CMA management accountant

Study Unit 1: Ethics for Management Accountants | Subunit 1: Ethics for Management Accountants Question: 9 IMA’s Statement of Ethical Professional Practice includes an integrity standa

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Study Unit 1: Ethics for Management Accountants | Subunit 1: Ethics for Management Accountants

Question: 1 At Key Enterprises, the controller is responsible for directing the budgeting process In this

role, the controller has significant influence with executive management as individual department budgets are modified and approved For the current year, the controller was instrumental in the approval of a particular line manager’s budget without modification, even though significant reductions were made to the budgets submitted by other line managers As a token of appreciation, the line manager in question has given the controller a gift certificate for

a popular local restaurant In considering whether or not to accept the certificate, the controller

should refer to which section of IMA’s Statement of Ethical Professional Practice?

Question: 2 In accordance with IMA’s Statement of Ethical Professional Practice, a member who fails to

perform professional duties in accordance with relevant standards is acting contrary to which one of the following standards?

A Competence

Answer (A) is correct

One of the responsibilities of an IMA member under the competence standard is to

“maintain an appropriate level of professional expertise by continually developing knowledge and skills.” (S)he must also “perform professional duties in accordance with relevant laws, regulations, and technical standards.” The third requirement under this standard is to “provide decision support information and

recommendations that are accurate, clear, concise, and timely.”

Question: 3 According to IMA’s Statement of Ethical Professional Practice, a member has a responsibility

to recognize professional limitations Under which standard of ethical conduct would this responsibility be included?

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A Competence

The competence standard pertains to an IMA member’s responsibility to “recognize and communicate professional limitations or other constraints that would preclude responsible judgment or successful performance of an activity.”

Question: 4 If an IMA member has a problem in identifying unethical behavior or resolving an ethical

conflict, the first action (s)he should normally take is to

A Consult the board of directors

B Discuss the problem with his or her immediate superior

Answer (B) is correct

IMA’s Statement of Ethical Professional Practice states that the member should

first discuss an ethical problem with his or her immediate superior If the superior is involved, the problem should be taken initially to the next higher managerial level

C Notify the appropriate law enforcement agency

D Resign from the company

Question: 5 If an IMA member discovers unethical conduct in his or her organization and fails to act, (s)he

will be in violation of which of IMA’s ethical standard(s)?

A “Refrain from engaging in any conduct that would prejudice carrying out duties

correctly.”

B “Communicate information fairly and objectively.”

C “Disclose all relevant information that could reasonably be expected to influence an

intended user’s understanding of reporting analyses or recommendations.”

D All of the answers are correct

Answer (D) is correct

An IMA member displays his or her competence and credibility and maintains integrity by taking the appropriate action within the organization to resolve an ethical problem All of these activities should be a part of an IMA member’s normal job processes

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Question: 6 IMA’s Statement of Ethical Professional Practice requires an IMA member to follow the

established policies of the organization when faced with an ethical conflict If these policies do not resolve the conflict, the member should

A Consult the board of directors immediately

B Discuss the problem with the immediate superior if (s)he is involved in the conflict

C Communicate the problem to authorities outside the organization

D Contact the next higher managerial level if initial presentation to the immediate

superior does not resolve the conflict

In these circumstances, the problem should be discussed with the immediate superior unless (s)he is involved In that case initial presentation should be to the next higher managerial level If the problem is not satisfactorily resolved after initial presentation, the question should be submitted to the next higher level

Question: 7 In which situation is an IMA member permitted to communicate confidential information to

individuals or authorities outside the firm?

A There is an ethical conflict and the board has refused to take action

B Such communication is legally prescribed

According to IMA’s Statement of Ethical Professional Practice, members are

responsible for observing the standard of confidentiality Thus, the IMA member should “refrain from disclosing confidential information acquired in the course of his or her work except when authorized, unless legally obligated to do so.”

C The IMA member knowingly communicates the information indirectly through a

subordinate

D An officer at the IMA member’s bank has requested information on a transaction that

could influence the firm’s stock price

Question: 8 Which ethical standard is most clearly violated if an IMA member knows of a problem that

could mislead users but does nothing about it?

A Competence

B Legality

C Credibility

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Answer (C) is correct

Credibility is the fourth part of IMA’s Statement of Ethical Professional Practice It

requires that information be communicated “fairly and objectively,” and that all information that could reasonably influence users be disclosed

D Confidentiality

Question: 9 IMA’s Statement of Ethical Professional Practice includes an integrity standard, which

requires an IMA member to

A Decline to become a minority partner in a partnership that is a supplier of the

member’s employer

One of the responsibilities of an IMA member under the integrity standard is to

“refrain from engaging in any conduct that would prejudice carrying out duties ethically.”

B Report any relevant information that could influence users of financial statements

C Disclose confidential information when authorized by his or her firm or required

under the law

D Refuse gifts from anyone

Question: 10 IMA’s Statement of Ethical Professional Practice includes a competence standard, which

requires an IMA member to

A Report information, whether favorable or unfavorable

B Develop his or her professional proficiency on a continual basis

One of the responsibilities of an IMA member under the competence standard is to

“maintain an appropriate level of professional expertise by continually developing knowledge and skills.”

C Discuss ethical conflicts and possible courses of action with an unbiased counselor

D Discuss, with subordinates, their responsibilities regarding the disclosure or

information about the firm

Question: 11 Sheila is a financial manager who has discovered that her company is violating environmental

regulations If her immediate superior is involved, her appropriate action is to

A Do nothing since she has a duty of loyalty to the organization

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B Consult the audit committee

C Present the matter to the next higher managerial level

To resolve an ethical problem, the financial manager/management accountant’s first step is usually to consult his or her immediate superior If that individual is involved, the matter should be taken to the next higher level of management

D Confront her immediate superior

Question: 12 IMA members are obligated to maintain the highest standards of ethical conduct Accordingly,

IMA’s Statement of Ethical Professional Practice explicitly requires that IMA members

A Obtain sufficient competent evidence when expressing an opinion

B Not condone violations by others

The principles section of IMA’s Statement of Ethical Professional Practice,

“IMA’s overarching ethical principles include: Honesty, Fairness, Objectivity, and Responsibility Members shall act in accordance with these principles and shall encourage others within their organizations to adhere to them.”

C Comply with generally accepted auditing standards

D Adhere to generally accepted accounting principles

Question: 13 Integrity is an ethical requirement for all IMA members One aspect of integrity requires

A Performance of professional duties in accordance with relevant laws

B Avoidance of conflict of interest

According to IMA’s Statement of Ethical Professional Practice, IMA members

must “mitigate actual conflicts of interest Regularly communicate with business associates to avoid apparent conflicts of interest Advise all parties of any potential conflicts.”

C Refraining from using confidential information for unethical or illegal advantage

D Maintenance of an appropriate level of professional expertise

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Question: 14 Under the express terms of IMA’s Statement of Ethical Professional Practice, an IMA

member may not

A Advertise

B Encroach on the practice of another IMA member

C Disclose confidential information unless authorized or legally required

IMA members may not disclose confidential information acquired in the course of their work unless authorized or legally required to do so They must also “inform all relevant parties regarding appropriate use of confidential information Monitor subordinates’ activities to ensure compliance.”

D Accept other employment while serving as a financial manager or management

accountant

Question: 15 An IMA member discovers a problem that could mislead users of the firm’s financial data and

has informed his or her immediate superior (S)he should report the circumstances to the audit committee and/or the board of directors only if

A The immediate superior, who reports to the chief executive officer, knows about the

situation but refuses to correct it

B The immediate superior assures the member that the problem will be resolved

C The immediate superior reports the situation to his or her superior

D The immediate superior, the firm’s chief executive officer, knows about the situation

but refuses to correct it

According to IMA’s Statement of Ethical Professional Practice, an IMA member

should “discuss the issue with your immediate supervisor except when it appears that the supervisor is involved In that case, present the issue to the next level If you cannot achieve a satisfactory resolution, submit the issue to the next

management level If your immediate supervisor is the chief executive office or equivalent, the acceptable reviewing authority may be a group such as the audit committee, executive committee, board of directors, board of trustees, or owners.”

Question: 16 Recently, Fan Club, Inc., submitted to management a budget for the coming year Included in

the budget were the plans for a new product, a rechargeable fan The new fan will not only last longer than the competitor’s product but is also more quiet While not yet approved, the budget called for aggressive advertising to support its sales targets, as the business community was not yet aware that Fan Club was close to production of a new fan A member of the management

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accounting staff “shared” the budget with a distributor In accordance with IMA’s Statement of

Ethical Professional Practice, which one of the following would best represent an ethical

conflict in this situation?

A The budget has not been approved and therefore is not for publication

B The price has not been established, so expectations must be managed

C The staff member exposed the company to a potential lawsuit

D The employee should refrain from disclosing confidential information

IMA’s Statement of Ethical Professional Practice states that every member has a

responsibility to keep information confidential except when disclosure is authorized

or legally required

Question: 17 A new management accountant is concerned about complying with the ethical standard of

competence in the IMA’s Statement of Ethical Professional Practice Which one of the

following is not required under the standard of competence?

A Maintain expertise in all areas of accounting

Maintaining expertise in all areas of accounting would be a difficult task

According to the ethical standard of competence in the IMA’s Statement of Ethical Professional Practice, a CMA only needs to recognize and communicate

professional limitations or other constraints that would preclude responsible judgment or successful performance of an activity

B Continually develop knowledge and skills

C Perform duties in accordance with relevant regulations and standards

D Provide recommendations that are accurate and timely

Question: 18 Scott Jon, a new accounting clerk at a firm that had recently terminated several employees due

to budgetary cutbacks, accidentally viewed his supervisor’s biweekly paycheck Not realizing that the paycheck included an annual bonus, Jon erroneously multiplied the gross pay by 26 to find annual earnings Jon was amazed that his supervisor appeared to earn more than twice the local average for employees in an accounting supervisory position Jon discussed this situation with a friend, a recently terminated employee of the company who now worked for a local newspaper As a result of this discussion, the supervisor’s “outrageous” salary was made

public Which one of the standards of the IMA’s Statement of Ethical Professional Practice

did Jon’s actions violate?

A Competence

B Confidentiality

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The standard of confidentiality states each member has a responsibility to (1) keep information confidential except when disclosure is authorized or legally required, (2) inform all relevant parties regarding appropriate use of confidential information and monitor subordinates’ activities to ensure compliance, and (3) refrain from using confidential information for unethical or illegal advantage

Question: 19 Chris Benedict was recently tried and convicted in court for producing and selling illegal

narcotic drugs None of the activity occurred during work hours, and Benedict performed duties as a management accountant without incident during the period of illegal activity

Benedict has argued that because the illegal activity was unrelated to Benedict’s service as a management accountant, no ethical violation had been committed Which provision of the

IMA’s Statement of Ethical Professional Practice is most likely to apply to Benedict’s illegal

D Credibility

Question: 20 At NC Corporation, year-end bonuses at each branch office are based on branch profitability

Due to a slow economy, profitability through the third quarter at the Northeast branch is under budget To address this issue, the accounting staff at the Northeast branch develops a list of end-of-year actions designed to boost earnings for the year Which one of the following is

most likely to violate IMA’s Statement of Ethical Professional Practice?

A Requesting the branch’s advertising agency to delay billing third-quarter

advertisements until January

IMA’s Statement of Ethical Professional Practice states that its members have

responsibilities in the areas of competence, confidentiality, integrity, and credibility Requesting the branch’s advertising agency to delay billing third quarter

advertisements until January will most likely violate IMA’s Statement of Ethical

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Professional Practice in the areas of integrity and credibility Integrity is impaired

because an IMA member should abstain from engaging in or supporting any activity that might discredit the profession, and credibility is impaired because an IMA member should disclose all relevant information that could reasonably be expected to influence an intended user’s understanding of the reports, analyses, or recommendations

B Deferring advertising expense by reducing the number of newspaper advertisements

run in the third quarter

C Deferring planned painting and refurbishment of the warehouse until the following

Question: 21 Mark Tian, a staff accountant, becomes aware of an off-balance-sheet bank account where

funds have been diverted with offsetting credits approved by his immediate supervisor His immediate supervisor refuses to discuss it and suggests Tian forget about it Which one of the following should be Tian’s next course of action in this circumstance?

A Put concerns in writing to the immediate supervisor and copy the company’s

C Communicate concerns confidentially to the company’s independent auditor

D Communicate concerns confidentially to the company’s external legal counsel

Question: 22 A company has a December 31 year end Which one of the following options to increase net

income during the last month of the company’s fiscal year end would least likely result in a

violation of the IMA’s Statement of Ethical Professional Practice?

A Persuade suppliers to postpone billing until January

B Delay the year-end closing until January 4 to capture sales over the New Year’s

holiday in the current year

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C Reduce the calculated allowance for bad debts and bad debt expenses

D Postpone planned marketing expenditures until January

Postponing planned marketing expenditures until a future date is least likely a

violation of the IMA’s Statement of Ethical Professional Practice because as long

as the marketing funds have not been expended, the expense need not be recorded until the following period

Question: 23 You have examined your organization’s financial statements and determined that they present

a number of significant items in a fraudulent manner You know that you should report this situation to management but are concerned that reporting it might result in your employment being terminated Failure to report this situation is a violation of which of the ethical

standard(s) outlined in IMA’s Statement of Ethical Professional Practice?

A Credibility

The IMA’s Statement of Ethical Professional Practice’s ethical standard of

credibility involves communicating information fairly and objectively; disclosing all relevant information that could reasonably be expected to influence an intended user’s understanding of the reports, analyses, or recommendations; and disclosing delays or deficiencies in information, timeliness, processing, or internal controls in conformance with organization policy and/or applicable law Credibility has been violated because presenting a number of significant items in a fraudulent manner does not communicate information fairly The relevant information that could reasonably be expected to influence an intended user’s understanding is also not completely disclosed

C Competence

D Confidentiality and Integrity

Question: 24 An accountant has concerns that a particular transaction is being recorded in a manner that

does not reflect the nature of the transaction and believes that alternative accounting is being used to avoid recording the appropriate expense for a period The accountant attempted to speak to the accounting manager, but the manager rebuffed the accountant and said there was

no time to discuss the issue further According to IMA’s Statement of Ethical Professional Practice, what is the next appropriate step the accountant should take regarding this issue?

A Discuss the issue with the next level of management over the accounting manager

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When faced with ethical issues, the accountant should follow the organization’s established policies on the resolution of such conflict If these policies do not resolve the ethical conflict, (s)he should first discuss the issue with his or her immediate superior except when it appears that the supervisor is involved In that case, (s)he should present the issue to the next level

B Discuss the issue with the company’s independent accounting firm

C Discuss the issue with the firm’s legal counsel

D Resign from the position with the company

Question: 25 An accountant has frequent business contact with customers, suppliers, and creditors in the

course of performing professional duties Which of the following circumstances would most

likely threaten the accountant’s adherence to the ethical principles and standards of IMA’s Statement of Ethical Professional Practice?

A The accountant accepted two World Cup tickets from a supplier and flew to the

stadium in the company’s jet along with a number of the supplier’s executives

The accountant’s acceptance of two World Cup tickets from a supplier and flying to the stadium in the company’s jet along with a number of the supplier’s executives would threaten the accountant’s adherence to the integrity standard The integrity standard states that each member has a responsibility to mitigate actual conflicts of interests, regularly communicate with business associates to avoid apparent

conflicts of interest, and advise all parties of any potential conflicts In order to avoid conflicts of interest, employees should refuse any gift, favor, or hospitality that would influence or appear to influence their actions

B The accountant speaks quarterly with analysts regarding the company’s past

performance and future prospects

C The accountant attends a professional conference where the accountant goes out to

dinner and socializes with accountants from other companies in the industry

D The accountant attends a charity event at the invitation of the company’s audit firm,

which bought two tables of tickets to support the event

Question: 26 You have examined your organization’s financial statements and determined that they present

a number of significant items in a fraudulent manner You know that you should report this situation to management but are concerned that reporting it might result in your employment being terminated Failure to report this situation is a violation of which of the ethical

standard(s) outlined in IMA’s Statement of Ethical Professional Practice?

A Credibility

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The IMA’s Statement of Ethical Professional Practice’s ethical standard of

credibility involves communicating information fairly and objectively; disclosing all relevant information that could reasonably be expected to influence an intended user’s understanding of the reports, analyses, or recommendations; and disclosing delays or deficiencies in information, timeliness, processing, or internal controls in conformance with organization policy and/or applicable law Credibility has been violated because presenting a number of significant items in a fraudulent manner does not communicate information fairly The relevant information that could reasonably be expected to influence an intended user’s understanding is also not completely disclosed

C Competence

D Confidentiality and Integrity

Study Unit 1: Ethics for Management Accountants | Subunit 2: Corporate Ethics and Legislation

Question: 27 The Foreign Corrupt Practices Act prohibits

A Bribes to all foreigners

B Small bribes to foreign officials that serve as facilitating or grease payments

C Bribery only by corporations and their representatives

D Bribes to foreign officials to influence official acts

The Foreign Corrupt Practices Act (FCPA) prohibits any U.S firm from making bribes to foreign officials to influence official acts The businesses subject to the FCPA include corporations, partnerships, limited partnerships, business trusts, and unincorporated organizations Violations of the FCPA are federal felonies The penalties are up to 5 years in prison or up to a $100,000 fine or both for an officer, director, or shareholder who helps make the bribe

Question: 28 A major impact of the Foreign Corrupt Practices Act of 1977 is that registrants subject to the

Securities Exchange Act of 1934 are now required to

A Keep records that reflect the transactions and dispositions of assets and to maintain a

system of internal accounting controls

The main purpose of the Foreign Corrupt Practices Act of 1977 is to prevent bribery by firms that do business in foreign countries A major ramification is that it requires all companies that must register with the SEC under the Securities

Exchange Act of 1934 to maintain adequate accounting records and a system of

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internal accounting control

B Provide access to records by authorized agencies of the federal government

C Prepare financial statements in accord with international accounting standards

D Produce full, fair, and accurate periodic reports on foreign commerce and/or foreign

political party affiliations

Question: 29 The reporting of accounting information plays a central role in the regulation of business

operations The importance of sound internal control practices is underscored by the Foreign Corrupt Practices Act of 1977, which requires publicly owned U.S corporations to maintain systems of internal control that meet certain minimum standards Preventive controls are an integral part of virtually all accounting processing systems, and much of the information generated by the accounting system is used for preventive control purposes Which one of the

following is not an essential element of a sound preventive control system?

A Separation of responsibilities for the recording, custodial, and authorization functions

B Sound personnel practices

C Documentation of policies and procedures

D Implementation of state-of-the-art software and hardware

Preventive controls are designed to prevent an error or irregularity from occurring State-of-the-art hardware and software would presumably incorporate the latest control features, but a less advanced system could very well contain a sound preventive control structure Hence, state-of-the-art components are not essential for effective control

Question: 30 What law prohibits U.S companies from paying bribes to foreign officials for the purpose of

obtaining or retaining business?

A Federal Ethical Standards Act

D North American Free Trade Agreement

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Question: 31 Which of the following is not an aspect of the Foreign Corrupt Practices Act of 1977?

A It subjects management to fines and imprisonment

B It prohibits bribes to foreign officials

C It requires the establishment of independent audit committees

The Foreign Corrupt Practices Act of 1977 prohibits bribes to foreign officials and requires firms to have adequate systems of internal control Violation of the Act subjects individual managers to fines and/or imprisonment The Act does not specifically require the establishment of audit committees, but many firms have established audit committees as one means of dealing with the internal control provisions of the Act

D It requires an internal control system to be developed and maintained

Question: 32 Firms subject to the reporting requirements of the Securities Exchange Act of 1934 are

required by the Foreign Corrupt Practices Act of 1977 to maintain satisfactory internal control The role of the independent auditor relative to this act is to

A Report clients with unsatisfactory internal control to the SEC

B Provide assurances to users as part of the traditional audit attest function that the

client is in compliance with the present legislation

C Express an opinion on the sufficiency of the client’s internal control to meet the

requirements of the Act

D Attest to the financial statements

Whether a client is in conformity with the Foreign Corrupt Practices Act is a legal question Auditors cannot be expected to provide clients or users of the financial statements with legal advice The role of the auditor is to assess control risk in the course of an engagement to attest to the fair presentation of the financial

statements

Question: 33 The requirement of the Foreign Corrupt Practices Act of 1977 to devise and maintain adequate

internal control is assigned in the act to the

A Chief financial officer

B Board of directors

C Director of internal auditing

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D Company as a whole with no designation of specific persons or positions

The accounting requirements apply to all public companies that must register under the Securities Exchange Act of 1934 The responsibility is thus placed on

companies, not individuals

Question: 34 Which of the following corporations are subject to the accounting requirements of the Foreign

Corrupt Practices Act (FCPA)?

A All corporations engaged in interstate commerce

B All domestic corporations engaged in international trade

C All corporations that have made a public offering under the Securities Act of 1933

D All corporations whose securities are registered pursuant to the Securities Exchange

Act of 34

The accounting requirements of the FCPA apply to all companies required to register and report under the Securities Exchange Act of 1934 These companies must maintain books, records, and accounts in reasonable detail that accurately and fairly reflect transactions The FCPA also requires these companies to maintain a system of internal accounting control that provides certain reasonable assurances, including that corporate assets are not used for bribes

Question: 35 The Foreign Corrupt Practices Act of 1977 prohibits bribery of foreign officials Which of the

following statements correctly describes the act’s application to corporations engaging in such practices?

A It applies only to multinational corporations

B It applies to all domestic corporations engaged in interstate commerce

Although the requirements of the FCPA relating to the maintenance of accounting records and systems of internal accounting control apply only to companies required to register under the Securities Exchange Act of 1934, the antibribery provisions apply to all domestic business concerns engaged in interstate commerce

C It applies only to corporations whose securities are registered under the Securities

Exchange Act of 1934

D It applies only to corporations engaged in foreign commerce

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Question: 36 Under the Foreign Corrupt Practices Act (FCPA), an action may be brought that seeks

A Treble damages by a private party

B Injunctive relief by a private party

C Criminal sanctions against both the corporation and its officers by the Department of

Justice

The SEC may investigate violations of the FCPA, bring civil actions for its enforcement, and recommend that the Justice Department prosecute criminal violations

D Damages and injunctive relief by the Securities and Exchange Commission

Question: 37 The U.S Foreign Corrupt Practices Act is particularly focused on the dealings of financial

institutions and the safeguarding of the global financial system Financial institutions must implement robust controls to ensure knowledge of their customers and the nature of their business transactions and be in a position to prove to regulators a high level of due diligence

These safeguards are required to minimize all of the following except

C Terrorist financing

D Extortion and bribery

Question: 38 Corporations have the responsibility to issue financial statements that are timely, accurate, and

transparent, reflecting all the transactions of the company Which of the following documents refer to this responsibility?

I IMA’s Statement of Ethical Professional Practice

II SOX Section 406: Code of Ethics for Senior Financial Officers III IMA’s Statement on Management Accounting “Values and Ethics: From Inception to Practice”

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IV U.S Foreign Corrupt Practices Act

A I and II only

B I and III only

C II and III only

D II and IV only

SOX Section 406: Code of Ethics for Senior Financial Officers and the U.S

Foreign Corrupt Practices Act both refer to the corporate responsibility to issue financial statements that are timely, accurate, and transparent, reflecting all the transactions of the company

Question: 39 Which of the following best describes an important provision of the U.S Foreign Corrupt

Practices Act?

A Auditors cannot provide bookkeeping or other services related to the accounting

records or financial statements of the audit client

B Companies must follow the laws of the their home country as well as the laws of the

countries where any foreign subsidiaries are located

C The CEO and CFO must certify that they have no knowledge of any corrupt practices

occurring in any overseas subsidiaries of U.S companies

D The internal accounting controls should be examined, and if material weaknesses are

found, controls must be strengthened

The FCPA states that all public companies registered under the 1934 Act must devise and maintain a system of internal accounting control sufficient to provide reasonable assurance against material misstatements

Question: 40 Which one of the following statements best characterizes the provisions of the Foreign Corrupt

Practices Act (FCPA)?

A The FCPA requires corporations to keep records and accounts in sufficient detail to

reflect transactions

The FCPA was enacted for the purpose of making it unlawful to make payments to foreign government officials to assist in obtaining or retaining business

Corporations are thus required to keep records to reflect all transactions so that they will not be covering up this transaction

B The FCPA requires compliance with corporate codes of conduct to be reviewed and

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reported on by external auditors

C The FCPA provides for treble damages in civil cases brought under the law

D The FCPA provides for criminal penalties for auditors who fail to report a

corporation’s participation in bribery

Question: 41 Which of the following issues is addressed by Section 406 of the Sarbanes-Oxley Act?

I Full, fair, timely, and accurate financial statement disclosure

II Whistleblower protection

III Form 8-K disclosure of changes to the Ethics Code for Senior Financial Officers

IV Compliance with the U.S Foreign Corrupt Practices Act

V Reporting the existence of an Ethics Code for Senior Financial Officers

A I, II, III, and IV only

B II, IV, and V only

C I, III, and V only

Section 406 of the Sarbanes-Oxley Act addresses full, fair, timely, and accurate financial statement disclosure; Form 8-K disclosure of changes to the Ethics Code for Senior Financial Officers; and reporting the existence of an Ethics Code for Senior Financial Officers

D III and IV only

Question: 42 Which of the following provisions are covered in the U.S Foreign Corrupt Practices Act?

I Illegal payments to foreign officials to assist in obtaining business

II Transparency of accounting records reflecting all transactions

III Payments to agents for the purpose of influencing foreign officials

IV Maintenance of an adequate system of internal controls

A I only

B I and III only

C II, III, and IV only

D I, II, III, and IV

The U.S Foreign Corrupt Practices Act covers illegal payments to foreign officials

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to assist in obtaining business, transparency of accounting records reflecting all transactions, payments to agents for the purpose of influencing foreign officials, and maintenance of an adequate system of internal controls

Study Unit 1: Ethics for Management Accountants | Subunit 3: Corporate Responsibility for Ethical Behavior

Question: 43 Which one of the following is a true statement regarding organizational ethics?

A As long as officer and employee behavior meet the requirements of the law, the

organization can be considered to have a functioning system of ethical behavior

B A strong sense of ethics on the part of employees who are in the best position to

appropriate cash and other assets is the most vital part of a functioning system of ethical behavior

C If an organization has a strong code of ethical conduct in place, the role of employee

training can be downplayed

D Paying attention to “whistleblowers” plays a significant role in maintaining an

effective ethical atmosphere

“Values and Ethics: From Inception to Practice” states, in part, “A whistleblowing framework (e.g., an ethics helpline) is an important component in maintaining an ethical organizational culture An effective feedback system includes having a confidential framework for employees to report possible violations of the organization’s code of ethics and to receive advice on the ethical aspects of challenging decisions Statistics show that a large number of occupational fraud cases are detected through an employee “hotline” or other reporting method ” (IX Measuring and Improving Ethical Compliance.)

Question: 44 IMA’s Statement on Management Accounting, “Values and Ethics: From Inception to

Practice,” recommends a defined code of conduct and ethical behavior for all organizations One advantage of having such a code is that it

A Provides employees with guidance for handling unfamiliar situations

“Values and Ethics: From Inception to Practice” states, in part, “ what does an employee do when unplanned events occur? What reference does an individual look to for help in making decisions? This is why it is important to have a defined set of organizational values and code of ethics – they create the

“touchstone” against which every unanticipated decision must be judged Failure to have every individual in the organization know and understand these values and ethical code leads to inconsistency and, in the worst cases, unethical or fraudulent

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behavior.” (IV Values, Ethics, and Accounting.)

B Ensures ethical behavior by all employees

C Shields the organization from liability in cases of loss of stockholder value due to

Question: 45 Which one of the following is a true statement regarding organizational ethics?

A A comprehensive framework of corporate ethical behavior is a prerequisite for an

effective system of internal control

A comprehensive framework of corporate ethical behavior is a prerequisite for an effective system of internal control “Values and Ethics: From Inception to Practice” states, in part, “CEOs and CFOs have to place their own integrity on the line by attesting to compliance with an adequate level of internal controls (as well

as all other certifications) Creating a thorough, integrated system for developing, implementing, sustaining, and monitoring ethical performance within the

organization will allow executives to make such declarations with confidence that a code of ethics is the foundation of the organization’s culture and is fully integrated into the thinking process of every employee and business partner.” (IX Measuring and Improving Ethical Compliance.)

B An effective system of internal control is a prerequisite for corporate ethical behavior

C If a functioning system of ethical behavior is in place, an organization is able to

devote fewer resources to developing human capital

D “Organizational culture” is determined mostly by the industry(ies) in which the firm

operates

Question: 46 A company’s code of conduct states, “Our employees are our most valuable asset.” Which one

of the following policies best illustrates that management strives to provide leadership by

example in ethical matters concerning employees?

A The company relies on supervisors rather than manuals to train employees in their

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Question: 47 Which of the following statements describe the importance of a whistleblowing framework in

maintaining an ethical organizational culture?

I It provides measurable feedback for determining whether employees are following a code of ethics

II It creates opportunities to enhance and improve internal controls

III It empowers management to become better role models for employees

IV It helps to identify potential errors or risks at each task level within the organization

A I and II only

The collection, analysis, and summarization of ethics issues can provide insight into the operation of its code of ethics and the degree to which employees are following

it In addition, tracking and monitoring issues raised through a whistleblowing framework creates opportunities to enhance and improve internal control For instance, a large number of fraud cases are reported through a whistleblowing framework, which can highlight areas where internal controls were lacking

B II and IV only

C III and IV only

D I, III, and IV only

Question: 48 Quentin Jam is a new accountant assisting in the month-end close of the books for Sheldrake,

Ltd His supervisor told him to accrue a large receivable and said that he would provide the supporting documentation later Jam made the accrual, and the books were closed

Subsequently, Jam found out that the company would have missed the earnings estimate without the receivable Jam requested the documentation, but the supervisor could not provide

it Other associates told Jam that this supervisor had directed that undocumented entries be recorded in the books in the past and that the former accountant had left Sheldrake because he

was uncomfortable making the entries Recommend the best course of action for Jam

A Jam should evaluate the materiality of the receivable to determine if it is worthy of

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When faced with ethical issues, the accountant should follow the organization’s established policies on the resolution of such conflict If these policies do not resolve the ethical conflict, (s)he should first discuss the issue with his or her immediate superior except when it appears that the supervisor is involved In that case, (s)he should present the issue to the next level Since Jam’s supervisor is involved in the conflict, Jam should present the issue to his supervisor’s manager

D Jam should report to the board of directors that Sheldrake did not truly meet the

earnings estimate

Question: 49 Games Unlimited has convened a group of employees to review the company’s code of ethics

and propose revisions and improvements One of the suggested improvements is the development of a whistleblowing framework as recommended by IMA’s Statement on Management Accounting, “Values and Ethics: From Inception to Practice.” This framework

will provide all of the following benefits except

A Opportunities to enhance and improve internal controls

B A confidential means for employees to report possible violations

C A method for defining the organization’s behavioral values

to enhance and improve internal controls However, a whistleblowing framework does not define the organization’s behavioral values

D A means for the collection, analysis, and summarization of ethical issues

Question: 50 The management team of GranMark, Inc., attended an ethics training session at the IMA

Annual Conference and subsequently made plans to enhance GranMark’s ethics program The president plans to chair a committee of employees to review the company’s behavioral values, while the CFO intends to review the ethical standards applicable to the Finance Department The manager of the Human Resources Department will investigate the feasibility of

establishing a whistleblowing framework that includes a “hotline” for reporting ethics violations These activities at GranMark exemplify

A Organizational transparency

B Leadership by example

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C Measurement of ethical compliance

D Alignment of internal controls with ethical standards

Question: 51 In order for an ethics code to become a reality in practice, every aspect of a company’s activity

should be affected by the code Ethical behaviors should focus not only on clients and customers but also on employees, society at large, shareholders, and suppliers All activities, from design and development through after-sales support and services, should also be considered when applying a company’s ethical principles When focusing on society at large,

ethical considerations would most likely include

A Fair value, cycle time, quality, and service warranty

B Reputation, risk, cost/benefit, and value-stream return

C Negotiation, problem resolution, delivery, and inventory support

D Environment, resource usage, outage impact, and waste/disposal

Question: 52 Which one of the following ethics-related actions by management is least effective in

encouraging acceptance by employees of an organization’s code of ethics?

A Management appoints an ethics officer to monitor and report to management on

employee compliance

This approach does not involve employees at all and projects the image that employees need to be supervised because they are likely to be unethical This can discourage some employees

B Management follows ethical principles in decisions made on behalf of the

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Study Unit 1: Ethics for Management Accountants | Subunit 4: Fraud and the Fraud Risk Model (Fraud

Employees who have fiduciary responsibilities for assets are most likely to steal them

Inappropriate earnings management has been defined as the purposeful intercession

in the financial reporting process

Question: 55 When none of the three fraud risk factors are present, an accountant

A Can rule out the presence of fraud

B Should consider the likelihood of fraud to be high

C Should not rule out the presence of fraud completely

Even when no factors are observed, an accountant cannot completely exclude the risk of fraud Factors may be present but hidden from the accountant

D Will likely search more diligently for fraud

Triangle)

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Opportunity creates risk of employee fraud

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Triangle)

Question: 59 In the fraud risk model, rationalization relates to

A The ability of a person not only to perpetrate but also to conceal fraud

B The need for cash or other resources

C A person’s ability to justify actions as consistent with his or her personal code of

ethics

Rationalization relates to the person’s ability to justify the commission of a fraud Auditors should assume that anyone has this ability

D The belief that the ends justify the means

Triangle)

Question: 60 The term or expression most associated with misappropriation of assets is

A Fraudulent financial statements

D Failure to file a tax return

Triangle)

Question: 61 Most employee fraud cases involve

A Misstatement of financial statements

B Overstatement of revenues

C Need for social acceptance

D Financial or vice-related pressures

Most employee fraud cases involve financial or vice-related pressures Employees often have an actual or a perceived need for money

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Triangle)

Question: 62 Who is responsible for minimizing the opportunity to misappropriate assets in an organization?

A The external auditor

Question: 3 Rationalization of a fraud by an employee may be in the form of all the following except

A Pressure from one’s spouse

Pressure from one’s spouse is a motive for the misappropriation of assets

B Feelings of being underpaid

C Belief in being overworked

D Belief that rank has its privileges

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Triangle)

Question: 65 Fraudulent financial reporting is most often committed by

A Management to deceive financial statement users

Fraudulent financial reporting is committed by management in an attempt to deceive financial statement users

B An auditor while performing an audit

C Employees stealing assets

Question: 66 Public record searches may be effective in certain instances Which of the following is a

limitation on public record searches?

A It is often very costly to search public records

B Very few types of information are available

C The information from public sources is most often incorrect

D Availability of records may be limited

Records for early periods may be limited or nonexistent

An employee’s actual or perceived need for assets, for example, from gambling losses, can create the motivation to commit fraud

B Ineffective internal controls

C Belief that rank has its privileges

D Ineffective supervision

Triangle)

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Question: 68 The Public Company Accounting Oversight Board and the SEC would be most interested in

an organization’s activities related to

A The misappropriation of assets

B Failure to adequately compensate employees

C Effectiveness of internal controls

D Fraudulent financial reporting

Fraudulent financial reporting is most often committed by management to deceive financial statement users The PCAOB and the SEC would be most interested in these types of activities

Triangle)

Question: 69 Based on the fraud risk model, which of the following most likely is not an opportunity to

commit employee fraud?

A Lack of transaction authorizations

B Living beyond one’s means

Living beyond one’s means is pressure or motivation to commit fraud

C Poor accounting records

D Lack of physical controls

Triangle)

Question: 70 Which of the following are red flags indicating misappropriation of assets?

I Unexplained budget variances

II Poor supervision III Failure of certain employees to take vacations

A I and II only

B II and III only

C I and III only

D I, II, and III

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Among other things, unexplained budget variances, poor supervision, and failure of certain employees to take vacations are red flags indicating misappropriation of assets

Triangle)

Question: 71 An employee is stealing office supplies and believes that everybody else is doing it The fraud

risk factor represented by the employee is

Question: 72 Ghosting employees is a form of fraud that

A Expects employees to work for nothing

B Understates labor expense by failing to record payroll

C Records payroll to another account in an attempt to understate payroll expense

D Maintains employees on the payroll who no longer work for the organization

Question: 73 Which of the following is a motive for fraudulent financial reporting?

A Oversight of management is lacking

B There is no internal auditing function

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C The board of directors includes a number of related parties

D A manager's compensation is tied to reported financial results

Question: 74 What is the most likely reason for management to overstate expenses?

A To minimize tax liability

The most likely reason for management to understate income by overstating expenses is to minimize tax liability

B To earn a bonus

C To maximize net income

D To maximize cash on hand

Study Unit 1: Ethics for Management Accountants | Subunit 5: Addressing Fraud and Error

Question: 75 A proper segregation of duties requires that an individual

A Authorizing a transaction records it

B Authorizing a transaction maintain custody of the asset that resulted from the

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Question: 76 The frequency of the comparison of recorded accountability with assets (for the purpose of

safeguarding assets) should be determined by

A The amount of assets independent of the cost of the comparison

B The nature and amount of the asset and the cost of making the comparison

Assets should be compared with the recorded accountability as frequently as the nature and amount of the assets require, within the limits of acceptable costs of comparison The costs of safeguarding assets should not exceed the expected benefits

C The cost of the comparison and whether the susceptibility to loss results from errors

or fraud

D The auditor in consultation with client management

Question: 77 An adequate system of internal controls is most likely to detect a fraud perpetrated by a

A Group of employees in collusion

B Single employee

Segregation of duties and other control procedures serve to prevent or detect a fraud committed by an employee acting alone One employee may not have the ability to engage in wrongdoing or may be subject to detection by other employees in the course of performing their assigned duties However, collusion may circumvent controls For example, comparison of recorded accountability with assets may fail

to detect fraud if persons having custody of assets collude with record keepers

C Group of managers in collusion

A Reliability of financial reporting

B Elimination of all fraud

Internal control is a process designed to provide reasonable assurance regarding the achievement of organizational objectives Because of inherent limitations, however,

no system can be designed to eliminate all fraud

C Compliance with applicable laws and regulations

D Effectiveness and efficiency of operations

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Question: 79 Internal controls may be preventive, detective, corrective, or directive Which of the following

is preventive?

A Requiring two persons to open mail

Preventive controls are designed to prevent an error or an irregularity Detective and corrective controls attempt to identify and correct errors or irregularities that have already occurred Preventive controls are usually more cost beneficial than detective or corrective controls Assigning two individuals to open mail is an attempt to prevent misstatement of cash receipts

B Reconciling the accounts receivable subsidiary file with the control account

C Using batch totals

D Preparing bank reconciliations

Question: 80 Segregation of duties is a fundamental concept in an effective system of internal control

Nevertheless, the internal auditor must be aware that this safeguard can be compromised through

A Lack of training of employees

B Collusion among employees

By segregating duties, organizations make it more difficult for one person to perpetrate a fraud When custody of the asset and recordkeeping for the asset are invested in different persons, a fraud generally cannot be executed by one of the two parties However, if they collude, the internal control aspect of the segregation

is nullified

C Irregular employee reviews

D Absence of internal auditing

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Study Unit 2: Ratio Analysis | Subunit 1: Liquidity Ratios Calculations

$20,000) Hence, the current ratio is 5.29 ($1,480,000 ÷ $280,000)

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$80,000) Current liabilities consist of accounts payable and interest payable for a total of $280,000 ($260,000 + $20,000) Accordingly, working capital is

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Income taxes Accrued liabilities Current portion of

long-term debt Total current liabilities

In order to determine Kryton’s ability to pay current obligations the financial analyst would calculate Kryton’s cash ratio as

A

The cash ratio, a more conservative measure of liquidity than the quick ratio, is calculated as follows:

Cash ratio = (Cash + Marketable securities) ÷ Current liabilities

= ($200,000 + $100,000) ÷ $600,000 =

The acid test, or quick, ratio equals the quick assets (cash, marketable securities, and accounts receivable) divided by current liabilities Current assets equal the quick assets plus inventory and prepaid expenses (This question assumes that the entity has no prepaid expenses.) Given current assets of $5,000, inventory of

$2,000, and no prepaid expenses, the quick assets must be $3,000 Because the acid test ratio is 2.0, the quick assets are double the current liabilities Current liabilities therefore are equal to $1,500 ($3,000 quick assets ÷ 2.0)

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Question: 6 Tilghman Company’s current liabilities at December equal

A

B

Current liabilities can be calculated using the following relationship:

Acid test ratio = Quick assets ÷ Current liabilities

= $208,000 ÷ Current liabilities Current liabilities × 2.6 =

Question: 7 Tilghman Company’s inventory balance at December 31 is

A

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Ending inventory can be calculated using the following relationships:

Acid test ratio = Quick assets ÷ Current liabilities

= $208,000 ÷ Current liabilities Current liabilities × 2.6 =

Current liabilities = $208,000 ÷ 2.6

= Current assets ÷ Current liabilities = Current ratio

Current assets ÷ $80,000 =

Current assets = Assuming that Tilghman has no prepaid expenses, inventory is the only difference between current assets and quick assets Thus, the ending balance of inventory must

The acid test (quick) ratio equals the quick assets (cash, marketable securities, and accounts receivable) divided by current liabilities Sycamore’s acid test ratio is thus 1.558 [($10,000 + $18,000 + $120,000) ÷ ($75,000 + $20,000)]

B

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C

D

Fact Pattern: The information below pertains to Devlin Company

Statement of Financial Position as of May 31

(in thousands)

Year

Year Assets

Liabilities Current liabilities

Total current liabilities

Equity Preferred stock, 6%, $100 par value,

Year Year

Costs and expenses Costs of goods sold Selling, general, and

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Fact Pattern: The Statement of Financial Position for King Products Corporation for the

fiscal years ended June 30, Year 2, and June 30, Year 1, is presented below Net sales and cost

of goods sold for the year ended June 30, Year 2, were $600,000 and $440,000, respectively

King Products Corporation Statement of Financial Position

Inventories (at lower of cost or market)

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