Philippine Christian University

1648 Taft Avenue Cor. P. Gil St., Manila

College of Business Administration & Accountancy

Accounting Information Systems

1ST SEMESTER

HOMEWORK #3
A.Y. 2015 2016

General Instructions: For essay questions, a maximum of five sentences would suffice.
1. Reading review questions:
a. List and discuss ten characteristics of a professional and / or professional
behavior. Where possible, include a specific example of each characteristic from
your own experience as a student.
b. Define ethics. Explain why ethics is so important in the accounting profession.
c. Compare and contrast the ethical codes of the CPAs, IMA and ACFE.
d. What basic schools of thought exist regarding ethical behavior? What are the
strengths and weaknesses of each one?
e. Explain the basic facts of fraud schemes associated with Ponzi, Adelphia and
Enron.
f. Under what circumstances, if any, is it ethical for a company to use aggressive
accounting policies?

2. Making choices and exercising judgment:

Econo-lube (taken from the ACFE educator documents at www.cfenet.com)
While living in Seoul, South Korea, Psy received a coupon in the mail for an oil
change for 9.95 at a local Econo-lube. He thought 9.95 was a good deal so he
decided to give Econo-lube a try. When Psy arrived at the Econo-lube, the waiting
room had approximately five people obviously waiting for their cars to be serviced.
He went to the service counter and was greeted by the owner.
Psy explained to the owner that he would like to use his coupon for the 9.95 oil
change. The owner acted very friendly and told him that the price of 9.95 did not
actually include a 3.00 oil disposal fee. Also, the coupon was only good for cars
that required four quarts of oil so Psy would have to purchase one more quart to meet
the requirements of his car. So the price would be 14.90. Next, Psy asked for
Valvoline 30wt oil because that was what his uncle, who repairs his own work
vehicles, recommended he use in this car. The owner immediately told Psy that 30wt
was not right and proceeded to tell Psy all about his high performance Porsche that he
never runs 30wt oil in. Psys 1989 Honda was definitely not a Porsche so he

persisted. The owner finally agreed to use 30wt oil on the condition that Psy signs a
liability waiver. Psy also had to pay an extra dollar for each quart of Valvoline brand
oil because Econo-lube used a different brand. The 9.95 oil change was now up to
18.90.
Psy sat down next to a young looking man named Lee Minho who told him he was
also in for the great deal on an oil change. As they talked, Psy learned that this man
was recently married and was planning to start college in the fall.
The owner called Lee Minhos name and invited him into the shop to review the free
diagnostic check details Econo-lube had performed on his car. Lee Minho was with
the owner about 5 minutes and came back ghostly white. Psy asked him what was
wrong. He explained that his car was in bad shape. In fact, he felt lucky it had not
broken down yet. He was sick that the amount of his estimate was now over 300.
When Psy asked if he was going to let the owner do the work he replied: Do I really
have a choice? My car is in bad shape. He had already given the OK.
After a while the owner called Psys name. He greeted Psy gravely, asked him to
come with him into his shop, and told him that his Honda needed some help. He then
proceeded through a detailed checklist and showed Psy everything that was wrong.
Apparently, Psy was lucky not to be dead because his brakes were on the brink of
failing. Also, Psy was told his transmission fluid needed to be drained and the filter
replacedfor added effect the mechanic showed how he had opened the plug and
saw that the fluid was black. There were also a lot of small preventive maintenance
items. The final item the owner discussed with Psy was that the O2 sensor needed to
be replaced. Of course, Psy did not know what an O2 sensor was so the owner
explained it to him in great detail. In the end Psys bill for the oil change was going
to be over 400! The good news was that he could have it all done in a couple of
hours.
Psy was tempted to have the charges done, but politely declined and asked for the
basic 9.95 oil charge (which cost 18.90). Later, Psy drove the car to an uncles
house and went through a copy of the same checklist with him. About half of the
small preventive maintenance items were legitimate things that the uncle
recommended. The total of these items cost Psy no more than 50. The expensive
items listed (brakes, transmission filter replacement, O2 sensor) were in good shape
and did not need to be replaced at all. In fact, because Psys car was a standard
transmission, it did not even have a transmission filter. Psy and his uncle checked the
transmission fluid themselves and found it to be clean and clear. Psy was upset that
the owner of the shop would try to take advantage of him so badly but did not pursue
the issue any farther.
Did the owner of the Econo-lube in Seoul, South Korea commit fraud? What precautions
or controls can consumers use to prevent them from being taken advantage of in a
situation like this? Were there any symptoms or indications of fraud present in this case?

3. Describe your personal philosophy for making ethical decisions. Your philosophy may
be based on one or more of the schools of thought discussed in the chapter; it may also be
completely original. Describe a time when you had to make a personal ethical choice;
explain the choice you made and its consequences. If confronted with the same decision
again, would you make the same choice? Why, or why not?
4. Part of becoming a professional, according to Houle, is establishing a collective identity.
Establishing a collective identity includes creating knowledge-based credentials and
licenses to test basic skills and performance. Investigate the content and process
associated with attaining each accounting credential listed below:
a. Certified Public Accountant
b. Certified Management Accountant
c. Enrolled Agent
d. Certified Fraud Examiner
e. Certified Government Financial Analyst
5. Which school of ethical thought is described in each of the following independent
scenarios? Justify your choices.
a. Kim Seung-soo and Kangnam were talking over their progress in the accounting
program at After School University. Kim Seung-soo was annoyed at the number
of students who cheated on exams and class projects in the program. She told
Kangnam: If prospective employers find out that cheating is so prevalent here, it
will hurt my chances of getting a good job when I graduateeven if I dont
cheat!
b. Jeon Ji-yoon is a certified fraud examiner. He is interviewing Jenny Bae about
missing inventory. When b. Jeon Ji-yoon asked what should be done to the
person who stole the inventory, Jenny Bae replied: They should be locked up
and pay a hefty fine.
c. Kim Jin-woo recently discovered that her co-worker Kwon So-hyun was engaging
in fraudulent activities that harmed their company. She went to her priest for
guidance about what to do.
d. Sim Soo-bong is a financial analyst on TRAX with an accounting and finance
degree from Orange Caramel University. In an interview for a popular magazine,
he said: Everyone cheats a little when they forecast their financial statements.
In the end, its probably OK because everybodys financial results are a little
distorted that way.
6. Ethics cases (Stocks, K.D. and S. Albrecht. Ethical Dilemmas in The Internal Auditor.
June 1993, pp. 24 25)

a. Upon graduating from Ethics University five years ago, you accepted a job with
Baek Ah Yeon & Co. After three years with that firm, you joined Aziatix Co. as
an audit senior and are now an audit manager with that company. Not long after
being promoted to audit manager, you noticed that the executives of the company
were doing things that you didn't think were appropriate. The company over billed
customers on several occasions, and several members of senior management were
abusing their positions by taking company perks that were against the company's
code of conduct. You have talked to your superior, the financial vice president.
He has, in essence, told you to mind your own business. He told you that auditors
are to report on controls and assist management, not question it. You are
currently making 100,000 a year, far more than you could earn in another
company at this stage in your career. Which elements of the IMA Ethical Code
are the companys executives violating? Use the Langenderfer and Rockness
eight-step framework to decide how you would respond to this situation.
b. You are an auditor for Brave Brothers, a company that has invested over 200
million in developing a new drug. For tax purposes, the related research and
development expenses were written off as deductible expenses on the companys
Philippine corporate tax returns. When the drug was patented, your company set
up a Puerto Rican subsidiary to manufacture the drug. The company then
transferred the patent to the subsidiary and arranged to purchase the drug from the
subsidiary at a high price. The company justified the transfer price as reasonable
because of the high value of the patent, which is now owned by the subsidiary
company. You are concerned because you think the price being charged by the
subsidiary is excessive and is being used to inflate costs and minimize taxes paid
to the Philippine government. You know that tax rates are considerably less in
Puerto Rico than in the Philippines. Is the company violating any elements of the
Code of Ethics for Professional Accountants? If so, which? Use the
Langenderfer and Rockness eight-step framework to decide how you would
respond to this situation.

7. Point your web browser to the Code of Ethics for Professional Accountants at
http://www.ethicsboard.org/iesba-code. What elements of the code did CPAs violate in
the Enron case? Worldcom? Tyco?

8. Crossword puzzle
Please use terms from the chapter to complete this puzzle.
1

3
4
5

6
7

10

Created with EclipseCrossword www.eclipsecrossword.com

Across
2.
3.
8.
9.
10.

Company associated with John Rigas

School of ethics that says everyone should get what they deserve
Private sector non-profit created by Sarbanes-Oxley
One of the four components of the IMA Code of Ethics
___ ethics is concerned with standards that regulate right and wrong conduct

Down
1.
4.
5.
6.
7.

Ethical school that says the end justifies the means

Responsibilities to ___: one area of the Code of Ethics for Professional Accountants
A professional thinks this way
__ of practice: one of McDonald's characteristics of a professional
According to the ACFE ethical code, no CFE can express an opinion regarding this

9. Terminology
Please match each item on the left with the most appropriate item on the right.
1.

Associated with pyramid

schemes

a. Comply with lawful orders of the

courts and will testify to matters
truthfully and without bias or prejudice

2.

Autonomy of practice

3.

Collective identity

b. Houle discussed this as part of

professionalization

4.

Company ethical code

c. McDonald identified this as part of

being a professional

5.

Element of integrity

d. One of Bells characteristics of a

professional

6.

Enron fraudster

7.

Integrates knowledge from

many disciplines

e. People should do what is right and

moral
f. Ponzi

8.

Part of a CFEs ethical

responsibilities

g. Refuse any gift, favor, or hospitality

that would influence or would appear to
influence their actions

9.

Specialized knowledge base

h. Skilling

Virtues school of ethics

i. The first source to consult for

workplace ethical dilemmas

10.

j. The PCAOB reduced, but did not

eliminate, this.

10. Multiple choice questions

1. Which of the following is not a characteristic of a professional according to Bell?
a. Communicating effectively
b. Actively seeking additional knowledge
c. Thinking focused on your area of expertise
d. Demonstrating ethical behavior
2.

Which of the following is the best example of accountings specialized knowledge

base?
a. The Code of Ethics for Professional Accountants
b. The process of reconciling a bank statement
c. Financial ratio calculations
d. The rules associated with business combinations

3.

The IMA Code of Ethics and the ACFE Code of Ethics both mention:
a. Off balance sheet financing.
b. Conflicts of interest.
c. Legal rights of accountants and their clients.

d. Rules for conducting examinations ethically.

4.

Which of the following best describes a Ponzi scheme?

a. A fraud whereby old investors are paid with money from new investors.
b. Any fraud which involves a conflict of interest.
c. A fraud committed with international cooperation.
d. A fraud involving related party transactions.

5.

Which of the following names is most closely associated with the Enron debacle?
a. Ponzi
b. Albrecht
c. Rigas
d. Skilling

6.

Bell asserted that a professional integrates knowledge from many disciplines. Your
study of accounting information systems integrates accounting knowledge with:
a. Information technology
b. Business law
c. Both of the above
d. None of the above

7.

According to the Code of Ethics for Professional Accountants, accountants have an

ethical responsibility to:
a. Clients only
b. Colleagues only
c. Both clients and colleagues
d. Neither clients nor colleagues

8.

Which branch of ethics is concerned with the source and meaning of ethics?
a. Metaethics
b. Normative ethics
c. Applied ethics
d. Professional ethics

9.

Different accounting organizations (such as the IMA and ACFE) have their own
codes of ethics because:
a. They are required by law to do so.
b. They do not respect one another.
c. They want to punish their members differently for ethical violations.
d. The nature of members work is different.

10. The first resource to consult when confronting a professional ethical dilemma in
accounting is:
a. The companys own code of ethics
b. A lawyer
c. A professional code of ethics
d. Dependent upon the decision makers personal ethical philosophy

12. Statement evaluation

Please indicate whether each of the following statements is: (a) always true, (b)
sometimes true or (c) never true. For those that are sometimes true, explain when.
1. Legal behavior is the same as ethical behavior.
2. Metaethics and applied ethics are important in the accounting profession.
3. The habit of ethical decision making begins once you have your first professional
job.
4. Any response to an ethical dilemma is acceptable, provided the decision maker
can justify it.
5. Pyramid schemes are, by definition, both illegal and unethical.
6. Effective communication is an important part of professional behavior.
7. To be considered professional, an accountant must have a CPA license.
8. A subordinate can bypass his / her supervisor in reporting an ethical dilemma.
9. Violations of professional codes of ethics can lead to fines, prison and / or losing
your professional license / certification.
10. The best ethical decision makers in accounting follow the utilitarianism school of
ethical thought.