Ethical Decision Making in Accounting
Textbook Exam Questions
Course Introduction
This course explores the ethical challenges and responsibilities faced by accounting professionals in todays complex business environment. Students will examine fundamental ethical theories and frameworks relevant to accounting, analyze real-world case studies, and develop skills for recognizing and resolving ethical dilemmas. Through discussion and practical application, the course emphasizes professional codes of conduct, regulatory requirements, and the impact of ethical decision making on stakeholders and organizational integrity. By the end of the course, students will be equipped to make informed, ethical choices in their future roles as accountants.
Recommended Textbook
Ethics In Accounting A Decision Making Approach 1st Edition by Gordon Klein
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Chapter 1: Introduction to Ethics
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Q1) IFAC is often referred to as:
A) The "Global Watchdog"
B) The "Global Accounting Police"
C) An "Organization of Organizations"
D) The "AICPA's Little Brother"
Answer: C
Q2) A CPA who is not a member of the AICPA failed to abide by the AICPA's Code of Professional Conduct.The state in which she practices accounting requires all CPAs to abide by "all professional standards." This CPA's license to practice accounting will potentially be:
A) Suspended
B) Revoked
C) Not affected
D) All of the above
Answer: D
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Chapter 2: Ethical Principles and Reasoning
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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) Acting based on fear of punishment corresponds to which of the following stages of moral development?
A) The pre-conventional stage
B) The conventional stage
C) The post-conventional stage
D) All of the above
Answer: A
Q3) To act ethically,a person always must:
A) Follow the formal expression of a law
B) Follow both the spirit and the formal expression of a law
C) Do the right thing, even if violates a law
D) Adhere to the spirit, intent, and formal expression of a law
Answer: C
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Chapter 3: The Core Philosophies
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Q1) A poor family went to the market to purchase fried chicken for dinner tonight.Unfortunately,this family's beloved cat ran into the street and was killed by a passing car.Rather than bury the cat,the family decided to cook the cat and eat it for dinner instead of eating fried chicken.Was the family's decision unethical?
Answer: Under consequentialism,the family is better off because it saved money.Also,by eating the dead cat and not eating the chicken,it saved the life of one chicken,all else equal.There does not appear to be any stakeholders who were made materially worse off.
Eating a dead cat,although disgusting to many,does not appear to violate any of deontology's categorical imperatives.Perhaps some will say that it violates the dignity of the cat or of all animals generally,and therefore,offends human dignity.
Q2) A focus on achieving the least overall harm for members of society is best reflected in the philosophy of:
A) Deontology
B) Consequentialism, but not necessarily utilitarianism
C) Utilitarianism, but not necessarily consequentialism
D) Emanuel Kant
Answer: C
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Chapter 4: Virtue,justice,and Social Responsibility
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Q1) Virtue ethics is principally concerned with:
A) Ensuring that employees are loyal to their employers
B) Ensuring that partners are loyal to one another
C) Developing a person's character
D) Deterring breaches of trust without the need for imprisonment
Q2) If a firm engages in activities that simultaneously are profit-optimizing and socially responsible:
A) Economists that adopt the stakeholder theory, but not the shareholder theory, will agree with its conduct
B) Economists that adopt the shareholder theory, but not the stakeholder theory, will agree with its conduct
C) Economists uniformly will criticize its claims of social responsibility as being highly unlikely, if not impossible
D) Its behavior is commendable in accordance with both the shareholder and the stakeholder theories
Q3) Identify a corporate project that exemplifies corporate social responsibility and explain your rationale.
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Chapter 5: Why We Cheat
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Q1) The Becker Rational Model would likely be most helpful in:
A) Assisting law enforcement authorities in setting the level of punishment imposed on a particular cheater after unlawful behavior has occurred
B) Assisting potential cheaters in assessing the expected likelihood of getting caught
C) Assisting potential cheaters in assessing the expected punishment they will endure, if and when they are caught
D) Assisting potential cheaters in assessing the net economic gains they will garner from cheating
Q2) Why did the 9/11 attack evoke such a high degree of moral outrage? Analyze it by applying the issue-contingent model.
Q3) The overconfidence bias:
A) Leads people to have an exaggerated fear of loss
B) Leads people to overestimate the risks inherent in generating a possible gain
C) Leads people to unduly fear losses
D) Leads people to unduly minimize the odds of loss
Q4) How important is the maintenance of a high self-image to you? Provide examples in which you took actions to augment your self-image.
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Chapter 6: Greed,corruption,and Collusion
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Q1) Under the Foreign Corrupt Practices Act,a company can be held criminally liable:
A) If it is more probable than not that it committed bribery
B) In a lawsuit filed by a government other than the United States
C) If it engaged in "willful blindness" to acts of bribery that furthered its economic interests
D) Only if documentary evidence confirms the existence of bribery
Q2) Mary,a CPA,accepted a fee from Rajiv,a CPA,for referring one of Mary's clients to him.Mary's client was not informed of this referral fee.Was Mary's acceptance of this fee permitted by applicable professional rules?
A) Yes, if Rajiv possesses specialized skills that Mary lacked
B) Yes, if Rajiv possesses specialized skills that Mary lacks and Rajiv agreed to a non-contingent referral fee arrangement with Mary prior to provide services to the referred client
C) Yes, as long Mary's fee arrangement is a lump-sum amount rather than a percentage of the amount that Rajiv bills this client for his services
d) No
Q3) Discuss the pros and cons of contingency fees from a client's standpoint.
Q4) When are contingency fees permissible in rendering management consulting services?
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Chapter 7: Fraud and Earnings Management
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Q1) "Big bath accounting" describes a company's actions when it:
A) Manages its earnings in a downward direction in the year of a major acquisition or restructuring
B) Optimizes the amount of Goodwill recognized upon paying a premium to acquire another company
C) Manages its earnings by maintaining such a large number of discretionary items that it could "fill a bathtub," so to speak
D) "Cleans its books," so to speak, of improperly recorded items in anticipation of a rigorous audit examination
Q2) From the perspective of accounting,the downfall of Lehman Brothers was primarily attributable to:
A) The company's undue focus on short-term earnings
B) The company's blatantly deceptive revenue recognition policy on complex financial products and services
C) Debt repayment transactions that lacked enduring economic substance
D) A subtle variation on cookie jar accounting
Q3) What is big bath accounting? How is it abused?
Q4) What lessons have been learned from the demise of Enron?
Q5) What is cookie jar accounting? How is it abused?
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Chapter 8: Discreditable Acts: Discrimination,deceit,and Disclosure
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Q1) The name of a CPA firm may:
A) Include the name of a founder who is retired, as long as he or she remains an active member of the AICPA
B) Include the name of a founder who is deceased
C) Not include the name of a CPA unless that CPA is a member in good standing of the AICPA
D) May include the name of a non-CPA without needing to identify the non-CPA as being, in fact, a non-CPA
Q2) The Accounting Principles Rule states that financial statements:
A) Always must comply with GAAP
B) Never should contain a departure from GAAP
C) May contain a departure from GAAP for administrative reasons, as long as the departure is clearly disclosed
D) May contain a departure from GAAP if adherence to GAAP would result in the statements being misleading
Q3) What acts,if any,are expressly identified as discreditable by the IFAC Code of Conduct?
Q4) Outside the United States,what constitutes GAAP?
Q5) Under what circumstances are departures from GAAP permitted?
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Chapter 9: Confidentiality
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Q1) If a CPA violates the duty of confidentiality,who may hold it accountable?
Q2) Can the duty of confidentiality be waived or overridden by:
a. Government authorities?
b. The client itself?
Q3) 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
Q4) The AICPA's Code of Professional Conduct recognizes that the duty of confidentiality is:
A) Absolute
B) Subject to various exceptions, even without client consent
C) Cannot be waived by a client
D) Cannot be waived by a client if the public interest is best served by a particular client's information remaining confidential
Q5) In accordance with the duty of confidentiality,when is client information considered to be confidential?
Q6) When does a CPA's duty of confidentiality begin? When does it terminate?
Page 11
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Chapter 10: Independence and Moral Seduction
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Q1) In accordance with the Independence Rule,an ownership interest in an audit client is considered to be an indirect interest if:
A) An auditor benefits from it, but cannot meaningfully influence or control it
B) A partnership of which the auditor is a member owns the interest
C) The benefits from the interest have accrued in the form of price appreciation but realization of this appreciation has not occurred
D) An immediate family member owns the interest and shares the financial benefits of the interest with the auditor
Q2) What are some of the safeguards that CPAs firm utilize to minimize threats to their auditor independence?
Q3) A CPA does not own any stock in an audit client.However,the CPA's great-uncle,who lives in Finland,does own stock in this client.
a. Does the uncle's stock holding impair the CPA's independence?
b. The CPA knows that he is the sole beneficiary of this uncle's will and the uncle is 97-years-old. Is the CPA's independence impaired?
c. The CPA just learned that his uncle died. Is the CPA's independence impaired?
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Chapter 11: Conflicts of Interest
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Q1) A CPA performs tax advisory services,but it does not provide tax return preparation services.For this CPA,the most significant conflict of interest that is likely to arise is between:
A) The AICPA's Code of Professional Conduct and IRS Regulations regarding professional conduct
B) The Internal Revenue Code and state tax codes
C) The client and the IRS
D) The duty of loyalty to the client and a duty to the public interest
Q2) A CPA provides services to two clients in the same industry.Both clients have been informed of this fact and have acknowledged their approval in writing.As a result: A) The CPA nonetheless is violating professional standards concerning conflicts of interest
B) The duty of confidentiality has been waived and does not apply to the two accountant-client relationships mentioned
C) Must be careful to not share specific information learned from one client with the other client
D) Must be careful to not utilize general industry experience gained from serving one client to benefit the other client
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Chapter 12: Duties As a Whistleblower
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Questions
Q1) A corporation engaged in an illegal maneuver that lowered its reported Tax Expense on its financial accounting income statement and allowed it to receive an excessively high tax refund from the IRS.An accountant staff employee who oversee the company's accounts receivable potentially can recover a whistleblower reward:
A) Only under the IRS Whistleblower Program
B) Only under the Dodd-Frank Whistleblower Program
C) Under both whistleblower programs
D) Under no state or federal program whatsoever due to its breach of the duty of confidentiality
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) Do you believe the people are innately altruistic?
Q4) What categories of individuals may not recover a financial award under the Dodd-Frank Act?
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Chapter 13: Duties of Public-Company Auditors: the Sarbanesoxley Act
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Q1) Under the Sarbanes-Oxley Act,who may pursue an anti-retaliation claim against a company officer who allegedly has retaliated against a whistleblower?
Q2) An Audit Committee must:
A) Be comprised solely of independent individuals who do not have direct financial interests in the company they serve
B) Be comprised solely of independent individuals who are not members of the corporation's Board of Directors
C) Be comprised solely of individuals who also serve as company directors
D) Approve the core accounting methods selected and applied by the company's auditors in presenting company financial statements
Q3) Registration with the PCAOB is required of:
A) All CPA firms that wish to audit publicly traded companies
B) All CPA firms that wish to provide any type of professional services to publicly traded companies, including management consulting services
C) All CPA firms that wish to design information processing systems that assist publicly traded companies in compiling their financial statements
D) All CPA firms that perform audits
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Chapter 14: Duties of Tax Professionals
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Q1) If a tax return preparer informs a taxpayer that an error exists in a tax return previously filed by the taxpayer,the taxpayer has:
A) A duty to correct the tax return under all circumstances
B) A duty to correct the tax return only if the error was intentional
C) A duty to correct the tax return only if the error was material
D) No duty to correct the tax return
Q2) What are some of the ethical duties that apply to tax return preparers?
Q3) For CPAs solely engaged in professional tax practice,abiding by the Statements of Standards on Tax Services (SSTS)is:
A) Mandatory because it is the only set of professional conduct rules that applies to them
B) Desirable, but not mandatory
C) Mandatory, when acting as a tax return preparer, but not as a tax planner
D) Mandatory, even if they do not represent taxpayers in IRS audits or administrative proceedings
Q4) Should tax return preparers have a duty to verify the information provided to them by clients? Why or why not?
Q5) When does "substantial authority" exist for a tax return position?
Q6) Should a tax return preparer solely be an advocate for a client?
Page 16
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Chapter 15: Duties of Fiduciaries: Financial
Planners,trustees,and Executors
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Q1) Why would a person create a blind trust?
Q2) "Disgorgement," in the context of fiduciaries,means that:
A) An injured client is entitled to recover triple the amount of his provable damages
B) An injured client is entitled to recover his actual damages, plus interest, and attorney's fees
C) A client is entitled to recover the amount of the profits earned by the fiduciary as a result of its misconduct, even if the client did not suffer any actual damages
D) A client is presumed to be entitled to recover the amount of the profits earned by the fiduciary, unless the fiduciary can prove that the client suffered no actual harm
Q3) An accountant is most likely to be held to a fiduciary standard when:
A) The accountant is involved in preparing corporate filings for submission to the SEC
B) A client is in an especially vulnerable financial position
C) A contingent fee arrangement exists between an accountant and a client
D) Accountant-client conflicts of interest do not exist or are fully disclosed
Q4) What are the key characteristics that tend to create a fiduciary relationship?
Q5) Can a split-interest trust also be a testamentary trust?
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Chapter 16: Duties in the Accounting Workplace Online Only
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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) What is the "employment at will" doctrine? Do you believe that it poses ethical dilemmas for employers? How? Do you believe that it poses ethical dilemmas for employees? How?
Q3) Under most circumstances,giving advance notice to an employer prior to quitting a job is:
A) An ethical requirement, but not a legal requirement
B) A legal requirement, but not an ethical requirement
C) Both an ethical and a legal requirement
D) Not an ethical or legal requirement
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