Accounting and Society Practice Questions
Course Introduction
Accounting and Society explores the integral role accounting plays within social, economic, and political contexts. This course examines how accounting practices influence and are influenced by broader societal issues, including ethics, corporate responsibility, public interest, and transparency. Students will learn how accounting information is used by various stakeholders, such as governments, corporations, and the public, to make informed decisions. Through critical analysis, the course also addresses contemporary challenges and debates within the profession, emphasizing the social consequences of accounting choices and the evolving responsibilities of accountants in addressing societal needs.
Recommended Textbook
Ethics In Accounting A Decision Making Approach 1st Edition by Gordon Klein
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Page 2
Chapter 1: Introduction to Ethics
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Sample Questions
Q1) If a single woman is working as a professional accountant outside the United States,joining IFAC is:
A) Impossible
B) Mandatory
C) Permitted only if an existing IFAC member recommends her
D) Optional but highly recommended as a reputational tool for attracting and retaining clients
Answer: A
Q2) A CPA who is a member of the AICPA failed to abide by the AICPA's Code of Professional Conduct.The state in which she practices accounting requires all CPAs to abide by "all professional standards." This CPA's license to practice accounting will potentially be:
A) Suspended
B) Revoked
C) Not affected
D) All of the above
Answer: D
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Chapter 2: Ethical Principles and Reasoning
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Q1) Acting in a manner that is inconsistent with the stated rules of a legal statute,knowing that your actions are incompatible with that statute,corresponds to which of the following stages of moral development?
A) The pre-conventional stage
B) The conventional stage
C) The post-conventional stage
D) All of the above
Answer: C
Q2) Kohlberg's three levels of moral development,in order,focus on:
A) Self-interest, achieving justice, and achieving peer approval
B) Self-interest, adhering to principles over laws, and learning to disregard the need for peer approval
C) The avoidance of punishment, compliance with laws, and compliance with societal expectations
D) Self-interest, achieving peer approval, and the pursuit of justice
Answer: D
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Chapter 3: The Core Philosophies
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Q1) The principal proponent of deontology was:
A) John Stuart Mill
B) Emanuel Kant
C) Jeremy Bentham
D) Aristotle
Answer: B
Q2) A real-world difficulty of applying deontology is that:
A) It can be difficult to identify all stakeholders affected by a decision
B) It can be difficult to measure utility
C) Some benefits, such as the right to the protection of trade secrets, are difficult to quantify
D) Two or more rights protected by deontology sometimes are in conflict
Answer: D
Q3) A focus on the importance of categorical imperatives distinguishes:
A) Utilitarianism from consequentialism
B) Deontology from utilitarianism
C) The philosophies espoused by Kant from deontology
D) The philosophies espoused by Mill from utilitarianism
Answer: B
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Page 5
Chapter 4: Virtue,justice,and Social Responsibility
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Q1) "Triple bottom line" accounting emphasizes the measurement of a company's:
A) Net Income, Net Cash Flow, and Net Capital Expenditures
B) Corporate spending on the "three C's" of charitable, civic, and cultural causes
C) Profitability, environmental sustainability practices, and employee welfare
D) Payments of taxes for the public interest, payment of wages to worker-stakeholders, and profits for shareholders
Q2) Do you believe that societal resource allocations based on Rawls' veil of ignorance should be widely adopted?
Q3) No society has adopted Rawls' veil of ignorance.Why do you think that Rawls' approach to distributive justice has not been widely adopted?
Q4) Under the viewpoint of virtue ethics,which of the following is not a commonly recognized virtue?
A) Loyalty
B) Trustworthiness
C) Independence of thought and action
D) Courage
Q5) What broad categories of acts do you consider to be acts of Corporate Social Responsibility?
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Chapter 5: Why We Cheat
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Q1) The overconfidence bias:
A) Leads people to have an exaggerated fear of loss
B) Leads people to overestimate the risks inherent in generating a possible gain
C) Leads people to unduly fear losses
D) Leads people to unduly minimize the odds of loss
Q2) The Becker Rational Model would likely be most helpful in:
A) Assisting law enforcement authorities in setting the level of punishment imposed on a particular cheater after unlawful behavior has occurred
B) Assisting potential cheaters in assessing the expected likelihood of getting caught
C) Assisting potential cheaters in assessing the expected punishment they will endure, if and when they are caught
D) Assisting potential cheaters in assessing the net economic gains they will garner from cheating
Q3) How important is the maintenance of a high self-image to you? Provide examples in which you took actions to augment your self-image.
Q4) What criticisms do you have of the Becker Rational Model?
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Chapter 6: Greed,corruption,and Collusion
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Q1) The "books and records" provisions of the Foreign Corrupt Practices Act:
A) Potentially imposes criminal liability on internal auditors who fail to detect bribery or corruption in a firm's record-keeping system
B) Potentially imposes criminal liability on external auditors who fail to detect bribery or corruption in a firm's record-keeping system
C) Requires publicly-held companies to devise and maintain adequate internal controls over payments that constitute bribes
D) Requires companies to document the amounts, purpose, and recipients of facilitation payments to ensure that their federal income tax reporting is accurate
Q2) A facilitation payment:
A) Is never lawful under the Foreign Corrupt Practices Act
B) Is lawful under the Foreign Corrupt Practices Act as long as it does not involve the exportation of merchandise from the United States
C) Is lawful under the Foreign Corrupt Practices Act as long as it does not involve the importation of merchandise into the United States
D) Is always lawful under the Foreign Corrupt Practices Act
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Chapter 7: Fraud and Earnings Management
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Q1) Enron used special-purpose entities to:
A) Keep large amounts of debt off of its balance sheet
B) Create the appearance of activities that fooled inspectors
C) Distort its reported Accounts Receivable
D) Avoid the use of accelerated depreciation on assets for which this method was required to be applied
Q2) What is cookie jar accounting? How is it abused?
Q3) What is big bath accounting? How is it abused?
Q4) When a person's net cash flow exceeds his or her reported taxable income,the IRS:
A) Has an automated system that identifies a taxpayer as a possible tax cheater
B) Presumes, upon examination, that the taxpayer is underreporting his or her income
C) Conclusively recognizes that the taxpayer is underreporting his or her income
D) Conclusively recognizes that the taxpayer has underreported both income and tax payments
Q5) What lessons have been learned from the demise of Enron?
Q6) If the accounting profession were to replace the accrual basis of accounting with the cash basis,do you think that financial accounting fraud would increase or decrease? Defend your viewpoint.
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Chapter 8: Discreditable Acts: Discrimination,deceit,and Disclosure
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Q1) The Accounting Principles Rule states that financial statements:
A) Always must comply with GAAP
B) Never should contain a departure from GAAP
C) May contain a departure from GAAP for administrative reasons, as long as the departure is clearly disclosed
D) May contain a departure from GAAP if adherence to GAAP would result in the statements being misleading
Q2) The "Continental Vending Machine" court decision was a landmark ruling because:
A) It authorized CPA firms to both prepare a client's financial statements and then audit these same financial statements
B) It held that, for consistency, all financial statements must comply with GAAP, regardless of the industry in which a company operates
C) Auditors can be held liable for misconduct, even if financial statements comply with GAAP
D) Auditors may recoup from an audit client all of the litigation losses that the auditor sustains from certifying misleading financial statements if the audit client solely was responsible for the statement presentation being misleading
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Page 10
Chapter 9: Confidentiality
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Q1) During the cold winter months,a Nebraska corn farmer discussed hiring a CPA to maintain his books and records.During the course of their discussions,the farmer told the CPA about various proprietary techniques that he uses to maximize the yield from growing corn and maximize the revenue his business generates.Thereafter,the farmer got busy operating his business and never contacted the CPA again. For what period of time,if any,does this CPA owe a duty of confidentiality to this farmer?
A) No duty at all because the duty of confidentiality only continued until the time at which it became reasonably certain that the farmer would not become the CPA's client B) Expired after the end of the farmer's busy growing and harvesting season, if not sooner
C) One year D) Forever
Q2) What is the difference between the duty of confidentiality and the accountantclient privilege?
Q3) In accordance with the duty of confidentiality,when is client information considered to be confidential?
Q4) If a CPA violates the duty of confidentiality,who may hold it accountable?
Q5) Is there a federal accountant-client privilege? What does it cover?
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Chapter 10: Independence and Moral Seduction
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Q1) An auditor may not perform an audit unless threats to independence are:
A) Agreed to by the audit client
B) Reduced to an acceptable level
C) Nonexistent
D) Eliminated entirely by the client prior to commencement of the audit
Q2) A "covered member" of a CPA firm owns 4% of the bonds outstanding in an audit client.In accordance with the Independence Rule,does this CPA firm have the independence to audit this client?
A) Yes, as long as the CPA's immediately family does not have any additional financial interests in this client
B) Yes, as long as the bonds are not convertible into common stock
C) No, unless the CPA agrees to not directly participate in the audit
D) No, because of the self-interest threat
Q3) A CPA was raised by his grandmother.Can his grandmother's stock ownership in one of the CPA's audit clients impair his independence?
Q4) What are some of the safeguards that CPAs firm utilize to minimize threats to their auditor independence?
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12
Chapter 11: Conflicts of Interest
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Q1) The concept of "moral licensing," in the context of conflicts of interest,relates to:
A) A person receiving actual consent to proceed in a professional relationship, despite the potential for a conflict of interest to arise
B) A person receiving implied consent to proceed in a professional relationship, despite the potential for a conflict of interest to arise
C) A person who potentially will benefit from a conflict of interest agreeing to make periodic payments to reimburse any party who is adversely affected by the conflict of interest
D) A person making exaggerated claims about goods or services after having disclosed influences that create the appearance of a conflict of interest
Q2) The determination of whether an American CPA has,or does not have,a conflict of interest is resolved by:
A) A CPA on his or her own
B) The Conflicts Advisory Board of the AICPA
C) A board of the AICPA other than the Conflicts Advisory Board
D) A mediation process between the CPA and its client
Q3) What is "implied consent," in the context of conflicts of interest?
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Page 13
Chapter 12: Duties As a Whistleblower
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Q1) Why is whistleblowing a relatively recent phenomenon?
Q2) To encourage interested parties to report fraudulent accounting practices,a company maintains a whistleblower hotline.A person left a message on this hotline anonymously,but the company's Chief Regulatory Compliance Officer was able to identify this caller based on her voice and surrounding facts.As a result,the company may:
A) Not disclose this caller's identify under any circumstances
B) Not disclose this caller's identity if the caller is a company employee
C) Not disclose this caller's identity until after the investigation concerning accounting fraud is completed
D) Not disclose this caller's identity until after the investigation concerning accounting fraud is completed and resolved in the company's favor
Q3) The IRS informant program,like the Dodd-Frank program,gives people who are informing a sliding scale recovery.What factors do you believe should entitle inform it to the maximum possible percentage?
Q4) Have you ever committed an act out of revenge that you later came to regret?
Q5) Do you agree with the IRS policy that an informant receives a financial reward only if the amount recovered exceeds two million dollars?
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Chapter 13: Duties of Public-Company Auditors: the Sarbanesoxley Act
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Q1) Under the Sarbanes-Oxley Act,loans to top corporate officers:
A) Cannot be made by a publicly traded company under any circumstances
B) Must bear a fair market interest rate if their employer is a publicly traded company
C) May not be made directly by their employer if the employer is a publicly traded company, but the employer may serve as a co-signer or guarantor on a loan granted to them by a bank
D) May be made by significant company shareholders in publicly traded companies as long as these loans satisfy the law's "commercially reasonable terms" requirement
Q2) What is the "one-year waiting period" rule established by Sarbanes-Oxley? Do you believe that the scope of this rule is adequate?
Q3) An audit partner has served as the lead audit partner on a client engagement for the past eight years.Which of the following is most likely to arise?
A) The management participation threat
B) The familiarity threat
C) The self-review
D) All of the above
Q4) What is a "reportable event"? Who receives submissions of reportable events?
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Chapter 14: Duties of Tax Professionals
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Q1) A paid tax return preparer estimated a client's charitable contributions based on the taxpayer's statement that she "donates $20 cash every week to her church" and she "attends church weekly,without fail." Upon audit,the IRS discovered that this taxpayer never attends church and never made any charitable contributions.This tax return preparer is:
A) Not subject to any fines or penalties
B) Subject to civil fines, but not criminal penalties, if the character of these claimed deductions as estimates was adequately disclosed to the IRS with the word "estimate" or the abbreviation "est." appearing adjacent to the estimated item
C) Subject to civil fines and potentially subject to criminal penalties
D) Subject to having his license as a professional tax return preparer suspended for a short period of time
Q2) When must a tax return preparer refrain from claiming estimated deductions on a client's tax return?
Q3) A client wants to claim a dubious tax deduction,but the client's deduction does is not "more likely than not" to be approved of,if detected and challenged by the IRS.What options are available to this client?
Q4) What are some of the ethical duties that apply to tax return preparers?
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Page 16
Chapter 15: Duties of Fiduciaries: Financial
Planners,trustees,and Executors
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Q1) An accountant who is not a CPA:
A) Will never be considered a fiduciary
B) Always is considered a fiduciary during the course of providing professional services
C) Will likely be considered to be a fiduciary during the course of preparing monthly adjusting entries for small, unsophisticated business owners
D) Will likely be considered to be a fiduciary if the accountant provides financial planning services to clients and sells them sophisticated tax-sheltered insurance policies
Q2) Why would a person want to create a living trust?
Q3) A CPA is most likely to be held to the standards of a fiduciary when she:
A) Performs tax accounting services
B) Serves as investment fund manager
C) Performs attest services other than audits
D) Performs audits
Q4) Why would a person create a spendthrift trust?
Q5) What are the key characteristics that tend to create a fiduciary relationship?
Q6) Why would a person create a split-interest trust?
Q7) Can a spendthrift trust also be a testamentary trust?
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Chapter
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Q1) Prior to hiring a new professional staff member,an auditing firm checks public records to see if a prospective employee has ever been convicted of insider trading? Is this ethical?
Q2) In most states,a covenant not to compete that has been agreed to by an employer and an employee is:
A) Illegal, but the overall employment contract in which it appears remains enforceable as if the contract did not contain the covenant not to compete
B) Illegal, and it invalidates the entire employment contract in which it appears
C) Legally enforceable, if it does not unduly prevent the employee from obtaining similar employment in the employee's chosen trade or occupation
D) Legally enforceable under all circumstances
Q3) Prior to hiring a new professional staff member,an auditing firm checks public records to see if a prospective employee has ever been convicted of a felony involving illegal drug use? Is this ethical?
Q4) What is the "employment at will" doctrine? Do you believe that it poses ethical dilemmas for employers? How? Do you believe that it poses ethical dilemmas for employees? How?
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