Ethical Obligations and Decision-Making in Accounting: Text and Cases 4th Edition Solution Manual

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Ethical Obligations and Decision Making in Accounting, 4/e1Chapter 1Discussion QuestionsSuggested Discussion and Solutions1.A common ethical dilemma used to distinguish between philosophical reasoningmethods is the following. Imagine that you are standing on a footbridge spanningsome trolley tracks. You seethat a runaway trolley is threatening to kill five people.Standing next to you, in between the oncoming trolley and the five people, is arailway worker wearing a large backpack. You quickly realize that the only way tosave the people is to push the man off the bridge and onto the tracks below. Theman will die, but the bulk of his body and the pack will stop the trolley fromreaching the others. (You quickly understand that you can’t jump yourself becauseyou aren’t large enough to stop the trolley, and there’s no time to put on the man’sbackpack.) Legal concerns aside, would it be ethical for you to save the five peopleby pushing this stranger to his death? Use the deontological and teleologicalmethods to reason out what you would do and why.Is it Ethical to Save FivePeople at the Expense of One?Lessons from the TalmudThe Trolley Problem is a thought experiment in ethics, first introduced by Philippa Footin 1967. Others have also extensively analyzed the problem including Judith JarvisThomason, Peter Unger, and Frances Kamm as recently as 1996. The authors used theseproblems in ethics class to challenge students’ moral intuition.The choice is between saving five lives at the cost of taking one life. Before we get to the“answers,” wewant to explain how one researcher is using MRI technology to map brainresponse while analyzing the dilemma. Joshua Greene at Harvard University was moreconcerned to understand why we have the intuitions, so he used functional MagneticResonance Imaging, or fMRI, to examine what happens in people’s brains when theymake these moral judgments.Greene found that people asked to make a moral judgment about “personal” violations,like pushing the stranger off the footbridge, showed increased activity in areas of thebrain associated with the emotions. This was not the case with people asked to makejudgments about relatively “impersonal” violations like throwing a switch. Moreover, theminority of subjects who did consider that it would be right to push the stranger off thefootbridge took longer to reach this judgment than those who said that doingso would bewrong. Interestingresults to say the least.Many do not believe it to be ethical to intentionally end someone else's life whether it isto save others or not. Most do not believe it is a moral responsibility to sacrifice one lifein order that others may go on. If you push someone in the way to save others, you may

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Ethical Obligations and Decision Making in Accounting, 4/e2as well say you killed a man. How could you forgive yourself? The man has a family andpeople who love him, so how could you explain your actions to his family?We have no right to sacrifice the life of one person to save others. There is a saying fromthe Talmud, an authoritative record of rabbinic discussions on Jewish law, Jewish ethics,customs, legends andstories: “Whoever destroys a soul, it is considered as if hedestroyed an entire world. And whoever saves a life, it is considered as if he saved anentire world.”We have no right to decide who lives and who dies. Yes, if we can save one personwithout harming others we have a moral obligation to do so. However, to save one lifewhile sacrificing others is an arbitrary act in many ways. What if the one sacrificed is ahumanitarian, well-respected and well-known person who works tirelessly for the poorand others who can’t help themselves? What if those saved are criminals who committedmurder and escaped from prison. You see the dilemma? Who are we to judge who is agood person, and be saved, and who is a bad person? We should focus on leading the bestpossible life we can; to serve others whether through medicine, the clergy, the law, ateacher, nurse, or first-responder.Utilitarianism might be used to rationalize saving the life of five people by sacrificingone person’s life. We could say that more people benefit than are harmed by taking thataction. This is consistent with act utilitarianism. On the other hand, a rule utilitarianismapproach would posit that certain rules should never be violated in the name ofmaximizing net benefits. One rule is that it is wrong to take a life of another. Thus, ruleutilitarianism is a modifying force on the literal application of act utilitarianism.2.Another ethical dilemma deals with a runaway trolley heading for five railwayworkers who will be killed if it proceeds on its present course. The only way to savethese people is to hit a switch that will turn the trolley onto a side track, where it willrun over and kill one worker instead of five. Ignoring legal concerns, would it beethically acceptable for you to turn the trolley by hitting the switch in order to savefive people at the expense of one person? Use the deontological and teleologicalmethods to reason out what you would do and why.Again, like above in number 1 you should not intentionally take a life, but if yourintentions were to savefour people at the sacrifice of one life,andifyou were unaware ofthe damage it would do to the sole man, then you acted out of goodwill and that is moreadmirable.We can envision a cost-benefit analysis of the ethical dilemma that supportssaving four lives at the expense of a fifth person. On the other hand, all of those peoplehave a right to live and no one has the right to decide who lives and who dies.3.The following two statements about virtue were made by notedphilosophers/writers:1.MacIntyre, in his account of Aristotelian virtue, states that integrity is theone trait of character that encompasses all the others. How does integrityrelate to, as MacIntrye said, “the wholeness of a human life”?

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Ethical Obligations and Decision Making in Accounting, 4/e3Integers are whole numbers. This is the base word for integrity. Things withintegrity are the same all the way through, or whole throughout.Thus, integrityequates with the consistency of one's actions. We must be consistently ethical tobecome anethical person.If we can assume that everyone knows good treatmentof their own interests and everyone knows good choices for their own short run,integrity might mean applying those same best choices to situations which affectothers or affect the long run of all concerned.A person of integrity acts with courage, sincerity, and honesty. Integrityencompasses all the other traits or values of character because it also impliesaction. Integrity requires a person to be honest, but to also act on that honesty.Integrity requires that a person have courage but also to act on that courage.Integrity requires that people not only have principles and values, they also haveto stand by those principles and values and not bow to pressure thereby foregoingthose principles.Students often think that integrity is synonymous to honesty. Many dictionarieseven state that honesty is the synonym for integrity and vice versus. Yet, justbecause a thief is being honest in one circumstance does not mean that he hasintegrity.A thief may admit to stealing only after being caught. We might say it isan honest act but it lacks integrity because the thief failed to consider theconsequences of his actions on those he stole from or their rights not to be robbed.Moreover, the thief failed to admit the mistake after being caught; promise not todo it again; and then act consistently with the integrity standard thereafter.A wayto consider integrity is how consistently honest a person is, not just whether thatperson was honest in one circumstance.2.David Starr Jordan (1851–1931), an educator and writer, said, “Wisdom isknowing what to do next; virtue is doing it.” Explain the meaning of thisphrase as you see it.This quote addresses the fact that it is not enough to know what is right or wrong;one must also act on that knowledge. Knowledge without action would be hollow.The well-known authorMaya Angelou (1928-2014)has said that “Courage isthe most important of all the virtues, because without courage you can't practiceany other virtue consistently. You can practice any virtue erratically, but nothingconsistently without courage.”Ethical dilemmas are situations where deciding what is best requires weighingethical arguments between alternatives. Deciding what the best thing to do isalmost always easier than actually doing it. Josephson Institute refers to moraltemptations as a choice which is clear but still unattractive. The ratio of moraltemptation to ethical dilemma might be four to one. Even those of us with theworst eating and exercise habits seem to know a lot about healthy alternatives.However, making yourself eat vegetables when you are hungry for chocolate isdifficult and making yourself consistently prefer vegetables to cheeseburgers

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Ethical Obligations and Decision Making in Accounting, 4/e4might require something beyond our abilities. Wisdom is mostly knowledge butvirtue is mostly desire, and habit.4.1.Do you think it is the same to act in your own self-interest as it is to act in aselfish way? Why or why not?Acting selfishly and inyour own self-interest are notthe same thing. Normally,acting selfishly is only being concerned with self, not others,and being very shortsighted; it is being concerned with immediate gratification of some sort. Acting inone’s best interest may also mean acting in the best interest of all involved. Forinstance, I can turn up the television loud while I study because that is what I like,who cares if it is bothering my roommate or anyone else.Or, I have the televisionat a moderate volume so as not to disturb my roommate or anyone else.Or, Icould use earphones so my roommate is not disturbed at all.I do this in hopes thatI am not disturbed by loud volumes at 3 am while I’m trying to sleep and myroommate is coming in from a job. In the former case I am acting selfishly and inthe other I am acting in my self-interest while considering others.In short, actingin my self-interest may be to act selfishly but only after I have considered how myactions affect others and weigh it in my decision.2.Do you think “enlightened self-interest” is a contradiction in terms, or is it avalid basis for all actions? Evaluate whether our laissez-faire, free-marketeconomic system does (or should) operate under this philosophy.“Enlightened self-interest” may seem like a contradiction in terms. Nevertheless,an individual has to be “enlightened” to consider the long term effects of a choiceupon self, others, and the whole of humanity. For example, an individual maywant the road near his house to be free of litter out of self-interest (resale value,dislike of clutter and untidiness, etc.), but can extend that desire to wanting all theroads of a neighborhood or city to be free of litter for the good of the community.In fact, long term self-interest requires that an individual consider others, since anindividual does not live in a vacuum without interaction with others.A personwho uses enlightened self-interest as a basis for ethical actions hopes others willconsider her interests when making a decision that affects that person.A totallyselfish person will probably face negative consequences from others.The doctrine of laissez-faire,afree market system is based upon the belief thateconomies should not be encumbered by regulation; an economy works best withenlightened self-interest, competition, and the laws of supply and demand. AdamSmith used the term “invisible hand” to describe how enlightened self-interest,competition, and supply and demand worked toself-regulatemarkets withoutneedinggovernment intrusion.The 2007-2008financial crisis has raised questionsas to whether the invisible hand works. There were many cases duringthe crisiswhere enlightened self-interest gave way to greed and egoism. Such cases haveraised cries for new/stricter regulations of the free markets. Although competition

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Ethical Obligations and Decision Making in Accounting, 4/e5and, sometimes, supply and demand can be regulated, can self-interest, egoism orgreed really be regulated? If those could be regulated, then regulations alonecould create and protect a moral economy.5.In this chapter, we have discussed the Joe Paterno matter at Penn State. Anothersituation where a respected individual’s reputation was tarnished by personaldecisions is the resignation of David Petraeus, former U.S. military general andhead of the Central Intelligence Agency (CIA). On November 9, 2012, Petraeusresigned from the CIA after it was announced he had an extramarital affair with abiographer, Paula Broadwell, who wrote a glowing book about his life. Petraeusacknowledged that he exercised poor judgment by engaging in the affair. WhenFederal Bureau of Investigation (FBI) agents investigated the matter because ofconcerns there may have been security leaks, they discovered a substantial numberof classified documents on her computer. Broadwell told investigators that sheended up with the secret military documents after taking them from a governmentbuilding. No security leaks had been found. In accepting Petraeus’s resignation,President Obama praised Petraeus’s leadership during the Iraq and Afghanistanwars and said: “By any measure, through his lifetime of service, David Petraeus hasmade our country safer and stronger.” Should our evaluation of Petraeus’s lifetimeof hard work and Petraeus’s success in his career be tainted by one act havingnothing to do with job performance?Although at first glance adultery hadnothing to do with Petraeus’ job, an officer in themilitary is subject to the Uniform Code of Military Justice (UCMJ). Under article 133 anofficer can be court-martialed for conduct unbecoming to an officer and a gentleman.Article 134-2identifiesadultery as an act unbecoming to an officer and a gentleman. Thetiming of the affair between Broadwell and Petraeus is not known, but many have opinedthat had the affair been during his time as general he would have been subject to court-martial and possibly dishonorably discharged from the Army.Conductunbecoming to an officer and a gentleman is premised upon the fact that leaderscannot be seen as willing to violate their own rules, principles and those of theorganizations they represent.Under the Six Pillars of Character, Petraeus violated the pillar of trustworthiness. Leaderscannot enforce rules that they violate, and they cannot maintain trust by showing thatthey are willing—as in adultery—to betray others to whom they have promised fidelity.And when a leader breaks the rules of his own organization, the message sent throughoutthe organization is that breaking rules is really OK. Lying is fine. Integrity doesn’tmatter. Once that cultural norm is inflicted on an organization by its leader, theorganization itself will become dysfunctional, untrustworthy and corrupt. A leader mustbe trusted to mean what he says, and to act according to the stated rules of theorganization he leads.A similar situation is the Lance Armstrong affair where he repeatedly lied about not usingperformance enhancing drugs. His good reputation was tarnished by this act and a

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Ethical Obligations and Decision Making in Accounting, 4/e6lifetimeof being a role model and doing good works through his Live Strongorganization went down the tubes. The Joe Paterno situation is another such case.Remind students that it takes a long time to build a reputation for trust but not very longto lose it.Update:In April2015,former CIA director and retired general David Petraeus pleadedguilty to a misdemeanor charge of handing over classified information to his mistress andbiographer, Paula Broadwell. He was sentenced to twoyears’ probationand a $100,000fine.Petraeus had passed on several 5-by-8 inch black notebooks containing classifiedinformation to Broadwell.Despite his conviction, the former general remains a trustedadviser to the White House on its strategy in Iraq.Studentsmightenjoydiscussingthe similarities between Petraeus and Hillary Clinton inthe use of her personal email server for state department business. There is concernabouttheproper classificationof material sent, both at the time of sendingitand in hind sight.When personal servers are used, the determination of classification can, after the fact,render top secret information more vulnerable to outside influences and cause more harmthan if the security systems protecting the state department computer systems were atplay.Do the policies and criteria for handling of classified materials need to be changedin the current environment of communications devices?6.One explanation about rights is that “there is a difference between what we have theright to do and what is the right thing todo.” Explain what you think is meant bythis statement. Do you believe that if someone is rude to you, you have a right to berude right back?Having a right to do something allows one to be concerned with one’s self interest only(egoism). Doing the right thing often requires one to consider others besidesand beforeone’s self (at a minimum enlightened egoism, but also utilitarianism, deontology, justice,and virtues).An example is shouting there is a fire in a crowded movie theater. We havethe right to do so but it is not the right thing to do.Rudeness begets more rudeness and eventually breaks down civility. People start to betaken for granted and not treated as individuals who should be respected absent somereason not to do so. Students sometimes treat instructors rudely by continuing to talk afterthe instructor attempts to begin her lecture. Ask students how they would feel if you, asthe instructor, engage in a conversation with a student in class while observing a finaloral presentation of another student. Would it disrupt the flow of what that student wantsto say? Will he lose his train of thought?7.Steroid use in baseball is an important societal issue. Many members of society areconcerned that their young sons and daughters may be negatively influenced bywhat apparently has been done at the major league level to gain an advantage andthe possibility of severe health problems for young children from continued use ofthe body mass enhancer now and in the future. Mark McGwire, who broke RogerMaris’s 60-home-run record, initially denied using steroids. He has never come close

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Ethical Obligations and Decision Making in Accounting, 4/e7to the 75 percent positive vote to be in the Hall of Fame. Unfortunately forMcGwire, his approval rating has been declining each year since he received 23.7percent of the vote in 2010 and only 10 percent of the sportscasters voted in 2015 toelect him into the Hall. Some believe that Barry Bonds and Roger Clemens, whowere the best at what they did, should be listed in the record books with an asteriskafter their names and an explanation that their records were established at a timewhen baseball productivity might have been positively affected by the use ofsteroids. Some even believe they should be denied entrance to the baseball Hall ofFame altogether. The results for Bonds (36.8 percent) and Clemens (37.5 percent) intheir third year of eligibility (2015) were not close to meeting the 75 percentrequirement, and that led some to question whether these superstars would ever bevoted into the Hall. Evaluate whether Bonds and Clemens should be elected to theHall of Fame from a situational ethics point of view.Using steroids is cheating. What theories would support cheating? Virtue ethicsemphasizes that doing the right thing shouldbecome a habit. Deontology wouldemphasize the duty of doing the right thing. Fairness would emphasize equals competingagainst oneanotheron a level playing field. When athletes competeagainst one other,each one should have the same advantages and disadvantages. Another concern withsteroids is safety. If competition is pressuring some individuals to do dangerous things,agreeing about whateveryonewill not do protects all from that pressure.Steroids might increase speed and strength if well administered and athletes could make acase that if every baseball player had access to them competition would be equalized;similar to giving every one access to good shoes or the weight room. There are twodangerous issues to consider. A steroid-using batter facing an equally enhanced pitchermight seem fair, and steroid-using Yankees against steroid-using Red Sox might seemfair, but faster pitching hit by stronger hitters might create a danger to spectators andplayers.Underneath an almost cult like reverence for athletes is the celebration of sporting,unearned luck of birth talent, healthy respect for the virtues of diligence, courage,dedication, discipline, and sometimes teamwork. Baseball is different from some othersports in that until very recently, it looked like a sport anyone could play. Baseball lookslike a fair game in that short guys, fat guys, skinny guys, and athletic looking guysallgotto play.In ordinary life,we are not all born with talent and not all born with inheritedresources but we all can be diligent, brave, honest, and fair.Students may argue that cheating has become part of our culture so why should sports beany different. They may arguethis pointusing ethical relativism. A useful response isthat if everyone were allowed to use steroids, where would it stop? What about 'corkedbats.' What about 'juiced up' baseball balls to allow for more home runs? What aboutpitchers throwing 'spit balls'? All of these things have happened over time and steroid useis just the choice method of cheating in today's sports society, or so the student argumentmay go. The problem is ethical relativism allows each person to decide for herself what isright or wrong, a clear violation of the universality perspective in Rights Theory.

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Ethical Obligations and Decision Making in Accounting, 4/e8It is worth mentioning that the players elected to the Hall of Fame in 2015 all had twicethe approval rate as Bonds and Clemens as follows: Randy Johnson (97.3%); PedroMartinez (91.1%); John Smoltz (82.9%); and Craig Biggio (82.7%).8.Your best friend is from another country. One day after a particularly stimulatinglecture on the meaning of ethics by your instructor, you and your friend disagreeabout whether culture plays a role in ethical behavior. You state that good ethics aregood ethics, and it doesn’t matter where you live and work. Your friend tells youthat in her country it is common to pay bribes to gain favor with important people.Comment on both positions from a relativistic ethics point of view. What do youbelieve and why?The basic moral principles of respect, fairness and kindness are timeless and worldwide;although different circumstances can affect how they are implemented. There have to becertain ways of treating people that almost always hurt and are almost always wrong; youmight mention a few obvious ones, like robbery, rape, and murder. Likewise,there arecultural practices of great importance without moral significance. An example is whichside of the road you drive on. Left and right sides might be morally equal, but onceeveryone promises to drive on the left side, the wrong side becomes promise-breakingand deadly. Playing “football” in any country besides the United States implies a promisenot to use one’s hands, and doing so would be considered cheating. Touching the ball andthereby breaking the rules might ruin the game, but is not often a life and death betrayal.In many countries, restaurant staffs are not tipped, in other countries, nearly everyone tipsthe same percent and in some places how much you tipis influenced byhow well you aretreated. A lot, but not all of cultural morality differences are unwritten rules andexpectations that seem fair if applied to and by everyone. Arbitrary choices becomemoral obligations when other peoples’ well-being depends on keeping promises to followthose choices. Some cultural differences in morality have to do with beliefs more thandifferences in ethical reasoning. In some places, people are accorded better treatmentaccording to their sex, age, race, wealth, or status. This mixes personal traits which areearned with traits that unearned or due to birth. If you believe wealth and power areearned, then their privileges seem fair, but if you believe children do not choose or earntheir parents, then those very same privileges are unfair and discriminatory.Hofstede's cultural variables might be discussedhere. In countries with a low score onIndividualism, it might be argued that cheating is ethical because it brings benefits to theentire societyor work group. This is the argument sometimes used in some countrieswhere software piracy is tolerated and even encouraged.Paying bribes is a way of conducting business in some countries. In others it isconsidered unethical. In the U.S., small amounts of bribes that are made to induce aperson to do what they should be doing anyway by virtue of their position is known as afacilitating (“grease” payment) and legal. On the other hand, bribing someone to dosomething they are under no obligation to do is wrong and unethical. It does not meanone country is good while the other is bad. The key question is should a U.S. company dobusiness in a country with a culture where grease payments are a way of life and bribery

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Ethical Obligations and Decision Making in Accounting, 4/e9is tolerated. Is it the old adage that “When in Rome, do as the Romans do?” Or, shouldU.S. companies apply an American ethical perspective to doing business in othercountries with differing cultures?9.Hofstede’s Cultural Dimensions inExhibit 1.2indicate that China has a score ofonly 20 in Individualism, while the U.S. score is 91. How might the differences inscores manifest itself when the public interest is threatened by harmful actionstaken by a member of management who has direct control over an employee’sstanding within the organization? Should cultural considerations in this instanceinfluence ethical behavior?Individualism (IDV) focuses on the degree that the society reinforces individual orcollective achievement and interpersonal relationships. In individualist societies (highIDV), people are supposed to look after themselves and theirdirect family, while incollectivist societies (low IDV), people belong to “in-groups” that take care of them inexchange for loyalty. Imagine, for example, you are the manager of workers fromdifferent cultures and cheating/unethical behavior occurs in the workplace. A workgroupwith collectivist values such as China (low IDV) might be more prone to covering up thebehavior of one member of the group, whereas in the United States (high IDV), there is agreater likelihood of an individual blowing the whistle.Culture of upbringing and family background affect an individual’s value system. It is upto the individual to act upon those values. As discussed in the answer to question 3, anindividual needs integrity, courage, wisdom and virtue to act upon one’s convictions andvalues.10.1.What is the relationship between the ethical obligation of honesty and truthtelling?Ask Students to differentiate between telling a lie and breaking a promise. Listsome lies no one believes and therefore are not very harmful and list some liesthat people might believe and thus could be hurt by believing them. List somepromises no one believes and some people might believe and could count on, totheir detriment.Have we sometimes “promised” to tell the truth and other times “almost warned”people that we weren't going to tell the truth? Telling the truth reveals our respectfor the other person’s decision making ability when he is provided the truth. Welie to people we think would misuse the truth in unfair or dangerous ways.Keeping the truth secret or deceiving people is only effective when those peoplebelieve we are providing them with the truth. Lies only work if we lieinfrequently enough, to be believed andrelied on when we do lie.There are liesof commission (lying intentionally) and lies of omission (lying by not telling thewhole truth; the omitted information might influence decision-making). Inaccounting, a lie of commission might be lying aboutthe financial position of a

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Ethical Obligations and Decision Making in Accounting, 4/e10company by inflating revenues, assets, or capitalizing expenses; all of which arefraud. Alie of omission might be not fully disclosing information required byGAAP.Here, it is also unethical because the public has a right to know about allinformation that might influence their decision-making.Honesty is about keeping promises to tell the truth. Accepting our promise to tellthe truth puts someone ina relationshipof trustwith us. In the terms of RobertFulghumin All I Really Need to Know, I Learned in Kindergarten, a promise islike riding the teeter-totter: Believing promises puts you at risk of a hard fall, butbreaking promises leaves you alone and unable to play.2.Is it ever proper to not tell someone something that he or she has anexpectation of knowing? If so, describe under what circumstances this mightbe the case. How does this square with rights theory?First, ask students if there is a difference between theexpectationsof knowingversus theright to knowing. For example,as college students their parents mayhave an expectation of knowing their grades; however, unless the students aredependentsof theirparents, the parentsdo not have a right to know the students’grades.The conflict of not telling someone something that he may have a right to know isachoice between two rights. This situation may cause a person to tell a lie. Forexample, assume John works in payroll for PQR Inc. PQR has announced that itwill be laying off 100 people from its workforce. Due to the need to prepare allthe separation paperwork and final payroll for the employees being laid off, Johnknows who the 100 employees are. He has sworn to keep the list secret untilmanagement has told each of the employees. One of his co-workers is on the list.This co-worker comes to John and asks if she is on the list. She is a single motherand wants to start looking for another job if she needs to do so. How does Johnchoose between his co-worker and the requirements of his job?If John decides that his co-worker has the right to know the pending lay-off, hemay be using the virtue of caring or empathy to justify his action. He will havechosen loyalty to his co-worker over loyalty to his employer. However, sinceconfidentiality and trustworthiness are important principles for accountants,choosing loyalty to his co-worker over his employer could limit his career. Also,using rights theory,why does the co-worker have a right to know the impendinglay-off result but not the other 99 employees? What if another employee has evenmore compelling concerns that John is unaware of?This is a good question todiscuss justice. Equals should be treated equally and unequals, unequally. Doeshis co-worker have a higher claim (i.e., right) to know the truth than otherworkers? If John tells his co-worker becauseof her personal situation, should hemake an effort to find out about that of other workers? What about a worker witha sick child or parent and lotsof bills to pay? Where do we draw the line?

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Ethical Obligations and Decision Making in Accounting, 4/e1111.Is there a difference between cheating on a math test, lying about your age topurchase a cheaper ticket at a movie theater, and using someoneelse’s ID to get adrink at a bar?All are examples of lying and affect one’s character through honesty and integrity. Manywill use many rationalizations to justify the lying.Some may try to split hairs betweenwhat is wrong and what is more wrong–an ethical relativistic approach that should notbe used. Just imagine a business that decides one improper financial reporting act is notas bad as another, so the former is allowed.Virtue ethics would want doing the right thing to become a habit. Deontology wouldemphasize the duty of doing the right thing and telling the truth, not just when it isconvenient or does not intervene with personal desires of making a better grade withoutstudying, paying more for a movie ticket or a minor obtaining an alcoholic beverage.Ethical behavior requires consistency of action and not a relativistic or situationalperspective.12.Do you think it is ethical for an employer to use social media information as a factorwhen considering whether to hire an employee? What about monitoring socialnetworking activities of employees while on the job? Be sure to use ethical reasoningin answering these questions.Social media is one of the most popular forms of communication, particularly withMillennials.Anyone can connect with anyone else, or find information about others thatmay not otherwise be available. Thus, it should not be surprising if firms use social mediato researchpotential job candidates. Firms may argue that social media is a publicplatform, unless the candidate makes it otherwise, and that it’s their own choice to sharethe content that is available to anyone who searches for it.CareerBuilder found in a 2014 survey that 43% of hiring managers who researchcandidates said they had found information on social media that causedthe firm not tohire the candidate. What qualifies as a valid reasonto do so?A platform likeLinkedIn allows a firm to fact-check a candidates’resume or CV. Thefirm may find out that a candidate lied on their application about qualifications,experiences or other information. This information may cause the firm not to hire thecandidate. However, other social media platforms may include pictures, statuses, andlikes about illegal activity, bullying, a criminal past, or posts that include racism, sexism,homophobia, or an unpopular political position. Much of the former may be consideredspeech. However, lying about qualificationsand engaging inillegal activity areacceptable factorsthat might influencea firm’s hiring decision. Personal opinions andfree speech would be unethical to use in hiring decisions and may send the wrongmessage that a future employee should not feel free to speak out if she identifieswrongdoing.

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Ethical Obligations and Decision Making in Accounting, 4/e12On the other hand, if the employee is seeking a job with a government entity, thestandards may bestricterbecause of the need to take care not to express one’s opinion oncontroversial matters that may pertain to the work of the agency,albeitnot directlyrelated to a specific matter before the agency. In this case it is important for theemployee’s statements not to appear to reflect the agency’s position on the matter.The firm would be using rights and utilitarianism theoriesin usingsocial media toresearch candidates.The firm may think that it has a right to know if a job candidate islying or engaging in illegal activities. From a utilitarian point of view, the firm wants anend result of hiringanhonest job candidate who is not engaging in illegal activities.Forexample, what if the candidate was a child predator like JaredFogle, the Subwayspokesperson?[On November 19, 2015,Fogle was sentenced to more than 15 years infederal prisonafter pleading guilty to charges of child pornography and crossing statelines to pay for sex with minors.]We believe candidates should know that in today world one’s prospective employer maybe searching the Internet for character-based information on candidates for positions. It isthe candidate’s personal responsibility to act appropriately and be cautious about whatthey say on the Internet.From a rights and virtue perspective,the firm should notifycandidates that it will be researchingtheir backgroundson social media.A firm may set policies forappropriatesocial mediaactivities during the work day andonusing company equipmentfor personal reasons.The firm wants a full day’s work foritspay, and may consider using company time for personal social networking and postingas a form of theft. Setting a company policy onproper use of company computers, emailaccounts may include usage of the Internet and appropriate surfing of the net, onlineshopping and other personal activities. A bigger challenge for firms is regulatingemployees’ usage of a personal smart phone during the work day.An individual using company timeor equipmentto accesssocial mediafor personalactivities is acting out of egoism, or self-interest only.You wouldn’t want a personalassistant texting or updating her Facebook status while working for you, so why shouldyou do it when working for others?A firm setting clear guidelinesexpectationsonpersonal activities on companytime, if any,is employing utilitarian, deontological andvirtues ethics reasoning.The policy might allow for exceptions such as monitoring thehealth of a sick child being watched by another.13.In a 2014 segment ofShark Tank,TrevorHiltbrand, the founder of nootropicsupplement maker Cerebral Success, sought funding from the "Sharks" tointroduce a line of nootropic shots to be sold on college campuses in Five HourEnergy-style containers, but encountered some pushback from some of the Sharkswho questioned the ethics of marketing to stressed-out, sleep-deprived collegestudents anxious to get good grades. Should it matter if Hiltbrand was trying tocapitalize on the need to gain a competitive edge in college by selling something thatmay not have received FDA approval?

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Ethical Obligations and Decision Making in Accounting, 4/e13Nootropics are an emerging class of drugs that are designed to enhance cognitivefunctions. Many supplements may also tout that they increase focus, alertness and well-being. Many nootropics supplements have had limited studies in humans, and could causemany side effects.Many accounting students feel pressure in college to make top grades, particularly so thatthey will get the job offer from a top firm. Thisleads some to cheat or to use illegal drugsto enhance their focus and cognitive ability.Do you plan to carry over such behavior tothe workplace?A legal supplement claiming to enhance cognitive ability would be aninstant best seller. Many would be willing to use Cerebral Success out of an egoistic andshort term viewpoint. This is when regulators like the FDA step in to protect consumersfrom the long-term side effects.Was Hiltbrand really trying to help others or capitalize on the fears of those who chooseto use a nootropic supplement? This is an interesting question to explore with students.An interesting side story is a very positive review of Cerebral Success(4 ½ out of 5 stars)written on a website “Supplement Critique” that purports to have reviews from actualusers of the product. Here is the statement on the website to guide those who might wantto post a review of a product they have used:Thanks for Visiting SupplementCritique.com!I started this site because I was tired of the millions of fake review sites outthere.Too many websites post reviews about products (specifically sports andhealth supplements), when they haven’t even tried them!We aimed to changeall of that, andour mission is to provide you with unbiased reviews ofsupplementsin the health niche, from weight loss to male performanceproducts.How do we prove that to you?Well,we ACTUALLY physically testmanyof the productswe are reviewing, so you can be sure you’re getting real,solid information about how they work.If you like, you can post your own review, but we do ask that you send us apicture of you holding a bottle of the product.We want to make sure ourvisitors are reading actual results from actual users, not just someonelooking for a backlink to their website.14.According to Adam Smith’sThe Wealth of Nations,when it comes to governmentoversight in the free market and regulations, the less intervention, the better. Doesthe government play an important role in encouraging businesses to behave in anethical manner? Explain the basis for your answer. What role do environmentallaws have in a capitalistic system?

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Ethical Obligations and Decision Making in Accounting, 4/e14The free marketassumesthat all players will be ethical and act in the best interest of themarket, or community.However, the players are human, tempted by greed, that do notalways act ethically or in the best interest of the markets and community. Then thegovernment steps in with laws that set a minimum level of ethics and starts regulating theplayers. The basis for the government steppinginis utilitarianismand to protect therights of the public.Environmentallaws consider sustainability andthe ability offuture generationsto sharein the benefits of a clean/green society.One could say it is motivated by social welfare, autilitarian concept. That is, emphasizingthe greatest goodfor future generations.Besides setting a minimum standard for the environment, these laws also require thecommunity sometimes to pay more for the environmental friendly alternative than wouldbe chosen under cost benefitanalysisonly.These environmental laws require that theapplication of utilitarian analysis include the qualitative factors of sustainability andwelfare offuture generation, not justcostfactorsalone.15.According to the 2011 National Business Ethics Survey conducted by the EthicsResource Center,GenerationalDifferences in Workplace Ethics,a relatively highpercentage of Millennials consider certain behaviors in the workplace ethical whencompared with their earlier counterparts. These include:Use social networking to find out about the company’s competitors (37%),“Friend” a client or customer on a social network (36%),Upload personal photos on a company network (26%),Keep copies of confidential documents (22%),Work less to compensate for cuts in benefits or pay (18%),Buy personal items using a company credit card (15%),Blog or tweet negatively about a company (14%), andTake a copy of work software home for personal use (13%).The report further concludes that younger workers are significantly more willing to ignorethe presence of misconduct if they think that behavior will help save jobs.a.Choose one or more behaviors and explain why Millennials mightview the behavioras ethical.Many of thebehaviors are done out of egoism or the rationalization that “everyone is doing it” or“I’m doing this so I can do my job better.”For example, “friending” a client or customer on asocial network may seem innocent enough and a way to learn valuable information about theseparties; however, it could be perceived as a way to gain such information prior to striking out onone’s own and starting a new business. The problem with many of the enumerated behaviors isthe perception that one’s motives may not be in the best interests of the employer.b.Choose one or more behaviors and explain why you think it is unethical.Use ethical reasoning to support your points of view.

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Ethical Obligations and Decision Making in Accounting, 4/e15Have the students discusswhich of the above behaviors can be defended by virtue, deontologyand utilitarian (both rule and act) theories. The students might pickto“friend” a client orcustomer on a social network as beinga good end to help the company. This could lead to adiscussion of professional versus personal social media; i.e., LinkedIn versus Facebook. As morecompanies are using social media to reach and stay connected with clientsand customers, thisbehavior would be ethical if it was part of an employee’s job duties.16.How should an accounting professional go about determining whether a proposedaction is in the public interest?Through the Securities and Exchange Act of 1934, the U.S. government effectivelyawarded a professional monopoly to CPAs, in return for their commitment to protect the publicinterest by acting as independent watchdogs over publicly traded corporations.Auditorsserve asgatekeepers who protect the interests of stakeholders through monitoring activity within theorganization and by providing a financial representation that is unbiased and accurate. Theperspective of the auditor as a gatekeeper is consistent with the opinion of the Advisory Panel onAuditor Independence that states:InUnited States v. Arthur Young & Co.[1984] the SupremeCourt of the United Statesdescribed the independent audit as a “public watchdog”function andnoted that “if investors were to view the auditor as an advocate for the corporate client, the valueof the audit might well be lost”.The AICPA Code of Professional Conduct has the public interest as its second principle.Itdefines the public interest to include “clients, credit grantors, governments, employers, investors,the business and financial community, and others who rely on the objectivity and integrity ofCPAs to maintain the orderly functioning of commerce.” This principle calls for resolvingconflicts between these stakeholder groups by recognizing the primacy of a CPA’s responsibilityto the public as the way to best serve clients’ and employers’ interests. In discharging theirprofessional responsibilities, CPAs may encounter conflicting pressures from each of thesegroups. According to the public interest principle, when conflicts arise the actions taken toresolve them should be based on integrity, guided by the precept that when CPAs fulfill theirresponsibilities to the public, clients' and employers' interests are best served.17.Distinguish between ethical rights and obligations from the perspective of accountantsand auditors.Ethical rights describe how a person is entitled to be treated by another person. Ethicalobligations are the duties to treat others in an ethical manner. Ask students what they think aretheir rights. Now which of those rights haveanethical basis? Have the students make a list oftheir ethical rights. If a student’s ethical right conflicts with the student’s ethical obligation, whatshould a student do?From the perspective of accountants and auditors, obligations to the public areto act withintegrity,be independent of clients both in fact and appearance,make objective decisions, andact in a responsible and trustworthy manner.The public has a right to receive accurate andreliable financial information to make informed decisions. Thus, the rights of stakeholders and

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Ethical Obligations and Decision Making in Accounting, 4/e16the obligations of accountants and auditors to those stakeholders are the flip sides of the sameissue.18.Usingthe concept of justice, evaluate how an auditor would assess the equality ofinterests in the financial reporting process.Justice as fairness is the basis of the objectivity principle in the AICPA Code that establishes astandard of providing unbiased financial information. In our discussion of ethical behavior in thisand the following chapters, questions of fairness will be tied to making objective judgments.Auditors should render objective judgments about the fair presentation of financial results. In thisregard, auditors should act as impartial arbiters of the truth, just as judges who make decisions incourt cases should. The ethical principle of objectivity requires that such judgments be madeimpartially, unaffected by pressures that may exist to do otherwise. An objective auditor withknowledge about the failure to allow for the uncollectible receivables would not stand idly byand allow the financial statements to be materially misleading.When we look at the traditional notion of justice as treating equals, equally, we can say thatinvestors and creditors have a greater demand and need for accurate and reliable informationthan other users because they represent the public interest. Thus, the conceptual framework forfinancial reporting is geared toward the decision making needs of investors and creditors as theproviders of financing while the needs of other users are of secondary concern.19.Why is it important for a CPA to promote professional services in an ethical manner?Do you believe it would be ethical for a CPA to advertise professional services usingtestimonials and endorsements? Why or why not?Professionalism and work ethic are important qualities of accounting professionals.Professionalism is generally defined as the strict adherence to courtesy, honesty, andresponsibility when dealing with individuals or other companies in business and clients in publicaccounting. For CPAs, this means to act in accordance with personal and professional valuessuch as trustworthiness, integrity, transparency, and the pursuit of excellence. A strong workethic includes completing assignments in a timely manner, diligently, and with the highestquality possible. Ethics and professionalism in accounting also means to always place the publicinterest ahead ofone's self-interests, the interests of an employer, and the client's interests. Thepublic expects accounting and auditing professionals to be selfless in the pursuit of the publicgood.Potential clients rely on the ethics and trustworthiness of accounting professionals. Clients makedecisions whether to engagewithpotential accountants and auditors,at leastin part, based ontheir advertising of professional services. Clients must be ableto rely on the accuracy on theform and contentofsuchcommunication including testimonials on behalf of accountingprofessionals.In advertising professional services,a CPA must be honest and non-misleading. In usingtestimonials and endorsements, how does a potential client know if these are honest and non-misleading? Were the testimonials and endorsements paid or exaggerated? Would that affect

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Ethical Obligations and Decision Making in Accounting, 4/e17one’s opinion? What if thetestimonials and endorsements are from paid actors, and not actualclients? As a profession that values objectivity and skepticism, objectivity and skepticism shouldbe employed in determining how potential customers will react to advertising.20.Do you think it would be ethical for a CPA to have someone else do for her that whichshe is prohibited from doing by the AICPA Code ofProfessional Conduct? Why or whynot? Do you think a CPA can justify allowing the unethical behavior of a supervisor byclaiming, “It’s not my job to police the behavior of others?”It would be unethical for a CPA to employ (whether paid or not) someone to perform an act thatthe CPA is prohibited from doing? It is using a proxy to do something that she knows is wrong.Having someone else do the wrong act doesnot changethe wrongness of the act.The AICPACode of Professional Conduct clearly holds CPAs to the standard of care that she should notpermit others to do for her what she is prohibited from doing under the Code. To do so is anunprofessional act in violation of the Code.If the CPA knows all the facts and determines that the supervisor is allowingor performing anunethical act, the CPA should try to stop that behavior. It may be impossible to change thebehavior, but the CPA should question whether she wants to work for and with a supervisor andcompany that condones unethical behavior.Knowing that something is wrong obligates theethical person to do something about. This applies in particular in accounting because of thepublic interest obligation.21.Assume in the DigitPrint case that the venture capitalists do not provide additionalfinancing to the company, even though the accrued expense adjustments have not beenmade. The company hires an audit firm to conduct an audit of its financial statements totake to a local bank for a loan. The auditors become aware of the unrecorded $1 million inaccrued expenses. Liza Doolittle pressures them to delay recording the expenses until afterthe loan is secured. The auditors do not know whether Henry Higgins is aware of all thefacts. Identify the stakeholders in this case. What alternatives are available to the auditors?Use the AICPA Code of Professional Conduct and Josephson’s Six Pillars of Character toevaluate the ethics of the alternative courses of action.The stakeholders in the DigitPrint case are the stockholders and employees of the company, thelocal bank, suppliers and customers of the company. The auditors may try to get Doolittle andHiggins to record the expenses; tell the board of directors of the situation; issue a qualified oradverse opinion if the expenses are not recorded; or they could do as Doolittle is pressuring themto do. Caving into the pressure from Doolittle would be unethical and would violate the AICPAprinciples of integrity, independence, responsibility, public interest and due care. Using theseprinciples and the Six Pillars of Character, the auditors should meet with the board of directors totry and get support for the recording of the expenses. If that fails, then the auditors should issue aqualified or adverse opinion. This would be in keeping of the AICPA principles. Under the SixPillars of Character, the auditors would be displaying trustworthiness, responsibility, fairness,and citizenship.

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Ethical Obligations and Decision Making in Accounting, 4/e1822.In the discussion of loyalty in this chapter, a statement is made that “your ethicalobligation is to report what you have observed to your supervisor and let her take theappropriate action.” We point out that you may want to take your concerns to others. TheIMA Statement of Ethical Professional Practice includes a confidentiality standard thatrequires members to “keep information confidential except when disclosure is authorizedor legally required.”23.Do you think there are any circumstances when you should go outside the company toreport financial wrongdoing? If so, to what person/organization would you go? Why? Ifnot, why would you not take the information outside the company?Questions 22 and 23 were inadvertently separated in production of the book so we answer themtogether.Whistle blowing has had a bad name since before Rolf chose his duty to Nazi youth over hisaffection for the Von Trapp family in the “Sound of Music.” Tellingon someonetopreventserious harm to someoneelseis usuallycalled tattling. Tattling often has the bad reputation duetoits mean-spirited motivation. Telling to get someone out of trouble is usually the right thing todo. The difference in the two situations noted turnson motivesfor action.Whistle-blowing couldstop somethingharmfulwhich is about to happen or will continue happening. It does matterwhether whistle-blowing can change the future and it does matter how important those changesare in the lives of those in peril.What matters is if the person tells to right a wrong and protectothers; if so, it is an ethical action and warranted.Whistle-blowing is different for accountants because it violates client trust and break promisesthe profession has made on behalf of each of its members. Accountants, as professionals, haveaccess to truth and knowledgebecausewe as a profession promise that clients can absolutelycount on the accountants not to violate that trust by sharing secrets. If the profession did notpromise confidentiality and our promise was in doubt, clientsmight purposefully keepsecretsfrom their accountantsbecause of fear of disclosure.While there are situations where professional accountants have to go outside their chain ofcommand, the profession’s reputation for reliability is damaged whenever that promise ofconfidentiality is broken. Whistleblowing for a professional accountant is promise breaking. Thebest justification for breaking promises is what we call an emergency: time sensitive, futurechanging, no one else can do it and it has to be done in some situations. It is easier to imaginecorporations in its personnel, operations and marketing departments doing dangerous andharmful things that must be stopped in a hurry than in the finance or accounting departments.There are circumstancesin accountingwhere future harm to people who deserve our protection(i.e., shareholders or the public)is so great that professional duty is superseded by dutyto protectthe public interest.In some of thesecircumstances,individual accountants are the only oneperson who can prevent or reduce that harm by acting. Accountants can’talways trust theirsupervisors to do the right thing and follow up on what needs to be investigated.

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Ethical Obligations and Decision Making in Accounting, 4/e19There are times that accountants are expected to report wrongdoing to the authoritiesas part oftheir ethical obligation, such as under the Dodd-Frank Financial Reform Act that will bediscussed inChapter 3. This would be the case if every effort has been made using internalmeans to correct for fraudulent financial statements to no avail. It may also be the case to preventserious harm to others. Finally, it may be required by state law as well.24.Assume that a corporate officer or other executive asks you, as the accountant for thecompany, to omit or leave out certain financial figures from the balance sheet that maypaint the business in a bad light to the public and investors. Because the request does notinvolve a direct manipulation of numbers or records, would you agree to go along with therequest? What ethical considerations exist for you in deciding on a course of action?Wouldthe omission of the information be misleading to investors and the public? If so, then theSEC would consider that information material and then should be disclosed. Many may considerthe omission of information as a form of a lie. One may mislead by stating a lie or by keepingquiet about some information. Many religions consider one a sin of commission and one a sin ofomission; since both are sins, they are both wrong. Omitting information goes to honesty,integrity and trustworthiness under the Six Pillars of Characters. Those values are also importantusing virtue or deontology reasoning.What if a client asks you to leave out information about a multi-billion-dollar lawsuit for producttampering because it won’t be resolved forat leastyears?Would you omit it because its effectsare not in the short-term–i.e., within one year? The omission of the information (in the accountsor notes as required)–is misleading to investors and creditors who have a right to know that thecompany may have a very significant legal liability in two or more years. How will the companymeet this obligation? Should it set aside the funds in a reserve account? These are all legitimatequestions for users to ask, but they can’t if the information is omitted.25.Sir Walter Scott (1771–1832), the Scottish novelist and poet, wrote: “Oh what a tangledweb we weave, when first we practice to deceive.” Comment on what you think Scott meantby this phrase.Lies often require stories which seem simple, but if examined, may call for further lies. In somecases, merely remembering a lie is more difficult than remembering the truth. Fiction is filledwith stories of one lie leading to others. You might collect a list of those famous stories.Thisquestion provides an opportunity to remind students of the ethical slippery slope and once a lie istold, the person who tells it begins the slide and it is much more difficult to climb back up andregain the moral high ground.The concept of an 'ethical slippery slope' is one thatdefinesbehavior when a decision-maker first decides to deceive others by consciously covering up orlying about past behavior. This begins the slide down the proverbial ethical slippery slope whereit becomes more difficult to reverse course because the decision maker is committed to thedeceitful action; then since most people don't want others (i.e., superiors) to know about theinitial, wrongful action over time cover up or lying slowly become untangled and the truthemerges.

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Ethical Obligations and Decision Making in Accounting, 4/e20Betty Vinson was a victim of the ethical slippery slope. Once she agreed to go along withfinancial wrongdoing and enter false data into WorldCom’s accounting system, it became verydifficult for her to change direction as future requests were made for her to do the same.26.Assume you are interviewing for a position with an accounting firm and the recruiterasks you the following questions. Craft a response that you would feel comfortable givingfor each one.Describe an experience in the workplace when your attitudes and beliefs wereethically challenged? Use a personal example if you have not experienced aworkplace dilemma.What are the most important values that would drive your behavior as a new staffaccountant in a CPA firm?Describe your ethical expectations of theculture in an accounting firm?What would you do if your position on an accounting issue differs from that of firmmanagement?Selected points:I, as many students and recent grads, have been challenged ethically in being asked by afriend to sharehomework, tell what was on a test, or covering up who did what on agroup project in order to get the best grade. These are conflicts of loyalty to a friendversus having integrity, and a short-term payoff versus long-term habits. I have tried tochoose having the long-term habit of integrity and honesty.While some compromises are required in a workplace setting, an employee shouldunderstand that compromising ethics is not one allowed. As a new employee, I would notgo against my ethical values. I would need to make sure that Iknew all the facts so that Iam judging or acting based on partial information.Most Americans tell white lies, often in the rationalization of being tactful. I cannotpromise to never lie for you but I prefer to tell the truth as much as possible. For instance,if I answer a call from a client wishing to speak to you, and you tell me to say that youare gone for the day. I would probably tell the client that you unavailable to take the callat present and ask to take a message.A corporation may be considered a legal person, but it is collectively made up ofindividual employees. Many of those individuals may act ethically or unethically in anygiven situation. As an individual I am responsible to act ethically. An ethical corporationmay not be able to guarantee that all of its employees will act ethically all the time, but itis required to have ethical policies and procedures in place so the actions of thecorporation are ethical.I expect the CPA firm to have a culture of respect, honesty,integrity, and responsibility and realize it will demand the same of me.Whendifferences onethical issueswith a supervisor arise at work, it’s best to consultwith a mentorortrusted advisor. It’s always best to voice your values to others first inorder to anticipate the reasons and rationalizations of others/superiors who are trying toget you to compromise your values.

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Ethical Obligations and Decision Making in Accounting, 4/e1Chapter 1 CasesSuggested Discussion and Solution GuideNOTE: Cases 1-2, 1-7, and 1-9 are treated as Giving Voice toValues (GVV) cases in the Test Bank for Chapter 2. TheGVV approach that is described in Chapter 2 enablesstudents to gainexperience voicing values in the face ofconflicting pressures and reasons and rationalizations todeviate from taking appropriate action. Faculty can assignthe case in Chapter 1 or delay it until Chapter 2, if they planto use it for GVV testing purposes in Chapter 2.

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Ethical Obligations and Decision Making in Accounting, 4/e1Chapter 1 CasesCase 1-1 Harvard Cheating ScandalYes. Cheating occurs at the prestigious Harvard University. In 2012, Harvard forced dozens ofstudents to leave in its largest cheating scandal in memory, but the institution would not addressassertions that the blame rested partly with a professor and his teaching assistants. The issue iswhether cheating is truly cheating when students collaborate with each other to find the rightanswer—in a take-home final exam.Harvard released the results of its investigation into the controversy, in which 125undergraduates were alleged to have cheated on an exam in May 2012. The university said thatmore than half of the students were forced to withdraw, a penalty that typically lasts from two tofour semesters. Many returned by 2015. Of the remaining cases, about half were put ondisciplinary probation—a strong warning that becomes part of a student’s official record. Therest of the students avoided punishment.In previous years, students thought of Government 1310 as an easy class with optionalattendance and frequent collaboration. But students who took it in spring 2012 said that it hadsuddenly become quite difficult, with tests that were hard to comprehend, so they sought helpfrom the graduate teaching assistants who ran the class discussion groups, graded assignments,and advised them on interpreting exam questions.Administrators said that on final-exam questions, some students supplied identical answers (rightdown to typographical errors in some cases), indicating that they had written them together orplagiarized them. But some students claimed that the similarities in their answers were due tosharing notes or sitting in on sessions with the same teaching assistants. The instructions on thetake-home exam explicitly prohibited collaboration, but many students said they did not thinkthat included talking with teaching assistants.The first page of the exam contained these instructions: “The exam is completely open book,open note, open Internet, etc. However, in all other regards, this should fall under similarguidelines that apply to in-class exams. More specifically, students may not discuss the examwith others—this includes resident tutors, writing centers, etc.”Students complained about confusing questions on the final exam. Due to “some good questions”from students, the instructor clarified three exam questions by email before the due date of theexams.Students claim to have believed that collaboration was allowed in the course. The course’sinstructor and the teaching assistants sometimes encouraged collaboration, in fact. The teachingassistants—graduate students who graded the exams and ran weekly discussion sessions—variedwidely in how they prepared students for the exams, so it was common for students in differentsections to share lecture notes and reading materials. During the final exam, some teaching

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Ethical Obligations and Decision Making in Accounting, 4/e2assistants even worked with students to define unfamiliar terms and help them figure out exactlywhat certain test questions were asking.Some have questioned whether it is the test’s design, rather than the students’ conduct, thatshould be criticized. Others place the blame on the teaching assistants who opened the door tocollaboration outside of class by their own behavior in helping students to understand thequestions better.An interesting part of the scandal is that, in March 2013, administrators searched e-mail accountsof some junior faculty members, looking for the source of leaks to the news media about thecheating investigation, prompting much of the faculty to protest what it called a breach of trust.Harvard adopted an honor code on May 6, 2014. The goal is to establish a culture of academicintegrity at the university.Answer the following questions about the Harvard cheating scandal.1.Using Josephson’s Six Pillars of Character, which of the character traits (virtues)apply to the Harvard cheating scandal and how do they apply with respect to theactions of each of the stakeholders in this case?The stakeholders in this case are the students in the class who did cheat, the students inthe class who did not cheat, the professor, the teaching assistants, other students at theuniversity, alumni of the university, parent of students and future employers of thestudents.The students who did not cheat displayed trustworthiness, including honesty, integrityand reliability, respect, responsibility and fairness. The students who did cheatacted outof self-interest. The professor and teaching assistant did not seem to communicate clearlyor possibly consistently to all students which may beviewedasalack of caring orfairness. The other stakeholders aretheinnocent bystanders in the scandal including theuniversity community at large thatwantthe reputation of Harvard to be upheld.2.Who is at fault for the cheating scandal? Is it the students, the teaching assistants,the professor, or the institution? Use ethical reasoning to support your answer.The Harvard cheating scandal is not black or white from an ethical perspective. One wayto evaluate it is by examining the behavior and actions of the stakeholders. The instructoris partly to blame because unclear questions had to be clarified and that would havepromoted collaboration to better understand just what the instructor’s intentions were.For the instructor, the students’ collaborative work does make it difficult to assessindividual performance—because many people’s answers sounded similar, instructorscould not determine who really understood the work and who was merely free-riding. Asa professor, this is why a group project may require oral presentations so individual effortcan be assessed and graded.

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Ethical Obligations and Decision Making in Accounting, 4/e3Ironically, the motto of Harvard, the oldest education institution in the U.S. and foundedin 1636, is“Veritas,”whichmeans truth in Latin. The truth is Harvard relied too heavilyon students being honest–honoring its honor code–in a time when student cheating isrampant.An interesting perspective on the Harvard cheating scandal and cheating incollege in general is aTimearticle “Harvard Cheating Scandal: Is Academic Dishonestyon the Rise?” byErika Christakis and Nicholas A. Christakis,Sept. 04, 2012,http://ideas.time.com/2012/09/04/harvard-cheating-scandal-is-academic-dishonesty-on-the-rise/.3.Do you think Harvard had a right to search the e-mail accounts of junior faculty,looking for the source of leaks to the news media? Explain.Harvard had a right to set policies on using university owned computers and universityprovided email accounts. Most organizations with a computer and email usage policiesstate whether the organization reserves the right to monitor email usage and to reviewInternet history on computers. If Harvard did not have such a policy, then such a searchseems to be vendetta search against the leak. Had Harvard or any of the facultypreviously spoken to the press? Could the leak have come from a student? Did Harvardsearch the email accounts of the students at Harvard?On March 9, 2013,the Boston Globe reportedthat Harvard administrators secretly accessed theemail accounts of 16 resident deans in an attempt to determine wholeaked communicationregarding the Government 1310 cheating scandal that made its way to the media.The searches, reported on the basis of interviews with “several Harvard officials,” were for theorigin of the leak of an internal email sent on August16, 2012by Secretary of the AdministrativeBoard John “Jay” L. Ellison.That internal email, in which Ellison advised his colleagues abouthow to counsel athletes and other students implicated in the scandal, had been forwarded by aresident dean to one of his students.Administrators informed the resident dean who had forwarded Ellison’s email of the searchshortly after it occurred, but did not tell the other resident deans until after being approached bythe Globe. The Globe article noted that administrators searched one of two Harvard emailaccounts belonging to resident deans—the account for administrative matters, rather than forpersonal ones. Also, Harvard information technology employees were told to look only forcertain email subject lines and not to read the contents of messages themselves, the Globereported.(Source:http://www.thecrimson.com/article/2013/3/9/cheating-leak-email-search/).4.What is meant by the culture of an organization? Can an honor code establish aculture of academic integrity in an institution such as Harvard University?Every organization creates its own culture and normal operating procedures. The cultureis highly influenced by the top officers and what is rewarded in the organization. Auniversity is based on a principle of shared governance with administrators and faculty.Under shared governance, a task force or committee composed of administrators, facultyand students would have held many discussions of what an honor code does, what it

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Ethical Obligations and Decision Making in Accounting, 4/e4should say, and the policies and procedures for when the honor code is not followed.Those discussions should encourage all to follow the prescribed standards and it bringsthe buy in of all and starts to change the culture. No honor code, policy or laws caneliminate all cheating but it can set the expectations.Video Links:http://www.youtube.com/watch?v=1PBsVH68Iighttp://www.youtube.com/watch?v=XF91EwL-qEQhttp://www.youtube.com/watch?v=TUfbrj28r4chttp://www.youtube.com/watch?v=bH4k9DTdLkA

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Ethical Obligations and Decision Making in Accounting, 4/e1Case 1-2 Giles and RegasThis case is treated as GVV in the Test Bank IM in Chapter2.Faculty can assign the case in Chapter 1 or delay it untilChapter 2, if they plan to use it for GVV testing purposes inChapter 2.Ed Giles and Susan Regas havenever been happier than during the past four months since theyhave been seeing each other. Giles is a 35-year-old CPA and a partner in the medium-sizedaccounting 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 differentranks within the firm to do so. A partner should not date a senior in the firm any more than asenior should date a junior staff accountant. If such dating eventually leads to marriage, then oneof the two must resign because of the conflicts of interest. Both Giles and Regas know the firm’spolicy on dating, and they have tried to be discreet about their relationship because they don’twant to raise any suspicions.While most of the staff seem to know about Giles and Regas, it is not common knowledgeamong the partners that the two of them are dating. Perhaps that is why Regas was assigned towork on the audit of CAA Industries for a second year, even though Giles is the supervisingpartner on the engagement.As the audit progresses, it becomes clear to the junior staff members that Giles and Regas arespending personal time together during the workday. On one occasion, they were observedleaving for lunch together. Regas did not return to the client’s office until three hours later. Onanother occasion, Regas seemed distracted from her work, and later that day, she received adozen 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. Thecard was signed, “Love, Poochie.” Regas had once told Revilo that it was the nickname thatRegas 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 relationshipbetween the two. Revilo cautions Regas about jeopardizing her future with the firm by gettinginvolved in a serious dating relationship with someone of a higher rank. Regas does not respondto this comment. Instead, she admits to being distracted lately because of an argument that shehad with Giles. It all started when Regas had suggested to Giles that it might be best if they did

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Ethical Obligations and Decision Making in Accounting, 4/e2not go out during the workweek because she was having a hard time getting to work on time.Giles was upset at the suggestion and called her ungrateful. He said, “I’ve put everything on theline for you. There’s no turning back for me.” She points out to Revilo that the flowers areGiles’s way of saying he is sorry for some of the comments he had made about her.Regas promises to talk to Giles and thanks Revilo for her concern. That same day, Regastelephones Giles and tells him she wants to put aside her personal relationship with him until theCAA audit is complete in two weeks. She suggests that, at the end of the two-week period, theyget together and thoroughly examine the possible implications of their continued relationship.Giles reluctantly agrees, but he conditions his acceptance on having a “farewell” dinner at theirfavorite restaurant. Regas agrees to the dinner.Giles and Regas have dinner that Saturday night. As luck would have it, the controller of CAAIndustries, Mark Sax, is at the restaurant with his wife. Sax is startled when he sees Giles andRegas together. He wonders about the possible seriousness of their relationship, while reflectingon the recent progress billings of the accounting firm. Sax believes that the number of hoursbilled is out of line with work of a similar nature and the fee estimate. He had planned to discussthe matter with Herb Morris, the managing partner of the firm. He decides to call Morris onMonday morning.“Herb, you son of a gun, it’s Mark Sax.”“Mark. How goes the audit?”“That’s why I’m calling,” Sax responds. “Can we meet to discuss a few items?”“Sure,” Morris replies. “Just name the time and place.”“How about first thing tomorrow morning?” asks Sax.“I’ll be in your office at 8:00 a.m.,” says Morris.“Better make it at 7:00 a.m., Herb, before your auditors arrive.”Sax and Morris meet to discuss Sax’s concerns about seeing Giles and Regas at the restaurantand the possibility that their relationship is negatively affecting audit efficiency. Morris askswhether any other incidents have occurred to make him suspicious about the billings. Sax saysthat he is only aware of this one instance, although he sensed some apprehension on the part ofRegas last week when they discussed why it was taking so long to get the audit recommendationsfor adjusting entries. Morris listens attentively until Sax finishes and then asks him to be patientwhile he sets up a meeting to discuss the situation with Giles. Morris promises to get back to Saxby the end of the week.Teaching Notes for the Case

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Ethical Obligations and Decision Making in Accounting, 4/e3The objective of this case is to make students aware of the potential dangers of getting involvedin a dating relationship with someone of higher rank in the firm. A strong possibility exists thatthe staff member of lower rank will have his or her progress in the firm at least temporarilyslowed by becoming involved with someone of higher rank. Additionally, the more senior staffmember now has a conflict of interest, such as exists for Ed Giles in the case. The ethical issuespertain to fairness in the treatment of employees and whether the firm can meet its obligations toa client when staff members on the audit are involved in a dating relationship.Ethical and Professional IssuesGiles and Regas have put themselves in a position where their work product may suffer as aresult of their relationship. It appears that this already has occurred since Mark Sax, thecontroller of CAA Industries, has expressed his concerns to Herb Morris, the managing partnerof the local office of the firmthatthe delay in audit completion and high level of billings may bedue to distractions resulting from the relationship. The reliability of Giles and Regas seems to bequestioned by Sax.An important ethical concern is the conflict of interest that Giles may have if, for example, hedetermines that Regas is not adequately carrying out her responsibilities. Giles could have adifficult time dealing with this situation in the same way that he would handle a situation thatinvolved a staff member with whom his relationship is solely professional. Moreover, the auditmanager is in a sensitive position because he or she may know of the relationship and hesitate totreat Regas the same way other staff members are treated because Giles is the manager'ssuperior. A conflict of interest tends to cloud one's judgment as to what is the right thing to do. Itmakes it more difficult for a supervisor to be impartial. Even the appearance of a conflict canharm the image of the professional.It has been said that the best way to handle a conflict of interest is not to become involved in onein the first place. This is whythecodes of conduct of professional accounting associationspreclude members from engaging in activities that can create such a conflict. The Principle ofObjectivity in the AICPA Code requires that:A member should maintain objectivity and be free of conflicts of interest in dischargingprofessional responsibilities.The ethical standard of Integrity in IMA Code states that:Management accountants have a responsibility to avoid actual or apparent conflicts of interestand advise all appropriate parties of any potential conflict.The firm's policy on dating seems to be appropriate. It is designed to avoid compromising clientrelations and audit efficiency. The profession sets high standards of conduct to guide itsmembers in relationships with clients, suppliers, customers and others who can influence thedecision-making process. These same high standards should be aspired to by all CPAs in dealingwith members of their organization and other professionals.

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Ethical Obligations and Decision Making in Accounting, 4/e4Giles and Regas are not acting in a professional manner. They seem to know this because in thelast sentence of the first paragraph it states that they "have tried to be discreet about theirrelationship because they don't want to create any suspicions." If they truly felt comfortable withtheir relationship, then they would have nothing to hide. However, their actions violate firmpolicy and this is undoubtedly why they are being discreet.It appears from the facts of the case that Giles is more responsible than Regas for the tension onthe CAA Industries audit. To begin with, he never should have allowed Regas to serve as thesenior on the audit since he is the supervising partner on the engagement. Perhaps he allowed herto work on the audit because to do otherwise might have aroused suspicions about a possiblerelationship between the two of them. Giles also seems to have created stress for Regas by hisinappropriate comment: "There's no turning back for me." This type of comment can only add tothe pressure Regas feels, given that her work is scrutinized by Giles. The result may be tonegatively affect audit efficiency.Although Regas' involvement in the relationship should not be dismissed, she does seem torecognize the dangers and ultimately makes a decision to put aside their relationship in theinterests of completing the audit. Rather than simply honoring her request not to date for twoweeks, Giles conditions his agreement on a "farewell" dinner. This is not a very caring andconsiderate thing to do and it demonstrates selfishness on the part of Giles. In fact, the dinner isthe event that brings matters out in the open because Mark Sax now suspects that theirrelationship may be affecting completion of the audit. The direct involvement of the client putsthe firm ina very difficult position, one that Herb Morris will have to deal with at the meetingwith Giles.Ethical AnalysisThe decision to be made by Herb Morris can be analyzed using ethical reasoning. Thestakeholders affected by Morris' decision include: Giles and Regas; the accounting firm; otherstaff members of the firm and its partners; CAA Industries and other clients that might beaffected by the decision; and Mark Sax.Utilitarian Theory: From a utilitarian perspective, Morris should weigh the consequences ofalternative courses of action. The alternatives and an evaluation of the potential benefits andharms of each course of action follow.Permit Giles and Regas to complete the audit, but ask one of them to resign thereafter.It is notpractical to remove Giles or Regas from an audit that should be completed in about two weeks.The decision already has been made to put aside their relationship until the CAA audit iscompleted. This seems to be the best option from both the accounting firm's position and that ofthe client. All stakeholders seem to benefit from allowing Giles and Regas to fulfill their auditresponsibilitiesunder act utilitarianism.The second part of this option is more troubling in that it is difficult to determine who should beasked to resign. It is an issue of fairness and due care. On the surface it may appear that Regasshould be asked to resign because of Giles' position in the firm. However, this may not be in the

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