statements 
C)  Determine whether management participated in the illegal act 
D)  Inform management and assure that the audit committee knows about any material illegal act that has been detected

Question 13

Which of the following is NOT one of the most relevant sources of civil liabilities for auditors charged with failing to adhere to the requirements of the laws in carrying out professional obligations?

Accepted Answer

A)  Securities Act of 1933 
B)  Private Securities Litigation Reform Act of 1995 
C)  Securities and Exchange Act of 1934 
D)  Sarbanes-Oxley Act of 2002 
A)  Securities Act of 1933 
B)  Private Securities Litigation Reform Act of 1995 
C)  Securities and Exchange Act of 1934 
D)  Sarbanes-Oxley Act of 2002

Question 14

The TransWays' case deals with legal liabilities due to:

Accepted Answer

A)  Bribery of foreign government officials 
B)  Fraudulent financial statements 
C)  Facilitating payments to government agents 
D)  Bribery of U.S. government officials 
A)  Bribery of foreign government officials 
B)  Fraudulent financial statements 
C)  Facilitating payments to government agents 
D)  Bribery of U.S. government officials

Question 15

Which term refers to a person acting in a way that breaches their duty to another that causes harm?

Accepted Answer

A)  Negligence 
B)  Recklessness 
C)  Strict Liability 
D)  Intent 
A)  Negligence 
B)  Recklessness 
C)  Strict Liability 
D)  Intent

Question 16

The accounting issue(s) in the Crazy Eddie case were:

Accepted Answer

A)  Accelerating revenues into earlier periods 
B)  Inflating inventory and net income 
C)  Capitalizing costs that should have been expensed 
D)  Off-balance sheet entities 
A)  Accelerating revenues into earlier periods 
B)  Inflating inventory and net income 
C)  Capitalizing costs that should have been expensed 
D)  Off-balance sheet entities

Question 17

Under the Private Securities Litigation Reform Act (PSLRA), if an auditor concludes that an illegal act with a material effect on the financial statements has been reported to, but not dealt with by senior management, the auditor should next report his/her conclusions to:

Accepted Answer

A)  The Securities and Exchange Commission 
B)  The company's board of directors 
C)  The office of the controller/comptroller for the appropriate state 
D)  The Federal Bureau of Investigation 
A)  The Securities and Exchange Commission 
B)  The company's board of directors 
C)  The office of the controller/comptroller for the appropriate state 
D)  The Federal Bureau of Investigation

Question 18

In FCPA matters, the following would be considered effective compliance program policies except:

Accepted Answer

A)  Few resources dedicated to compliance of standards 
B)  Auditing of compliance functions 
C)  Availability of compliance expertise on the board 
D)  Clear reporting structure for compliance personnel 
A)  Few resources dedicated to compliance of standards 
B)  Auditing of compliance functions 
C)  Availability of compliance expertise on the board 
D)  Clear reporting structure for compliance personnel

Question 19

Pfizer was investigated by the SEC for violating the Foreign Corrupt Practices Act (FCPA) because it allegedly:

Accepted Answer

A)  Made improper payments to foreign officials to obtain regulatory and formulary approvals 
B)  Made improper payments to foreign officials to obtain sales 
C)  Made improper payments to foreign officials to obtain increased prescriptions for the company's pharmaceutical products 
D)  All of the above 
A)  Made improper payments to foreign officials to obtain regulatory and formulary approvals 
B)  Made improper payments to foreign officials to obtain sales 
C)  Made improper payments to foreign officials to obtain increased prescriptions for the company's pharmaceutical products 
D)  All of the above

Question 20

The defendant-auditors in the Anjoorian case argued, in their defense, that:

Accepted Answer

A)  To be found guilty to third parties, the court must find that an accountant had contemplated a specific transaction for which the financial statement will be used and that no such transaction was contemplated. 
B)  The plaintiff's theory of damages did not meet the foreseen legal criteria 
C)  They had no liability to the client because the client did not rely on the audited financial statements 
D)  They followed generally accepted auditing standards 
A)  To be found guilty to third parties, the court must find that an accountant had contemplated a specific transaction for which the financial statement will be used and that no such transaction was contemplated. 
B)  The plaintiff's theory of damages did not meet the foreseen legal criteria 
C)  They had no liability to the client because the client did not rely on the audited financial statements 
D)  They followed generally accepted auditing standards

A defendant is liable for injuries when he acted with willfulness. Another term for willfulness is:

When an auditor acts so carelessly in the application of professional standards that it implies a reckless disregard for the standards of due care is referred to as:

Under the Securities Act of 1933, accountants who assist in the preparation of the registration statement are civilly liable if the registration statement:

In the Miller Energy Resources case, the SEC found that:

The Securities Act of 1933:

The ethical dilemma in the TransWays' case can best be described as:

In Grant Thornton v. Prospect High Income Fund, the Texas Supreme Court held:

The FCPA requires all SEC registrants to have each of the following except:

Under section 302 of the SOX the financial statement certifying officials must include in their certification that:

In Grant Thornton v. Prospect High Income Fund, Grant used each of the following points to defend itself against legal liability except:

Which of the following is NOT a requirement of Section 10A of the Securities Exchange Act of 1934 for auditors of public companies with respect to illegal acts?

Which of the following is NOT one of the most relevant sources of civil liabilities for auditors charged with failing to adhere to the requirements of the laws in carrying out professional obligations?

The TransWays' case deals with legal liabilities due to:

Which term refers to a person acting in a way that breaches their duty to another that causes harm?

The accounting issue(s) in the Crazy Eddie case were:

Under the Private Securities Litigation Reform Act (PSLRA), if an auditor concludes that an illegal act with a material effect on the financial statements has been reported to, but not dealt with by senior management, the auditor should next report his/her conclusions to:

In FCPA matters, the following would be considered effective compliance program policies except:

Pfizer was investigated by the SEC for violating the Foreign Corrupt Practices Act (FCPA) because it allegedly:

The defendant-auditors in the Anjoorian case argued, in their defense, that:

Ethical Reasoning: Implications for Accounting

Cognitive Processes and Ethical Decision Making in Accounting

Organizational Ethics and Corporate Governance

Ethics and Professional Judgment in Accounting

Fraud in Financial Statements and Auditor Responsibilities

Earnings Management

Ethical Leadership and Decision-Making in Accounting

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Exam 6: Legal, Regulatory, and Professional Obligations of Auditors

A defendant is liable for injuries when he acted with willfulness. Another term for willfulness is:

When an auditor acts so carelessly in the application of professional standards that it implies a reckless disregard for the standards of due care is referred to as:

Under the Securities Act of 1933, accountants who assist in the preparation of the registration statement are civilly liable if the registration statement:

In the Miller Energy Resources case, the SEC found that:

The Securities Act of 1933:

The ethical dilemma in the TransWays' case can best be described as:

In Grant Thornton v. Prospect High Income Fund, the Texas Supreme Court held:

The FCPA requires all SEC registrants to have each of the following except:

Under section 302 of the SOX the financial statement certifying officials must include in their certification that:

In Grant Thornton v. Prospect High Income Fund, Grant used each of the following points to defend itself against legal liability except:

Which of the following is NOT a requirement of Section 10A of the Securities Exchange Act of 1934 for auditors of public companies with respect to illegal acts?

Which of the following is NOT one of the most relevant sources of civil liabilities for auditors charged with failing to adhere to the requirements of the laws in carrying out professional obligations?

The TransWays' case deals with legal liabilities due to:

Which term refers to a person acting in a way that breaches their duty to another that causes harm?

The accounting issue(s) in the Crazy Eddie case were:

Under the Private Securities Litigation Reform Act (PSLRA), if an auditor concludes that an illegal act with a material effect on the financial statements has been reported to, but not dealt with by senior management, the auditor should next report his/her conclusions to:

In FCPA matters, the following would be considered effective compliance program policies except:

Pfizer was investigated by the SEC for violating the Foreign Corrupt Practices Act (FCPA) because it allegedly:

The defendant-auditors in the Anjoorian case argued, in their defense, that:

Ethical Reasoning: Implications for Accounting

Cognitive Processes and Ethical Decision Making in Accounting

Organizational Ethics and Corporate Governance

Ethics and Professional Judgment in Accounting

Fraud in Financial Statements and Auditor Responsibilities

Earnings Management

Ethical Leadership and Decision-Making in Accounting

Filters