Accounting Information Systems (AIS) – End of Chapter Activities –
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 “ethics.” 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:
Utilitarianism Acceptable outcomes are Fails to consider damage / harm
clear and easy to that might result from pursuing
understand. this philosophy.
Rights & duties Respects and considers the Decision makers may disagree on
impact decisions will have the fundamental rights & duties of
on individuals. individuals.
Justice Focuses on outcomes and Someone must decide what is just
results of decisions. / right.
Virtues Sets a high standard for Difficult to live up to this
behavior. philosophy in the face of
e. Explain the basic facts of fraud schemes associated with Ponzi, Adelphia and
Ponzi 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 Ponzi schemes can also be described as ―pyramid‖
schemes, but that not all pyramid schemes are Ponzi schemes.
In Adelphia Cable, the Rigas family used their personal positions and
organizational power to misuse corporate assets. They also engaged in
―shady‖ accounting practices to bolster their firm’s performance in
Enron was the largest bankruptcy in US history at the time of its
declaration. Company officers, such as Lay and Skilling, 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. In a manner specified by your instructor, respond to the questions for this
chapter’s opening vignette.
Under what circumstances, if any, is it ethical for a company to
use aggressive accounting policies? Students 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.
What should Jim, Fred and the CFO do in this case? Fred should do
nothing; accounting is outside his area of expertise. Jim should raise his
concerns with the CFO—privately 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 (Stocks, K.D. and S. Albrecht. ―Ethical Dilemmas‖ in The Internal
Auditor. June 1993, pp. 24 – 25)
a. Upon graduating from Ethics University five years ago, you accepted a job with
Peat & Price CPAs. After three years with that firm, you joined MiniCare Health
Company as an audit senior and are now an audit manager with that company. Not
long after being promoted to audit manager, you noticed that the executives of the
company were doing things that you didn't think were appropriate. The company
over billed Medicare on several occasions, and several members of senior
management were abusing their positions by taking company perks that were against
the company's code of conduct. You have talked to your superior, the financial vice
president. He has, in essence, told you to mind your own business. He told you that
auditors are to report on controls and assist management, not question it. You are
currently making $100,000 a year, far more than you could earn in another company
at this stage in your career. 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. 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
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 &
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 AICPA / IMA ethics advisor.
8 The appropriate decision is to investigate and
b. You are an auditor for International Pharmaceutical Company (IPC), a company
that has invested over $200 million in developing a new drug. For tax purposes, the
related research and development expenses were written off as deductible expenses
on IPC's U.S. corporate tax returns. When the drug was patented, your company set
up a Puerto Rican subsidiary to manufacture the drug. The company then transferred
the patent to the subsidiary and arranged to purchase the drug from the subsidiary at
a high price. IPC justified the transfer price as reasonable because of the high value
of the patent, 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. government. You know that
tax rates are considerably less in Puerto Rico than in the U.S. Is the company
violating any elements of the AICPA Code of Professional Conduct? If so, which?
Use the Langenderfer and Rockness eight-step framework to decide how you would
respond to this situation. I’m not confident the company is violating the AICPA
Code of Professional Conduct in this case. Puerto Rico is a US territory, and
taxpayers have a responsibility to minimize (legally) the amount of taxes paid to the
government. Since 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.
Please match each item on the left with the most appropriate item on the right.
11. Multiple choice questions