CCA CCA Ethics & Corporate Governance 1 — Questions and Answers
Question 1: Under the AICPA Code of Professional Conduct, which fundamental principle requires a CPA to be straightforward and honest in professional and business relationships?
- Objectivity
- Integrity (Correct answer)
- Due care
- Confidentiality
Correct answer: Integrity
The integrity principle requires CPAs to be straightforward and honest, avoiding subordination of professional judgment to client or employer pressure.
Question 2: What is the primary role of a board of directors' audit committee?
- To manage day-to-day financial operations
- To oversee the financial reporting process, internal controls, and the external auditor relationship (Correct answer)
- To set executive compensation packages
- To approve capital expenditure budgets
Correct answer: To oversee the financial reporting process, internal controls, and the external auditor relationship
The audit committee oversees financial reporting integrity, monitors internal control systems, and serves as the direct link between the board and the external auditors.
Question 3: Which of the following best describes a conflict of interest for a corporate accountant?
- Preparing financial statements for a client in a different industry
- Having a personal financial stake in decisions that should be made objectively for the employer (Correct answer)
- Disagreeing with management's accounting estimates
- Working overtime during the year-end close
Correct answer: Having a personal financial stake in decisions that should be made objectively for the employer
A conflict of interest arises when a professional has personal interests that could impair their objective judgment in performing duties for an employer or client.
Question 4: The Sarbanes-Oxley Act (SOX) Section 302 requires corporate officers to:
- Register all securities with the SEC within 30 days of issuance
- Certify the accuracy of financial statements and effectiveness of disclosure controls (Correct answer)
- Establish a whistleblower hotline managed by external counsel
- Rotate external auditors every five years
Correct answer: Certify the accuracy of financial statements and effectiveness of disclosure controls
SOX Section 302 requires the CEO and CFO to personally certify the accuracy of financial statements and assess the effectiveness of disclosure controls and procedures.
Question 5: What does the concept of 'fiduciary duty' mean for a corporate officer?
- The obligation to maximize personal compensation through equity grants
- The legal and ethical obligation to act in the best interests of the company and its shareholders (Correct answer)
- The duty to file all tax returns on time
- The responsibility to comply only with federal regulations
Correct answer: The legal and ethical obligation to act in the best interests of the company and its shareholders
Fiduciary duty requires corporate officers to act with loyalty and care in the best interests of the company and its shareholders, not their own personal interests.
Question 6: Which of the following is an example of earnings management crossing into financial statement fraud?
- Timing a large sale to close before quarter-end
- Changing from FIFO to weighted-average inventory costing with proper disclosure
- Recording fictitious revenues to meet analyst earnings expectations (Correct answer)
- Accelerating capital expenditures for tax benefits
Correct answer: Recording fictitious revenues to meet analyst earnings expectations
Recording fictitious (non-existent) revenues is financial statement fraud — it involves intentional misrepresentation rather than aggressive but permissible accounting choices.
CCA CCA Ethics & Corporate Governance 1
Under the AICPA Code of Professional Conduct, which fundamental principle requires a CPA to be straightforward and honest in professional and business relationships?