Question 1

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

Accepted Answer

The question defines the relationship between shareholders, directors, and management of a company in terms of the corporate charter, bylaws, formal policy, and rule of law. This definition falls within the scope of corporate governance, which refers to the system of rules, practices, and processes by which a company is directed and controlled. Therefore, choice D, corporate governance, is the most appropriate answer. Choices A, B, and C are also important concepts in modern business, but they do not specifically refer to the relationship between shareholders, directors, and management within the framework of corporate rules and regulations.

Question 2

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:

Accepted Answer

The question asks for an exception to suggested remedies to rein in executive compensation during corporate wrongdoing. Each of the choices A, B, and D are valid suggested remedies. However, choice C, which suggests imposing limits on executive compensation, is not listed as a suggested remedy. Therefore, the correct answer is C.

Question 3

What are the four pillars of corporate governance?

Accepted Answer

Responsibility, accountability, fairness, and transparency are the four key pillars of corporate governance. Responsibility refers to the duty of corporate entities to comply with the laws, regulations, and standards of conduct. Accountability refers to the expectation that companies are answerable to their stakeholders, including shareholders, employees, customers, and communities. Fairness refers to the equitable treatment of all stakeholders, while transparency refers to the openness and clarity in decision-making, performance, and reporting.

Question 4

Which is a questionable ethical work behavior of an employee?

Accepted Answer

Using social media during work hours can be considered a questionable ethical work behavior as it is a misuse of work time and resources.

Question 5

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

Accepted Answer

An ethical organization should incorporate all of these into their decision-making process. Core values guide the organization in making decisions that align with their principles and beliefs. Strategic policies provide a framework for decision-making that aligns with the organization's goals and objectives. Reporting responsibilities ensure transparency and accountability in decision-making processes.

Question 6

The aim of executive compensations is to:

Accepted Answer

The aim of executive compensations is to align the goals of the executive with the shareholders, as this is believed to increase the executive's motivation to increase the company's profitability and shareholder value. While executive compensation may also benefit the executive, enriching the company is not necessarily its main objective. Aligning the goals of the executive with workers is important, but this is not the primary aim of executive compensation.

Question 7

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?

Accepted Answer

Transparent financial reporting is an example of protecting the interests of stakeholders because it allows them to accurately assess the financial health of the company and make informed decisions regarding their investments or involvement with the company. Options backdating for executives, deceptive business practices, and off balance sheet financing all compromise the interests of stakeholders by misleading them or artificially inflating the value of the company.

Question 8

What is a cause of agency problems?

Accepted Answer

Agency problems arise due to information asymmetry i.e. when the principal (shareholders) and the agent (managers) have different levels of information and interests. This can lead to conflicts of interest and the agent may act in their own self-interest rather than maximizing shareholder value.

Question 9

To whom does the management owe its ultimate allegiance?

Accepted Answer

The management owes its ultimate allegiance to the shareholders as they own the company and entrust the management with the responsibility to run the business in their best interests. The primary goal of management is to maximize shareholder wealth through profits and dividend distributions.

Question 10

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

Accepted Answer

The answer of The 2010 Dodd-Frank Act includes additional incentives...

Question 11

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

Accepted Answer

Both Bernie Madoff and R. Allen Stanford were involved in Ponzi schemes, in which they used new investors' money to pay off earlier investors, rather than actually investing the money.

Question 12

The most important values included in corporate values statements include:

Accepted Answer

The most important values included in corporate values statements should prioritize integrity and ethical behavior to ensure the company's reputation and establish a culture of trust among employees, customers, and stakeholders. Pursuit of self-interests and commitment to beating the competition may lead to unethical practices, and while diversity is also important, it may not be the top priority for all companies.

Question 13

Financial statement fraud includes all but:

Accepted Answer

Financial statement fraud involves intentional misrepresentation of financial information. Overstating revenues, understating expenses, and improper asset valuations are common examples. However, overstating warranties on new products is not typically considered financial statement fraud.

Question 14

What is the agency problem?

Accepted Answer

The agency problem arises when managers prioritize their own personal goals over the goals of the corporation they work for. This can lead to decisions that benefit themselves rather than the company and its shareholders. Option A is incorrect because placing corporate goals ahead of personal goals would not be considered a problem. Options C and D are also incorrect because social goals are not typically the primary concern for managers in the context of the agency problem.

Question 15

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:

Accepted Answer

The Dodd-Frank Financial Reform Act includes provisions that allow whistleblowers to receive compensation for providing information about violations of securities laws. If the information results in a successful enforcement action and the whistleblower meets certain criteria, they may receive a monetary award ranging from 10-30% of the penalty collected by the government.

Question 16

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

Accepted Answer

A code of ethics for financial professionals supports the certification of financial statement requirement, which is a key provision of the Sarbanes-Oxley Act. This requirement increases transparency and accountability in financial reporting, which is necessary to rebuild investor trust after the numerous financial scandals that occurred in the early 2000s. While a code of ethics may also strengthen relationships with shareholders and enhance the ethics of the audit committee, these are not the primary reasons why it is important under Sarbanes-Oxley. Additionally, a code of ethics should not decrease the likelihood of whistleblowing, as whistleblowing is important for ensuring that fraudulent or unethical behavior is brought to light and addressed appropriately.

Question 17

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

Accepted Answer

Whistleblowing may violate an accountant's ethical obligations, such as confidentiality, unless there is a legal requirement or significant public interest that justifies the disclosure.

Question 18

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

Accepted Answer

An honor code is a set of rules or ethical principles governing an academic community based on ideals that define what constitutes honorable behavior within that community.

Question 19

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:

Accepted Answer

The answer of Henry is the chief accounting office of...

Question 20

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

Accepted Answer

Related party transactions can actually worsen the agency problem as they create a conflict of interest between the parties involved. The other options, executive compensation, audited financial statements, and internal controls, are all tools commonly used to address the agency problem.

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