Chapter 9—Implementing and Auditing Ethics Programs

MULTIPLE CHOICE

1. Ethics auditing is similar to ____ auditing in that it employs the same procedures and processes to
create a system of integrity that includes objective reporting.
a. social
b. regular
c. financial
d. citizenship
e. legal
ANS: C PTS: 1

2. Which of the following statements about ethics audits is false?

a. They provide an opportunity to measure conformity to the firm's desired ethical standards.
b. They are systematic evaluations of an organization's ethics program and performance to
determine whether it is effective.
c. They provide an objective method for demonstrating a company's commitment to
improving strategic planning, including its compliance with legal and ethical standards
and social responsibility.
d. They can be a component of a social audit.
e. They are the same thing as a social audit.
ANS: E PTS: 1

3. A ____ is the process of assessing and reporting a business' performance in fulfilling the economic,
legal, and philanthropic responsibilities expected by its stakeholders.
a. performance audit
b. ethics audit
c. management audit
d. legal audit
e. social audit
ANS: A PTS: 1

4. A tool that companies can employ to identify and measure their ethical commitment to stakeholders.
stakeholders is called a(n)
a. ethics audit.
b. social audit.
c. financial audit.
d. performance audit.
e. IRS audit.
ANS: A PTS: 1

5. Which of the following is not a step in the ethics auditing process?

a. Secure commitment of top executives and directors
b. Review organizational mission, goals, values, and policies, and define ethical priorities
c. Verify the results
d. Collect and analyze relevant information
1
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 e. Report the results to the U.S. Sentencing Commission
ANS: E PTS: 1

6. Which of the following is a statement that attests that the financial statements made in an audit are
fairly stated, without limitations?
a. Adverse opinion
b. Qualified opinion
c. Unqualified opinion
d. Favorable opinion
e. Disclaimer of opinion
ANS: C PTS: 1

7. Under the ____, CEOs and CFOs may be criminally prosecuted if they knowingly certify misleading
financial statements.
a. Sherman Antitrust Act
b. Ethical Compliance Act
c. Robinson-Patman Act
d. Sarbanes-Oxley Act
e. Enron Ethics Reform Act
ANS: D PTS: 1

8. During which of the following steps of the ethics auditing process should stakeholders be defined and
then interviewed, in order to integrate stakeholder feedback into the process?
a. Secure commitment of top managers and directors
b. Establish a committee to oversee the audit
c. Define the scope of the audit
d. Collect and analyze relevant information
e. Verify the results
ANS: D PTS: 1

9. Any attempt to verify outcomes and to compare them with standards can be considered a(n) ____
activity, although many smaller firms do not use this word.
a. ethical
b. auditing
c. formal
d. informal
e. accounting
ANS: B PTS: 1

10. ____ are a primary stakeholder group, and should be included in the ethics auditing process, because
their patronage and loyalty determines an organization's success.
a. Customers
b. Employees
c. Special interest groups
d. Competitors
e. Legislators
ANS: A PTS: 1
2
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11. The concept of ethics auditing emerged from the movement to audit and report on companies' broader
____ initiatives.
a. initial public offering
b. legal compliance
c. product development
d. public relations
e. social responsibility
ANS: E PTS: 1

12. Which of the following is not an example of a problem that may arise from an ethics audit?
a. They can be expensive.
b. They can be time-consuming.
c. Employees may fear comprehensive evaluations.
d. They may reduce ethical compliance.
e. Selecting qualified auditors may be difficult.
ANS: D PTS: 1

13. Which of the following is not a benefit of ethics auditing?

a. It can improve a firm's performance and effectiveness.
b. It can increase its attractiveness to investors.
c. It can identify potential risks.
d. It can harm its relationships with stakeholders.
e. It can reduce the risks associated with misconduct.
ANS: D PTS: 1

14. The word ____ implies a balanced organization that makes ethical financial decisions and also is
ethical in more subjective matters of corporate culture.
a. pride
b. integrity
c. financial management
d. corporate culture
e. transparency
ANS: B PTS: 1
15. Ideally, the ethics audit should be overseen by the
a. board of directors' financial audit committee.
b. board of directors.
c. chief executive officer.
d. ethics officer.
e. outside consultant.
ANS: A PTS: 1

16. During which step of the auditing process should a firm examine all documents that make explicit
commitments with regard to ethical, legal, or social responsibility?
a. Secure commitment of top managers and directors.
b. Establish a committee to oversee the audit.
c. Define the scope of the audit process.
d. Review organizational mission, goals, values, and policies.
3
© 2011 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different
from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
 e. Verify the results.
ANS: D PTS: 1

17. A ____ is a financial accounting firm that offers social auditing services or a nonprofit special interest
group with auditing experience that verifies the results of ethics auditing data analysis
a. stakeholder
b. ethics audit consultant
c. best practices expert
d. financial consultant
e. board of directors
ANS: B PTS: 1

18. The process of verifying the results of an audit should involve standard procedures that control the
____ of the information.
a. completeness
b. effectiveness and efficiency
c. reliability and validity
d. independence
e. veracity
ANS: C PTS: 1

19. The ethics audit can pinpoint areas where improving operating practices can improve both bottom-line
profits and
a. investor loyalty.
b. employee satisfaction.
c. customer satisfaction.
d. stakeholder relationships.
e. attitudes.
ANS: D PTS: 1

20. Two useful indicators for assessing employee issues are

a. turnover and stock price.
b. staff turnover and employee satisfaction.
c. staff turnover and honesty.
d. satisfaction and attendance.
e. satisfaction and productivity.
ANS: B PTS: 1

21. When the Chris Hani Baragwanath Hospital in Johannesburg, South Africa, conducted focus groups
with the hospital's management, doctors, nurses, related health professionals, support staff, and
patients, it was in which of the following stages of the ethics auditing process?
a. Collect and analyze relevant information.
b. Review organizational mission, goals, values, and policies.
c. Interview stakeholders.
d. Report the results.
e. Verify the results.
ANS: A PTS: 1
4
© 2011 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different
from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
22. While ideally the board of directors financial audit committee conducts ethics audits, in most firms
they are conducted by
a. managers or ethics officers.
b. top executives or directors.
c. the chief executive officer.
d. an outside consultant.
e. stakeholders.
ANS: A PTS: 1

23. Because ethics and social audits are ____, there are few standards that a company can apply with
regard to reporting frequency, disclosure requirements, and remedial actions that it should take in
response to results.
a. not necessary
b. expensive
c. required by law
d. mandatory
e. voluntary
ANS: E PTS: 1

24. To measure the effectiveness of its recently established ethics program, Spacely Sprockets, Inc., is
conducting a systematic evaluation of its ethics program and performance. This is called a(n)
a. environmental-impact audit.
b. social audit.
c. ethics audit.
d. legal-compliance audit.
e. customer-satisfaction audit.
ANS: C PTS: 1

25. What should be the first step in the auditing process?

a. Secure the commitment of top executives and directors.
b. Define the scope of the audit.
c. Establish a committee to oversee the audit.
d. Collect and analyze data.
e. Review organizational mission, goals, values, and policies.
ANS: A PTS: 1

26. Research suggests that publicity about unethical behavior can lower stock prices for at least ____
months.
a. six
b. three
c. twelve
d. nine
e. two
ANS: A PTS: 1

27. Which of the following is not a phase of escalation during an ethical disaster?
a. The firm's discovery of the misconduct
5
© 2011 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different
from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
 b. Ethical issue recognition
c. The firm's response to the misconduct
d. The decision to act
e. The firm's decision to conduct an ethics audit
ANS: E PTS: 1

28. Which of the following is not a technique for collecting evidence during the ethics audit?
a. Ratio analysis
b. Observing the data-collection process
c. Publishing the results of the audit
d. Examining internal and external documents
e. Confirming information in the firm's accounting records
ANS: C PTS: 1

29. ____ is an independent assessment of the quality, accuracy, and completeness of a company's social or
ethics report.
a. Publication
b. Verification
c. Auditing
d. Analysis
e. Validation
ANS: B PTS: 1

30. What should be the final step in the ethics auditing process?
a. Define the scope of the audit.
b. Secure the commitment of top managers and directors.
c. Collect and analyze data.
d. Report the findings.
e. Verify the results.
ANS: D PTS: 1

31. Ethics audits can help companies identify potential ____ so they can implement plans to eliminate or
reduce them before they reach crisis dimensions.
a. product flaws
b. risks and liabilities
c. productivity issues
d. computer glitches
e. market opportunities
ANS: B PTS: 1

32. During the data-collection phase of the audit, the primary objective is to generate a variety of opinions
about how the company is perceived and whether it is
a. fulfilling quality promises.
b. bringing in new customers.
c. meeting profit projections.
d. meeting earnings projections.
e. fulfilling stakeholders' expectations.

6
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from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
 ANS: E PTS: 1
33. Independent verification of the ethics audit is important because it lends the report
a. credibility and formality.
b. credibility and obsequiousness.
c. credibility and objectivity.
d. objectivity and civility.
e. objectivity and reliability.
ANS: C PTS: 1

34. When the Body Shop posts the results of its ethics audit on its web site, it is engaged in which of the
following steps of the ethics auditing process?
a. Submit the results to the U.S. Sentencing Commission.
b. Define the scope of the audit.
c. Collect and analyze relevant information.
d. Verify the results.
e. Report the results.
ANS: E PTS: 1

35. While social reports often discuss issues related to a firm's performance in the four dimensions of
social responsibility as well as to specific social responsibility and ethical issues, ethics audits focus on
more narrow issues related to assessing and reporting on a firm's performance in terms of
a. ethical and legal conduct.
b. environmental performance.
c. financial performance.
d. customer satisfaction.
e. ethical misconduct.
ANS: A PTS: 1

ESSAY

36. Compare and contrast ethics auditing and financial auditing. How can the tools of financial auditing be
applied to ethics audits?

ANS:
Pages 379-380

PTS: 1

37. Explain the benefits and risks of ethics auditing.

ANS:
Pages 380-388

PTS: 1

38. How can companies secure stakeholder input during an ethics audit? Why is it important to do so?

ANS:
Pages 390-394
7
© 2011 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different
from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
 PTS: 1

39. Describe the process of conducting an ethics audit in detail.

ANS:
Pages 388-398

PTS: 1

40. Describe some of the problems associated with conducting an ethics audit. Suggest some strategies for
dealing with these issues.

ANS:
Pages 387-389; 399-401

PTS: 1

8
© 2011 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different
from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.