Quentin Jam is a new accountant assisting in the month-end close of the books for Sheldrake, Ltd. His supervisor told him to accrue a large receivable and said that he would provide the supporting documentation later. Jam made the accrual, and the books were closed. Subsequently, Jam found out that the company would have missed the earnings estimate without the receivable. Jam requested the documentation, but the supervisor could not provide it. Other associates told Jam that this supervisor had directed that undocumented entries be recorded in the books in the past and that the former accountant had left Sheldrake because he was uncomfortable making the entries. Recommend the best course of action for Jam.
Answer (C) is correct. When faced with ethical issues, the accountant should follow the organization’s established policies on the resolution of such conflict. If these policies do not resolve the ethical conflict, (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 level. Since Jam’s supervisor is involved in the conflict, Jam should present the issue to his supervisor’s manager.
Games Unlimited has convened a group of employees to review the company’s code of ethics and propose revisions and improvements. One of the suggested improvements is the development of a whistleblowing framework as recommended by IMA’s Statement on Management Accounting, “Values and Ethics: From Inception to Practice.” This framework will provide all of the following benefits except
Answer (C) is correct. An effective feedback system includes having a confidential framework for employees to report possible violations of the organization’s code of ethics. Whichever approach an organization chooses, the collection, analysis, and summarization of ethics issues can provide insight into the operation of its code of ethics and the degree to which employees are following it. In addition, tracking and monitoring issues raised through a whistleblowing framework creates opportunities to enhance and improve internal controls. However, a whistleblowing framework does not define the organization’s behavioral values.
The management team of GranMark, Inc., attended an ethics training session at the IMA Annual Conference and subsequently made plans to enhance GranMark’s ethics program. The president plans to chair a committee of employees to review the company’s behavioral values, while the CFO intends to review the ethical standards applicable to the Finance Department. The manager of the Human Resources Department will investigate the feasibility of establishing a whistleblowing framework that includes a “hotline” for reporting ethics violations. These activities at GranMark exemplify
Answer (B) is correct. “Tone at the top” plays an important role in determining an organization’s ethical environment. For a code of ethics to be effective, its application must be demonstrated by those in positions of power and leadership. Leaders must be seen living and managing by the code of ethics.
In order for an ethics code to become a reality in practice, every aspect of a company’s activity should be affected by the code. Ethical behaviors should focus not only on clients and customers but also on employees, society at large, shareholders, and suppliers. All activities, from design and development through after-sales support and services, should also be considered when applying a company’s ethical principles. When focusing on society at large, ethical considerations would most likely include
Answer (D) is correct. The ethical considerations of environment, resource usage, outage impact, and waste/disposal focus on social responsibility to benefit the society at large.
Which one of the following ethics-related actions by management is least effective in encouraging acceptance by employees of an organization’s code of ethics?
Answer (A) is correct. This approach does not involve employees at all and projects the image that employees need to be supervised because they are likely to be unethical. This can discourage some employees.
Misappropriation of assets is most often perpetrated by
Answer (A) is correct. Employees who have fiduciary responsibilities for assets are most likely to steal them.
Inappropriate earnings management is typically considered one form of
Answer (B) is correct. Inappropriate earnings management has been defined as the purposeful intercession in the financial reporting process.
When none of the three fraud risk factors are present, an accountant
Answer (C) is correct. Even when no factors are observed, an accountant cannot completely exclude the risk of fraud. Factors may be present but hidden from the accountant.
Management is often able to rationalize the commission of fraud by
Answer (D) is correct. Rationalization is a person’s ability to justify actions as consistent with his or her personal code of ethics. A person may rationalize a fraud by believing that the misdeed is to help the company to prosper or survive. Thus, a person may believe that the ends justify the means.
High risk of employee fraud is most likely when there is pressure, rationalization, and
Answer (A) is correct. Opportunity creates risk of employee fraud.