CHAPTER 2 - Technology, Ethics, and Sustainability

Digital contracts and technology that records transactions are of great relevance to the modern-day accountant.

Statement (1): Self-verifying smart contracts invoke the automatic execution of defined rules to securely hold and transfer legal title to an asset and how to account for it.

Statement (2): Distributed ledger technology and triple entry bookkeeping allow every accounting transaction recorded by an entity to be posted to a public ledger.

Identify whether each statement is accurate.

Both statements are accurate

A system that allows people who do not know each other to trust a shared record of events is an example of which type of technology?

A Distributed ledger

B Fintech

C Internet of things

D Cognitive

A Distributed ledger

Distributed ledger technology and advanced accounting systems may have impacts on the work of the auditor.

Statement (1): The rate of technological change, such as with distributed ledger technology, is so fast that auditing regulations relating to the audit of transactions are now irrelevant.

Statement (2): The use of advanced accounting software reduces the need for auditors to audit transactions and verify the ownership of assets.

Identify which statements are accurate

Statement 1 is inaccurate and Statement 2 is accurate.

Software and other modern technologies used by businesses that provide automated and improved financial services is referred to as what?

A Cognitive technologies

B Internet of things

C Crypto currencies

D Fintech

D Fintech

A retail company has developed a sophisticated analytics system to predict what products will become more and more popular. The system involves a computer model that learns from the data, identifying new relationships between different variables used in making predictions, so that the predictions are becoming more and more accurate.

What type of technology is the company using?

A Machine learning

B Robotic process automation

C An expert system

D Blockchain

A Machine learning

A warehouse company is training a self-driving cargo vehicle to navigate a storage depot. The vehicle receives a reward signal when it reaches the target destination and a penalty for crossing lines that define the path the vehicle is permitted to drive on. Over time, the self-driving vehicle learns the best routes through trial and error.

This scenario is an example of which type of machine learning?

A Unsupervised learning

B Supervised learning

C Reinforcement learning

D Semi-supervised learning

C Reinforcement learning

• where an agent learns to make decisions by interacting with its environment and receiving feedback.

Cloud Computing

the provision of some part of a computer system through the use if the internet, including applications delivered through a web browser.

Cloud Accounting

Replaces on-premise accounting packages (e.g. Xero)

Internet of Things

refers to the connection of computing devices to the internet e.g. gas and electricity meters.

An accounting firm has implemented software that automatically extracts data from digital invoices, matches them with purchase orders, and updates the accounting system. This software also facilitates account reconciliation.

Which type of technology is being used?

A Generative AI

B Computer vision

C Predictive analytics

D Robotic Process Automation (RPA)

D Robotic Process Automation (RPA)

Robotic Process Automation (RPA)

this is where software bots are programmed to perform routine tasks such as processing invoices and updating records, which are traditionally manual and time consuming

Which of the following statements is correct?

A Objectivity means being straightforward in all professional relationships.

B Valuing inventory so as to maximise a period's profit is ethical.

C ICAEW's ethical guidance applies to members working in practice only.

D The principle of professional behaviour means complying with relevant laws and regulations.

D The principle of professional behaviour means complying with relevant laws and regulations.

Which two of the following statements are correct?

A Sustainability focuses primarily on issues that affect financial value.

B Dependencies refers to consideration of how ESG issues affect a business.

C The impacts aspect of sustainability is an ‘outward-in’ approach.

D According to the SDG wedding cake, a healthy environment underpins a healthy society and a healthy economy.

B Dependencies refers to consideration of how ESG issues affect a business.

D According to the SDG wedding cake, a healthy environment underpins a healthy society and a healthy economy.

What is the name of the process by which we achieve sustainability?

A Governance

B Corporate responsibility

C Sustainable development

D ESG

C Sustainable development

Which two of the following statements are correct?

A The impacts aspect of sustainability is an ‘inward-out’ approach.

B Corporate responsibility refers to the way organisations are directed and controlled by officers.

C According to the SDG wedding cake, a healthy economy underpins a healthy society and a healthy environment.

D Double materiality involves consideration of how a business impacts and is impacted by sustainability issues.

A The impacts aspect of sustainability is an ‘inward-out’ approach.

D Double materiality involves consideration of how a business impacts and is impacted by sustainability issues.

A schools inspector sits in on classes and makes an assessment of the teacher. The teacher is given a grade from 1 to 5 where 5 is excellent and 1 is inadequate. Without realising that she is doing this, the inspector tends to give more generous grades to teachers of maths and science, and lower grades to teachers of arts and humanities. Before becoming an inspector, she was a science teacher.

What type of bias is the inspector introducing into her rankings?

A Survivorship bias

B Cognitive bias

C Observer bias

D Self-selection bias

C Observer bias

T/F: Survivorship bias and self-selection bias relate to how items are selected for a sample, rather than how data is interpreted

True

An external auditor is auditing the accuracy of purchase invoices in the accounting system of a client.

The auditor has formulated a hypothesis that errors occur in 2% of invoices. A sample of 30 invoices was taken, and errors occurred in 3% of these. This was not considered to be significantly different from the hypothesis, and the auditor concluded that errors occur in 2% of invoices.

Subsequently, the internal auditors checked all of the invoices entered into the system for the previous year and identified an error rate of 4%.

What type of error did the external auditor make in concluding that the error rate was 2%?

A A type I error

B A type II error

C Omitted variable bias

D Selection bias

B A type II error

• when the hypothesis is accepted when it is wrong

Which of the following could introduce bias in a business's variance results?

A A fair transfer pricing system

B Monitoring variances with historic variances

C Short-term bonus schemes

D A focus on realistic budgets

C Short-term bonus schemes

Albus, a cost accountant, is preparing a financial report and notices that a supplier rebate has been classified as revenue rather than a cost reduction. This misclassification inflates reported sales figures but does not impact net profit. When he raises the issue, his manager dismisses his concerns, saying,

‘It does not change the bottom line and makes the business look stronger.’

Which of the following is the correct response based on ICAEW’s ethical principles?

A Accept the classification since it does not affect net profit and therefore does not mislead users of the financial statements

B Raise concerns internally and, if unresolved, consider consulting governance bodies or seeking legal advice

C Adjust future classifications but leave the current one unchanged to avoid unnecessary conflict with management

D Accept the classification but document the concerns privately in case they are questioned in the future

B Raise concerns internally and, if unresolved, consider consulting governance bodies or seeking legal advice

James, an auditor, is reviewing the financial records of a company where his close friend is the CEO. Instead of conducting an impartial audit, James overlooks several discrepancies to protect his friend's reputation.

James has failed to demonstrate which of the ICAEW ethical principles?

A Professional behaviour

B Integrity

C Objectivity

D Professional competence and due care

C Objectivity

David, a sales manager, promises a client that his company can deliver a product by a certain date, even though he knows it's impossible. He hopes to secure the sale and deal with the consequences later.

Chun, a project manager, discovers a significant error in a project report just before a critical meeting. Instead of addressing the mistake and informing her team, she decides to present the report as is, hoping no one will notice.

Bao, an accountant, is aware of some discrepancies in the financial statements of his company. Instead of reporting these issues to his superiors, he chooses to ignore them to avoid potential conflict and extra work.

Clara, an HR manager, mentions to a friend who works at a different company, that a colleague is being considered for promotion.

Who has failed to demonstrate the ICAEW ethical principle of confidentiality?

Clara

The marketing team wants to highlight only the positive financial data to attract investors, potentially misleading stakeholders.

A Objectivity

B Professional behaviour

C Integrity

C Integrity

The HR department notices that the data on employee performance reviews is biased, favouring certain groups.

D Objectivity

E Professional behaviour

F Integrity

D Objectivity

The legal team knows but does not mention the fact that some data collection practices may not comply with new privacy regulations.

G Objectivity

H Professional behaviour

I Integrity

H Professional behaviour

Diff Ltd has produced an operating statement showing last month's variances, using its new software.

Some of the figures had to be manually entered as the system isn't fully integrated. All of the variances are favourable. Industry standards have been added to the operating statement, taken from the internet.

Which of the following is/are cause for professional scepticism?

(1) The fact that all of the variances are favourable.

(2) The source and validity of the industry standards.

(3) The data used to create the operating statement.

All three statements

The sales revenue for a garden furniture business correlates negatively to the level of rainfall. The business is therefore very interested in rainfall levels. The following graph has been drawn:

Which of the following statements are true?

(1) Mid-July to August was much wetter than an average month.

(2) Sales will be lower than average mid-July to August.

(3) Rainfall on 1st June was average for the time of year.

3 only

Hollivy Ltd introduced a store loyalty card and analysed all sales data after a year. It noticed that the loyalty card holders spent, on average, five times more per week than non-loyalty card holders. It concluded that the loyalty card scheme was a success and budgeted to spend 25% more next year on persuading customers to sign up for a loyalty card.

Which of the following areas would not require more thought and professional scepticism?

A The data set

B The conclusion

C The data analysis

D The additional budget spend

A The data set

Sparrk Ltd uses artificial intelligence (AI) to help prepare sales budgets for its divisions in regions across the country.

Which two of the following can help reduce data bias in the AI system?

A Using training data from all areas of the country.

B Monitoring performance of the system against real data.

C Including all data outliers in the model.

D Using a single member of staff to create the AI rules for consistency.

A Using training data from all areas of the country.

B Monitoring performance of the system against real data.

Monkie Ltd compared its advertising spend with its sales volumes for last year. It incorrectly concluded that sales volumes are down because the advertising campaign was poor and sacked the marketing director. It failed to account for the new competitor on the market that has lower sales prices and higher-quality similar products.

Which two types of bias could explain this?

A Self-selection

B Confirmation

C Survivorship

D Omitted variable

B Confirmation

D Omitted variable

Which of the following statements is true?

A Omitted variable bias occurs when people ignore data that disagrees with their beliefs.

B Survivorship bias occurs when the people are influenced by the way data is presented.

C Graphs can be manipulated to introduce bias.

D Results produced using artificial intelligence are free from bias.

C Graphs can be manipulated to introduce bias.

Confirmation Bias

occurs when people ignore data that disagrees with their beliefs.

Cognitive Bias

occurs when the people are influenced by the way data is presented.

Ashbyrn Ltd is analysing customer services in all divisions. For the last six months, it has asked all of its customers to rate the service anonymously using a scoring system of 1 to 3, with 3 being happy, 2 being neither happy nor unhappy and 1 being unhappy. The data collected was presented using a table:

Ashbyrn Ltd concluded that Division C was providing the best customer service.

Which of the following statements is/are true?

(1) The way the data was collected has introduced bias.

(2) The data was presented in a way to mislead.

(3) The conclusion reached is flawed.

3 only.

A manager read on the internet that sales of its product are expected to increase by 40% next year. They then read a different article that said that sales of its product are expected to increase by 25% next year, and another that suggested 22%. They decided to budget for an increase in 40%. A year later it was confirmed that sales had increased by 22%.

What type of bias affected the manager's decision making?

A Survivorship

B Anchoring

C Self-selection

D Omitted variable

B Anchoring

Sprowt Ltd has produced the following chart showing sales for the last quarter by division:

Which of the following statements is/are true?

(1) Division 2's sales are twice as much as Division 3's for the quarter.

(2) There is insignificant difference between the sales for each division.

(3) Division 1's sales are five times as much as Division 3's for the quarter.

(2) There is insignificant difference between the sales for each division.

Which two of the following represent environmental and/or social issues for a manufacturer of fashion clothing items?

A The materials used in manufacture

B The price charged in different markets

C The risk a competitor product will provide superior performance

D The packaging used

A The materials used in manufacture

D The packaging used

The following statements have been made about the relevance of climate change to organisations.

(1) Climate change leads to extreme weather conditions, such as floods and droughts, and these can damage businesses assets and threaten the safety of its employees.

(2) Laws and regulations that aim to limit climate change can cause additional costs to organisations.

(3) Organisations that emit large quantities of greenhouse gasses, and therefore contribute to climate change, are increasingly suffering from reputational damage.

All statements are correct

The following are potential aims for sustainability:

(1) End poverty

(2) Fight inequality

(3) Stop climate change

Which of the aims above are overall aims of the UN Global Goals for Sustainable Development?

All three are overall aims

Two fundamental aspects of ESG are impacts and dependencies.

Which of the following is an example of an impact?

A Water usage

B Climatic conditions

C Resource availability

D Worker health

A Water usage

Which of the following is a primary benefit of using data visualisation in business decision-making?

A It allows for the storage of large amounts of data in a compact format.

B It enables quick identification of patterns, trends and outliers in data.

C It ensures the accuracy and precision of data collection.

D It eliminates the need for data cleaning and preprocessing.

B It enables quick identification of patterns, trends and outliers in data.