FINAL EXAM Flashcards
_______________ can be defined broadly as a set of moral principle or values that govern the actions and decisions of an individual or group.
ETHICS
Give 10 characteristics and values associated with ethical behavior.
- Integrity
- Honesty
- Trustworthiness and Promise Keeping
- Loyalty (Fidelity) and Confidentiality
- Fairness and Openness
- Caring for Others
- Respect for Others
- Responsible citizenship
- Pursuit of excellence
- Accountability
Ethics is the ________ that holds a society together.
GLUE
What are two primary reasons why people act unethically?
- The person’s ethical standards are different from those of society as a whole
- The person chooses to act selfishly
In many instances, both reasons exist
There are three categories of ethical principles: personal ethics, professional ethics, and business ethics.
Give six principles of personal ethics.
- Basic justice, fairness
- Respect for the right of others
- Concern for the right of others
- Concern for the well-being or welfare of others
- Benevolence, trustworthiness, honesty
- Compliance with the law
There are three categories of ethical principles: personal ethics, professional ethics, and business ethics.
Give five principles of professional ethics.
- Integrity, impartiality, objectivity
- Professional competence
- Confidentiality
- Professional behavior
- Avoidance of potential or apparent conflict of interest
There are three categories of ethical principles: personal ethics, professional ethics, and business ethics.
Give four principles of business ethics.
- Fair competition
- Global, as well as domestic justice
- Social responsibility
- Concern for environment
All the recognized professions have several common characteristics. The four most important of these characteristics are:
- A responsibility to serve the public
- A complex body of knowledge
- Standards of admission to the profession
- A need for public confidence
________________ refers to the ability to discern between right and wrong.
Ethical awareness
_______________ pertains to the ability to engage in sound moral reasoning and consider carefully the implications of alternative actions.
Ethical competency
What are the specific principles of professional conduct according to the Code of Good Governance for the Profession in the Philippines?
- Service to Others
- Integrity and Objectivity
- Professional Competence
- Solidarity and Teamwork
- Social and Civic Responsibility
- Global competitiveness
- Equality of all professions
What specific principle of professional conduct from the code of good governance is being referred to by this statement?
Professionals are committed to a life of service to others. They protect life, property, and public welfare. To serve others, they shall be prepared for heroic sacrifice and genuine selflessness in carrying out their professional duties, even at the expense of gain.
Service to Others
What specific principle of professional conduct from the code of good governance is being referred to by this statement?
To maintain and broaden public confidence, professionals shall perform their responsibilities with the highest sense of integrity and imbued with nationalism and spiritual values.
Integrity and Objectivity
What specific principle of professional conduct from the code of good governance is being referred to by this statement?
In providing professional services, a certain level of competence is necessary.
Professional Competence
What specific principle of professional conduct from the code of good governance is being referred to by this statement?
Each profession shall nurture and support one organization for all its members.
Solidarity and Teamwork
What specific principle of professional conduct from the code of good governance is being referred to by this statement?
Professionals shall always carry out their professional duties with due consideration of the broader interest of the public.
Social and Civic Responsibility
What specific principle of professional conduct from the code of good governance is being referred to by this statement?
Every professional shall remain open to challenges of a more dynamic, interconnected world.
Global Competitiveness
What specific principle of professional conduct from the code of good governance is being referred to by this statement?
All professionals shall treat their colleagues with respect and shall strive to be fair in their dealings with one another.
Equality of All Professions
_________________ refers to standards of moral conduct, behavior, and judgment in business.
Business ethics
_________________ is an area of corporate responsibility where businesses are legally bound and socially obligated to conduct business in an ethical manner.
Business ethics
What is the main purpose of business ethics?
The main purpose of business ethics is to help businesses and would-be business to determine what business practices are right and what are wrong.
There are other purposes which are corollary to the main purpose of business ethics. These are referred to as Special Purpose. What are the special purposes of business ethics?
- To make businessmen realize that they cannot employ double standards to the actions of other people and to their own actions
- To show businessmen that common practices which they have thought to be right because they see other businessmen doing it, are really wrong
- To serve as a standard or ideal upon which business conduct should be based
There are still no uniform standards of right and wrong from which all business may base their actions. True or False?
TRUE
The businessman who provides _______________________ is the most likely to observe the business ethical rules of conduct, behavior, and judgment. ____________________ means achieving success solely by offering better products, services and terms than the competitor.
Fair business competition
What are the five main impacts of business ethics?
- Economic impact
- Social impact
- Environmental impact
- Impact on business managers
Misrepresentation may be classified into two types. What are the two types of misrepresentation?
- Direct Misrepresentation
- Indirect Misrepresentation
______________________ is characterized by actively misrepresenting about the product or customers.
Direct misrepresentation
What are the seven different types of direct misrepresentation?
- Deceptive Packaging
- Misbranding or Mislabeling
- False or Misleading Advertising
- Adulteration
- Weight understatement or Short weighing
- Measurement understatement or Short measurement
- Quantity understatement or Short numbering
What type of direct misrepresentation does this statement indicate?
Placing the product in containers of exaggerated sizes and misleading shapes to give a false impression of its actual contents.
Deceptive packaging
What type of direct misrepresentation does this statement indicate?
Placing the product in containers of exaggerated sizes and misleading shapes to give a false impression of its actual contents.
Deceptive packaging
__________________ is a type of direct misrepresentation that involves the practice of making false statements on the label of a product or making its container similar to a well-known product for the purpose of deceiving the customer as to the quality and/or quantity of the product being sold
Misbranding or Mislabeling
___________________ is the principal means by which people are informed about the availability, nature, and uses of old and new products.
Advertising
What are some examples of false or misleading advertising?
- Advertisements with pictures or statements that convey an exaggerated impression of the product’s reliability or quality
- Advertisement that claims that the product is the “fastest selling brand” or the “product of the year”
- Advertisements using fictitious or obsolete testimonials
________________________ is the unethical practice of debasing a pure or genuine commodity by imitating or counterfeiting it, by adding something to increase its bulk or volume, or by substituting an inferior product for a superior one for the purpose of profit or gain.
Adulteration
In ________________, the mechanism of the weighing scale is tampered with or something is unobtrusively attached to it so that the scale registers more than its actual weight.
Short weighing
__________________ is practiced in selling products where the prices depend on the weight such as sugar, meat, fish, vegetables,
Short weighing
In ____________________, the measuring stick or standard is shorter than the real length or smaller in volume than the standard.
Short measurement
This unethical practice is found in selling situations where the price of the product depends on its length such as selling cloth or textiles, electric cords or wires or on its volume such as selling rice by the sack.
Short measurement
In this unethical practice, the seller gives the customer less than the NUMBER asked for or paid for.
Short numbering
_______________ is often practiced in selling situations where the product being sold is in such shape or is packaged in a manner that would make counting the product difficult or inconvenient.
Short numbering
____________________________ is characterized by omitting adverse or unfavorable information about the product or service.
Indirect misrepresentation
What are the four most common practices of indirect misrepresentation?
- Caveat emptor
- Deliberate Withholding of Information
- Passive deception
- Over-Persuasion
This means, “let the buyer beware.” Under this concept, the seller is not obligated to reveal any defect in the product or service he is selling. It is the responsibility of the customer to determine for himself the defects of the product.
Caveat emptor
Business ignorance is ____________________ because the businessman is unable to provide the customer with the complete information that the latter needs to make a fair decision.
Passive deception
_________________ is the process of appealing to the emotions of a prospective customer and urging him to buy an item of merchandise he needs.
Persuasion
Persuasion for the sole benefit of selling a product, without considering the interest of the buyer is not ethical. True or False?
TRUE
What are some of the most common instances of over-persuasion?
- Urging a customer to satisfy a low priority need for merchandise
- Playing upon intense emotional agitation to convince a person to buy
- Convincing a person to buy what he does not need just because he has the capacity and money to do so
Practices of corporate management that involve ethical consideration may be classified into two: ________________________ and _________________________.
- Practices of the BOD
- Practices of executive officers
What are four common unethical practices of the BOD?
- Plain Graft
- Interlocking Directorship
- Negligence of Duty
- Insider Trading
What are seven unethical practices of executive officers?
- Claiming a vacation trip to be a business trip
- Having employees do work unrelated to the business
- Loose or ineffective controls
- Unfair labor practices
- Making false claims about losses to free themselves from paying the compensation and benefits provided by law
- Making employees sign documents showing that they are receiving fully what they are entitled to under the law when in fact they are only receiving a fraction of what they are supposed to get
- Sexual Harassment
What are some unethical practices of employees?
- Conflicts of interest
- Dishonesty
This is done by voting for themselves and executive officers huge per diems, large salaries, big bonuses, that do not commensurate to the value of their services.
Plain Graft
____________________ is often practiced by a person who holds directorial positions in two or more corporations that do business with each other.
Interlocking Directorship
A more common failure of the members of the BOD than breach of trust is ________________________ when they fail to attend board meetings regularly.
Neglect of duties
__________________ involves trading in a public company’s stock by someone who has non-public material information about that stock for any reason.
Insider trading
Why is insider trading unethical?
An individual who has access to insider information would have an unfair edge over other investors, who do not have the same access, and could potentially make larger, unfair profits than their fellow investors.
Why is caveat emptor unethical?
The seller is a witness for the goods he is selling. He testifies to its nature, features, uses, and qualities. As a witness, it is his obligation to “tell the truth and nothing but the truth” about his product.
The labor code lists the following as unfair labor practices committed by an employer on employees or a group of employees who have organized themselves into a union:
- To interfere with, restrain or coerce employees in the exercise of their right to self-organization
- To require as a condition of employment that a person or an employee shall not join a labor organization or shall withdraw from one to which he belongs
- To contract out services or functions being performed by union members when such will interfere with, restrain, or coerce employees in the exercise of their rights to self organization
- To initiate, dominate, assist or otherwise in with the formation or administration of any labor organization, including the giving of financial or other support to it
- To discriminate with regard to wages, hours of work, and other terms or conditions of employment in order to encourage or discourage membership in any labor organization
- To dismiss, discharge, or otherwise prejudice or discriminate against an employee for having given or being about to give testimony under the Labor Code
- To violate the duty to bargain collectively
- To pay negotiation or attorney’s fees to the union or its officers or agents as part of the settlement of any issue in collective bargaining or any other dispute
- To violate or refuse to comply with voluntary arbitration awards or decisions relating to the implementation of a collective bargaining agreement
- To violate a collective bargaining agreement.
____________________ arises when an employee who is duty bound to protect and promote the interests of his employer violates this obligation by getting himself into a situation where is decision or actuation is influenced by what he can gain personally from it, rather than what his employer can gain from it.
Conflict of interest
What are some common examples of conflict of interest?
- An employee who holds a significant interest or shares of stock of a competitor, supplier, customer or dealer favors this party to the prejudice of his employer
- The employee accepts cash, a gift, or a lavish entertainment or a loan from a supplier, customer, competitor, or contractor
- Employee discloses confidential company information
- The employee engages in the same type of business as his employer
- The employer uses for his own benefit a business opportunity in which his employer has or might be expected to have an interest
________________ is a result of interlocking directorship. It happens when this person is compelled to decide which of the two corporation’s interest should be protected or upheld. Decisions should be made based on what is best for the company, not like this.
Whatever decisions the person makes, he betrays the trust reposed on him by the shareholders of either of the two companies.
Disloyal selling
Why is it unethical for an employee to accept a gift from a supplier, customer, competitor or contractor?
Utang na loob
In this situation, the decision or action of the employee is influenced by his being indebted for a favor or loan from a party with whom the company is doing business. Therefore, he can no longer act with impartiality.
What are three examples of dishonest acts of employees?
- Taking office supplies home for personal use
- Padding an expense account through the use of fake receipts when claiming reimbursements
- Taking credit for another employee’s idea
_________________ is a situation a person faces in which a decision must be made about the appropriate behavior.
Ethical dilemma
What is are six steps in resolving an ethical dilemma?
- Obtain the relevant facts
- Identify the ethical issues from the facts
- Determine who is affected by the outcomes of the dilemma and how each person or group is affected.
- Identify the alternatives available to the person who must resolve the dilemma
- Identify the likely consequences of each alternative.
- Decide the appropriate action
____________ is the abuse of private and public office for personal gain. It includes acts of bribery, embezzlement, nepotism, kickbacks and state capture.
Corruption
_______________ is the misuse of entrusted power for private gain.
Corruption
What are the seven characteristics of corruption?
- Recipients and payers
- Extortion
- Lubricant of society
- An ethical dilemma
- Poverty alleviation
- Culture
- Kindness among friends
What are some measures that businesses and organizations can adapt to prevent corruption in the workplace?
- Clear business processes
- Policy on gifts and entertainment
- Declaration of conflict of interest
- Convenient corruption reporting system
______________________________ criminalizes active and passive bribery, embezzlement, extortion, abuse of office, and conflict of interest in the public sector.
Anti-Graft and Corrupt Practices Act
Bribery of public officials and trading in influence are also criminalized in the __________________. The Act forbids office-holders from accepting any gifts or material benefits in exchange for any government permit or license.
Anti-Red Tape Act
Under the ____________, gifts are classified as indirect bribery. An exception is made for gifts of insignificant value given as a token of friendship in line with local customs.
Revised Penal Code
________________________ criminalizes money laundering and organized crime.
Anti-Money Laundering Act
___________________________ formulates standards for the personal integrity and accountability of civil servants.
Act Establishing a Code of Conduct and Ethical Standards for Public Officials and Employees
_________________ requires competitive and transparent bidding.
Government Procurement Reform Act
In an effort to curb corruption through legislation, the Philippines has ratified the _________________________.
United Nations Convention against Corruption
________________ is a multi-sectoral campaign that seeks to institutionalize integrity standards among various sectors of society.
Integrity Initiative
_____________________ is a formal expression of the organization’s values and ethics.
Code of conduct
What should a code of conduct do?
- Guide directors and senior executives
- Promote responsibility and accountability
- Ensure compliance with legal and other obligations
Private sector bribery is criminalized under the Revised Penal Code. True or False?
FALSE.
Under the Revised Penal Code, gifts are classified as indirect bribery. However, the Code does not criminalize private sector bribery.
The ___________________________________ is adopted by the Professional Regulation Commission (PRC) and the 42 Professional Regulatory Boards to cover an environment of good governance in which all Filipino professionals shall perform their tasks.
Code of Good Governance for the Profession in the Philippines
If the person who was offered a sexual favor by a person of authority decided to accept the sexual favor, he is complicit and the act. Therefore, it is no longer considered as sexual harassment. True or False?
FALSE.
Sexual harassment is committed when a person with authority over another demands, requests, or otherwise requires a sexual favor from the other REGARDLESS of whether the demand, request, or requirement is accepted.
If there is consent, why is the person in authority offering sexual favors still liable for sexual harassment?
The relationship is inherently unequal and is, therefore, non-consensual.
Examples of direct misrepresentation about the product include the following except
a. False advertising
b. Deceptive packaging
c. Mislabeling
d. Caveat emptor
Caveat emptor
Caveat emptor is a form of indirect misrepresentation. Under this concept, the seller is not obligated to reveal any defect in the product or service he is selling
Examples of indirect misrepresentation about the product include the following except
a. caveat emptor
b. deliberate withholding adverse information
c. business ignorance
d. false advertising
false advertising
False advertising is a form of direct misrepresentation. It involves greatly exaggerating the virtues of a product, tells only half of the truth, or sings praises to non-existent virtues.
______________ is an intentional act involving the use of deception that results in a material misstatement of financial statements.
FRAUD
___________________ is an intentional act involving the use of deception that results in material misstatement of the financial statements.
FRAUD
Two types of misstatements are relevant to auditors’ consideration of fraud:
- Misstatements arising from misappropriation of assets
- Misstatements arising from fraudulent financial reporting
What distinguishes fraud from errors?
The intent to deceive is what distinguishes fraud from errors
___________________________ occurs when a perpetrator steals or misuses an organization’s assets.
ASSET MISAPPROPRIATION
Asset misappropriation commonly occurs when employees:
- Gain access to cash and manipulate accounts to cover up cash thefts
- Manipulate cash disbursements through fake companies
- Steal inventory or other assets and manipulate the financial records to cover up the fraud
The intentional manipulation of reported financial results to misstate the economic condition of the organization is called ________________________.
FRAUDULENT FINANCIAL REPORTING
Three common ways in which fraudulent financial reporting can take place include:
- Manipulation, falsification, or alteration of accounting records or supporting documents
- Misrepresentation or omission of events, transactions, or other significant information
- Intentional misapplication of accounting principles
What are the three elements of the fraud triangle?
- Incentive to commit fraud
- Opportunity to commit and conceal the fraud
- Rationalization
What are some incentives relating to asset misappropriation?
- Personal factors, such as severe financial considerations
- Pressure from family, friends, or the culture to live a more lavish lifestyle than one’s personal earnings allows for
- Addictions to gambling or drugs
What are six incentives for fraudulent financial reporting?
- Management compensation scheme
- Other financial pressures for either improved earnings or an improved balance sheet
- Debt covenants
- Pending retirement or stock option expirations
- Personal wealth tied to either financial results or survival of the company
- Greed
Some of the opportunities to commit fraud that the top management should consider include the following:
- Significant related-party transactions
- A company’s industry position
- Management’s inconsistency
- Simple transactions that are made complex through an unusual recording process
- Complex or difficult to understand transactions
- Ineffective monitoring of management by the board
- Complex or unstable organizational structure
- Weak or nonexistent internal controls
For asset misappropriation, what are some rationalizations that entice individuals to commit fraudulent behavior?
- Fraud is justified to save a family member or a loved one from a financial crisis
- We will lose everything if we don’t take the money
- No help is available from outside
- This is “borrowing”
- Something is owed by the company, because others are treated better
- Simple disregard for the consequences of our actions
For fraudulent financial reporting, what are some rationalizations that entice individuals to commit fraudulent behavior?
- This is a one-time thing
- Everybody cheats on the financial statements a little
- We will be in violation of all our debt covenants unless we find a way to hide our debt
- We need a higher stock price to acquire company XYZ
__________________________ is a deficiency or a combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.
MATERIAL WEAKNESS
______________ refers to choosing accounting methods and making accounting principle changes to produce a specified income level or trend in order to reduce the volatility of income and reporting relatively gradual increases in income.
INCOME SMOOTHING
What are four motivations for earnings management?
- Meet internal targets
- Meet external expectations
- Provide income smoothing
- Provide window dressing for an IPO or a loan
What are the five items listed in the Earnings Management Continuum? This list shows a progressive deterioration of ethics in accounting.
- Savvy transaction timing
- Aggressive Accounting
- Change in methods and estimates with full disclosure
- Deceptive Accounting
- Change in methods or estimates but with little or no disclosure
- Fraudulent Reporting
- Violation of financial reporting and accounting standards
- Fraud
- Fictitious transactions
Is Earnings Management Ethical?
NOT REALLY.
Earnings management can and does occur without any violation of the accounting rules. However, most people believe that deception is unethical, regardless of the economic consequences.
High quality information allows for better decision-making. Therefore, transparency in reporting is essential in order to reduce information risk and lower the cost of capital.
What are the three basic business transaction cycles?
- Sales and Collections Cycle
- Acquisitions and Payments Cycle
- Payroll and Personnel Cycle
What are three methods of misappropriation of asset under the sales and collections cycle?
- Skimming
- Lapping
- Kiting
________________ refers to the act of withholding cash receipts without recording them.
SKIMMING
How is skimming detected?
Unexplained changes in the gross profit percentage or sales volume
This technique is used to conceal the fact that cash has been abstracted. The shortage in one customer’s account is covered with a subsequent payment made by another customer
LAPPING
How is lapping detected?
Routine testing of details of collections, compared with validated bank receipts
_______________ involves counting the cash twice using the float in the banking system (gap between the time the check is deposited or added to the account and the time the check clears or is deducted from the account it was written on)
KITING
How is kiting detected?
Analyzing and verifying cash receipts
What are three frauds in the acquisitions and payments cycle?
- Paying for fictitious purchases
- Receiving kickbacks
- Purchasing goods for personal use
_____________ is a refund payable to the purchasing person on goods or services acquired from the vendor
KICKBACKS
What are some frauds involving payroll?
- Fictitious employees
- Excess Payments to employees
- Failure to record payroll
- Inappropriate assignment of labor costs to inventory
