Exam 2: Cognitive Processes and Ethical Decision Making in Accounting

In stage 3 of Kohlberg's model,ethical reasoning is motivated by:

Assume you were assigned a term paper and decided to surf the web to identify a provider of papers for a fee.You chose what you thought was the best paper available.With respect to Rest's model of morality it can be said that:

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

An example from the book of someone who may have experienced cognitive dissonance is:

Keesha is the CEO of a publicly-owned company.She was informed by the CFO that the company's earnings were down 30 percent from the prior year due to the recession.The company's stock price has declined by 20 percent.The CFO comes up with a scheme to hide debt and inflate revenues by selling underperforming assets to a special purpose entity affiliated with the company.Keesha is concerned about possible effects on the creditors but ultimately she agrees to the accounting.Keesha is reasoning at:

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.Which stage of Kohlberg' Stages of Moral Development is the accounting reasoning?

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

In the Phar-Mor case,Cherelstein's ethical dilemma can best be described as:

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?

Describe the Giving Voice to Values framework.What are the reasons and rationalizations frequently given in financial statement fraud situations?

In Thomas Jones' model of moral intensity it can be said about accounting that:

The results of studies indicate that CPAs reason primarily at:

Wanda is faced with an ethical dilemma.She knows her supervisor,the CFO,wants to accelerate the recoding of revenue to an earlier period to "make the numbers," but Wanda is convinced this would violate GAAP.If Wanda reasons at stage 4 of Kohlberg's model she is most likely to:

What is an important part in making an ethical choice,according to Kidder?

Assume your values conflict with what you are being asked to do.Under the Giving Voice to Values methodology which of the following statements reflects the thought process you might have in developing a game plan to voice your values?

Which of the following is least likely to be a step or checkpoint in ethical decision-making guidelines?

Rest's "Four Component Model of Morality" can best be described as:

How does Kidder's structure for decision-making relate to the Integrated Model presented in the chapter?

When Sally is asked why she should share her toys with her sister,she responds by saying "Because my mom says I have to and if I don't I'll go to time-out." In which stage of moral development is Sally?

Ed Giles and Susan Regas have never been happier than during the past four months since they have been seeing each other.Giles is a 35-year-old CPA and a partner in the medium-sized accounting firm of Saduga & Mihca.Regas is a 25-year-old senior accountant in the same firm.Although it is acceptable for peers to date,the firm does not permit two members of different ranks within the firm to do so.A partner should not date a senior in the firm any more than a senior should date a junior staff accountant.If such dating eventually leads to marriage,then one of the two must resign because of the conflicts of interest.Both Giles and Regas know the firm's policy on dating,and they have tried to be discreet about their relationship because they don't want to raise any suspicions. While most of the staff seem to know about Giles and Regas,it is not common knowledge among the partners that the two of them are dating.Perhaps that is why Regas was assigned to work on the audit of CAA Industries for a second year,even though Giles is the supervising partner on the engagement. As the audit progresses,it becomes clear to the junior staff members that Giles and Regas are spending personal time together during the workday.On one occasion,they were observed leaving for lunch together.Regas did not return to the client's office until three hours later.On another occasion,Regas seemed distracted from her work,and later that day,she received a dozen roses from Giles.A friend of Regas's who knew about the relationship,Ruth Revilo,became concerned when she happened to see the flowers and a card that accompanied them.The card was signed,"Love,Poochie." Regas had once told Revilo that it was the nickname that Regas gave to Giles. Revilo pulls Regas aside at the end of the day and says,"We have to talk." "What is it?" Regas asks. "I know the flowers are from Giles," Revilo says."Are you crazy?" "It's none of your business," Regas responds. Revilo goes on to explain that others on the audit engagement team are aware of the relationship between the two.Revilo cautions Regas about jeopardizing her future with the firm by getting involved in a serious dating relationship with someone of a higher rank.Regas does not respond to this comment. Regas promises to talk to Giles and thanks Revilo for her concern.That same day,Regas telephones Giles and tells him she wants to put aside her personal relationship with him until the CAA audit is complete in two weeks.She suggests that,at the end of the two-week period,they get together and thoroughly examine the possible implications of their continued relationship.Giles reluctantly agrees. However,Giles appears at the CAA audit a few days later.He pulls Regas aside and states,"I do want to put our relationship on hold until after this audit." "We cannot be talking about this now! The audit team or the client could hear." "Then let's have dinner tonight to discuss it.I won't leave until you say yes." "Okay." As Regas is returning to the audit room,Revilo says,"The team is uncomfortable with you and Giles having personal conversations in front of them.You promised this would stop." "I appreciate your concerns again.I am working on it! Please give me some time and space." "You don't have much time.Some of the team are talking of going to HR or the managing partner about the situation." Required: Analyze the case using GVV. •What are the main arguments Revilo (and the audit team) are trying to counter? What the reasons and rationalizations Revilo needs to address? •What is at stake for the key parties? •What levers can Revilo use to influence Regas and Giles? •What is the most powerful and persuasive response to the reasons and rationalizations Revilo needs to address? To whom and when?