Accounting Ethics Final Exam Essay Questions PDF

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Accounting Ethics Final Exam Essay Questions...

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1.Explain the link between the opportunity to commit fraud and corporate governance systems.

Corporate governance is intended to make sure that the management of a company is being held accountable and is following regulation while maximizing the benefits to various stakeholders. There are two main perspectives one could take on the concept of corporate governance. Which view a person takes plays a part in the opportunity to commit fraud. The first perspective one could take is the shareholder model. This model supports maximizing return for a company’s investors and creditors. Therefore, the corporate governance of a company that abides by the shareholder model will make decisions that best serve the interests of the investors. On the other hand, one could take the stakeholder model perspective to corporate governance, which is a broader view that takes into account the interests of shareholders as well as the management, customers, and the general public. The opportunity to commit fraud has multiple risk factors such as attitudes, opportunities, incentives, and pressures. If one takes the shareholder perspective of corporate governance, they have the attitude that they must do what they can to maximize return for the investors. They will be motivated by the pressure to satisfy investors, which may lead to committing fraud. Pressure to please shareholders can lead to misstatements on financial statements and other fraud. On the other hand, if one takes the stakeholder perspective, they don’t soley consider the shareholders, they consider public interest as well. This leads to a better attitude and less pressure. If a CPA keeps the public interest in mind, they will be less likely to commit fraud.

2. Analyze and discuss when earnings management may be an ethical practice and when it is an unethical practice.

Earnings management is when a company purposely inflates or deflates their profits or earnings and they use flexible accounting standards to adjust earnings. This can be seen as an unethical practice because it can be misleading to stakeholders such as investors, financiers, creditors, and customers. Shareholders have a right to view accurate financial information of a company and earnings management disregards this right, making it unethical. Not only are they withholding the truth, they may be misleading stakeholders which may lead to actions they may not have otherwise taken if they had access to the full and correct information. Earnings management could be seen as ethical with the rationalization that it smooths net income and it builds a more balanced earnings stream. However, this could be seen as a poor rationalization of an unethical act. By using earnings management to skew the financial position of a company, you are still misleading the public. Another possible rationalization for earnings management is that it is ethical if it is disclosed that aggressive accounting measures were used to determine financial results. However, even though it was disclosed, one is still misleading the public and not providing the most accurate information they can. Even though it may be disclosed, the public does not know to what extent the financial statements are misrepresented. Disclosures shouldn’t be used to justify inaccurate reporting. The results are still not fairly presented, therefore making earnings management unethical, even if it is disclosed....