ACCT 425 EXAM 3 2025/2026 QUESTIONS
AND ANSWERS 100% PASS
Distinguish between ethical issues and legal issues - ANS Some acts may not be against the
law, but they may be considered unethical. For example, it may not be illegal to simultaneously
accept two job offers verbally while trying to decide between the two companies; however,
ethically, this type of behavior is considered to be undesirable.
Some argue against corporate involvement in socially responsible behavior because the costs
incurred by such behavior place the org at a disadvantage in a competitive market. Discuss the
merits and flaws of this argument. - ANS The costs of socially responsible behavior include
those associated with environmental protection, improving worker safety, and affirmative
action. In the short run, when one firm incurs these costs and its competitor does not, the latter
has a competitive advantage over the former. However, the socially responsive firm can
maximize its profitability in the long run by accruing goodwill in society and avoiding the
negative effects of government regulations.
Although top management's attitude toward ethics sets the tone for business practice,
sometimes it is the role of lower level management to uphold a firm's ethical standards. John,
an operations level manager, discovers the company is illegally dumping toxic materials and is
in violation of environmental regulations. John's immediate supervisor is involved in the duping.
What action should John take - ANS Normally, the resolution of an ethical problem on the
job would involve consultation between the subordinate and the immediate supervisor. When
the supervisor is part of the problem, the matter should be taken to the next higher-level
person in the organization structure.
When a company has a strong internal control structure, stockholders can expect elimination of
fraud. Comment on the soundness of this statement. - ANS A strong internal control
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED
, structure provides a very good shield against fraud. However, these shields are not 100 percent
bulletproof, especially when employees collude and/or top management is involved. A strong
internal control structure coupled with good employee morals and ethics is the best deterrence
against fraud.
Distinguish between employee fraud and management fraud - ANS Employee fraud is
committed by non-management employees, and it is generally designed to directly convert
cash and other assets for the employee's personal benefit. In cases of employee fraud, weak
internal controls are usually present. Management frauds, however, are usually committed at a
level above the one to which internal controls generally relate. These frauds are typically
shrouded in a nexus of transactions and are difficult to disentangle.
The estimates of losses annually resulting from computer fraud vary widely. Why do you think
obtaining a good estimate of this figure is difficult - ANS The top management team of
publicly traded organizations is often reluctant to publicly admit that they have been the victim
of computer crime because of fear of public opinion regarding their internal control structure.
Also, many organizations may not be fully aware of the extent of their damages due to
computer fraud.
How has SOX had a significant impact on corporate governance - ANS The Sarbanes-Oxley
Act requires all audit committee members to be independent and requires the audit committee
to hire and oversee the external auditors. This provision is consistent with many investors who
consider the board composition to be a critical investment factor. For example, a Thomson
Financial survey revealed that most institutional investors want corporate boards to be
composed of at least 75 percent independent directors.
Discuss the non accounting services that external auditors no longer can provide to audit clients
- ANS The act addresses auditor independence by creating more separation between a firm's
attestation and non-auditing activities. This is intended to specify categories of services that a
public accounting firm cannot perform for its client. These include the following functions:
bookkeeping or other services related to the accounting records or financial statements;
financial information systems design and implementation;
appraisal or valuation services, fairness opinions, or contribution-in-kind reports;
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED
AND ANSWERS 100% PASS
Distinguish between ethical issues and legal issues - ANS Some acts may not be against the
law, but they may be considered unethical. For example, it may not be illegal to simultaneously
accept two job offers verbally while trying to decide between the two companies; however,
ethically, this type of behavior is considered to be undesirable.
Some argue against corporate involvement in socially responsible behavior because the costs
incurred by such behavior place the org at a disadvantage in a competitive market. Discuss the
merits and flaws of this argument. - ANS The costs of socially responsible behavior include
those associated with environmental protection, improving worker safety, and affirmative
action. In the short run, when one firm incurs these costs and its competitor does not, the latter
has a competitive advantage over the former. However, the socially responsive firm can
maximize its profitability in the long run by accruing goodwill in society and avoiding the
negative effects of government regulations.
Although top management's attitude toward ethics sets the tone for business practice,
sometimes it is the role of lower level management to uphold a firm's ethical standards. John,
an operations level manager, discovers the company is illegally dumping toxic materials and is
in violation of environmental regulations. John's immediate supervisor is involved in the duping.
What action should John take - ANS Normally, the resolution of an ethical problem on the
job would involve consultation between the subordinate and the immediate supervisor. When
the supervisor is part of the problem, the matter should be taken to the next higher-level
person in the organization structure.
When a company has a strong internal control structure, stockholders can expect elimination of
fraud. Comment on the soundness of this statement. - ANS A strong internal control
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED
, structure provides a very good shield against fraud. However, these shields are not 100 percent
bulletproof, especially when employees collude and/or top management is involved. A strong
internal control structure coupled with good employee morals and ethics is the best deterrence
against fraud.
Distinguish between employee fraud and management fraud - ANS Employee fraud is
committed by non-management employees, and it is generally designed to directly convert
cash and other assets for the employee's personal benefit. In cases of employee fraud, weak
internal controls are usually present. Management frauds, however, are usually committed at a
level above the one to which internal controls generally relate. These frauds are typically
shrouded in a nexus of transactions and are difficult to disentangle.
The estimates of losses annually resulting from computer fraud vary widely. Why do you think
obtaining a good estimate of this figure is difficult - ANS The top management team of
publicly traded organizations is often reluctant to publicly admit that they have been the victim
of computer crime because of fear of public opinion regarding their internal control structure.
Also, many organizations may not be fully aware of the extent of their damages due to
computer fraud.
How has SOX had a significant impact on corporate governance - ANS The Sarbanes-Oxley
Act requires all audit committee members to be independent and requires the audit committee
to hire and oversee the external auditors. This provision is consistent with many investors who
consider the board composition to be a critical investment factor. For example, a Thomson
Financial survey revealed that most institutional investors want corporate boards to be
composed of at least 75 percent independent directors.
Discuss the non accounting services that external auditors no longer can provide to audit clients
- ANS The act addresses auditor independence by creating more separation between a firm's
attestation and non-auditing activities. This is intended to specify categories of services that a
public accounting firm cannot perform for its client. These include the following functions:
bookkeeping or other services related to the accounting records or financial statements;
financial information systems design and implementation;
appraisal or valuation services, fairness opinions, or contribution-in-kind reports;
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED
