ACC 333 Exam 2 CH 6-9 Flashcards

ACC 333 Exam 2 CH 6-9 Flashcards Why is it that a company changes auditors is a red flag for potential fraudulent financial reporting?If there is a change of an auditor during an audit period, the investors should be raising questions of concern about possible fraudulent activity. A reason why would an auditor leave without finishing an audit could be because they uncovered material misstatements and are worried that by issuing a qualified or adverse opinion they would harm their reputation and possibly loose clients.Also a reason for auditors to resign from a client is that they do not trust the client and conclude they cannot issue an unqualified opinion under any circumstance. Therefore, when an auditor resigns investors lose confidence in the firm.During late-night tax preparation sessions at work, one of your male colleagues talks incessantly about how his gay-dar alerts him to which of your colleagues is gay. He also makes degrading comments about women frequently and talks about how all women "can be bought with a cheap shot of tequila."You are a heterosexual man who respects women as equals and finds these comments to be extremely disturbing. However, this obnoxious colleague never has directly confronted you or made negative comments about you to others.Does his conduct constitute sexual harassment?"sexual harassment occurs if sexual favors are demanded in exchange for workplace benefits, such as a pay raise, or if the harasser's actions are sufficiently pervasive and offensive to cause a reasonable person to become unable to perform work tasks". Even though this obnoxious colleague never directly confronted me or made negative comments about me to others, the comments he makes would be offensive enough to distract and, to an extent, make me unable to perform work tasks. This can be viewed as sexual harassment.Why would a company's purchasers (that is, buyer or purchasing agents such as raw material buyer) be prime targets for bribes?A companies purchasing agents are the individuals who determine who they will buy from and how much they will buy at specific prices. These individuals have the ability to make the company purchase items at higher prices or in greater quantities against the companies best interest.You collected payroll taxes from your employees. You were short on cash and paid them two weeks after the due date.Could you be disciplined under the Code?This act would be against the code of conduct because it would mean that I did not comply with my tax responsibilities. This is considered a discreditable act and thus I could be disciplined under the code.How might to IRS determine that you are understating income by looking at your financial records?The IRS has special formulas that look for red flags in reporting which the IRS then investigates further. If it is found that someone spends more than they report as income, the IRS can assume your income is higher than reported. They will then look at cash inflows into a person's bank account, and expenditures made looking at credit card bills and other records of expenditures to determine if income is understated. Income for wage earners is simple to double check because W2's with income earned are sent to the IRS, as are dividends.

After a client recently died, her family approached you to serve as the executor of an estate. The probate court will set your fee based on the quality of your work and the level of skill required. Is this fee arrangement allowed under the Code of Conduct?The fee is allowed in this scenario since it was established by a court and is based on the quality and skill of your work not a specific outcome.What does it mean to capitalize expenses? the term capitalize expenses means to hide current expenses as a future benefit. This means to do what you can to lower the amount of expenses used within the period.A CPA recently performed a review of financial statements prepared by an automobile dealership. The dealership customarily submits these statements monthly to the car manufacturer as a condition of renewing its field warehouse financing. The CPA's fee agreement entitles her to 0.25% of the amount of financing that the car manufacturer agrees to provide. Does this fee agreement comply with the Code of Conduct's rules on contingent fees?No under the Code of Conduct the CPA may not use this type of fee Based on your spending (or deposits into your bank account), the IRS claims that you have understated your taxable income. What are some of the reasons that you did not understate income but received cash from another means and can prove it?There are many sources of income that are non taxable.Child Support money received is a good example of this type of income. The amount of money to be received from child support would likely have been decided in court and therefore that amount would be easily traceable. Life insurance proceeds are another example of non taxable income. This amount of money would also be easily traced back to the insurance company responsible for the plan.These three sources of income would be included in gross income, but are not taxable income.What are forensic accountants?they are accountants wo have training and investigatory skill to detect fraud, embezzlement, and other improper payments.What is "rank and yank"?Rank and yank refers to the process of a company ranking its own employees on performance or skills and then firing the lowest ranking employees.What payments does the FCPA make illegal? The FCPA specially makes official bribery illegal. Payments to any public official in exchange for preferential treatment is considered illegal.The head of the accounting department at a mid-size corporation refuses to promote workers of Portuguese heritage with solid performance records because he does not believe that they "ever are management material." This same accountant also was videotaped destroying documents that had been subpoenaed by the SEC in a securities fraud investigation. Which of these acts clearly is presumed to be a discreditable act under Acts Discreditable Rule of the Code of Conduct?Discriminations is clearly a discreditable act under the code. Destruction of documents and interference with a government investigation are not addressed by the code, but it seems reasonable that a state board with view this as a reflection on moral character and worthy of discipline.

Various disciplinary committees are considering whether the following three accountants committed discreditable

acts: The first accountant is an Enrolled Agent who

deposited a client's tax refund check into her own account and spent it on a personal vacation to a tropical resort The second accountant is a management accountant who created an online video in which an IRS agent is portrayed wearing a clown suit and saying nonsensical ramblings The third accountant stated in a television interview that "rich folks pay way too much tax and create all the jobs...our progressive tax system should be changed to a regressive rate structure to help give needed help to the rich."Which of these accountants committed an act that is discreditable to the accounting profession?Really only the first accountant committed a discreditable act. The other two are most definitely just self-expressions of opinions. You may not agree with the point of view of the last two accountants but to say that either act was discreditable would be a dangerous encroachment on the freedom of speech.While working as a new employee at the Defense Contracting Audit Agency, you noticed that a fellow employee was studying intensely for the Financial Accounting section of the CPA Exam. You planned to sit for that exam section in two months, and your colleague was sitting for that exam section next Thursday. On Thursday evening, you phoned your friend to see how she was doing after the exam. She thanked you for being considerate and told you that she was emotionally drained. Nonetheless, she then kept you on the phone for 15 minutes, telling about you the "nasty" Statement of Cash Flows and Consolidation problems she encountered. Did either of you commit a discreditable act under the Code of Conduct?Yes. Your friend clearly committed a discreditable act by "knowingly disclosing" recent CPA questions (in detail) to you. At the outset of the phone call, you did not commit a discreditable act because you simply offered emotional support and did not solicit CPA questions. However, by allowing your friend to discuss the exam in detail without stopping her, your conduct was discreditable as well.What are some examples of rationalizations that encourage fraud?1) "I'm not paid what I'm worth"2) "I'm just temporarily taking money, I'll pay it back later".3) weighing of risk vs reward4) who the fraudulent act could harm What are the flaws that the author Klein identifies in the rational model of tax cheating?1) tax payers with higher incomes are less likely to under report their earnings even though they stand to save more with under reporting. 2) few people can meaningfully estimate the likelihood of getting caught or the related consequences.Why would related party transactions create opportunity for fraud?They create an opportunity for fraud because there is a conflict of interest between the two parties.Marilyn Greenen, a Washington State CPA, kept her ex-husband on her employer-provided health insurance policy, knowing that he no longer was a qualified family member entitled to coverage. Her employer later discovered her intentional misrepresentation and the Washington State Board of Accountancy fined and disciplined her. In Washington, a CPA can be disciplined for "dishonesty, fraud, or negligence while representing

oneself as a CPA" and for "acts of fiscal dishonesty." Greenen appealed the Board's decision. Who should prevail in this appeal?The Board of Accountancy (not the employer) was victorious. Greenen was not acting in the capacity of a CPA. However, lying in connection with insurance coverage to gain or save money was an act of "fiscal dishonesty." What are some examples of incentives and pressures that encourage fraud?1) delaying bankruptcy2) meeting investors expectations3) being under pressure to qualify to obtain additional financing4) a manager receiving a bonus if a certain goal or