Accounting Ethics

Multiple Choice

The main principle of GAAP is

• competitiveness.

• consistency.

• unbiased.

• ethics

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Key Terms

▪ integrity
▪ objectivity
▪ independence
▪ competence
▪ confidentiality

Ethics in the
Accounting Profession

SECTION 29.2

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Glencoe Accounting Unit 6 Chapter 29 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Key Principles
Accountants should follow certain principles including:

▪ integrity
▪ objectivity
▪ independence
▪ competence
▪ confidentiality

Ethics in the
Accounting Profession

SECTION 29.2

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Glencoe Accounting Unit 6 Chapter 29 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Integrity
Integrity requires that accountants choose what is right
and just over what is wrong. To operate with integrity, an
accountant should ask these questions:

▪ Is this what a person of integrity would do?
▪ Have I made the right decision?
▪ Have I maintained the spirit of ethical conduct?

Ethics in the
Accounting Profession

SECTION 29.2

Multiple Choice

Which of the following shows integrity?

Sally accidentally dropped her math binder.

• You look at it and walk away.

• You pick it up and give it to Sally.

• You step on it and keep on walking.

• You ignore the math binder on the floor.

Multiple Choice

Integrity is when you do the right thing when no one is watching.

• True

• False

Multiple Choice

Which of the following is NOT an example of integrity?

• Keeping promises.

• Going back to a store and paying for something you forgot to pay for.

• Giving back a bracelet someone dropped.

• Gossiping

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Glencoe Accounting Unit 6 Chapter 29 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Objectivity
Objectivity requires accountants to be impartial, honest,
and free of conflicts of interest. They should not be
influenced by personal interests or relationships with
others.

Ethics in the
Accounting Profession

SECTION 29.2

Multiple Choice

The manager of the business wrote on a piece of paper that utility expenses incurred by the business were paid the amount of P2,222. The bookkeeper asked for the invoice evidencing the payment before recording it in journal.

• Objectivity

• Materiality

• Money Measurement

• Going Concern

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Glencoe Accounting Unit 6 Chapter 29 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Independence
Accountants who audit public companies must maintain
independence; the CPA should not have a financial
interest in the company.

Ethics in the
Accounting Profession

SECTION 29.2

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Glencoe Accounting Unit 6 Chapter 29 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Competence
Competence refers to knowledge, skills, and
experience needed to complete a task. Accountants
must complete only those services that they are
competent to provide.

Ethics in the
Accounting Profession

SECTION 29.2

Multiple Choice

The researcher should be fully equipped with research skills when conducting the study.

• competence

• confidentiality

• legality

• openness

Open Ended

Read the following scenario. Identify and discuss behaviors that you believe might violate the key principles of conduct for accountants.

In your new position as an accounting manager with Triple B Markets, you supervise three staff

accountants: Jennifer, Marcus, and Ing. You become aware of the following situations:

• Jennifer, a new employee, has never worked as an accountant but scored high marks in her college

math classes.

• Marcus often records payments of utilities as assets instead of expenses because he wants to show a higher net income for the business.

• You overheard Ing talking with a friend on the phone about the payroll details of the company.

Open Ended

What qualities are involved with the principle of objectivity?

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Glencoe Accounting Unit 6 Chapter 29 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Confidentiality
Accountants who work with information in the course of
work must maintain confidentiality. This information
should not be used for personal gain.

Ethics in the
Accounting Profession

SECTION 29.2

Multiple Choice

what happened in the ENRON scandal

• the company cooked the books sand pulled of shady accounting tricks

• the company donated its funds with its custumers

• lost of income to the shareholders

Multiple Select

how did ENRON trick people to invest in their stocks

• used mark to market accounting( recognizing profit that is not profit)

• they put their liabilities in other side companies

• auditors were bribed

• all of the above

Multiple Choice

what rules are made after the incident

• All auditors have been fired to prevent future scandals

• auditors have stricter rules and CEO and CFO have to certified statements to prevent backing out

• All energy companies have put to shutdown for inspection if other energy companies are included

Multiple Choice

When employees were being told to buy shares, the officers of Enron were ______________________.

• retiring

• selling their stock

• making hundrends of milions

• all the above

Accounting Fraud at the Turn of

the Millennium

▪ Enron

❑ Meltdown in mid-October 2001

❑ Employees lost over a billion dollars’ worth of stock

❑ Stockholders lost billions of dollars as stock price fell

from $60 per share to below $1

❑ Debt holders about to lose more than $3.9 billion

▪ WorldCom

❑ Started in 2002—topped Enron’s bankruptcy

❑ Failure by management and senior accounting staff

and its internal control system

▪ Failed checks and balances by gatekeepers

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Explanation Slide...

The Sarbanes-Oxley Act (2002) is a legislative response to corporate accounting scandals, such as Enron and WorldCom. It was enacted to improve corporate governance, enhance financial transparency, and restore investor confidence. The act introduced various reforms, including stricter financial reporting requirements, increased penalties for fraudulent activities, and enhanced internal controls. While it does address penalties and internal controls, its primary purpose is to address corporate accounting scandals.

Multiple Choice

What is the Sarbanes-Oxley Act (2002)?

• A legislative response to corporate accounting scandals

• A collection of tools and penalties to punish offenders

• A report on the effectiveness of internal controls

• A requirement for CEOs to sign corporate tax returns

Explanation Slide...

The Sarbanes-Oxley Act (2002) is a legislative response to corporate accounting scandals, such as Enron and WorldCom. It was enacted to improve corporate governance, enhance financial transparency, and restore investor confidence. The act introduced various reforms, including stricter financial reporting requirements, increased penalties for fraudulent activities, and enhanced internal controls. While it does address penalties and internal controls, its primary purpose is to address corporate accounting scandals.

Multiple Choice

What was Enron's primary business?

• Real estate development

• Retail operations

• Telecommunications

• Energy trading

Multiple Choice

What was the main cause of Enron's collapse?

• Unrealistic market expectations

• Special purpose vehicles

• Inaccurate financial reporting

• Poor corporate governance

Top 20 Methods of Fictitious

Financial Reporting

Continued…

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Top 20 Methods of Fictitious

Financial Reporting

Continued…

Copyright © 2015 Pearson Education, Inc.

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Top 20 Methods of Fictitious

Financial Reporting

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Learning Objectives

1. Identify the elements of fraud
2. Recognize the pervasiveness of accounting

fraud

3. Identify the major financial gatekeepers in

corporate governance

4. Explain the main elements of Sarbanes-Oxley

reform

5. Explain the main elements of Dodd-Frank

reform

6. Identify the top 20 methods used to manipulate

financial statements

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