Ethical Decision Making in Accounting
Final Test Solutions
Course Introduction
Ethical Decision Making in Accounting explores the fundamental principles and frameworks guiding ethical behavior within the accounting profession. The course examines how accountants identify and navigate ethical dilemmas, comply with professional codes of conduct, and consider the impacts of decisions on stakeholders. Students will analyze real-world scenarios, discuss regulatory standards, and develop critical thinking skills for approaching complex ethical issues, ensuring integrity, transparency, and accountability in financial reporting and business practices.
Recommended Textbook
Ethics In Accounting A Decision Making Approach 1st Edition by Gordon Klein
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16 Chapters
513 Verified Questions
513 Flashcards
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Chapter 1: Introduction to Ethics
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26 Verified Questions
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Sample Questions
Q1) The AICPA's Code of Professional Conduct expresses professional standards:
A) That are mandatory minimum rules of behavior that all members of the AICPA must comply with
B) That, when violated, constitute crimes under most, if not all, state accountancy licensing statutes
C) That are aspirational goals, but yet are rarely achieved by most professional accountants
D) That establish worldwide standards that all professionals accountants must, at minimum, comply with
Answer: A
Q2) If a single woman is working as a professional accountant outside the United States,joining IFAC is:
A) Impossible
B) Mandatory
C) Permitted only if an existing IFAC member recommends her
D) Optional but highly recommended as a reputational tool for attracting and retaining clients
Answer: A
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Page 3
Chapter 2: Ethical Principles and Reasoning
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41 Verified Questions
41 Flashcards
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Sample Questions
Q1) The usury laws:
A) Are an example of ethical absolutism
B) Are an example of ethical relativism
C) Bar excessively high interest rates on certain types of loans
D) Reflect the consensus among all countries that interest rates need to regulated by a universal body or multi-governmental entity
Answer: C
Q2) Which of the following is not expressly addressed by the principle of the AICPA Code of Conduct concerning integrity?
A) The duty to maintain objectivity
B) The duty to respect client personnel
C) The duty to not subordinate one's opinion in favor of the client's viewpoint
D) The duty to avoid conflicts of interest
Answer: B
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4
Chapter 3: The Core Philosophies
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Sample Questions
Q1) Which of the following typically is not a real-world difficulty of applying utilitarianism?
A) It give undeservedly high weight to human emotion
B) It cannot readily measure societal values, such as the value of eradicating discrimination based on religion
C) It can be difficult to determine if an act makes society better off
D) It focuses on the good of the majority and does not place any value on the protection of minorities' rights
Answer: A
Q2) Stealing from the rich to give to the poor:
A) Definitely violates the precepts of deontology
B) Definitely violates the precepts of consequentialism
C) Is a categorical imperative
D) Is a classic example of the reversibility principle
Answer: A
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Chapter 4: Virtue,justice,and Social Responsibility
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24 Verified Questions
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Sample Questions
Q1) "Triple bottom line" accounting emphasizes the measurement of a company's:
A) Net Income, Net Cash Flow, and Net Capital Expenditures
B) Corporate spending on the "three C's" of charitable, civic, and cultural causes
C) Profitability, environmental sustainability practices, and employee welfare
D) Payments of taxes for the public interest, payment of wages to worker-stakeholders, and profits for shareholders
Q2) What broad categories of acts do you consider to be acts of Corporate Social Responsibility?
Q3) No society has adopted Rawls' veil of ignorance.Why do you think that Rawls' approach to distributive justice has not been widely adopted?
Q4) Do you believe that societal resource allocations based on Rawls' veil of ignorance should be widely adopted?
Q5) Under the viewpoint of virtue ethics,which of the following is not a commonly recognized virtue?
A) Loyalty
B) Trustworthiness
C) Independence of thought and action
D) Courage
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Chapter 5: Why We Cheat
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Sample Questions
Q1) When there is no chance of their cheating being detected,some people do not cheat at all.This conclusion is:
A) Consistent with the Becker Rational Model
B) Inconsistent with the Becker Rational Model
C) Consistent with the "cheater's high" theory
D) Consistent with the "depleted resistance" theory
Q2) According to behavioral psychologists,which of the following compensation packages would most people rank as the least desirable?
A) A guaranteed base salary of $54,000
B) A base salary of $50,000, plus a 50% chance of earning a $4,000 bonus for meeting minimum productivity requirements
C) A base salary of $54,000, with a 50% chance of sustaining a $4,000 penalty for failing to meet minimum productivity requirements
D) Choices (b) and (c) are, by an overwhelming majority of people, ranked as being equally undesirable
Q3) What criticisms do you have of the Becker Rational Model?
Q4) Pick a close friend.How important is the maintenance of a high self-image to this friend? Provide examples.
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Page 7
Chapter 6: Greed,corruption,and Collusion
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Sample Questions
Q1) The key difference between a kickback and a contingent fee is:
A) The amount involved
B) Whether the percentage of the gain shared is equal or not
C) A kickback refers to an unlawful transaction and contingent fees relate to lawful transactions
D) All of the above
Q2) A musician believed that his record company was not paying him the agreed-upon royalty on all songs downloaded by fans from a well-known music Internet site.This musician hired a CPA to perform a royalty audit of the record company's sales revenues.The musician and the CPA agreed that that the CPA will be entitled to receive 5% of all amounts recovered by the musician as a result of this royalty audit.They also agreed to keep the results private.This arrangement is:
A) Ethical
B) Unethical under all circumstances
C) Unethical if the amounts recovered exceed fair compensation for the CPA's time and effort
D) Unethical, unless a court or other administrative body, such as the American Federation of Musicians, approves of this fee arrangement
Q3) Discuss the pros and cons of contingency fees from an accountant's standpoint.
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Page 8
Chapter 7: Fraud and Earnings Management
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25 Verified Questions
25 Flashcards
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Sample Questions
Q1) To curb potential abuse,publicly traded companies:
A) May not do business with related parties
B) May not have related parties serve on their Boards of Directors
C) May do business with related parties, as long as such relationships and transactions are clearly disclosed
D) May do business with related parties as long as such transactions occur at fair market value, as determined by the company's independent auditors
Q2) When a person's net cash flow exceeds his reported taxable income,the presumption that this individual has misreported his income to taxing authorities can be rebutted by showing that:
A) The cash flow was attributable to the receipt of a nontaxable inheritance
B) The cash flow was attributable to loan proceeds
C) The cash flow was attributable to the receipt of nontaxable gifts
D) All of the above
Q3) If the accounting profession were to replace the accrual basis of accounting with the cash basis,do you think that financial accounting fraud would increase or decrease? Defend your viewpoint.
Q4) What is cookie jar accounting? How is it abused?
Q5) What lessons have been learned from the demise of Enron?
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Chapter 8: Discreditable Acts: Discrimination,deceit,and Disclosure
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Sample Questions
Q1) If financial statements contain a departure from GAAP,a CPA is:
A) Not allowed to issue an audit report concerning the statements
B) Required to disclose an estimate of the approximate financial impact that the departure from GAAP had on the financial statements
C) Allowed to complete the current-year engagement only if the financial statements are utilized by company management for internal decision-making
D) Required to withdraw from future-year engagements, but may complete the current-year assignment as long as the departure from GAAP is adequately disclosed
Q2) Under what circumstances are business enterprises allowed to present financial statements that do not conform to GAAP?
Q3) Financial statements prepared on the cash basis:
A) Comply with GAAP but are complex to prepare
B) Comply with GAAP and are relatively easy to prepare
C) Do not comply with GAAP and are relatively easy to prepare
D) Do not comply with GAAP and, therefore, are not subject to being audited
Q4) Under what circumstances are departures from GAAP permitted?
Q5) Outside the United States,what constitutes GAAP?
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Chapter 9: Confidentiality
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Sample Questions
Q1) A CPA' duty of confidentiality ends when:
A) A professional relationship with a client ends
B) A client dies
C) A client's is acquired by another company in a merger or purchase
D) Never
Q2) A CPA's client base includes both publicly traded corporations and smaller privately-owned clients.Some of these clients require audits,and others only require bookkeeping and tax compliance services.If the CPA wishes to sell her professional practice to another CPA firm,she may disclose to the prospective buyer information concerning:
A) only the publicly traded clients
B) only the clients for whom she issues an audit opinion
C) all information requested, as long as she takes reasonable precautions to ensure that the prospective buyer does not disclose sensitive client information shown to it
D) none of these clients, due to the duty of confidentiality
Q3) Can the duty of confidentiality be waived or overridden by:
a. Government authorities?
b. The client itself?
Q4) Is there a federal accountant-client privilege? What does it cover?
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Chapter 10: Independence and Moral Seduction
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36 Verified Questions
36 Flashcards
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Sample Questions
Q1) According to the AICPA's Code of Professional Conduct,if a CPA renders more than ten hours of nonaudit services to an audit client,the CPA :
A) Automatically is a covered member on the audit
B) Automatically prevents the CPA firm from satisfying the independence requirement under all circumstances
C) Automatically prevents the CPA firm from satisfying the independence requirement if the CPA is a partner in the CPA firm performing the audit
D) Automatically prevents the CPA firm from satisfying the independence requirement if the CPA has a friend who works in the compilation, processing, or presentation of the audit client's financial statements
Q2) An auditor may not perform an audit unless threats to independence are:
A) Agreed to by the audit client
B) Reduced to an acceptable level
C) Nonexistent
D) Eliminated entirely by the client prior to commencement of the audit
Q3) What are the seven threats to independence identified in the AICPA's Code of Professional Conduct? Give examples of each.
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Page 12
Chapter 11: Conflicts of Interest
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Sample Questions
Q1) The materiality of a conflict of interest should be evaluated from the perspective of:
A) Whether a reasonable client would consider the conflict to be material
B) Whether a client, acting unreasonably or reasonably, would consider the conflict to be material
C) Whether an objective observer who is reasonably informed about the surrounding facts would conclude that a conflict of interest is material
D) Whether the CPA subjectively, from his or her own vantage point, has concerns about two or more material interests clashing
Q2) When can a CPA provide services to all partners in a client partnership? When can it not provide services to all client partners without obtaining their consent?
Q3) A CPA's conflicts of interest are determined by:
A) The CPA herself
B) The accountancy licensing board of the state in which she works as an accountant
C) The AICPA Conflicts Enforcement Committee
D) The AICPA committee that evaluates issues of independence, objectivity, and conflicts of interest
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Chapter 12: Duties As a Whistleblower
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Sample Questions
Q1) The former CFO of a company gave the IRS information that resulted in the IRS collecting $1.2 million in unpaid taxes from this company.What is the maximum potential award that the IRS will give this informant?
A) $60,000
B) $180,000
C) $360,000
D) $0
Q2) If a person serves in a high-ranking financial reporting oversight role at a corporation,whistleblowing concerning accounting fraud is mandatory,in accordance with rules imposed by:
A) The Sarbanes-Oxley Act
B) The Dodd-Frank Act and subsequent amendments
C) The European Commission, with regard to officials subject to its jurisdiction
D) The SEC, with regard to officials of companies subject to its jurisdiction
Q3) For employees who work in a corporation,which of the following are more common?
A) Vertical whistleblowers
B) Horizontal whistleblowers
C) Internal whistleblowers
D) External whistleblowers
Q4) Have you ever committed an act out of revenge that you later came to regret?
Page 14
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Chapter 13: Duties of Public-Company Auditors: the Sarbanesoxley Act
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Sample Questions
Q1) In accordance with Sarbanes-Oxley Act,employee Codes of Conduct should:
A) Promote employees' responsibilities to preserve the confidentiality of company financial information
B) Be disclosed on a company website or in SEC filings
C) Be signed annually, or more frequently, by company officers engaged in financial reporting oversight roles
D) Be acknowledged annually in writing by all managerial and professional employees
Q2) The concurring auditor who serves as the quality control reviewer on an audit engagement:
A) Must be an audit partner in the CPA firm that is performing the audit
B) May be either an audit partner in the CPA firm that is performing the audit or an experienced CPA associated with another CPA firm
C) Must be an experienced and knowledgeable CPA who is associated with a CPA firm other than the CPA firm that conducted the audit
D) Must be appointed by the PCAOB from a list of qualified accounting professionals
Q3) Who may serve on an Audit Committee?
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Page 15
Chapter 14: Duties of Tax Professionals
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Sample Questions
Q1) Before recommending a tax position that meets the "substantial authority" standard,a tax return preparer should make sure that:
A) The taxpayer adequately understands the potential penalties associated with claiming a tax position that satisfies this reporting standard
B) The tax law does not impose a higher reporting standard on the particular transaction or matter at issue
C) A list of the authorities that support this position is attached to the taxpayer's tax return
D) The taxpayer adequately discloses to the IRS a minimum of one "recognized contrary authority" that fails to support the taxpayer's asserted position
Q2) A client wants to claim a dubious tax deduction,but the client's deduction does is not "more likely than not" to be approved of,if detected and challenged by the IRS.What options are available to this client?
Q3) What are some of the ethical duties that apply to accounting professionals engaged in tax planning?
Q4) Should a tax return preparer solely be an advocate for a client?
Q5) When does "substantial authority" exist for a tax return position?
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Page 16
Chapter 15: Duties of Fiduciaries: Financial
Planners,trustees,and Executors
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Sample Questions
Q1) Refer to the question above.If the CEO of Bantam Boxers dies and Hartwog fulfills her duties as the executor of the CEO's estate,will Hartwog and Associates,CPAs retain the independence to continue to serve as Bantam Boxers' auditor?
A) Yes, as long as Hartwog does not make investment decisions for the estate concerning Bantam Boxers
B) Yes, as long as Hartwog does not participate as the primary or concurring partner on the audit
C) Yes, as long as the will clearly identifies the parties who will receive Bantam Boxer stock as inheritances and Hartwog does not have the authority to alter this will provision
D) No
Q2) An auditor that properly satisfies the Independence Rule will,with regard to an audit client:
A) Never be a fiduciary
B) Always be a fiduciary
C) Be a fiduciary if the audit client is a bank or other so-called public-interest client
D) Be a fiduciary if the audit client poses an undue influence threat
Q3) Can a spendthrift trust also be a testamentary trust?
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Page 17
Chapter 16: Duties in the Accounting Workplace Online Only
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Sample Questions
Q1) In accordance with the IFAC Code of Conduct,if an accountant working as an industry accountant wishes to change jobs by joining a direct competitor to her current employer,she:
A) May do so, but is discouraged from doing so
B) May do so, and is neither encouraged nor discouraged from doing so
C) Is expressly prohibited from doing so because the experiences gained at her prior employer will invariably be utilized on the new job to the harm of the prior employer
D) May do so after a one-year waiting period that commences on the day that she ceases work for the former employer
Q2) An accounting firm insists that all of its professional staff members and partners provide copies of their most recent federal and state income tax returns to the partner in charge of regulatory compliance.These submissions must occur no later than the April 15 due date for filing these tax returns.This policy:
A) Is mandated by the AICPA's Code of Professional Conduct
B) Is reasonable to ensure compliance with professional standards, but is not required
C) Is a discreditable act by the accounting firm
D) Is an illegal violation of employee privacy under the federal tax law
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