INTRODUCTION TO ETHICS

Ethics in Accounting A Decision-Making Approach 1e Gordon Klein (Solutions Manual All Chapters) 1 / 4

Copyright ©2016 John Wiley & Sons, Inc. Klein, Ethics in Accounting, 1/e (For Instructor Use Only) 1-1 Chapter 1

INTRODUCTION TO ETHICS

Exercises

Ethics in Everyday Life

• Rank each of the following ethical issues from 1 to 10. A ranking of 1 means

that your conduct is extremely unethical, and a ranking of 10 means that conduct is extremely ethical.

• When you wake up, you jump in the shower right away, knowing that your

use of the available hot water might prevent your roommate from getting to work on time.

• You arrive at class a bit late because you overslept. When the instructor

stares at you disapprovingly, you mutter that “traffic was horrible,” even though it wasn’t.

• At lunch, you notice a college administrator telling the cashier that she is a

“student” to get a discount on food purchased from the student-run facility.You do not inform the cashier to avoid conflict with the administrator.

• Between classes, you ask your professor for “special tips” on how to do

better on the upcoming midterm, knowing that your course grade is curved relative to the performance of your classmates.

• At your part-time afternoon job, you use a company pen to jot some notes,

and then place the pen in your pocket.

• At your part-time afternoon job, you use the company computer to transact

an online purchase of sunglasses while you were waiting for your boss to return with documents that you need to complete your work assignment.

• On your way home, you stop in a shoe store to figure out which size shoe

fits you best. You thank the salesperson for his help, and then order these shoes online to save money.

• While driving home from the shoe store, you notice that there is a car

accident in the far right lane, so several cars are trying to slide over into your faster-moving lane. You decide to not let any cars merge into your lane.

• After arriving at your apartment, you feel somewhat tired. As a result, you

back out on your friends, claiming that you “have too much homework” to go out that evening, although you had previously agreed. Because your friends lack convenient access to transportation, your change of heart disrupts their plans. 2 / 4

Copyright ©2016 John Wiley & Sons, Inc. Klein, Ethics in Accounting, 1/e (For Instructor Use Only) 1-2

• That evening, you are struggling to understand a difficult concept, so you

call an acquaintance from your accounting class. You know that he will patiently share his time because you can tell that he has a romantic interest in you. You want and need his academic assistance, but you sure hope that he doesn’t ask you out on a date.

• Immediately after your call, you go to an online dating website to post your

photo, which was shot at a wedding three years ago.

• You agree to meet your work supervisor Saturday evening at a club with

live music. You plan to bring your “fake ID” in case you want to order an alcoholic drink.

• You really enjoy that club because the “cover” band plays recent hit songs

and has an awesome lead singer. You are fairly sure that the band plays copyrighted songs without paying a royalty to the song composers, but you don’t care.

• You enjoy this band so much that you recorded a few of its songs with

your cell phone.

• You are disappointed that the college counselor did not answer an email

that you had sent earlier that morning. Before going to bed, you impatiently re-send that email.

SOLUTION for Exercise 1-1: For discussion.

• With regard to each of the events identified in question 1, can you defend the

opposing viewpoint? That is, if you considered one of the behaviors to be highly ethical, can you advocate for the view that the behavior was unethical?Conversely, can you advocate that an act labeled as unethical was ethical?

SOLUTION for Exercise 1-2: For discussion.

The Regulatory Environment

• A licensed CPA in Arkansas does not want to be bound by one of the rules

expressed in the AICPA Code of Professional Conduct. Can she avoid being subject to the policies and rules of this Code?

SOLUTION for Exercise 1-3: Yes and no. Literally, the Code of Conduct only

applies to members of the AICPA. Therefore, from a narrow viewpoint, a CPA can avoid these rules by not joining the AICPA.

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Copyright ©2016 John Wiley & Sons, Inc. Klein, Ethics in Accounting, 1/e (For Instructor Use Only) 1-3 However, most state licensing boards for accountants, as well as most voluntary state societies of CPAs, have adopted rules that are very similar to the AICPA’s rules. Consequently, as a practical matter, CPAs are subject to the rules embodied in the AICPA’s Code of Conduct, even if they do not actually join the AICPA.

• Does the AICPA Code apply to AICPA members who leave a private CPA

firm to begin work in industry?

SOLUTION for Exercise 1-4: Yes. With one narrow exception pertaining to an

accountant’s conflict of interest with an employer, the AICPA Code applies to all members of the AICPA, regardless of whether or not they are in private CPA practice or work in industry.

• Is the AICPA’s Code of Conduct applicable to accountants who are licensed

outside the United States?

SOLUTION for Exercise 1-5: No. However, professional accountants who are

licensed outside the United States often are bound by the IFAC Code, which is very similar to the AICPA Code. Most professional organizations of accountants, including the AICPA, are members of IFAC.

• Do SEC financial reporting rules apply to companies that are not publicly

traded?

SOLUTION for Exercise 1-6: Generally no. The SEC’s reporting rules

principally apply only to publicly-traded corporations, with a few limited exceptions.

• “If accountants meticulously follow generally accepted accounting principles

and generally accepted auditing standards, their souls will always ascend to the heavens.” Do you agree that following GAAP and GAAS is always the correct moral choice?

SOLUTION for Exercise 1-7: For discussion.

• Most ethics codes require accountants to act in “the public interest.” Assume

that a large, publicly traded automobile manufacturer prepares financial statements that require restatement due to a material error made by the company’s accounting staff. What subcategories of “the public,” such as investors, were owed a duty of care by the company’s accounting staff?

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