Exam 2: Cognitive Processes and Ethical Decision Making in Accounting

Which of the following statements best describes System 2 thinking?

Daniel Kahneman's System 1 thinking is described by all of the following except for:

In stage 1 of Kohlberg's model, ethical reasoning is motivated by:

Which of the following characteristics is NOT part of the behavioral approach, Giving Voice to Values?

Steve is in charge of accounting for the purchase of equipment at Cal Works, Inc. The company has a policy that all expenditures greater than $1,000 (1% of total expenditures) have to be capitalized; less than $1,000 expensed. Steve is under pressure to report high earnings. He takes one $600 and $900 expenditure, adds them together, and records a capital expenditure for $1,500. Which of the following reasons and rationalizations might Steve use for his action:

The cognitive development approach refers to:

Kohlberg's model can best be described as:

Individuals who reason at stage 6 incorporate ethical reasoning based on:

As a professional working for a large electronics firm, Stan found himself riding a roller coaster of concern about lay-offs. Every few years, top management slashed jobs as work slacked off - only to hire again when things were looking up. So when Stan and his team members noticed that the executives were again meeting behind closed doors, they suspected the worst. Stan's boss revealed to Stan that Stan's team member Jim was slated to lose his job. However, it was made plain that Stan was to keep that information confidential. Not long after that conversation, Jim approached Stan and asked whether he could confirm the rumor that he would be laid off. Stan has decided to tell Jim but first wants to convince management of the rightness of his action. What might he say to who and why? What are the reasons and rationalizations he may have to counter in making his argument?

Taken from Case 1-9 Cleveland Custom Cabinets. Cleveland Custom Cabinets is a specialty cabinet manufacturer for high-end homes in the Cleveland Heights and Shaker Heights areas. The company manufactures cabinets built to the specifications of homeowners and employs 125 custom cabinetmakers and installers. There are 30 administrative and sales staff members working for the company. James Leroy owns Cleveland Custom Cabinets. His accounting manager is Marcus Sims, who reports to the director of finance, Alison Mayhew. Sims manages 15 accountants. The staff is responsible for keeping track of manufacturing costs by job and preparing internal and external financial reports. The internal reports are used by management for decision making. The external reports are used to support bank loan applications. On April 10, 2016, Leroy came into Sims's office to pick up the quarterly report. He looked at it aghast. Leroy had planned to take the statements to the bank the next day and meet with the vice president to discuss a $1 million working capital loan. He knew the bank would be reluctant to grant the loan based on a net income of $90,000 on revenue of $6,400,000. Without the money, Cleveland could have problems financing everyday operations. Leroy called Mayhew to come to Sims's office. Leroy then asked for an explanation of how net income could have gone from 14.2 percent of sales for the year ended December 31, 2015, to 1.4 percent for March 31, 2016. Sims pointed out that the estimated overhead cost had doubled for 2016 compared to the actual cost for 2015. He explained to Leroy that rent had doubled and the cost of utilities skyrocketed. In addition, the custom-making machinery was wearing out more rapidly, so the company's repair and maintenance costs also doubled from 2015. Leroy wouldn't accept Sims's explanation. Instead, he told Sims that the quarterly income had to be at least the same percentage of sales as at December 31, 2015. Mayhew agreed with Leroy and said there had to be a mistake and it would be corrected. Sims looked confused and reminded Leroy and Mayhew that the external auditors would wrap up their audit on April 30. Leroy told Sims not to worry about the auditors. He would take care of them. Furthermore, "as the sole owner of the company, there is no reason not to 'tweak' the numbers on a one-time basis. I own the board of directors, so no worries there." He went on to say, "Do it this one time and I won't ask you to do it again." He then reminded Sims of his obligation to remain loyal to the company and its interests. Sims started to soften and asked Leroy just how he expected the tweaking to happen. Leroy flinched, held up his hands, and said, "I'll leave the creative accounting to you and Mayhew." Required: Analyze the case using GVV. What are the main arguments Sims is trying to counter? What are the reasons and rationalizations Sims needs to address? What is at stake for the key parties? What levers can Sims can use to influence Leroy and Mayhew? What is the most powerful and persuasive response to the reasons and rationalizations Sims needs to address? To whom and when?

Cynthia Cooper's actions in the WorldCom case can be best characterized as demonstrating:

Thomas Jones's research looked at the characteristics of a moral issue to develop the moral intensity model. The model includes six dimensions. Which of the following are NOT included in those dimensions?

Role expectation or approval from others is a motive for doing right in which stage of Kohlberg's moral reasoning?

Yvonne is preparing a tax return for Jack. Jack wants to claim his nephew as a dependent even though he does not meet the criteria. Jack says if Yvonne does not list his nephew as a dependent, he will fire her and find a new tax accountant. Yvonne refuses because it is illegal to claim a dependent that does not meet the qualifications. Based on Yvonne's decision, she is likely reasoning at which stage of Kohlberg's moral development model?

In Thorne's model of ethical decision making, the instrumental virtues relate to:

The ethical conflict Alex is facing in the FDA Liability Concerns can be best characterized as:

Which of the following was not one of the recommendations that Uber implemented after charges of sexual harassment were made:

Gabby has just left a meeting with the partner in charge of an audit engagement and was told to ignore the typical year-end accrual entries because earnings are below financial analysts' earnings expectations. Gabby knows this is wrong and wants to act on her values but she does not want to lose her job. What is the best thing for Gabby to do in this situation if she chooses to voice her values?

Taken from Case 1-7 Eating Time. Kevin Lowe is depressed. He has been with the CPA firm Stooges LLP for only three months. Yet the partners in charge of the firm-Bo Chambers and his brother, Moe-have asked for a "sit-down." Here's how it goes: "Kevin, we asked to see you because your time reports indicate that it takes you 50 percent longer to complete audit work than your predecessor," Moe said. "Well, I am new and still learning on the job," replied Lowe. "That's true," Bo responded, "but you have to appreciate that we have fixed budgets for these audits. Every hour over the budgeted time costs us money. While we can handle it in the short run, we will have to bill the clients whose audit you work on a larger fee in the future. We don't want to lose clients as a result." "Are you asking me to cut down on the work I do?" Lowe asked. "We would never compromise the quality of our audit work," Moe said. "We're trying to figure out why it takes you so much longer than other staff members." At this point, Lowe started to perspire. He wiped his forehead, took a glass of water, and asked, "Would it be better if I took some of the work home at night and on weekends, completed it, but didn't charge the firm or the client for my time?" Bo and Moe were surprised by Kevin's openness. On one hand, they valued that trait in their employees. On the other hand, they couldn't answer with a yes. Moe looked at Bo, and then turned to Kevin and said, "It's up to you to decide how to increase your productivity on audits. As you know, this is an important element of performance evaluation." Kevin cringed. Was the handwriting on the wall in terms of his future with the firm? "I understand what you're saying," Kevin said. "I will do better in the future-I promise." "Good," responded Bo and Moe. "Let's meet 30 days from now and we'll discuss your progress on the matters we've discussed today and your future with the firm." In an effort to deal with the problem, Kevin contacts Joyce, a friend and fellow employee, and asks if she has faced similar problems. Joyce answers "yes" and goes on to explain she handles it by "ghost-ticking." Kevin asks her to explain. "Ghost-ticking is when we document audit procedures that have not been completed." Kevin, dumbfounded, wonders, what kind of a firm am I working for? After much consideration Kevin asks for a meeting with Bo and Moe within week. Kevin does not want to take work home and off the clock. He wants the meeting to convince Bo and Moe that having auditors work off the clock and at home is not in the best interest of the firm and its mission to do independent audits with integrity, objectivity, and due professional care. Required: Analyze the case using GVV. What are the main arguments Kevin is trying to counter? What are the reasons and rationalizations Kevin needs to address? What is at stake for the key parties? What levers can Kevin can use to influence Bo and Moe? What is the most powerful and persuasive response to the reasons and rationalizations Kevin needs to address? To whom and when?

A client asks his accountant to ignore a mistake which overstated the accounts receivable account. The accountant decides that the accounts receivable account has to be corrected to state the correct amount based on the current accounting rules. Which stage of Kohlberg' Stages of Moral Development is the accounting reasoning?