Question

16. According to the SEC, which of the following compromises independence between an auditor and his client?

A. If the auditor also prepares the tax returns for his client

B. If the relationship between the auditor and the client places the accountant in the position of auditing his own work

C. If the auditor has been on the engagement for more than four years

D. If the client pays the audit fees

17. What is one common criticism of corporate governance programs?

A. Public recognition of whistleblowers deters some people from reporting instances of fraud.

B. Whistleblower policies do not incentivize or reward employees to report instances of fraud to management or the board.

C. Punishment inflicted on fraudsters is too harsh.

D. Monetary rewards are too generous.

18. What is the best way to mitigate the risk of fraud with regard to social media?

A. Implement a social media policy.

B. Restrict access to social media sites on company computers to all employees outside of the public relations department.

C. Limit the social media presence of your organization to reputable sites such as LinkedIn and Twitter.

D. Require all employees to adjust their Facebook privacy settings in a particular way.

19. Which of the following is characteristic of an official code of ethics?

A. An official code of ethics is not a requirement for publicly traded companies.

B. An official code of ethics can eliminate any possible confusion regarding a conflict of interest.

C. An official code of ethics is an effective substitute for moral principles, culture, and character.

D. An official code of ethics is not intended to govern behavior.

Answer 1

16. According to the SEC, an auditor is prohibited to provide certain services to the clients which includes book keeping, actuarial services, valuation services, designing and implementing information system etc. So if an accountant itself is asked to audit the accounts made by him, it will compromise the independence. Hence the right answer is Option B.

17. Corporate governance program includes whistle blowing, whereby any employee can directly reach out to the chairman of the company or to an appropriate officer if he/she finds that the company is involved in fraudulent activities. The most common criticism of corporate governance is that the name of whistleblower is disclosed which prevents employees from actually reporting fraud. So the right answer is Option A public recognition of whistleblower prevents people from reporting.

18. It is important to mitigate the risk of fraud via social media as these days lot of cyber crimes can be seen, starting from hacking to phising, imposter accounts etc. The best way to mitigate the risk of fraud with regard to social media is by implementing a social media policy. So the right answer is Option A. Social media access should not be restricted instead must controlled and monitored.

19. Code of ethics is a statement or a written document which lists down the ethical principles which must be followed by the employees of the company in order to ensure that all the activities done are ethical. Code of ethics are important for all types of organization including publicly traded companies. But it cannot be treated as a substitute of morals, charachter and culture. Code of ethics helps to govern the behaviour and conduct of employees in the work place. The right answer is option B as the main purpose of official code of ethics is to eliminate possible confusions or conflicts of interest.

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