Ethical Obligations and Decision-Making in Accounting: Text and Cases

626 Pages·2013·13.685 MB·English

by  Steven Mintz, Roselyn Morris

Course Ethical Obligations and Decision-Making in
Accounting Texts and Cases 3e (PDF)
American Public University Systems
www.apus.edu
http://create.mheducation.com
Copyright 2014by McGraw-Hill Education. All rights
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This McGraw-Hill Create text may include materials submitted to
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The instructor is solely responsible for the editorial content of such
materials. Instructors retain copyright of these additional materials.
ISBN-10: 1 3 0 8 0 2 3 5 3 7 ISBN-13: 9781308023533
Contents
i. Case Descriptions 2
1. Preface 15
2. Ethical Reasoning: Implications for Accounting 19
3. Cognitive Processes and Ethical Decision Making in Accounting 72
4. Creating an Ethical Organization Environment and Effective Corporate Governance Systems 109
5. AICPA Code of Professional Conduct 193
6. Fraud in Financial Statements and Auditor Responsibilities 264
7. Legal, Regulatory, and Professional Obligations of Auditors 353
8. Earnings Management and the Quality of Financial Reporting 428
9. International Financial Reporting: Ethics and Corporate Governance Considerations 493
M a j o r C a s e s 5 6 1
10. Introduction 562
11. Adelphia Communications Corporation 563
12. Royal Ahold N.V. (Ahold) 571
13. MicroStrategy, Inc. 576
14. Cendant Corporation 581
15. Navistar International 587
16. Waste Management 594
A. Name Index 601
B. Subject Index 605
iii
Credits
i. Case Descriptions: Chapter from Ethical Obligations and Decision Making in Accounting: Text and Cases,
Third Edition by Mintz, Morris, 2014 2
1. Preface: Chapter from Ethical Obligations and Decision Making in Accounting: Text and Cases, Third Edition
by Mintz, Morris, 2014 15
2. Ethical Reasoning: Implications for Accounting: Chapter 1 from Ethical Obligations and Decision Making in
Accounting: Text and Cases, Third Edition by Mintz, Morris, 2014 19
3. Cognitive Processes and Ethical Decision Making in Accounting: Chapter 2 from Ethical Obligations and
Decision Making in Accounting: Text and Cases, Third Edition by Mintz, Morris, 2014 72
4. Creating an Ethical Organization Environment and Effective Corporate Governance Systems: Chapter 3
from Ethical Obligations and Decision Making in Accounting: Text and Cases, Third Edition by Mintz, Morris,
2014 109
5. AICPA Code of Professional Conduct: Chapter 4 from Ethical Obligations and Decision Making in
Accounting: Text and Cases, Third Edition by Mintz, Morris, 2014 193
6. Fraud in Financial Statements and Auditor Responsibilities: Chapter 5 from Ethical Obligations and Decision
Making in Accounting: Text and Cases, Third Edition by Mintz, Morris, 2014 264
7. Legal, Regulatory, and Professional Obligations of Auditors: Chapter 6 from Ethical Obligations and
Decision Making in Accounting: Text and Cases, Third Edition by Mintz, Morris, 2014 353
8. Earnings Management and the Quality of Financial Reporting: Chapter 7 from Ethical Obligations and
Decision Making in Accounting: Text and Cases, Third Edition by Mintz, Morris, 2014 428
9. International Financial Reporting: Ethics and Corporate Governance Considerations: Chapter 8 from Ethical
Obligations and Decision Making in Accounting: Text and Cases, Third Edition by Mintz, Morris, 2014 493
M a j o r C a s e s 5 6 1
10. Introduction: Chapter from Ethical Obligations and Decision Making in Accounting: Text and Cases, Third
Edition by Mintz, Morris, 2014 562
11. Adelphia Communications Corporation: Chapter 1 from Ethical Obligations and Decision Making in
Accounting: Text and Cases, Third Edition by Mintz, Morris, 2014 563
12. Royal Ahold N.V. (Ahold): Chapter 2 from Ethical Obligations and Decision Making in Accounting: Text
and Cases, Third Edition by Mintz, Morris, 2014 571
13. MicroStrategy, Inc.: Chapter 3 from Ethical Obligations and Decision Making in Accounting: Text and
Cases, Third Edition by Mintz, Morris, 2014 576
14. Cendant Corporation: Chapter 4 from Ethical Obligations and Decision Making in Accounting: Text and
Cases, Third Edition by Mintz, Morris, 2014 581
15. Navistar International: Chapter 5 from Ethical Obligations and Decision Making in Accounting: Text and
Cases, Third Edition by Mintz, Morris, 2014 587
16. Waste Management: Chapter 6 from Ethical Obligations and Decision Making in Accounting: Text and
Cases, Third Edition by Mintz, Morris, 2014 594
iv
A. Name Index: Chapter from Ethical Obligations and Decision Making in Accounting: Text and Cases, Third
Edition by Mintz, Morris, 2014 601
B. Subject Index: Chapter from Ethical Obligations and Decision Making in Accounting: Text and Cases, Third
Edition by Mintz, Morris, 2014 605
v

2 Ethical Obligations and Decision-Making in Accounting Texts and Cases 3e (PDF)
Case Descriptions
Case # Case Name/Description
1-1 Harvard Cheating Scandal
Student cheating at Harvard raises questions about responsibilities of instructors and student
personal responsibilities
1-2 Giles and Regas
Dating relationship between employees of a CPA firm jeopardizes completion of the audit.
1-3 NYC Subway Death: Bystander Effect or Moral Blindness
Real-life situation where onlookers did nothing while a man was pushed to his death off a
subway platform.
1-4 Lone Star School District
Failure to produce documents to support travel expenditures raises questions about the
justifiability of reimbursement claims.
1-5 Reneging on a Promise
Ethical dilemma of a student who receives an offer of employment from a firm that he wants to
work for, but only after accepting an offer from another firm.
1-6 Capitalization versus Expensing
Ethical obligations of a controller when pressured by the CFO to capitalize costs that should be
expensed.
1-7 Eating Time
Ethical considerations of a new auditor who is asked to cut down on the amount of time that he
takes to complete audit work.
1-8 A Faulty Budget
Ethical and professional responsibilities of an accountant after discovering an error in his sales
budget.
1-9 Cleveland Custom Cabinets
Ethical and professional responsibilities of an accountant who is asked to “tweak” overhead to
improve reported earnings.
1-10 Telecommunications, Inc.
Concerns about the ethics of engineers who accept free travel and lodging from a foreign entity
after establishing the criteria for a contract awarded to that entity.
Case # Case Name/Description
2-1 WorldCom
Persistence of internal auditor, Cynthia Cooper, to correct accounting fraud and implications
for Betty Vinson, a midlevel accountant, who went along with the fraud
2-2 Better Boston Beans
Conflict between wanting to do the right thing and a confidentiality obligation to a coworker.
2-3 The Tax Return
Tax accountant’s ethical dilemma when asked by her supervisor to ignore reportable lottery winnings.
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Ethical Obligations and Decision Making in Accounting: Text and Cases, Third Edition 3
Case Descriptions xi
2-4 Shifty Industries
Depreciation calculations and cash outflow considerations in a tax engagement.
2-5 Blues Brothers
Identifying enablers and disablers of ethical action and ways to convince others of one’s point
of view.
2-6 Supreme Designs, Inc.
Ethical dilemma of an accountant who uncovers questionable payments to his supervisor.
2-7 Milton Manufacturing Company
Dilemma for top management on how best to deal with a plant manager who violated company
policy but at the same time saved it $1.5 million.
2-8 Juggyfroot
Pressure imposed by a CEO on external accountants to change financial statement
classification of investments in securities to report a market gain in earnings.
2-9 Phar-Mor
SEC investigation of Phar-Mor for overstating inventory and misuse of corporate funds by
the COO.
2-10 Gateway Hospital
Behavioral ethics considerations in developing a position on unsubstantiated expense
reimbursement claims.
Case # Case Name/Description
3-1 The Parable of the Sadhu
Classic Harvard case about ethical dissonance and the disconnect between individual and
group ethics.
3-2 Amgen Whistleblowing Case
Whistleblower’s termination after raising issues about the company’s underreporting of
complaints and problems with pharmaceutical drugs.
3-3 United Thermostatic Controls
Acceptability of accelerating the recording of revenue to meet financial analysts’ earnings
estimates and increase bonus payments.
3-4 Hewlett-Packard
Use of false and fraudulent means to obtain confidential information from members of the
board of directors.
3-5 IRS Whistleblower and Informing on Tax Cheats
Ethics of gathering sensitive information about wrongdoing to qualify for whistleblower
payouts.
3-6 Bennie and the Jets
Ethical and professional obligations in reporting accounting wrongdoing to higher-ups in the
organization.
3-7 Exxon-XTO Merger
Alleged breach of fiduciary duties of the board of directors of XTO Energy that arose from
ExxonMobil’s takeover of XTO.
3-8 Disclosure of Steve Jobs’s Health as Apple CEO: A Public or Private Matter?
Shareholder rights to receive negative information about the health of its CEO.
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4 Ethical Obligations and Decision-Making in Accounting Texts and Cases 3e (PDF)
xii Case Descriptions
3-9 Bhopal, India: A Tragedy of Massive Proportions
Evaluation of the decision-making process before, during, and after the leak of a toxic chemical
that killed or injured thousands.
3-10 Accountability of Ex-HP CEO in Conflict of Interest Charges
Sexual harassment charges stemming from conflict of interest between CEO/board chair and
outside contractor.
Case # Case Name/Description
4-1 America Online (AOL)
Internet-based company’s improper capitalization of advertising costs and the use of
“round-trip” transactions to inflate revenue and earnings.
4-2 Beauda Medical Center
Confidentiality obligation of an auditor to a client after discovering a defect in a product that
may be purchased by a second client.
4-3 Family Games, Inc.
Ethical dilemma for a controller being asked to backdate a revenue transaction to increase
performance bonuses in order to cover the CEO’s personal losses.
4-4 First Community Church
Misappropriation of church funds and subsequent cover-up by a member of the board of trustees.
4-5 Lee & Han, LLC
Alteration of work papers and ethical obligations of auditors.
4-6 Gee Wiz
Ethics of working for employer’s customer on the side and evaluating the customer’s receivable
account.
4-7 Family Outreach
Questions about validity of expense accounts and ethical obligations of the state auditor.
4-8 HealthSouth Corporation
Manipulation of contractual allowances to overstate net revenues, and auditors’ inability to
gather the evidence needed to stop the fraud.
4-9 Healthcare Fraud and Accountants’ Ethical Obligations
Stakeholder considerations and ethical obligations upon discovering Medicare fraud.
4-10 Independence Violations at PwC
Investigation of PwC independence procedures after self-regulatory peer review fails to identify
violations.
Case # Case Name/Description
5-1 Computer Associates
Audit committee’s role in identifying premature revenue recognized on software contracts.
5-2 ZZZZ Best
Fraudster Barry Minkow uses fictitious revenue transactions from nonexistent business to
falsify financial statements.
5-3 Imperial Valley Thrift & Loan
Role of professional skepticism in evaluating audit evidence on collectability of loans and going
concern assessment.
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