14.2 Ethics for Management Accountants Flashcards
If an IMA member has a problem in identifying unethical behavior or resolving an ethical conflict, the first action (s)he should normally take is to
A. Consult the board of directors.
B. Discuss the problem with his or her immediate superior.
C. Notify the appropriate law enforcement agency.
D. Resign from the company.
B. Discuss the problem with his or her immediate superior.
The IMA Statement of Ethical Professional Practice states that the member should first discuss an ethical problem with his or her immediate superior. If the superior is involved, the problem should be taken initially to the next higher managerial level.
A new management accountant is concerned about complying with the ethical standard of competence in the IMA Statement of Ethical Professional Practice. Which one of the following is not required under the standard of competence?
A. Maintain expertise in all areas of accounting.
B. Enhance knowledge and skills.
C. Perform duties in accordance with relevant regulations and standards.
D. Provide recommendations that are accurate and timely.
A. Maintain expertise in all areas of accounting.
Maintaining expertise in all areas of accounting is difficult. According to the competence standard in the IMA Statement of Ethical Professional Practice, a CMA must maintain an appropriate level of professional leadership and expertise by enhancing knowledge and skills. This level does not include expertise in all areas of accounting.
A financial manager who is an IMA member discovers an issue that could result in misleading users of the firm’s financial data. She has informed her immediate supervisor. She should report the circumstances to the audit committee or the board of directors only if
A. The immediate supervisor, who reports to the chief executive officer, knows about the situation but refuses to correct it.
B. The immediate supervisor assures the member that the problem will be resolved.
C. The immediate supervisor reports the situation to his or her superior.
D. The immediate supervisor, the firm’s chief executive officer, knows about the situation but refuses to correct it.
D. The immediate supervisor, the firm’s chief executive officer, knows about the situation but refuses to correct it.
To resolve an ethical issue, the first step is usually to follow the entity’s established policy. Without an established policy, the member might consult his or her immediate supervisor. If that individual is involved, the matter should be taken to the next higher level of management. If the immediate supervisor is the chief executive officer or equivalent, the acceptable reviewing authority may be a group such as the audit committee, executive committee, board of directors, board of trustees, or owners.
When is an IMA member permitted to communicate confidential information to individuals or authorities outside the firm?
A. An ethical conflict exists and the board has refused to act.
B. Such communication is legally required.
C. The IMA member knowingly communicates the information indirectly through a subordinate.
D. An officer at the IMA member’s bank has requested information on a transaction that could influence the firm’s stock price.
B. Such communication is legally required.
According to the IMA Statement of Ethical Professional Practice, members are responsible for observing the confidentiality standard. Thus, the IMA member should keep information confidential except when disclosure is authorized or legally required.
The IMA Statement of Ethical Professional Practice requires an IMA member to follow the established policies of the organization when faced with an ethical conflict. If these policies do not resolve the conflict, the member should
A. Consult the board of directors immediately.
B. Discuss the problem with the immediate superior if (s)he is involved in the conflict.
C. Communicate the problem to authorities outside the organization.
D. Contact the next higher managerial level if initial presentation to the immediate superior does not resolve the conflict.
D. Contact the next higher managerial level if initial presentation to the immediate superior does not resolve the conflict.
In these circumstances, the problem should be discussed with the immediate superior unless (s)he is involved. In that case, initial presentation should be to the next higher managerial level. If the problem is not satisfactorily resolved after initial presentation, the question should be submitted to the next higher level.
Which of the following actions is required, as an IMA member, to uphold the standards of Integrity?
A. Refrain from engaging in any conduct that would involve the use of confidential information for unethical or illegal advantage.
B. Refrain from engaging in any conduct that would prejudice carrying out duties ethically.
C. Refrain from violating relevant laws, regulations, and technical standards while performing professional duties.
D. Communicating professional limitations or other constraints that would preclude responsible judgment or successful performance of an activity.
B. Refrain from engaging in any conduct that would prejudice carrying out duties ethically.
An IMA member upholds the standards of Integrity by (1) mitigating actual conflicts of interest, (2) refraining from engaging in any conduct that would prejudice carrying out duties ethically, (3) abstaining from engaging in or supporting any activity that might discredit the profession, and (4) contributing to a positive ethical culture and place integrity of the profession above personal interest.
A new accounting clerk at a firm that had recently terminated several employees due to budgetary cutbacks accidentally viewed a supervisor’s biweekly paycheck. Not realizing that the paycheck included an annual bonus, the accounting clerk erroneously multiplied the gross pay by 26 to find annual earnings. The accounting clerk was amazed that this supervisor appeared to earn more than twice the local average for employees in an accounting supervisory position. The accounting clerk discussed this situation with a friend, a recently terminated employee of the company who now worked for a local newspaper. As a result of this discussion, the supervisor’s “outrageous” salary was made public. Which one of the standards of the IMA Statement of Ethical Professional Practice did the accounting clerk’s actions violate?
A. Competence.
B. Confidentiality.
C. Integrity.
D. Credibility.
B. Confidentiality.
The confidentiality standard states that each IMA member must (1) keep information confidential except when disclosure is authorized or legally required, (2) inform all relevant parties regarding appropriate use of confidential information and monitor to ensure compliance, and (3) refrain from using confidential information for unethical or illegal advantage.
Which ethical standard is most clearly violated if an IMA member knows of information that could mislead users but does not report the deficiency?
A. Competence.
B. Legality.
C. Credibility.
D. Confidentiality.
C. Credibility.
The credibility standard in the IMA Statement of Ethical Professional Practice requires, among other things, that all relevant information that could reasonably influence users be provided.
In accordance with the IMA Statement of Ethical Professional Practice, a member who fails to perform professional duties in accordance with relevant standards is acting contrary to which one of the following standards?
A. Integrity.
B. Confidentiality.
C. Competence.
D. Credibility.
C. Competence.
One of the responsibilities of an IMA member under the competence standard is to “maintain an appropriate level of professional leadership and expertise by enhancing knowledge and skills.” (S)he must also “perform professional duties in accordance with relevant laws, regulations, and technical standards.” The third requirement under this standard is to “provide decision support information and recommendations that are accurate, clear, concise, and timely.”
An accountant has discovered unethical conduct in his organization and fails to act because of fear of retaliation. He will be in violation of all of the following IMA ethical standards except
A. Refrain from using confidential information for unethical or illegal advantage.
B. Refrain from engaging in any conduct that would prejudice carrying out of duties correctly.
C. Communicate information fairly and objectively.
D. Disclose all relevant information that could reasonably be expected to influence an intended user.
A. Refrain from using confidential information for unethical or illegal advantage.
The accountant did not use confidential information for any sort of personal advantage. Therefore, the confidentiality standard was not violated.
Year-end bonuses at each branch office are based on branch profitability. Due to a slow economy, profitability through the third quarter at the Northeast branch is under budget. To address this issue, the accounting staff at the Northeast branch develops a list of end-of-year actions designed to boost earnings for the year. Which one of the following is most likely to violate the IMA Statement of Ethical Professional Practice?
A. Requesting the branch’s advertising agency to delay billing third-quarter advertisements until January.
B. Deferring planned painting and refurbishment of the warehouse until the following year.
C. Offering additional discounts to customers to entice them to increase purchases in the third quarter.
D. Deferring advertising expense by reducing the number of newspaper advertisements run in the third quarter.
A. Requesting the branch’s advertising agency to delay billing third-quarter advertisements until January.
Requesting delay of billing until the next accounting period violates the integrity and credibility standards. Integrity is impaired because an IMA member should abstain from engaging in or supporting any activity that might discredit the profession. Credibility is impaired because an IMA member should (1) communicate information fairly and objectively and (2) provide all relevant information that could reasonably be expected to influence an intended user’s understanding of reports, analyses, or recommendations. Delaying the reporting of expenses properly recognizable in the third quarter misstates the financial statements.
Elite Running Ltd. has recently implemented a new evaluation process that bases bonuses primarily on the variance between budgeted and actual cost for cost centers. Individuals with budgeted to actual variances in excess of 20% will receive no bonus. Richard Bane oversees one cost center of Elite and is concerned that his bonus will be adversely impacted. He has a strong personal relationship with the controller, who is responsible for developing, reviewing, and approving budgets. He has asked the controller to accept his budget with estimated costs higher than would be reasonably expected for the next fiscal year. In appreciation for accepting these inflated costs, Bane offered the controller season tickets to the sport of his choice. Which one of the following standards of the IMA Statement of Ethical Professional Practice is relevant?
A. Integrity, if the controller accepts the tickets because acceptance would prejudice his ability to carry out his duties.
B. Competence, if the controller accepts the tickets because he has not performed his duties in accordance with established laws.
C. Confidentiality, if the controller fails to report the incident to the audit committee.
D. Credibility, if the controller shares Bane’s offer with another member of the management team.
A. Integrity, if the controller accepts the tickets because acceptance would prejudice his ability to carry out his duties.
The controller would be in violation of the IMA’s integrity standard if he were to accept the bribe. A requirement of the integrity standard is to refrain from engaging in any conduct that would prejudice carrying out duties ethically.
You have examined your organization’s financial statements and determined that they present a number of significant items in a fraudulent manner. You know that you should report this situation to management but are concerned that reporting it might result in your employment being terminated. Failure to report this situation is a violation of which of the ethical standard(s) outlined in the IMA Statement of Ethical Professional Practice?
A. Confidentiality.
B. Competence.
C. Confidentiality and Integrity.
D. Credibility.
D. Credibility.
The credibility standard requires (1) communicating information fairly and objectively; (2) providing all relevant information that could reasonably be expected to influence an intended user’s understanding of reports, analyses, or recommendations; (3) reporting delays or deficiencies in information, timeliness, processing, or internal controls in conformance with organization policy or applicable law; and (4) communicating professional limitations or other constraints that would preclude responsible judgment or successful performance of an activity. The credibility standard is violated because fraudulent reporting does not communicate information fairly. The relevant information that could reasonably be expected to influence an intended user’s understanding also is not provided.
Andrew Babbitt is a management accountant at Ace Mining Corporation (AMC), a processor of ores and minerals. He learned that AMC had been disposing hazardous waste materials in a nearby residential landfill. Babbitt knew that the waste materials could pose a danger to the residents in the area and that there could be legal ramifications for disposing hazardous waste in a residential landfill. When Babbitt discussed the issue with his supervisor the next morning, he was told to ignore it. Due to the significance of the matter, Babbitt decided to discuss the matter with his attorney and then notified the appropriate authorities. In accordance with the IMA Statement of Ethical Professional Practice, which one of the following is the correct evaluation of Babbitt’s decision to notify the authorities?
A. Babbitt’s actions were inappropriate because they involved insubordination.
B. Babbitt’s actions were appropriate only if his attorney indicated that there was a clear violation of the law.
C. Babbitt’s actions were inappropriate because they violated the confidentiality standard.
D. Babbitt’s actions were appropriate as an immediate action.
B. Babbitt’s actions were appropriate only if his attorney indicated that there was a clear violation of the law.
Under the IMA Statement of Ethical Professional Practice, if an ethical issue cannot be resolved within the member’s organization, the member should consider consulting an attorney to learn of any legal obligations, rights, and risks concerning the issue. If the attorney concludes that a violation of law has occurred, the authorities should be notified accordingly. However, if no violation of law occurred, it may not be necessary to contact the authorities.
Which one of the following is an example of an overarching ethical principle from IMA Statement of Ethical Professional Practice?
A. Integrity.
B. Confidentiality.
C. Fairness.
D. Competence.
C. Fairness.
The IMA’s overarching principles include honesty, fairness, objectivity, and responsibility. Members must act in accordance with these principles and should encourage others within their organizations to adhere to them.
According to the IMA Statement of Ethical Professional Practice, a member has a responsibility to recognize professional limitations. Under which standard of ethical conduct would this responsibility be included?
A. Competence.
B. Credibility.
C. Integrity.
D. Confidentiality.
B. Credibility.
One of the responsibilities of an IMA member under the credibility standard is to “communicate professional limitations or other constraints that would preclude judgment or successful performance of an activity.”
A management accountant was recently tried and convicted in court for producing and selling illegal narcotic drugs. None of the activity occurred during work hours, and he performed duties as a management accountant without incident during the period of illegal activity. The management accountant has argued that because the illegal activity was unrelated to his service as a management accountant, no ethical violation had been committed. Which provision of the IMA Statement of Ethical Professional Practice is most likely to apply to the management accountant’s illegal actions?
A. Confidentiality.
B. Competence.
C. Integrity.
D. Credibility.
C. Integrity.
The integrity standard states that each member must abstain from engaging in or supporting any activity that might discredit the profession. Being convicted of producing and selling illegal narcotic drugs is an activity that discredits the profession.
A typical code of ethical conduct for financial managers or management accountants in an organization requires all of the following except
A. Subjectivity in presenting information, preparing reports, and making analyses.
B. Independence from conflicts of economic interest.
C. Integrity and a refusal to compromise professional values for the sake of personal goals.
D. Independence from conflicts of professional interest.
A. Subjectivity in presenting information, preparing reports, and making analyses.
Subjectivity in presenting information would not be a part of an ethical code of conduct. Objectivity is often a part of a code of conduct, such as that of the IMA.
A new accountant is assisting in the month-end close of the books. His supervisor told him to accrue a large receivable and said that he would provide the supporting documentation later. The new accountant made the accrual, and the books were closed. Subsequently, the new accountant found out that the company would have missed the earnings estimate without the receivable. The new accountant requested the documentation, but the supervisor could not provide it. Other associates told the new accountant that this supervisor had directed that undocumented entries be recorded in the books in the past and that the former accountant had left the company because he was uncomfortable making the entries. Recommend the best course of action for the new accountant.
A. The new accountant should confront his supervisor about the undocumented receivable that appeared to be inaccurate.
B. The new accountant should present this issue to his supervisor’s manager to resolve it.
C. The new accountant should evaluate the materiality of the receivable to determine if it is worthy of follow-up.
D. The new accountant should report to the board of directors that the company did not truly meet the earnings estimate.
B. The new accountant should present this issue to his supervisor’s manager to resolve it.
When faced with unethical issues, the accountant should follow the organization’s established policies on the resolution of such issues. If these policies do not resolve the unethical issue, (s)he should first discuss the issue with his or her immediate superior except when it appears that the supervisor is involved. In that case, (s)he should present the issue to the next management level. Since the new accountant’s supervisor is involved in the conflict, he should present the issue to his supervisor’s manager.
After a competitive bidding process, a company’s purchasing director awarded a contract to the lowest bidder, an organization in which she had a personal interest. Because the winning bidder had the lowest price, she did not disclose her relationship with the entity. In fact, she frequently highlighted the fact that the winning bidder had the most experience servicing contracts of this nature. Which one of the values of ethical decision making did the purchasing director violate?
A. Integrity, because her relationship with the bidder could have impaired her judgment.
B. None, because a competitive bidding process was utilized.
C. Honesty, because she was not being truthful about the experience of the bidder.
D. Fairness, because she did not tell the truth about her relationship with the vendor.
A. Integrity, because her relationship with the bidder could have impaired her judgment.
The purchasing director had an actual conflict of interest but should have avoided even an apparent conflict of interest. The appropriate action was to advise all parties of the circumstances to avoid even the appearance of making a secret profit. Furthermore, the transaction was not improper solely on the grounds of the conflict of interest. The transaction may have been fair to the company and approved by the appropriate superiors after full disclosure.
An IMA member has discovered that her company is violating environmental regulations. If the entity has no established policy for resolving ethics issues and her immediate superior is involved, the appropriate action is to
A. Present the matter to the next higher managerial level.
B. Consult the audit committee.
C. Do nothing because she has a duty of loyalty to the organization.
D. Confront her immediate superior.
A. Present the matter to the next higher managerial level.
To resolve an ethical issue, the first step is usually to follow the entity’s established policy. Without an established policy, the member might consult his or her immediate superior. If that individual is involved, the matter should be taken to the next higher level of management.
A staff accountant becomes aware of an off-balance-sheet bank account where funds have been diverted with offsetting credits approved by his immediate supervisor. His immediate supervisor refuses to discuss it and suggests the staff accountant forget about it. Which one of the following should be the staff accountant’s next course of action in this circumstance?
A. Put concerns in writing to the immediate supervisor and copy the company’s independent auditor.
B. Communicate concerns confidentially to the company’s external legal counsel.
C. Communicate concerns confidentially to the company’s independent auditor.
D. Discuss concerns with the level of management above the immediate supervisor.
D. Discuss concerns with the level of management above the immediate supervisor.
According to the IMA Statement of Ethical Professional Practice, to resolve an ethical issue, the first step is usually to follow the entity’s established policy. Without an established policy, the member might consult his or her immediate supervisor. If that individual is involved, the matter should be taken to the next higher level of management.
The IMA Statement of Ethical Professional Practice requires an IMA member to follow the established policies of the organization when faced with an ethical conflict. If these policies do not resolve the conflict, the member should
A. Contact the next higher managerial level if initial presentation to the immediate superior does not resolve the conflict.
B. Consult the board of directors immediately.
C. Communicate the problem to authorities outside the organization.
D. Discuss the problem with the immediate superior if (s)he is involved in the conflict.
A. Contact the next higher managerial level if initial presentation to the immediate superior does not resolve the conflict.
In these circumstances, the problem should be discussed with the immediate superior unless (s)he is involved. In that case, initial presentation should be to the next higher managerial level. If the problem is not satisfactorily resolved after initial presentation, the question should be submitted to the next higher level.
