Sarah, the controller of a large beverage supplier, supervises two employees. Her boss,
Vladimir, instructs her to increase the company's inventory
... [Show More] balance for an amount that is
material to the financial statements by crediting several small "miscellaneous" expense
accounts. She does not understand why he wants her to make these entries but immediately
directs one of her staff to make them because she has been instructed to do so. Which of the
following statements best describes Sarah's actions?
2. Sarah failed to evaluate a potential ethical issue.
3. SarahfailedtoreferthemattertotheAICPAethicshotline.
4. Sarah failed to ensure that her staff was competent to make the entries.
5. Sarah failed to consider the rules of other regulators.
Step-by-Step explanation
The correct answer is choice
2. Sarah failed to evaluate a potential ethical issue.
Description of Sarah's actions.
Ethical issues in the above case.
Ethics refer to the moral principles governing the behavior of individuals or the conduct of
a business.It deals with what is good and bad. Ethics majorly focuses on the universal fairness
of individual's or business' actions as well as trying to check on whether these individual's
actions can be termed as responsible or not.The presence of ethics in every business will
promote integrity or honesty among its employees. Further, it will lead to gain of some trust
from various key or major business stakeholders such as shareholders ,customers and
investors.
In the above case scenario, there is no ethics,this has been depicted by the actions of those
charged with governance of the company.For instance, Sarah just got instructed by her boss
Vladimir to have the inventory balances of the company increased. She (Sarah) did not
understand the reason behind this increase and went ahead to instruct her staff to effect the
increase.This increase was intended to falsify the financial statements of the company thereby
resulting to the statements not showing a true and fair view of the company's performance or
affairs.This might be intended to deceive the company's stakeholders on the company's
performance.This is not ethical as it goes against the financial reporting standards as well as
regulatory laws governing the preparation and presentation of such statements.
Sarah, would have considered the ethical issues involved and and discussed the same with
her boss, Mr Vladimir, before effecting the changes. She therefore disregarded the ethical
issues that might have resulted from such actions which is not good for the operation of the
company.
6. Josie, an accounting supervisor in Monk & Sons Realty, instructs Maria, her employee, to
make certain accounting entries in the company's books that will increase revenue. Maria
researches the matter, confirming her concern that these entries would overstate revenue, and
informs Josie that recognizing revenue in this manner would be premature and not consistent
with generally accepted accounting principles (GAAP) but Josie disagrees and insists that
Maria record the entries. The amount of revenue is material to Monk's financial statements.
According to the AICPA rules, what should Maria do first?
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7. Resign her position quietly.
8. Report the matter to the senior partner in the firm.
9. Take out a professional liability policy.
10. Discuss her concerns with Josie's boss.
Answer:
The correct answer is: Report the matter to the senior partner in the firm.
Step-by-Step explanation
The correct answer is to report the matter to the senior partner in the firm.In accounting,an
item is considered a material if it can reasonably be expected to influence
economic decision of financial statement users.In other words,the item inclusion or
omission can mislead decision makers.According to AICPA,if the amount of
revenue is material to Monk's financial statements,she should report the matter to
the senior partner in the firm first before discussing her concerns with
management(Josie's boss).
1. The AICPA Code of Professional Conduct includes the following sections:
2. Preface, rules, and interpretations applicable to members in tax practice and members in
business.
3. Preface, rules, and interpretations applicable to members in public practice and membersn
business.
4. Preface, rules, and interpretations applicable to members in tax practice and members inaudit
practice.
5. Preface, rules, and interpretations applicable to members in audit practice and membersin
business.
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1. Which of the following statements best describes how the International Federation of
Accountants' (IFAC's) rules and standards impact the U.S. accounting profession?
2. Individual CPAs practicing in the United States are required to stay aware of IFAC rules
and standards and adopt them immediately.
3. StateboardsofaccountancyarerequiredtoadopttheIFAC'sruleswithin90daysoftheIFAC rule
change.
4. As a member body of IFAC, the AICPA is required to change its bylaws whenever the
IFAC changes its rules.
5. TheAICPAisrequiredtoadoptethicsandotherprofessionalstandardsthatareatleastas
restrictive as IFAC's.
Answer:
5 .
Step-by-Step explanation
The answer is as simple as:
The AICPA (American Institute of Certified Public Accountants) is required to adopt ethics and
other professional standards that are at least as restrictive as IFAC's (International Federation
of Accountants)
* This is a simple as saying that there should be a standard that is set. And is to be followed by
all. Giving this a guide for accountants. This will serve as a standard foundation for everyone.
Let me give you a run-through using this references: [Show Less]