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Accounting Information Systems (AIS) ± End of Chapter Activities ± Chapter #3 Professionalism & Ethics End of Chapter Activities

1. Reading review questions a. List and discuss ten characteristics of a professional and / or professional behavior. Where possible, include a specific example of each characteristic from your own experience as a student. Students may fall back on Bell¶s list of seven items discussed in the chapter as a start: communicates effectively; thinks rationally, logically and coherently; appropriately uses technical knowledge; integrates knowledge from many disciplines; exhibits ethical professional behavior; recognizes the influence of political, social, economic, legal and regulatory forces; actively seeks additional knowledge. They might also consider McDonald¶s four criteria: specialized knowledge base, complex skills, autonomy of practice and adherence to a code of ethical behavior. However, the best responses to this question will demonstrate students¶ ability to think beyond those lists. Other items might include (but are certainly not limited to): contributes to the community, demonstrates good research skills, uses information technology appropriately and actively participates in professional organizations. b. Define ³ethics.´ Explain why ethics is so important in the accounting profession. In an accounting context, ethics refers to the behavioral codes and norms that govern decision making and communication within and outside the profession. Ethics are particularly important in accounting because of the trust the public places in accountants, and because accounting is not a black-and-white discipline. c. Compare and contrast the ethical codes of the AICPA, IMA and ACFE. Similarities in the codes include their focus on the behavior of accountants, their inclusion in accounting professional exams and their broad applicability in a variety of organizational contexts. Differences include the specific behaviors and situations addressed, as well as the organizational structure of each code. d. What basic schools of thought exist regarding ethical behavior? What are the strengths and weaknesses of each one? The four schools of thought with some strengths and weaknesses are summarized in the table below: Strengths Acceptable outcomes are clear and easy to understand. Rights & duties Respects and considers the Utilitarianism Weaknesses Fails to consider damage / harm that might result from pursuing this philosophy. Decision makers may disagree on

³Ethical Dilemmas´ in The Internal Auditor. Instead. y Ponzi initiated the type of fraud that now bears his name. but failed to pay them a return from the project itself. He solicited investors for a project. Focuses on outcomes and results of decisions. the fundamental rights & duties of individuals. he used money from new investors to pay off old investors. the Rigas family used their personal positions and organizational power to misuse corporate assets. Company officers. Fred and the CFO do in this case? Fred should do nothing. pp. Albrecht. They also engaged in ³shady´ accounting practices to bolster their firm¶s performance in financial markets. and S. I don¶t believe such an answer exists. Sets a high standard for behavior. June 1993.Justice Virtues impact decisions will have on individuals. in other cases. Note that Ponzi schemes can also be described as ³pyramid´ schemes. What should Jim. y Under what circumstances. accounting is outside his area of expertise. respond to the questions for this chapter¶s opening vignette. 24 ± 25) . however. they followed the letter of accounting standards while ignoring their spirit (such as in their use of special purpose entities). Enron was the largest bankruptcy in US history at the time of its declaration. K. but that not all pyramid schemes are Ponzi schemes. however. y 7. The CFO should seek others¶ input before making a decision one way or the other. such as Lay and Skilling. Adelphia and Enron. e. then with others if he and the CFO cannot agree on this issue. Jim should raise his concerns with the CFO²privately first. Each situation must be evaluated based on decision makers¶ ethical frame of reference and any applicable code(s) of conduct. Explain the basic facts of fraud schemes associated with Ponzi.D. In a manner specified by your instructor. if any. Difficult to live up to this philosophy in the face of conflicting priorities. Someone must decide what is just / right. In Adelphia Cable. y y f. is it ethical for a company to use aggressive accounting policies? Students will undoubtedly want a clear-cut answer to this question. ignored traditional accounting rules related to revenue recognition. Ethics cases (Stocks.

8 The appropriate decision is to investigate and report. b. you noticed that the executives of the company were doing things that you didn't think were appropriate. 4 The audit manager can ignore the situation. told you to mind your own business. 6 Consequences of ignoring: the situation will continue and possibly escalate. For tax purposes. You are currently making $100. After three years with that firm. far more than you could earn in another company at this stage in your career. you accepted a job with Peat & Price CPAs. Which elements of the IMA Ethical Code are the company¶s executives violating? Use the Langenderfer and Rockness eight-step framework to decide how you would respond to this situation. 2 The ethics issue centers on misuse of company funds. nor ignore their own ethical code. Consequences of asking to be part of it: breaking the law. a company that has invested over $200 million in developing a new drug. regulations. The executives are violating competence (perform professional duties in accordance with relevant laws. you joined MiniCare Health Company as an audit senior and are now an audit manager with that company. the government (taxpayers) and stockholders. You have talked to your superior. Consequences of investigating & reporting: job loss. Upon graduating from Ethics University five years ago. 3 Executives should not overfill Medicare. the related research and development expenses were written off as deductible expenses . 7 The audit manager could discuss the situation with the audit committee of the Board or with an AICPA / IMA ethics advisor. investigate & report it or ask to be part of it. not question it. in essence. You are an auditor for International Pharmaceutical Company (IPC).000 a year. 5 The best course of action is to investigate & report. stakeholders include management.a. and several members of senior management were abusing their positions by taking company perks that were against the company's code of conduct. He has. the financial vice president. The company over billed Medicare on several occasions. He told you that auditors are to report on controls and assist management. and technical standards) and integrity (abstain from engaging in or supporting any activity that might discredit the profession). Not long after being promoted to audit manager. The decision process using the Langenderfer & Rockness model might look like this: 1 The company has over billed Medicare & violated its own ethical code.

1. The company then transferred the patent to the subsidiary and arranged to purchase the drug from the subsidiary at a high price. I¶m not confident the company is violating the AICPA Code of Professional Conduct in this case.S. C 4. F 2. When the drug was patented. You know that tax rates are considerably less in Puerto Rico than in the U. Terminology Please match each item on the left with the most appropriate item on the right. and taxpayers have a responsibility to minimize (legally) the amount of taxes paid to the government. B 10. which? Use the Langenderfer and Rockness eight-step framework to decide how you would respond to this situation. I¶d be interested in getting alternative perspectives on this case. Puerto Rico is a US territory. G 6. your company set up a Puerto Rican subsidiary to manufacture the drug. government. I don¶t think the Langenderfer & Rockness framework is especially applicable. A 9. C 2. which is now owned by the subsidiary company. You are concerned because you think the price being charged by the subsidiary is excessive and is being used to inflate costs and minimize taxes paid to the U.S. Multiple choice questions 1. Since I don¶t perceive an ethics issue here. 10. D 3. J 3. D 8. B 4. H 7.on IPC's U. A .S. I 5. E 11. IPC justified the transfer price as reasonable because of the high value of the patent. corporate tax returns. Is the company violating any elements of the AICPA Code of Professional Conduct? If so.

D 6. C 7.5. D 10. C 8. A 9. A .