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Accounting Ethics - Midterm Exam Chapters 1-3
ETHICS FOR ACCOUNTING PROFESSIONALS (ACCTG 19)
Los Angeles City College
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Explanation
Explanation
First, Lana does have a confidentiality requirement to her employer, Dynamite, Inc. She needs to consider that any disclosure of
the event outside the company raises ethical questions. However, Lana would be protected against any ethics violations if she
reports under Dodd-Frank because the confidentiality obligation is waived when regulatory requirements sanction such
reporting. Dodd-Frank does so to protect the public interest above all else.
Under Section 10A of the Securities Exchange Act of 1934, Lana should:
Determine whether the violations have a material effect, quantitatively or qualitatively, on the financial statements.
If yes, has management, or the board of directors, caused management to take remedial action, including reporting externally,
if necessary?
- If no, then the individual must make a formal report of the issue with conclusions on the effect and provide the report to the
board of directors.
Lana should complete any of the above steps that has not yet been done. Having done the above steps, then Lana will have
first reported the violation internally. She will need to wait another 30 days (or a total of 120 days) before going to the SEC. She
will also have to believe that the disclosure is necessary to prevent substantial injury to the financial interest of an entity or its
investors and reasonably believes the entity is impeding investigation of the misconduct.
Midterm Exam Chapters 1-
I
8/75 Total points awarded Help Exit
Lana is a CPA and works as an internal auditor for Dynamite, Inc. As she was performing a revenue timing test, for
the internal audit schedule and the external auditors, she noticed that the Western division consistently kept the
books open 4 days into the next quarter. Lana immediately reported to the Chief Internal Auditor; together they
took the issue to the CFO and Controller. The CFO assured them that the issue would be resolved. It has been 90
days since the meeting. Lana is considering blowing the whistle but cannot decide who to tell and when.
What are the ethical issues of concern for Lana? What would you advise Lana to do, how, to whom and in what
order, assuming she could qualify for a reward under Dodd-Frank?
Essay
Lana's ethical issue pertains to a lack of standard procedures to close the books on the last day
of each quarter to ensure the revenue is reported in accordance with timing regulation rules.
gather all evidence and thoroughly document the facts.
prepare a memo explaining that not closing the books each quarter does not comply with
professional standards and could result in errors in the timing of revenue
take concerns to a supervisor, audit committee, CEO, etc and ask adjustments be made to
instill proper procedures for ensuring that timely closing is performed each quarter
after all internal channels are exhausted, and if no appropriate action is taken then she
should considercontinuingwith thecompany
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Explanation
The supervisor changing your time after you worked it is a form of stealing. This question requires students to explore the
pressure to cheat or lie. This is good way to discuss the slippery slope of ethical situations. It also deals with how the culture of
a firm (i., eat time) should affect one's actions when trying to act ethically.
Ethical Issues
Rights Perspective: Working without being paid is setting one up for burn-out, if not a health safety threat. Employees have the
right to receive a competitive wage. One should consider the short and long run consequences. In the short run, one does not
hurt anyone but himself and his family if he doubles up on work and sacrifices family responsibilities. In the long run the client
gets a cheaper audit and a worse audit as one will start cutting corners since one might not be paid after the fact. Going along
with the supervisor starts one lying and the slippery slope of being secretive, deceitful, and telling more lies.
Six Pillars values include trustworthiness, responsibility, fairness, caring and citizenship.
Students should acknowledge their responsibilities not only to themselves but other staff who might get caught up in similar
sacrifices. This matter needs to be brought up at the highest levels of the organization. It is dishonest, uncaring, and may
establish a culture of deceit. Maybe the time budgets are too tight to support a lower bid for audit services. Does the company
do this with other clients? On other audits? Am I setting myself up to fail..?
Midterm Exam Chapters 1-
I
8/75 Total points awarded Help Exit
Assume your supervisor has reduced the number of hours you charged to the client because it was over budget.
You will not be paid for those hours. What would you do and why? Use ethical reasoning.
Essay
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Midterm Exam Chapters 1-
I
8/75 Total points awarded Help Exit
Ty is a rising star at Texas State Country & Western Stores. He is the controller of the company. His wife, Rosie, is
the lead auditor of the CPA firm that examines Country & Western's financial statements and issues an audit
opinion. Given the nature of the relationships, Rosie would violate what ethical standard if she is allowed to
conduct the audit:
Multiple Choice
Responsibility
Integrity
Due care
Independence
✓
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Midterm Exam Chapters 1-
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The most important duty of public accounting is to the:
Multiple Choice
Securities Exchange Commission
Management
Investing public
✓
Current stockholders
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Midterm Exam Chapters 1-
I
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The Clawback rule allows:
Multiple Choice
protections for CEOs who act in good faith
recovering compensation from CEOs who engage in financial statement misconduct
✓
compensation for whistleblowers
protection for whistleblowers from retaliation
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Midterm Exam Chapters 1-
I
8/75 Total points awarded Help Exit
Wanda is faced with an ethical dilemma. She knows her supervisor, the CFO, wants to accelerate the recoding of
revenue to an earlier period to "make the numbers," but Wanda is convinced this would violate GAAP. If W anda
reasons at stage 4 of Kohlberg's model she is most likely to:
Multiple Choice
Refuse to record the transaction as desired by the CFO
Inform the board of directors of the difference of opinion with the CFO
Consider the interests of the stakeholders but decide based on what is in her best interests
x
Make a decision based on what is in her own best interests
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Midterm Exam Chapters 1-
I
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The method of ethical reasoning that deals with making decisions after considering the interests of others is:
Multiple Choice
Enlightened Egoism
Egoism
Rights Theory
Utilitarianism
x
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Midterm Exam Chapters 1-
I
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An ethical climate is enhanced by all of the following except:
Multiple Choice
Fear of retaliation
✓
Supportive environment
A values driven organization
Openness and transparency
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Midterm Exam Chapters 1-
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A CPA would violate the Due Care Principle if he/she:
Multiple Choice
Undertook a professional engagement without having the requisite background, knowledge
and experience.
✓
Performs tax services for an audit client with audit committee approval.
Specializes in the industry of the client, even offering training classes for other accounting firms
on the industry.
The accounting firm uses two external partner reviews on high risk audits or clients.
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Midterm Exam Chapters 1-
I
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Under the Sarbanes-Oxley Act, which of the following bodies must contain members that are 100% independent of
management?
Multiple Choice
Board of supervisors
Audit committee
Internal auditors
Board of directors
x
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Midterm Exam Chapters 1-
I
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Gabby has just left a meeting with the partner in charge of an audit engagement and was told to ignore the typical
year-end accrual entries because earnings are below financial analysts' earnings expectations. Gabby knows this
is wrong and wants to act on her values but she does not want to lose her job. What is the best thing for Gabby to
do in this situation if she chooses to voice her values?
Multiple Choice
Quit the firm
Speak with the managing partner of the firm
✓
Inform the SEC of the difference
All of the above
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Explanation
Employers want trustworthy employees, which includes being honest, having integrity, being loyal and reliable. Employers want
loyal employees who will respect the confidentiality of client information.
What makes a recent accounting graduate stand out to employers? Possessing not only general accounting knowledge, but
also non-accounting skills. Whether it's written or oral communication skills, critical-thinking skills, problem-solving skills, or
ethical-awareness skills, it's extremely important for accounting graduates to be well-rounded.
Critical-thinking, problem-solving, and ethical-awareness skills are important attributes to have when talking with a potential
employer during an interview.
Employers want someone who can recognize a situation and understand what the ethical issues are, which paths to take, and
know the difference between right and wrong, which is different from legal and illegal a lot of times. Something might be legal,
but it may not necessarily be ethical.
Midterm Exam Chapters 1-
I
8/75 Total points awarded Help Exit
Why do you think potential employers of accounting graduates care about the ethical values of potential student
hires?
Essay
Give them confidence that they'll do the morally right thing in any given situation.
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Stan should approach Stan's boss and explain that Jim has directly asked him if he will be laid off. Jim and other coworkers have
noticed the many closed-door meetings and fear that another round of lay-offs is coming. Stan should explain how Jim and
coworkers would appreciate honesty and transparency in knowing about the lay-offs. The affected workers could start looking
for another job. Stan needs to be empathetic to Jim's position and the concerns of other workers who have a right to know if
their jobs are in jeopardy. Jim and the other workers trust Stan as the team leader to look out for their best interests in return for
loyalty to the team and diligent work.
Stan's boss is likely to use the reasons and rationalizations of "this is standard practice;" and "this is not my responsibility; I'm
just following orders." Stan should try reasoning that his boss would want to know if he himself were being laid off. This would
follow the Golden Rule, deontology, enlightened egoism, and virtues. Stan should ask his boss about who has the responsibility
in making the layoff decisions; he would like to talk to that person.
If Stan acts in these ways he will gain the trust of other employees and even management who, in the long run, may see Stan's
loyalty as a plus for the firm.
Midterm Exam Chapters 1-
I
8/75 Total points awarded Help Exit
As a professional working for a large electronics firm, Stan found himself riding a roller coaster of concern about
lay-offs. Every few years, top management slashed jobs as work slacked off - only to hire again when things were
looking up. So when Stan and his team members noticed that the executives were again meeting behind closed
doors, they suspected the worst.
Stan's boss revealed to Stan that Stan's team member Jim was slated to lose his job. However, it was made plain
that Stan was to keep that information confidential.
Not long after that conversation, Jim approached Stan and asked whether he could confirm the rumor that he
would be laid off.
Stan has decided to tell Jim but first wants to convince management of the rightness of his action. What might he
say to who and why? What are the reasons and rationalizations he may have to counter in making his argument?
Essay
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Midterm Exam Chapters 1-
I
8/75 Total points awarded Help Exit
Trust in business is important because:
Multiple Choice
Management needs to feel confident that employees will carry out organizational objectives
Stakeholders need to feel confident that relationships with organizations will be consistent and
reliable
✓
Management needs to feel confident that those with relationships with the organization do
what they say
Stakeholders rely on management to produce shareholder returns
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Accounting Ethics - Midterm Exam Chapters 1-3
Course: ETHICS FOR ACCOUNTING PROFESSIONALS (ACCTG 19)
University: Los Angeles City College
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