Knowledge Checks: MCQ and Solutions - Topic 1 PDF

KNOWLEDGE CHECKS: MULTIPLE CHOICE QUESTIONS AND SOLUTIONS | 1 Questions Module 1 Question 1.1 Which three of the following are traditiona...

KNOWLEDGE CHECKS: MULTIPLE CHOICE QUESTIONS AND SOLUTIONS | 1 Questions Module 1 Question 1.1 Which three of the following are traditionally recognised as being attributes of a profession? A the service ideal B extensive preparatory education C substantial financial remuneration D application of professional judgment (EG ID 1.1) Question 1.2 Which three of the following features are included in the concept of ‘service ideal’? A the efficient and effective use of society’s resources B the provision of accounting-related services as cheaply as possible C the pursuit of excellence in accounting practice by the individual professional accountant D the responsibility to behave in a manner that maintains the good reputation of the profession (EG ID 1.2) Question 1.3 Which one of the following describes the way that accounting interacts with society and organisations? A Accounting can change society’s behaviour through changes in accounting policy. B Accounting responds to the needs of society and as such reacts to change rather than creating change. C Accounting is not appropriately placed to make changes in society because accountants are more interested in making money than in seeking what is best for society. D Accounting involves recording and reporting useful information, and, as such, it should remain impartial and objective and not be concerned about people, organisations and societies. (EG ID 1.3) Question 1.4 Which one of the following best describes professional judgment? A the acquisition of knowledge through a formal educational process B the ability to diagnose and solve complex, unstructured ‘values-based’ problems C practical experience that ensures the accounting role can be completed in a professional manner D problem-solving and the ability to apply the right technical solution despite pressure or social ideals (EG ID 1.4) R:\Workgroups\CPA-Production\CPA MCQs and ERs\1st Semester 2016\E&G\EG-Knowledge-check-MCQ_16a.docx DTP: Mira/Ophelia/Jen 3rd set 15b 05-02-16  2 | ETHICS AND GOVERNANCE Question 1.5 Which one of the following is a likely implication for the accounting profession following the collapse of large companies such as Enron, HIH Insurance and Lehman Brothers? A an increase in the profession’s autonomy B increased regulation and greater scrutiny by the regulators C a tendency for the community to have more faith in the accounting profession D a further reduction in the number of large accounting firms resulting from a merger process (EG ID 1.5) Question 1.6 The corporate collapses of the early 2000s and those that occurred during the Global Financial Crisis had some important common themes that we must understand if, as professionals, we are to assist in preventing their recurrence. Which three of the following were common themes of the corporate collapses? A They were the result of directors abusing their trust. B The collapses were not associated with incentive payments and greed. C They had a negative impact on the credibility of the accounting profession. D They demonstrated a willingness of corporations to engage in risks that were not fully understood. (EG ID 1.6) Question 1.7 Which three of the following statements correctly describes a profession? A Professions exist mainly to serve society. B Professions are strictly regulated by external bodies. C Professions have a substantial degree of independence and autonomy. D Professions are given permission to provide services to the public through some regulatory process. (EG ID 1.7) Question 1.8 Accounting meets the traditional attributes of a profession by upholding which three of the following? A achieving in all circumstances the best outcome for the client B specialist skills and experience supported by a well-founded body of knowledge C professional judgment to diagnose and solve complex, unstructured values-based problems D a service ideal in which the reliable quantifying and reporting the basic facts of economic life serves the public interest (EG ID 1.8) R:\Workgroups\CPA-Production\CPA MCQs and ERs\1st Semester 2016\E&G\EG-Knowledge-check-MCQ_16a.docx DTP: Mira/Ophelia/Jen 3rd set 15b 05-02-16  KNOWLEDGE CHECKS: MULTIPLE CHOICE QUESTIONS AND SOLUTIONS | 3 Question 1.9 The multi-dimensional role of the professional accountant in a mid-sized business includes generating value through which three of the following? A managing risk and measuring performance B managing costs through rigorous budgeting and forecasting C looking for external opportunities to invest the capital of the business D creating and implementing management information systems to bolster strategy and decision-making (EG ID 1.9) Question 1.10 The Professional Accountants in Business (PAIB) Committee of IFAC has identified a multi-dimensional role for accountants in generating value for business including which three of the following? A managing risks B upholding integrity C creative accounting D establishing a common ‘performance language’ (EG ID 1.10) Question 1.11 John and his supervisor Elizabeth work as auditors for a hedge fund. When they finalise their annual audit the valuation of the company is far higher than John expected, and he suspects Elizabeth has inflated the valuation to please management and ensure their bonuses. What should John do? A Confront Elizabeth regarding his suspicions. B Nothing, his responsibility is to the company. C Report his suspicions to the hedge fund’s senior management. D Report his suspicion to the General Manager Professional Conduct (GMPC) of CPA. (EG ID 1.11) R:\Workgroups\CPA-Production\CPA MCQs and ERs\1st Semester 2016\E&G\EG-Knowledge-check-MCQ_16a.docx DTP: Mira/Ophelia/Jen 3rd set 15b 05-02-16  4 | ETHICS AND GOVERNANCE Module 2 Question 2.1 Which one of the following advertising strategies is allowable for members of CPA Australia under its ethical rules? A Outlining the qualifications of the firm’s partners. B Indicating that a favourable taxation ruling is likely. C Including unsubstantiated endorsements from leading business people. D Comparing your services as superior to those of your major competitors. (EG ID 2.1) Question 2.2 Which one of the following statements is not a relevant reason for an accountant to liaise with their predecessor when accepting a professional assignment? A It is a matter of professional etiquette. B To avoid the appearance of solicitation. C To determine whether the professional fees charged were adequate to avoid threats to due care. D To identify whether there are professional reasons why the appointment should not be accepted. (EG ID 2.2) Question 2.3 Which fundamental principle of professional and ethical conduct is described by the phrase ‘having the courage to pursue one’s convictions’? Select which one of the following is correct. A integrity B objectivity C confidentiality D professional competence and due care (EG ID 2.3) Question 2.4 Which one of the following describes a heuristic approach to decision-making? A Decisions are based on decision rules or rules of thumb. B Decisions are in compliance with an ethical code of conduct. C Decisions are based on the application of an ethical decision-making model. D Decisions are based on a deontological approach that considers intentions to be important. (EG ID 2.4) R:\Workgroups\CPA-Production\CPA MCQs and ERs\1st Semester 2016\E&G\EG-Knowledge-check-MCQ_16a.docx DTP: Mira/Ophelia/Jen 3rd set 15b 05-02-16  KNOWLEDGE CHECKS: MULTIPLE CHOICE QUESTIONS AND SOLUTIONS | 5 Question 2.5 In a conflict of interest situation, to whom is the accountant’s first obligation? A the client B the public C themselves D the government (EG ID 2.5) Question 2.6 In which one of the following situations is the duty of confidentiality most likely to be breached? A When information is disclosed in a court of law. B When information is disclosed in response to a formal investigation by CPA Australia. C If the accountant obtains authorisation from the client before disclosing the information. D If information is disclosed after the accountant has resigned from their position with the employer. (EG ID 2.6) Question 2.7 Which three of the following are fundamental principles of professional conduct as outlined in the Code of Ethics for Professional Accountants? A integrity B public interest C professional behaviour D professional competence and due care (EG ID 2.7) Question 2.8 When may gifts made to an accountant within a workplace setting be accepted? Select which one of the following is correct. A When they are significant in value. B If they are intended to encourage unethical behaviour. C When they are made in the normal course of public relations. D When you are authorised by your senior management to give an expensive gift to the external accountant. (EG ID 2.8) R:\Workgroups\CPA-Production\CPA MCQs and ERs\1st Semester 2016\E&G\EG-Knowledge-check-MCQ_16a.docx DTP: Mira/Ophelia/Jen 3rd set 15b 05-02-16  6 | ETHICS AND GOVERNANCE Question 2.9 What type of threat is most likely to arise when a client with a dominant and persistent personality attempts to influence an accountant’s professional judgment? Select which one of the following is correct. A advocacy B familiarity C self-interest D intimidation (EG ID 2.9) Question 2.10 Which one of the following statements regarding utilitarianism is correct? A Utilitarianism is a deontological theory focused on consequences. B The decision-maker focuses on the outcomes or consequences to themselves. C Utilitarianism is a version of egoism and is focused on the outcome of the decision, not the intention. D Utilitarianism aims to maximise benefits to the greatest number of people both in the short and long term. (EG ID 2.10) Question 2.11 Which one of the following statements is most likely to lead to an effective code of ethics in a corporate organisation? A If leadership reflects management’s personal values. B When the unwritten code of ethics is effective in influencing behaviour. C If the rules on ethical behaviour in the code of ethics are prescriptive and explicit. D When management behaviour is congruent with the principles of the corporate code of ethics. (EG ID 2.11) Question 2.12 Professional independence is a subset of which one of the following pairs of fundamental principles? A integrity and due care B integrity and objectivity C integrity and professional competence D objectivity and professional behaviour (EG ID 2.12) R:\Workgroups\CPA-Production\CPA MCQs and ERs\1st Semester 2016\E&G\EG-Knowledge-check-MCQ_16a.docx DTP: Mira/Ophelia/Jen 3rd set 15b 05-02-16  KNOWLEDGE CHECKS: MULTIPLE CHOICE QUESTIONS AND SOLUTIONS | 7 Question 2.13 Which one of the following statements is correct in regard to earnings management? A It occurs only when profit is low. B It is the result of professional judgment. C It is the practice of maximising earnings. D It represents the manipulation of reported earnings. (EG ID 2.13) Module 3 Question 3.1 Which of the following are key corporate factors driving the need for better governance? Select which three options are correct. A the growth in shareholder activism B the requirement to access lower-cost debt and equity finance C higher levels of individual taxation dissuading potential shareholders D increasing competition making high levels of performance harder to achieve (EG ID 3.1) Question 3.2 Which one of the following is not a function of the board of a large public company? A the selection of auditors B monitoring the CEO’s performance C managing the day-to-day operations of the corporation D the oversight of management in the application of policies and guidelines about the principal risks faced by the company (EG ID 3.2) Question 3.3 A board committee is best described as a subset of the board formed to achieve which one of the following outcomes? A enhance the effectiveness of the board B report to shareholders on specific issues C enable directors to reduce their individual liability D being independent by having exclusively independent directors (EG ID 3.3) R:\Workgroups\CPA-Production\CPA MCQs and ERs\1st Semester 2016\E&G\EG-Knowledge-check-MCQ_16a.docx DTP: Mira/Ophelia/Jen 3rd set 15b 05-02-16  8 | ETHICS AND GOVERNANCE Question 3.4 Which statement best describes the view taken by Nobel Prize-winning economist Milton Friedman in relation to companies? A Companies are an integral part of society and, as such, should adopt the highest ethical principles. B Companies, as part of society, should act in the interests of harmonisation of society and the environment. C Companies should detach themselves from the environment and focus on maximising the benefits to society. D Companies must obey community rules and should focus on maximising returns to shareholders by appropriate means. (EG ID 3.4) Question 3.5 Which one of the following is an important concern in the OECD Principles of Corporate Governance (2015)? A directors’ rights B regulators’ rights C shareholders’ rights D triple bottom line accounting (EG ID 3.5) Question 3.6 The California Public Employees’ Retirement System (CalPERS), (a US pension fund manager), has had an impact on corporate governance internationally, due to which of the following? Select which two options are correct. A It requests its members not invest in shares. B It assists companies in which it invests to appoint directors. C It supports good corporate governance through investing in companies that practise it. D It informs the international business community that it has opinions on corporate governance practices in companies in which it invests. (EG ID 3.6) R:\Workgroups\CPA-Production\CPA MCQs and ERs\1st Semester 2016\E&G\EG-Knowledge-check-MCQ_16a.docx DTP: Mira/Ophelia/Jen 3rd set 15b 05-02-16  KNOWLEDGE CHECKS: MULTIPLE CHOICE QUESTIONS AND SOLUTIONS | 9 Question 3.7 Which of the following are characteristics of the market-based system? Select which three options are correct. A Bonds and loans are the most important source of finance in this system of corporate governance. B Dispersed investors require reliable and adequate information flows in order to make informed investment decisions. C Regulation is intended to ensure relatively complete information for investors and to prevent privileged groups of shareholders sharing information only among themselves. D Bank finance has tended to be short-term, and banks have tended to maintain arm’s-length relationships with corporate clients. Equity finance has been more important as a means of developing companies. (EG ID 3.7) Question 3.8 France and Italy are the European countries with the smallest ownership of company shares by financial institutions. Which of the following conditions prevail? Select which three options are correct. A Corporate governance systems in these countries emphasise consensus rather than competition. B In France, the role of CEO and chair are combined in the role of the président directeur général (PDG), who is strongly accountable to the board. C In France, the majority of shares have traditionally been owned by non-financial enterprises, which reflects an elaborate structure of cross and circular ownership. D Stable investment shields managers from the short-term pressures of the market by making a change in corporate control a more difficult feature. This may be conducive to long-term, relation-specific investments, but it also weakens pressures to maximise performance. (EG ID 3.8) Question 3.9 Which of the following are characteristics of corporate governance in East Asia? Select which three options are correct. A Institutional investors have a significant effect on standards of governance. B Disclosure and transparency are often limited, so it is more difficult for the legal and regulatory authorities to take action if they are inclined to do so. C On the boards of companies, there is often no clearly defined role for non-executive directors, and lack of knowledge of the obligations and functions of company officers is widespread. D Decision-making bodies are often not effective in carrying out their formal roles. Sometimes they are unable to exercise their rights, and boards are co-opted by the dominant shareholders. (EG ID 3.9) R:\Workgroups\CPA-Production\CPA MCQs and ERs\1st Semester 2016\E&G\EG-Knowledge-check-MCQ_16a.docx DTP: Mira/Ophelia/Jen 3rd set 15b 05-02-16  10 | ETHICS AND GOVERNANCE Question 3.10 For companies located in East Asia, which one of the following is not an important objective when developing more robust modes of governance? A allowing business networks to strengthen their position B clarifying and strengthening internal control structures within firms C developing training and information programs to improve the understanding of corporate governance procedures and issues D strengthening external monitoring and control through improvements in the legal framework, enhanced by regulatory agencies and greater disclosure of information (EG ID 3.10) Question 3.11 Which one of the following statements best describes characteristics likely to be found in agency relationships? A An agent will find it relatively easy to achieve the best interests of the principal in most agency relationships. B It is necessary to monitor an agent extensively, even where that agent voluntarily assumes the imposition of high bonding costs. C Agents who are highly bonded will be expected to try to maximise the returns of their principal and will be expected also to seek returns for themselves. D Agents will often not provide sufficient signalling to principals. It is principally this factor that results in principals finding it necessary to engage in and pay for monitoring. (EG ID 3.11) Question 3.12 Which one of the following would not be an example of an agency cost? A audit fees B dividends C delegated authorities D information asymmetry (EG ID 3.12) Question 3.13 Which of the following can be considered opportunistic residual loss behaviour by an agent? Select which two options are correct. A purchase of an expensive painting for the managing director’s office B investing in technology that will substantially reduce short-term profit, but yield returns in the longer term C suspending negotiations with a potential acquisition target because it would not enhance shareholder wealth D delaying maintenance expenditure in order to meet current profit targets as this will result in profit-related bonuses for a manager (EG ID 3.13) R:\Workgroups\CPA-Production\CPA MCQs and ERs\1st Semester 2016\E&G\EG-Knowledge-check-MCQ_16a.docx DTP: Mira/Ophelia/Jen 3rd set 15b 05-02-16  KNOWLEDGE CHECKS: MULTIPLE CHOICE QUESTIONS AND SOLUTIONS | 11 Question 3.14 South Ltd has a remuneration policy of paying a bonus to senior managers of 0.1 per cent of profits above a target profit of $50 million. The maximum bonus payable is $750 000. South’s reported profit forecast is $40 million per year for the next two years. According to agency theory, which of the following would be the most likely management actions? Select which two options are correct. A Defer maintenance expenditure, saving $2 million in expenses. B Undertake all preventative maintenance in the current year, reducing profits by $6 million. C Bring forward a review of asset values, resulting in an asset write-down of $12 million against current profits. D Capitalise research and development expenditure, which would have been expensed, resulting in an increase to profits by $3 million. (EG ID 3.14) Question 3.15 Stakeholder theory is best described as being based on the presumption that the corporation has direct concerns about its relationships with A the corporate regulator. B the directors of the corporation. C the shareholders of the corporation. D a wide range of groups that affect and/or are affected by the corporation. (EG ID 3.15) Module 4 Question 4.1 Which one of the following would be the best way for a shareholder (not being an institutional shareholder) to become involved in the corporate governance of a listed corporation in which they own shares? A by taking an active interest and an active role in the management of the corporation B by voting through proxy or by attendance at the general meetings of the corporation C by selling their shares on the market because the corporation fails to pay dividends at an appropriate level D by overruling board decisions, including through votes against the board in relation to non-binding shareholder votes (EG ID 4.1) R:\Workgroups\CPA-Production\CPA MCQs and ERs\1st Semester 2016\E&G\EG-Knowledge-check-MCQ_16a.docx DTP: Mira/Ophelia/Jen 3rd set 15b 05-02-16  12 | ETHICS AND GOVERNANCE Question 4.2 Which one of the following statements best describes an independent director of a listed corporation? A a non-executive director who holds 20 per cent of the shares in the corporation B an executive director who is a CEO but who receives no additional remuneration for being on the board C a non-executive director who receives a flat fee for being a director and who accepts no additional consulting, advisory or performance-related fees D a full-time employee of a bank who is appointed to the board at the request of the bank (a major lender to the corporation) and is instructed by the bank to always vote in the interests of the corporation’s shareholders (EG ID 4.2) Question 4.3 Mr Smith is a director of a corporation. He is aware that the corporation is about to announce the appointment of a high-profile industry leader to chair its board. Mr Smith suspects that this may affect the price of shares in the corporation. He mentions the imminent appointment to his friend, Mr Jones, who immediately purchases shares in the corporation, which increase in value once the announcement of the chair is made. Which one of the following options most accurately reflects the legal position of Mr Smith and Mr Jones? A Mr Smith is potentially liable for insider trading, but Mr Jones is not. B Mr Jones is potentially liable for insider trading, but Mr Smith is not. C Both Mr Smith and Mr Jones are potentially liable for insider trading. D Neither Mr Smith nor Mr Jones is potentially liable for insider trading. (EG ID 4.3) Question 4.4 Which one of the following is least likely to be relevant in determining whether an agreement between a corporation and consumer is unconscionable? A whether undue influence was applied to the consumer B whether the consumer was able to understand the documents used C the difference in the strength of the bargaining power of the parties D the extent to which the corporation drove a ‘hard and tough’ bargain (EG ID 4.4) R:\Workgroups\CPA-Production\CPA MCQs and ERs\1st Semester 2016\E&G\EG-Knowledge-check-MCQ_16a.docx DTP: Mira/Ophelia/Jen 3rd set 15b 05-02-16  KNOWLEDGE CHECKS: MULTIPLE CHOICE QUESTIONS AND SOLUTIONS | 13 Question 4.5 Listed corporations are required to meet continuous disclosure requirements. This requirement is designed to ensure a fully informed market and, as such, also assists in reducing the risks of insider trading. Which one of the following situations is most likely to result in the greatest risk of insider trading? A An entity held information that would have a material effect on the price of its securities and immediately disclosed it to the stock exchange. B An entity held information that a reasonable person would not expect to have a material effect on the price of its securities and so immediately notified the stock exchange. C An entity is in confidential discussions regarding a proposed takeover that would have a material effect on the price of its securities, but decides not to notify the stock exchange until the negotiations are complete. D An entity has been ordered by a court to pay a significant fine, which, if paid, would have a material effect on the price of its securities. However, as the entity is going to appeal the decision, it decides not to notify the stock exchange. (EG ID 4.5) Question 4.6 Which one of the following statements is not correct in relation to legal compliance programs? A Compliance programs can help promote ethical behaviour and a quality focus within the corporation, leading to a lower likelihood of breaching legislation. B A breach of legislation will probably lead to lower employee morale and higher employee turnover, thereby increasing the knowledge gap within the corporation. C Having a compliance program posted on the corporation’s intranet site is sufficient to protect the corporation and its directors from breaches of legislation by employees. D A breach of legislation will likely lead to an investigation by the regulatory bodies, and such activities will divert resources away from the entity’s profit-making objective. (EG ID 4.6) Question 4.7 If a supplier induces or insists on the minimum price at which a reseller should sell or advertise the supplier’s products, this is referred to as A price-fixing. B exclusive dealing. C unconscionable conduct. D resale price maintenance. (EG ID 4.7) R:\Workgroups\CPA-Production\CPA MCQs and ERs\1st Semester 2016\E&G\EG-Knowledge-check-MCQ_16a.docx DTP: Mira/Ophelia/Jen 3rd set 15b 05-02-16  14 | ETHICS AND GOVERNANCE Question 4.8 In Australia, in common with most countries, which of the following are specifically required by law to become a company director? Select which two options are correct. A to be fully certified as a company director B to be a natural person of at least 18 years of age C to have specific qualifications in appropriate business disciplines D to be a person not currently disqualified from managing a corporation (EG ID 4.8) Question 4.9 Disqualification of a director or an officer of a company in Australia, in common with most countries, occurs because of some legally defined commercially unacceptable behaviour or relevant legal wrongdoing. Which of the following are specific wrongs leading to disqualification? Select which three options are correct. A financial market misconduct B responsibility for multiple insolvencies C exercising business judgment that leads to very substantial losses for the firm D civil and criminal wrongs in relation to anti-competitive conduct in markets for goods and services (EG ID 4.9) Question 4.10 When shareholders are dissatisfied with the remuneration packages proposed for a company’s executives, they can move to ‘spill the board’. In this process, which two of the following statements are correct? A It enables a clean sweep of the existing board. B It increases the power of independent shareholders. C It requires a minimum of 25 per cent of eligible shareholders to vote against the remuneration report. D It requires a minimum of 25 per cent of eligible shareholders to vote in favour of the resolution to spill. (EG ID 4.10) R:\Workgroups\CPA-Production\CPA MCQs and ERs\1st Semester 2016\E&G\EG-Knowledge-check-MCQ_16a.docx DTP: Mira/Ophelia/Jen 3rd set 15b 05-02-16  KNOWLEDGE CHECKS: MULTIPLE CHOICE QUESTIONS AND SOLUTIONS | 15 Question 4.11 Various arguments are forwarded for increasing the proportion of women on boards, from equal opportunity to increasing the diversity of perspectives, knowledge and backgrounds to increasing share value, as noted in the Credit Suisse report. Which one of the four countries below is most likely to see the greatest board gender diversity? A France B Australia C Malaysia D the United Kingdom (EG ID 4.11) Module 5 Question 5.1 Which of the following are correct in respect of the Global Compact? Select which three options are correct. A The Global Compact seeks to encourage the integration of its principles into responsible business practice. B The Global Compact focuses on the international protection of human rights. C The Global Compact exists to limit the private sector in the management of the risks and opportunities in the environmental, social and governance realms. D The principles within the Global Compact are based, in part, on the International Labour Organization’s ‘Declaration on Fundamental Principles and Rights at Work’. (EG ID 5.1) Question 5.2 Which one of the following is not correct in relation to organisational legitimacy? A Organisational legitimacy draws on the idea of a social contract. B Organisational legitimacy may be utilised to manipulate public perceptions of an organisation. C Organisational legitimacy afford organisations a clean slate to pursue their fiduciary duty to shareholders. D Organisational legitimacy suggests that the survival and growth of corporations is dependent on the delivery of socially desirable ends. (EG ID 5.2) R:\Workgroups\CPA-Production\CPA MCQs and ERs\1st Semester 2016\E&G\EG-Knowledge-check-MCQ_16a.docx DTP: Mira/Ophelia/Jen 3rd set 15b 05-02-16  16 | ETHICS AND GOVERNANCE Question 5.3 Which one of the following describes the theory that organisations will take action to manage perceptions in order to maintain their position and benefits? A ethical theory B normative theory C legitimacy theory D stakeholder theory (EG ID 5.3) Question 5.4 Which one of the following courses of action by organisations is not considered relevant by Lindblom (1994) to obtain, maintain or repair legitimacy? A manipulate perception by deflecting attention from the issue of concern B change the perceptions of the public, but not the organisation’s actual behaviour C educate and inform the public about actual changes to the organisation’s behaviour D change the internal expectations of its performance, as management usually has unreasonable expectations (EG ID 5.4) Question 5.5 Which of the following refer to the practice of corporate accountability? Select which three options are correct. A It is driven by regulation. B It involves reports highlighting social and environmental performance. C It involves informing stakeholders of anything they wish to be informed about. D It illustrates the importance of an understanding of principles of governance for accountants. (EG ID 5.5) Question 5.6 Which one of the following applies to social sustainability? A It is the role of government. B It is facilitated through increasing globalisation. C It involves addressing the needs of all relevant existing stakeholders. D It revolves around resource use in a way that promotes long-term benefits. (EG ID 5.14) R:\Workgroups\CPA-Production\CPA MCQs and ERs\1st Semester 2016\E&G\EG-Knowledge-check-MCQ_16a.docx DTP: Mira/Ophelia/Jen 3rd set 15b 05-02-16  KNOWLEDGE CHECKS: MULTIPLE CHOICE QUESTIONS AND SOLUTIONS | 17 Question 5.7 The international community has become increasingly concerned with the adverse consequences of climate change and as a result has proposed which of the following initiatives? Select which three options are correct. A requiring countries to begin reducing emissions B agreeing to legally binding reductions in greenhouse gases over set periods of time C determining strictly the specific means by which developed and developing countries achieve their targets D requiring countries to measure, account for and report their aggregate emissions of greenhouse gases (EG ID 5.7) Question 5.8 Corporate accountability is evolving to include wider definitions of the responsibilities and accountabilities of corporations. These new accountabilities are widely acknowledged as which of the following? Select which three options are correct. A job sustainability B social sustainability C economic sustainability D environmental sustainability (EG ID 5.8) Question 5.9 The World Business Council for Sustainable Development (WBCSD) has emphasised that environmental issues have an impact on a company’s profitability, for example, through which of the following? Select which three options are correct. A the additional costs associated with going green B plant write-offs as a result of changes to clean production capacity C clean-up costs or fines for non-compliance with environmental regulations D revenue effects of market growth or decline due to changes in customer preferences for environmentally sustainable products (EG ID 5.9) R:\Workgroups\CPA-Production\CPA MCQs and ERs\1st Semester 2016\E&G\EG-Knowledge-check-MCQ_16a.docx DTP: Mira/Ophelia/Jen 3rd set 15b 05-02-16  18 | ETHICS AND GOVERNANCE Question 5.10 Reducing risk is an incentive for transparent environmental and social reporting because A CSR reporting allows users to identify, assess and manage these risks. B CSR reporting, in itself, is a clear indication a company is alert to the risks. C once CSR risks are disclosed the company has fulfilled its duty to accountability. D once the risks have been disclosed it becomes the investor’s responsibility to invest in the company recognising the risks involved. (EG ID 5.10) Question 5.11 What is an ‘externality’? Select the one option that is correct. A external resources essential for economic activity without which the company could not operate B anything external to the company that impacts on the company, such as a natural disaster or storm C external free goods that economic entities may exploit for the generation of wealth at will as they are by definition free D an impact that an existing entity has on parties that are external to the organisation where such external parties did not agree or take part in the actions causing, or the decisions leading to, the costs or benefit (EG ID 5.11) Question 5.12 Reporting for social, environmental and sustainability issues involves which of the following? Select which three options are correct. A imagination B monetisation C quantification D narrative reporting (EG ID 5.12) Question 5.13 Which of the following are among the potential limitations of traditional financial reporting? Select which three options are correct. A the scope of reporting B the focus upon the entity C the emphasis on intangibles D the focus on short-term results (EG ID 5.13) R:\Workgroups\CPA-Production\CPA MCQs and ERs\1st Semester 2016\E&G\EG-Knowledge-check-MCQ_16a.docx DTP: Mira/Ophelia/Jen 3rd set 15b 05-02-16  KNOWLEDGE CHECKS: MULTIPLE CHOICE QUESTIONS AND SOLUTIONS | 19 Solutions Module 1 Question 1.1 Correct answer: A, B and D The correct answers are Options A, B and D. These are all attributes that are accepted as being necessary to identify a profession, as shown in the list from the study guide reproduced below: systematic body of theory and knowledge; extensive education process for its members; ideal of service to the community; high degree of autonomy and independence; code of ethics for its members; distinctive ethos or culture; application of professional judgment; and existence of a governing body. Option C is not an attribute. Remuneration levels may well be superior for those in professions but the existence of superior levels of remuneration is not an attribute of a profession. Achieving high income may be an outcome that some non-professionals achieve but it is in no way an attribute applying only to professions and many professionals do not achieve high incomes. You can review this topic area in the study guide under the section titled ‘What is a profession?’. Question 1.2 Correct answer: A, C and D Options A, C and D are correct: they are all identified as components of the service ideal. Option A is linked to the quote by Willmott (1990), which states that: Accounting is perceived to present information in a reliable and comparable form by quantifying and reporting the basic facts of economic life, thereby monitoring past performance and facilitating rational, efficient decision making in respect of the generation and allocation of resources. In performing this role, accounting is widely understood to serve the public interest (Willmott 1990, p. 315). Option C is linked to the idea that individual accountants are responsible for maintaining and updating their knowledge and skills, and applying them with competence and due care in the best interest of society. Option D is linked to the notion that members of a profession are expected to behave ethically and for the best interest of society. Option B is incorrect. One perspective of the ‘service ideal’ is to provide accounting-related community services ‘free’ of charge. However, this is not the same as providing services as cheaply as possible. While this may at first appear generous and benevolent, it may not be sustainable and eventually force cost-cutting that could adversely affect the provision of due care. You can review this topic area in the study guide under the section titled ‘An ideal of service to the community’. R:\Workgroups\CPA-Production\CPA MCQs and ERs\1st Semester 2016\E&G\EG-Knowledge-check-MCQ_16a.docx DTP: Mira/Ophelia/Jen 3rd set 15b 05-02-16  20 | ETHICS AND GOVERNANCE Question 1.3 Correct answer: A The correct answer is Option A. Accounting policies will influence how information is recorded, reported and analysed. This in turn will affect important and significant decisions about resource allocation by a variety of stakeholders including investors, governments, lenders and managers. As such, the way we use and implement accounting influence how societies behave. Option B is incorrect. While accounting may respond to change based on needs of society, it also plays a role in shaping society. Option C is incorrect. Accounting has an underlying ethical framework that properly permits accounting to be involved in social change. Accountants, as professionals, are not ‘just interested in making money’ but have a broader responsibility to serve the public interest. Option D is incorrect. While accountants are often expected to act in an impartial and objective manner, accounting itself is not purely a technical activity. As a result of accounting information, decisions are made—by investors, governments, managers and other stakeholders—and significant social consequences result. Therefore, accounting is more than just its technical characteristics. It must be understood within the social framework and we must recognise and understand the social changes that accounting will effect. You can review this topic area in the study guide under the section titled ‘Social impact of accounting’. Question 1.4 Correct answer: B The correct answer is Option B. This description of professional judgment is provided in the materials and attributed to Becker (1982). Option A is incorrect. Becker (1982) states that acquisition of knowledge is important but not enough to identify a person as a professional, who also needs to be able to diagnose and solve complex problems. Option C is incorrect. Practical experience is identified as being important in both professional and non-professional environments, so this is not seen as a distinguishing characteristic. Option D is incorrect. Problem-solving is important, but professional judgment is more than applying technical solutions, and involves being able to identify value conflict in relation to complex social values that can regularly apply to decisions. Professionals are expected to choose the outcome that best meets the social ideal. You can review this topic area in the study guide under the section titled ‘Application of professional judgment’. R:\Workgroups\CPA-Production\CPA MCQs and ERs\1st Semester 2016\E&G\EG-Knowledge-check-MCQ_16a.docx DTP: Mira/Ophelia/Jen 3rd set 15b 05-02-16  KNOWLEDGE CHECKS: MULTIPLE CHOICE QUESTIONS AND SOLUTIONS | 21 Question 1.5 Correct answer: B Examples of increased regulation and greater scrutiny are shown by changes to laws such as Sarbanes–Oxley Act 2002 in the US, and CLERP 9 Act in Australia. Accounting standards are now backed by law, and auditors must apply the code of ethics as it has legislative application. Option A is incorrect. The profession’s autonomy will be decreased (not increased) as higher levels of external regulation are put in place. Option C is incorrect. The community will have less faith (not more faith) in the accounting profession as a result of these issues. Option D is incorrect. While the number of large accounting firms decreased in the early 2000s from five to four, Arthur Andersen collapsed in the wake of its own scandal arising from the Enron affair. It did not merge with any other accounting firm. You can review this topic area in the study guide under the section titled ‘Credibility of the profession’. Question 1.6 Correct answer: A, C and D The correct answer is Options A, C and D. The key reason that remuneration practices are being queried strongly following the GFC is because executives were taking huge risks that they did not understand (and boards were not correcting this) in order to gain inflated bonuses—which is greed just as much as frauds in cases like Enron (Options A and D). The credibility of the accounting profession was also called into question (Option C). Option B is incorrect because the corporate collapses in the early 2000s and those that occurred during the GFC did involve highly evident levels of greed—including substantial frauds in the early 2000s. You can review this topic area in the study guide under the section titled ‘Credibility of the profession’. Question 1.7 Correct answer: A, C and D The correct answers are Options A, C and D: all describe attributes of a profession. Professions serve society, provide a service through a regulatory process, and have a substantial degree of independence and autonomy. Option B is incorrect. While some professions may be strictly regulated by external bodies, this is not the case with all professions. The accounting profession is not strictly regulated by an external body, since this would place undue constraints upon the exercise of professional judgment. However, the profession has moved from self-regulation to co-regulation with external bodies. You can review this topic area in the study guide under the section titled ‘What is a profession?’. R:\Workgroups\CPA-Production\CPA MCQs and ERs\1st Semester 2016\E&G\EG-Knowledge-check-MCQ_16a.docx DTP: Mira/Ophelia/Jen 3rd set 15b 05-02-16  22 | ETHICS AND GOVERNANCE Question 1.8 Correct answer: B, C and D Options B, C and D are correct because accounting involves specialist skills, a service ideal and judgment. Option A is incorrect because accounting does not pursue the best outcomes for the client in all circumstances, as this might not be in accordance with regulation or law, or the public interest. You can review this topic area in the study guide under the section titled ‘Attributes of the accounting profession’. Question 1.9 Correct answer: A, B and D Options A, B and D are all correct because creating information systems, managing costs and managing risks are all parts of the role of the accountant in a mid-sized business. Option C is incorrect because external investment of the capital of the business is a role associated with the CEO, CFO and Board of directors. You can review this topic area in the study guide under the section titled ‘Accounting in small and medium enterprises (SMEs)’. Question 1.10 Correct answer: A, B and D Options A, B and D are correct as they are all part of the PAIB’s definition of the accountants’ role. Option C is incorrect because, over time, ‘creative accounting’ has become synonymous with distortion of the company accounts in the interest of concealing rather than revealing problems. You can review this topic area in the study guide under the section titled ‘Accounting in small and medium enterprises (SMEs)’. R:\Workgroups\CPA-Production\CPA MCQs and ERs\1st Semester 2016\E&G\EG-Knowledge-check-MCQ_16a.docx DTP: Mira/Ophelia/Jen 3rd set 15b 05-02-16  KNOWLEDGE CHECKS: MULTIPLE CHOICE QUESTIONS AND SOLUTIONS | 23 Question 1.11 Correct answer: A The correct answer is Option A. As specified in the module, ‘The complainant should first attempt to resolve the matter directly with the CPA Australia member’—in this case Elizabeth. Option B is not correct as a CPA’s primary duty is to the public, not to their employer, as specified in the module: Accounting information is relied on heavily by people who make significant decisions about the allocation of resources. Accountants, therefore, serve the public interest by creating and distributing information that conveys a clear and accurate picture of an entity’s financial performance, financial position and other relevant issues. The public duty of CPAs is further discussed in Module 2. Option C is incorrect, because John should attempt to resolve the matter with Elizabeth first as discussed under Option A. Furthermore, John suspects managerial influence may be responsible in part for the inflated evaluation. The auditor’s independence should be maintained. Option D is incorrect. While John’s duty is to report Elizabeth’s behaviour to the MPC of CPA, this is only after the initial required attempt to resolve the matter with Elizabeth himself. If her response is not satisfactory he ‘must lodge a written complaint providing all necessary details, supported by documentary evidence’. You can review this topic area in the study guide under the sections titled ‘Accountants as members of a profession’—‘Public interest or self-interest?’ and ‘The profession’s regulatory process’— ‘Professional discipline’—‘Regulation of member conduct’. Module 2 Question 2.1 Correct answer: A Answer A is correct. There is no prohibition on detailing your qualifications. Generally, members in public practice are permitted to advertise or obtain publicity for their services provided that the content or nature of such advertising or publicity is not false, misleading or deceptive, and does not in any other way reflect adversely on the profession. Options B, C and D are incorrect. These practices are examples of unsubstantiated claims, or false, misleading or deceptive advertising or making disparaging remarks about members of the profession. Members must be honest and truthful and should not: make exaggerated claims for services offered, qualifications possessed or experience gained; or make disparaging references or unsubstantiated comparisons to the work of another (s. 250.2). You can review this topic area in Module 2 in the section titled ‘Marketing professional services (s. 250)’. R:\Workgroups\CPA-Production\CPA MCQs and ERs\1st Semester 2016\E&G\EG-Knowledge-check-MCQ_16a.docx DTP: Mira/Ophelia/Jen 3rd set 15b 05-02-16