Chapter 3 -- End of Chapter Activities Answer Key

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 ÷tudents 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. Ñ    
    


      

. 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. @   
    
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. ÷imilarities 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.  

 
    
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     r The four schools of thought with some strengths and weaknesses are summarized in the table below: ÷
  Acceptable outcomes are clear and easy to understand. Rights & duties Respects and considers the Utilitarianism

  Fails to consider damage / harm that might result from pursuing this philosophy. Decision makers may disagree on

Justice Virtues

impact decisions will have on individuals. Focuses on outcomes and results of decisions. ÷ets a high standard for behavior.

the fundamental rights & duties of individuals. ÷omeone must decide what is just / right. Difficult to live up to this philosophy in the face of conflicting priorities.

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     #     . a !onzi initiated the type of fraud that now bears his name. He solicited investors for a project, but failed to pay them a return from the project itself. Instead, he used money from new investors to pay off old investors. Note that !onzi schemes can also be described as ³pyramid´ schemes, but that not all pyramid schemes are !onzi schemes. a In Adelphia Cable, the Rigas family used their personal positions and organizational power to misuse corporate assets. They also engaged in ³shady´ accounting practices to bolster their firm¶s performance in financial markets. a Enron was the largest bankruptcy in U÷ history at the time of its declaration. Company officers, such as Lay and ÷killing, ignored traditional accounting rules related to revenue recognition; in other cases, however, they followed the letter of accounting standards while ignoring their spirit (such as in their use of special purpose entities). f.  
    
 
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r ÷tudents will undoubtedly want a clear-cut answer to this question; however, I don¶t believe such an answer exists. Each situation must be evaluated based on decision makers¶ ethical frame of reference and any applicable code(s) of conduct. a  
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r Fred should do nothing; accounting is outside his area of expertise. Jim should raise his concerns with the CFO²privately first, then with others if he and the CFO cannot agree on this issue. The CFO should seek others¶ input before making a decision one way or the other. 7. Ethics cases (÷tocks, K.D. and ÷. Albrecht. ³Ethical Dilemmas´ in The Internal Auditor. June 1993, pp. 24 ± 25)

      
   
   
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 . The executives are violating competence (perform professional duties in accordance with relevant laws, regulations, and technical standards) and integrity (abstain from engaging in or supporting any activity that might discredit the profession). The decision process using the Langenderfer & Rockness model might look like this: 1 The company has over billed Medicare & violated its own ethical code. 2 The ethics issue centers on misuse of company funds; stakeholders include management, the government (taxpayers) and stockholders. 3 Executives should not overfill Medicare, nor ignore their own ethical code. 4 The audit manager can ignore the situation, investigate & report it or ask to be part of it. 5 The best course of action is to investigate & report. 6 Consequences of ignoring: the situation will continue and possibly escalate. Consequences of investigating & reporting: job loss. Consequences of asking to be part of it: breaking the law. 7 The audit manager could discuss the situation with the audit committee of the Board or with an AIC!A / IMA ethics advisor. 8 The appropriate decision is to investigate and report. -          @ 3 @    
 
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 I¶m not confident the company is violating the AIC!A Code of !rofessional Conduct in this case. !uerto Rico is a U÷ territory, and taxpayers have a responsibility to minimize (legally) the amount of taxes paid to the government. ÷ince I don¶t perceive an ethics issue here, I don¶t think the Langenderfer & Rockness framework is especially applicable. I¶d be interested in getting alternative perspectives on this case. 10. Terminology !lease match each item on the left with the most appropriate item on the right. 1. F 2. J 3. C 4. I 5. G 6. H 7. D 8. A 9. B 10. E

11. Multiple choice questions 1. C 2. D 3. B 4. A

5. D 6. C 7. C 8. A 9. D 10. A