FAC FAC Ethics, Compliance & Professional Standards 2 — Questions and Answers
Question 1: The Foreign Corrupt Practices Act (FCPA) primarily prohibits U.S. companies from:
- Hiring foreign nationals in U.S. offices
- Paying bribes to foreign government officials to obtain or retain business (Correct answer)
- Investing in foreign currency denominated securities
- Outsourcing accounting functions to foreign service providers
Correct answer: Paying bribes to foreign government officials to obtain or retain business
The FCPA prohibits U.S. persons and companies from bribing foreign government officials to gain business advantages and requires accurate books and records.
Question 2: Which regulatory body, established by the Sarbanes-Oxley Act, oversees auditing standards for public company auditors in the United States?
- AICPA
- GAO
- PCAOB (Correct answer)
- SEC
Correct answer: PCAOB
The Public Company Accounting Oversight Board (PCAOB) was created by SOX to oversee audits of public companies and protect investors.
Question 3: What does 'due professional care' require of an accounting professional?
- Completing more work hours than contracted
- Applying the diligence and critical thinking a competent professional would exercise (Correct answer)
- Agreeing with the client's preferred accounting treatment
- Avoiding any engagement that carries audit risk
Correct answer: Applying the diligence and critical thinking a competent professional would exercise
Due professional care means applying the skill and diligence that a competent, reasonable professional would exercise under similar circumstances.
Question 4: Which of the following would be considered a conflict of interest for an external auditor?
- Having a personal retirement savings account
- Using the same accounting software as the audit client
- Owning stock in the company being audited (Correct answer)
- Working overtime to meet the audit deadline
Correct answer: Owning stock in the company being audited
Owning stock in an audit client creates a financial conflict of interest that impairs independence and violates professional ethics rules.
Question 5: Under SEC rules, U.S. domestic public companies must prepare their financial statements in accordance with:
- International Financial Reporting Standards (IFRS)
- Generally Accepted Accounting Principles (U.S. GAAP) (Correct answer)
- The company's internal accounting policies
- PCAOB accounting standards
Correct answer: Generally Accepted Accounting Principles (U.S. GAAP)
The SEC requires U.S. domestic public companies to file financial statements prepared under U.S. GAAP, though foreign private issuers may use IFRS.
Question 6: What is the primary purpose of whistleblower protections under the Dodd-Frank Act?
- To reward employees financially for any type of complaint
- To protect employees from retaliation for reporting securities law violations (Correct answer)
- To require mandatory binding arbitration for workplace disputes
- To regulate executive compensation disclosure
Correct answer: To protect employees from retaliation for reporting securities law violations
Dodd-Frank whistleblower provisions protect employees who report potential securities violations from employer retaliation and may provide financial awards.
FAC FAC Ethics, Compliance & Professional Standards 2
The Foreign Corrupt Practices Act (FCPA) primarily prohibits U.S. companies from: