Accounting Ethics Exam 1

Define "ethics" and "ethical norms"

Ethics guide us in identifying right from wrong, good from bad, and just from unjust

-Decisions you make "in the dark" when no one is watching

- Norms evolve over time

AICPA

rules apply to all CPAs

IFAC

for accountant practicing or issuing FS options for users outside the US

US Treasury/IRS

(Tax Preparers)

SEC

financial reporting by publicly traded companies

PCAOB

auditors

Common Ethical Rationalizations

•Everyone does it

•The other guy's worse

•If it's not illegal, it can't be wrong

•No harm, no foul

•They made me do it

Normative Ethics vs. Behavioral Ethics

Normative Ethics: how people should behave "act normal"

•Behavioral Ethics: how people in fact behave

Identify differences between legal behavior and ethical behavior

ethical- how people should behave. Coercive. "knowing the difference between what you have a right to do and what is right to do.

legal- laws represent how citizens must, at a minimum, behave. Prescriptive

Ethical Absolutism vs. Ethical Relativism

Absolutism- ethical rules are universal and immutable (unchanging over time or unable to be changed.) Examples include human rights and fundamental freedoms - equality, freedom of expression

Relativism- rules of morality evolve over time and may vary form cultures, religions, and political structures. Examples: issues of gay rights, gender equality, freedom of contract, charging interest

AICPA Code of Conduct

1.Responsibilities - exercise sensitive professional and moral judgement in all their activities

2.Public interest - serve the public interest and demonstrate commitment to professionalism

3.Integrity- members should perform all professional responsibilities with the highest sense of integrity

4.Objectivity & Independence- free of conflicts of interest, independent in appearance and in fact

5.Due care - best of a members ability

6.Scope and nature of services - determine the scope and nature of the services provided

RIP SOD

Know the differences between Principles and Rules

Principles: aspirational and not legally binding

Rules: enforceable applications of the principles

Kolhberg's 6 Stages of Moral Development

What is the first level and what are the stages within it?

Pre conventional

Stage 1: young children, act obediently solely out of fear of punishments or disapproval

Stage 2: begin to notice that punishment varies accordingly to the severity of a person's Misconduct. Children may choose to do rewards because they know they will be rewarded later.

Kolhberg's 6 Stages of Moral Development

What it level two and what are the stages within it?

Focus on Group Expectations

Stage 3: decisions based on based on expectations in their imitate social sphere (family and Friends) example: drunk driving would embarrass your parents

Stage 4: society as a whole, laws are important expressions of societal values

Kolhberg's 6 Stages of Moral Development

What is level 3 and what are the stages within it?

post conventional

Stage 5: question the social values underlying certain laws and believe in pursuing needed Changes through a democratic process

Stage 6: behave on their own moral reasoning about abstract concepts such as justice and w/o

Regard to the law

Heinz dilemma

heinz dilemma- drug that will save his wife's life but does not have enough money. Should he steal it to save her life?

Gilligan

(Men and women react differently in moral development)

Morality requires:

Person's actions be rational

Motivated by Purpose/Intent

Carried out with autonomous free will

who are the 4 key constituent groups?

Client Organizations, Accounting Firm (Employer), Accounting Profession, General Public

Rest's Model of Ethical Decision Making

1.Moral Sensitivity- view actions from different perspectives and openly discuss issues

2.Moral Judgements- decide whether the conduct was right or wrong

3.Moral Intent- formulate actions

4.Moral Character- implement intended actions

SJIC

CARE

Consider all the facts

Assess the available alternative courses of action

Review the ethical issues

Evaluate the consequences of each alternative course of action

Kahneman's two distinct modes of decision making

(1 is automatic 2 is analytical)

Utilitarianism

greatest good for the greatest amount of people

act utilitarian

asses the various "actions" that can be taken

rule utilitarian

follows the rules because the rules are in place for a reason

what do critics if utilitarianism believe?

It is difficult to gage utility

Only focuses on the ends and not the means

What is the bystander effect? Examples?

individuals are less likely to offer help to a victim when other people are present. example train hitting man in the subway station

Deontology

people innately OWE certain duties to each other and should conform to this mandate

categorical imperatives

obligations that we must abide by at all time, irrespective of the surrounding circumstances

Universality Principle

certain duties and corresponding rights apply globally to all people in all situations

1.The duty to not physically harm others

2.The duty to respect others privacy

3.The duty to respect others right of Free association

4.The duty to honor others property rights and agreements

5.The duty to treat equals equally with justice for all

6.The duty to tell the truth

Reversibility principle

golden rule- treat others as you would like them to treat you, mentally reverse your role