Accounting Ethics Study
Guide Questions
Course Introduction
Accounting Ethics explores the moral principles and professional standards that guide the behavior and decision-making of accounting professionals. This course examines ethical frameworks, the role of integrity and objectivity in accounting, and the ethical challenges that accountants may face in public, private, and governmental sectors. Students will analyze real-world cases involving ethical dilemmas, conflicts of interest, corporate scandals, and regulatory frameworks such as the Sarbanes-Oxley Act and the AICPA Code of Professional Conduct. Emphasis is placed on developing critical thinking skills and ethical reasoning to uphold public trust and professional responsibility in the accounting field.
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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Sample Questions
Q1) The AICPA's Code of Professional Conduct establishes:
A) The rules of conduct for structuring and conducting audits and other attestation engagements
B) The rules of conduct for conducting audits, but no other forms of attestation
C) The rules for resolving technical judgments in achieving a fair presentation of financial statements
D) The normative rules of ethical behavior that guide professional accountants
Answer: D
Q2) A CPA who is 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 state requirement mandates that the CPA follow:
A) Generally accepted accounting principles
B) Generally accepted auditing standards
C) The AICPA's Code of Professional Conduct
D) All of the above
Answer: D
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Chapter 2: Ethical Principles and Reasoning
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Sample Questions
Q1) Legal mandates and ethical mandates are:
A) Identical
B) Different, with legal mandates usually imposing higher behavioral requirements than ethical mandates
C) Different, with ethical mandates usually imposing higher behavioral requirements than legal mandates
D) Both imposed on professional accountants, with legal mandates typically having broader application
Answer: C
Q2) If a CPA who is a member of the AICPA fails to abide by the Principles section of the AICPA's Code of Professional Conduct,but otherwise acts in conformity with the Code,the CPA's membership in the AICPA will potentially be:
A) Suspended for a period of up to 30 days
B) Suspended for a period of up to one year
C) Revoked, with the right to apply for reinstatement after one year
D) Not subject to any form of punishment regarding the license to practice accounting
Answer: D
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4
Chapter 3: The Core Philosophies
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Sample Questions
Q1) A real-world difficulty of applying deontology is that:
A) It can be difficult to identify all stakeholders affected by a decision
B) It can be difficult to measure utility
C) Some benefits, such as the right to the protection of trade secrets, are difficult to quantify
D) Two or more rights protected by deontology sometimes are in conflict
Answer: D
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
Q3) A real-world difficulty of applying utilitarianism is that:
A) It can be difficult to identify all stakeholders affected by a decision
B) It can be difficult to measure utility
C) Some benefits, such as the enjoyment of privacy, are difficult to quantify
D) All of the above
Answer: D
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Chapter 4: Virtue,justice,and Social Responsibility
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Sample Questions
Q1) Accounting staff members at a major corporation received an all-expense paid vacation to Hawaii from a hedge fund trader.In return,they shared company earnings results with a hedge fund trader two days prior to the public release of these results.The accounting staff members' actions are consistent with:
A) Deontology
B) Egoism
C) Virtue ethics
D) No recognized philosophy
Q2) Rawls believed that:
A) There should be perfect equality of resource allocation in society
B) Imperfect resource allocation benefits society because it encourages innovation and hard work
C) Resource allocation should resemble a normal statistical distribution, with most people concentrated around the median
D) Disproportionately greater resource allocations to some in society is acceptable as long as it results in a higher standard of living for those with lower incomes
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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21 Verified Questions
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Sample Questions
Q1) People who cheat are more likely to do so when:
A) The line separating an ethical act from an unethical act is unclear
B) The line separating an ethical act from an unethical act is clear
C) They are well-rested
D) They have a low self-image, but consider their self-image to be important
Q2) 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
Q3) Your expected gain from cheating is $600.The expected financial penalty from cheating is $300 and the expected probability of your cheating being detected is 25%.You also will experience a loss of self-esteem that has an estimated value to you of $500,whether or not your cheating is detected.You are likely to:
A) Cheat, due to the copycat effect
B) Not cheat, due to moral compartmentalization
C) Cheat, applying the principles expressed by the Becker Rational Model
D) Not cheat because cheating would be irrational
Q4) What criticisms do you have of the Becker Rational Model?
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Chapter 6: Greed,corruption,and Collusion
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Sample Questions
Q1) If a CPA charges a contingent fee in connection with providing professional services to a review client,the CPA's fee arrangement is:
A) Permissible always
B) Permitted only if the fee arrangement is expressed in a clear writing signed by the client
C) Permitted only if the fee is reasonable in amount
D) Never permissible
Q2) What are the different approaches that jurisdictions apply in regulating or punishing accountants who accept bribes in their capacities as employees of privately-held companies? How do you believe that this offense should be treated?
Q3) Discuss the pros and cons of contingency fees from an accountant's standpoint.
Q4) The Assistant Controller of a publicly-traded company may buy company stock as long as:
A) She agrees to hold company stock for a minimum of six months
B) She does not possess non-public information
C) Her trading activities are authorized by her employment contract
D) All of the above
Q5) When are contingency fees permissible in rendering tax services?
Q6) Discuss the pros and cons of contingency fees from a client's standpoint.
Page 8
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Chapter 7: Fraud and Earnings Management
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Sample Questions
Q1) According to the Fraud Triangle,which the following is one of the requisites for fraud to occur?
A) The perception of an opportunity for ill-gotten financial gain
B) The existence of sound justification for a person to receive greater financial rewards
C) The existence of a clear-cut opportunity for ill-gotten financial gain
D) Employment in a sensitive financial capacity in which peers reap greater financial rewards than the employee contemplating fraud receives
Q2) Your employer operates in an industry in which company pre-tax earnings are expected to increase by 5% next year.Your employer,however,has issued earnings guidance in which it declared that it expects its pre-tax earnings to increase by 11% next year.As a result,which of the following elements of the Fraud Triangle are present?
A) Attitudes
B) Pressure to understate expenses
C) Opportunity to overstate revenues
D) All three elements are present
Q3) What is cookie jar accounting? How is it abused?
Q4) What is big bath accounting? How is it abused?
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9
Chapter 8: Discreditable Acts: Discrimination,deceit,and Disclosure
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Sample Questions
Q1) Outside the United States,what constitutes GAAP?
Q2) Which of the following acts is clearly discreditable?
A) Creating and posting a youtube video in which a CPA berates the IRS for incompetence
B) Refusing to return client records, even if a CPA is owed unpaid fees, if these records are needed by the client to prepare its tax return
C) Commenting on "how graceful" an administrative assistant is when she wears high-heeled shoes
D) Mentioning on your CPA firm's website that you formerly worked for the IRS, if a reader might conclude from this statement that you are better able to negotiate favorable settlements with the IRS for clients
Q3) Under what circumstances are departures from GAAP permitted?
Q4) 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
Q5) What acts,if any,are expressly identified as discreditable by the IFAC Code of Conduct?
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Chapter 9: Confidentiality
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Sample Questions
Q1) Is there a federal accountant-client privilege? What does it cover?
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) What is the difference between the duty of confidentiality and the accountantclient privilege?
Q5) If a CPA violates the duty of confidentiality,who may hold it accountable?
Q6) In accordance with the duty of confidentiality,when is client information considered to be confidential?
Page 11
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Chapter 10: Independence and Moral Seduction
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Sample Questions
Q1) A "covered member" of a CPA firm owns 4% of the bonds outstanding in an audit client.In accordance with the Independence Rule,does this CPA firm have the independence to audit this client?
A) Yes, as long as the CPA's immediately family does not have any additional financial interests in this client
B) Yes, as long as the bonds are not convertible into common stock
C) No, unless the CPA agrees to not directly participate in the audit
D) No, because of the self-interest threat
Q2) The term "safeguard," as it used in determining auditor independence,refers to:
A) Actions or other preventative measures that reduce threats to auditor independence to an acceptable level
B) Actions or other preventative measures that eliminate all known threats to auditor independence
C) Actions or other preventative measures that eliminate all threats, known and unknown, to auditor independence
D) Actions taken by a client to protect confidential information from subsequent disclosure by an audit team
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Page 12
Chapter 11: Conflicts of Interest
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Sample Questions
Q1) If a CPA leaves a job in public accounting to commence work as a member of a company's internal accounting staff,this CPA:
A) No longer has to be concerned about conflicts of interest
B) Still has to be concerned about conflicts of interest involving former clients as well as conflicts of interest arising at her new workplace
C) Only has to be concerned about conflicts of interest involving her former clients because industry accountants are not subject to the AICPA's conflict of interest rules
D) Does not have to be concerned about conflicts of interest that may arise between loyalty to her new employer and loyalty to her former employer
Q2) 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
Q3) What is an apparent conflict of interest? Provide an example.
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Chapter 12: Duties As a Whistleblower
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Sample Questions
Q1) In Europe,the mandatory duty to become an external whistleblower has been criticized on grounds of:
A) Management participation
B) The self-review threat
C) Employee privacy
D) Enterprise privacy
Q2) If an auditor discovers a suspected illegal act involving financial statement presentation occurred at a client,the auditor has a duty to:
A) Consult with outside legal counsel to determine if the act is in fact illegal
B) Not mention this suspected misconduct, unless the illegality of the act is, at minimum, determined to be probable
C) Not mention this suspected misconduct, unless the resulting monetary liability can be determined with reasonable certainty
D) Inform the company's Audit Committee
Q3) What factors do you believe contribute to a person developing a sense of altruism toward others?
Q4) Why is whistleblowing a relatively recent phenomenon?
Q5) Have you ever committed an act out of revenge that you later came to regret?
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Chapter 13: Duties of Public-Company Auditors: the Sarbanesoxley Act
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Sample Questions
Q1) Who may serve on an Audit Committee?
Q2) The PCAOB:
A) Is entirely independent of the AICPA
B) Appoints the members of the AICPA's governing board, but otherwise is independent of the AICPA
C) Frequently is criticized for developing financial accounting standards that are more complex than those established by the FASB
D) Legally has the power to override the AICPA when their areas of jurisdiction conflict or overlap
Q3) Most audit partners at CPA firms are compensated based on the gross billings or net CPA firm profits generated by the audit clients that they serve.As a result,when an audit partner serves a particular client for an extended period of time,which of the following threats is most likely to arise?
A) The self-interest threat
B) The advocacy threat
C) The adverse interest threat
D) The self-review threat
Q4) Do you agree or disagree with the concept of mandatory audit firm rotation? Why or why not?
Page 15
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Chapter 14: Duties of Tax Professionals
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Sample Questions
Q1) A taxpayer wishes to assert a tax position concerning the deductibility of data communication service on a mobile wireless device that is partially used for business and partially used for personal activities.This tax position satisfies the "substantial authority" standard.Two federal district courts issued decisions that denied taxpayers a deduction for these costs,but the U.S.Supreme Court issued a later decision that allowed a taxpayer a deduction for these costs.The taxpayer may:
A) Not assert this tax position
B) May assert this tax position only if it is prominently disclosed on the face of the taxpayer's tax return
C) May assert this tax position even though the taxpayer's assertion only satisfies the "reasonable possibility or success" standard
D) May assert the tax position because the "substantial authority" test is satisfied
Q2) What are a tax return preparer's duties,if any,upon discovering an error in a tax return that previously was submitted by a client to a taxing authority?
Q3) Should tax return preparers have a duty to verify the information provided to them by clients? Why or why not?
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Page 16
Chapter 15: Duties of Fiduciaries: Financial
Planners,trustees,and Executors
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Sample Questions
Q1) Can a split-interest trust also be a testamentary trust?
Q2) A CPA audits Waltonvillemart,Inc.This CPA also serves as the trustee of a trust for the CEO of Waltonvillemart,Inc.The sole asset of this trust is a $1 million life insurance policy that is payable upon the CEO's death to his seven grandchildren.In equal amounts.This CPA:
A) Is not independent to continue to audit Waltonvillemart, Inc. because of the material amounts involved
B) Is not independent to continue to audit Waltonvillemart, Inc. because of the appearance, if not actuality, of a dual-client conflict of interest
C) Definitely is independent to continue to audit Waltonvillemart, Inc. because there are no material threats to independence
D) Is independent to continue to audit Waltonvillemart, Inc., as long as the company and the CEO both waive their right to object to this trustee service
Q3) Why would a person create a split-interest trust?
Q4) Why would a person create a blind trust?
Q5) What are the key characteristics that tend to create a fiduciary relationship?
Q6) Can a spendthrift trust also be a testamentary trust?
Page 17
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Chapter 16: Duties in the Accounting Workplace Online Only
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Sample Questions
Q1) An employer spends substantial sums training its employees.This employer has determined that it is not economical to make these training expenditures if a new employee is likely to quit within the first three years of employment.Is it ethical for an employer,prior to hiring a new employee,to inquire of prospective female employees if they plan to give birth to a child during the upcoming three years? (Do not discuss the law.)
Q2) What are the core traits that an employer usually may not inquire about prior to hiring an employee?
Q3) 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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