Chapter 02 Accountants' Ethical Decision Process and Professional Judgment Multiple Choice Questions . The failure of Andersen's audit of Enron can be attributed to all of the following except for: A. Failure to approach the audit with professional skepticism B. Lack of audit independence C. Failure to assign a sufficient number of staff to the audit D. Having a conflict of interests 2. Professional skepticism means: A. Approaching the audit with an independent attitude B. Approaching the audit with a questioning mind C. Being objective in decision making D. Maintaining one's integrity 3. The cognitive development approach refers to: A. The thought process followed in one's moral development B. The method of moral reasoning used in decision making C. The exercise of professional judgment in decision making D. All of the above 4. Kohlberg's model can best be described as: A. The various phases in one's moral development and related levels of moral reasoning B. A model of ethical action that is based on one's moral development C. A predictive tool to determine how a person will reason ethically based on one's moral development D. A model of age-specific levels of moral reasoning 5. The ethical domain in accounting and auditing refers to: A. The important constituent groups affected by accounting and auditing work B. The stages of the moral development of accountants and auditors C. The decision making process followed by accountants and auditors D. All of the above 6. Rest's "Four Component Model of Morality" can best be described as: A. A description of the values that influence ethical decision making B. A model of the relationship between ethical action and one's level of moral development C. A model of moral judgment based on one's possession of certain virtues of behavior D. All of the above 7. Thorne's "Integrated Model of Ethical Decision Making" can best be described as: A. A depiction of a model of moral development B. A depiction of how the Principles in the AICPA Code of Professional Conduct influences decision making C. A model of the role of virtue in decision making D. A model of the role of moral development and virtue in decision making 8. The need to exercise professional skepticism in auditing can be linked to: A. Maintaining an attitude of independence in decision making B. Considering and responding to the risk of material misstatement in the financial statements due to fraud C. Considering and responding to pressures that might be imposed on auditors in decision making D. All of the above 9. In Cherron and Lowe's study of the link between professional skepticism and management accountants, the authors identified the importance of: A. Understanding the motivation and integrity of evidence providers B. Understanding the nature of the corporate culture C. Understanding the way in which decisions are made D. All of the above 10. The ethical decision making model described in the chapter helps to: A. Organize the various elements of ethical reasoning and professional judgment B. Evaluate stakeholder interests using ethical reasoning C. Identify and select alternative courses of action D. All of the above 11. The importance of framing the ethical issue in the decision making model is: A. Identify the stakeholders affected by intended actions B. Evaluating alternative courses of action using moral reasoning methods C. Identify the accounting issues present in a case D. Providing a perspective to apply the decision making model to specific facts of the case 12. Wanda is faced with an ethical dilemma. She knows her supervisor, the CFO, wants to accelerate the recoding of revenue to an earlier period to "make the numbers," but Wanda is convinced this would violate GAAP. If Wanda reasons at stage 4 of Kohlberg's model she is most likely to: A. Make a decision based on what is in her own best interests B. Consider the interests of the stakeholders but decide based on what is in her best interests C. Refuse to record the transaction as desired by the CFO D. Inform the board of directors of the difference of opinion with the CFO 13. Leroy audits the financial statements of a small business. During the course of his audit he notices that all five members of top management have purchased new BMWs. Given that each manager's salary is less than $100,000 per year, Leroy becomes suspicious about how all five of them were able to buy such an expensive automobile. He decides to double check the bank statements for the year and postings to expense accounts that might indicate improper expenditures. Leroy's actions demonstrate: A. Professional skepticism B. Objective decision making C. Due care D. All of the above 14. Keesha is the CEO of a publicly-owned company. She was informed by the CFO that the company's earnings were down 30 percent from the prior year due to the recession. The company's stock price has declined by 20 percent. The CFO comes up with a scheme to hide debt and inflate revenues by selling underperforming assets to a special purpose entity affiliated with the company. Keesha is concerned about possible affects on the creditors but ultimately she agrees to the accounting. Keesha is reasoning at: A. Stage 1 B. Stage 2 C. Stage 3 D. Stage 4 15. What needs to be coupled with moral motivation to act on moral judgment? A. Courage B. External pressures C. Loyalty D. Internal pressures Essay Questions 1. Distinguish between each stage of ethical reasoning in Kohlberg's Model of Moral Development