Do you agree with the proposal of the Competitions and Market Authority in the U.K. that the Big Four firms should be split operationally so that audit and nonaudit services are conducted in two separate divisions and profits are split based on each divisions’ profits? What about a structural breakup? Explain.
> If the reciprocal method is conceptually superior, why don’t all firms use it?
> One critic of cost allocation noted, “You can avoid the problem of arbitrary cost allocations by not allocating any common costs to other cost objects.” What are your thoughts on this comment?
> If cost allocations are arbitrary and potentially misleading, why do companies, including successful ones, continue to allocate costs?
> What is the difference between resources supplied and resources consumed? Why is the difference important?
> In what ways does quality affect cost?
> Under what conditions should the cost of excess capacity be assigned to products or customers? When should excess capacity costs not be assigned to products or customers?
> Interview the manager of a campus print shop or a print shop in the local area about how the company bids on prospective jobs. Does it use cost information from former jobs that are similar to prospective ones, for example? Does it have a specialist in c
> Why does it matter how capacity costs are assigned to products?
> What are the basic steps in computing costs using activity-based costing?
> What are two different ways of treating the difference between applied overhead and actual overhead at the end of the accounting period?
> What are some ways in which customers affect a firm’s costs? What are some ways in which suppliers affect a firm’s costs?
> Why is it important for managers to assess whether activities are value-added or nonvalue added? What are some common nonvalue-added activities found in many businesses?
> What is the death spiral? How is it related to the cost accounting system?
> Why do companies allocate costs? What are some of the advantages and disadvantages to doing so?
> What are the five steps to follow when computing costs using a process costing system?
> What are the three methods of allocating service department costs?
> Can activity-based management be implemented without an activity-based costing system? Explain.
> You can get the cost of customers by first computing the cost of the products they buy and then multiplying by the number of units each customer buys.” Do you think this approach would assist in cost management? Why?
> How are activity-based costing and activity-based management similar? How do they differ?
> Why would a number of accountants express a preference for the net realizable value method of joint cost allocation over the physical quantities method?
> What costs are irrelevant for the decision of whether to sell a joint product or process it further?
> In the context of time-driven ABC, what are time equations?
> What two questions must a manager answer if a company is implementing time-driven activity-based costing?
> How does complexity lead to higher costs? Why is it important for the cost system design to consider complexity?
> The production team at Schaefer Manufacturing has been working on improving quality and has been approaching the problem from the technical side (measuring defects, and so on), but also from the financial perspective. They want to develop recommendations
> Refer to the information and data in Exercise 7-48 for Fulton Construction. Required Prepare a graphical analysis of the current status of the cost and timing of the project at the current time. Note: The graphs in Exhibit 7.14 suggest one approach, but
> Refer to the information and data in Exercise 7-47 for Clarita Contracting. Required Prepare a graphical analysis of the current status of the cost and timing of the project at the current time. Note: The graphs in Exhibit 7.14 suggest one approach, but
> Atwater Chemicals produces an engine additive for machinery. The additive is produced by adding various ingredients to a petroleum-based lubricant. Atwater purchases the lubricant from two suppliers, Woodlawn Petroleum and Spokane Chemicals. The quality
> The controller of a local firm that uses a continuous production process asks you to recommend whether the company should use weighted-average or FIFO process costing. What factors would you consider in making a recommendation?
> How is computing the cost of customers the same as computing the cost of products? How is the computation different?
> Some criticize the accounting profession for using expressions in the audit report that seem to build in deniability should the client commit a fraudulent act. What expressions enable the CPA to build a defense should the audit wind up in the courtroom?
> How might the existence of the dark triad personalities underlie undesirable behaviors by management and how might it influence the audit?
> AU-C 240, Consideration of Fraud in a Financial Statement Audit, specifically identifies red flags the auditor should be on the lookout as throughout the audit process (from client engagement through report issuance). Provide examples of such considerati
> You may know the difference between right and wrong behavior and never would consider committing fraud. But how do you maintain the highest level of professional conduct as it relates to fraudulent behaviors in others or when fraud is suspected?
> What are the objectives of audit risk assessment, and why is it important in assessing the likelihood that fraud may occur? How might the assessment influence the auditors’ evaluation of ICFR?
> How do AI and machine learning systems differ from the existing data analytic auditing systems like IDEA? Include a discussion of the professions’ concerns surrounding the use of AI in auditing.
> The modern day audit is evolving rapidly. Some fear that auditors will be replaced by artificial intelligence (AI). Is this a valid concern?
> Do you believe the end-user cares whether the lead audit engagement partner signs their name to the report or the firm simply files Form AP with the PCAOB? Explain.
> What is the purpose of an audit firm developing a system of quality controls?
> In 1995, Congress added Section 10A to the Securities Exchange Act of 1934 as part of the Private Securities Litigation Reform Act. Is it accurate to say that Congress enacted Section 10A with the intent to require auditors to blow the whistle on the fra
> Why are non-GAAP financial measures used by many investors and analysts?
> Identify and discuss the ‘Best Audit Practices’ the PCAOB has identified as a way to improve audit quality, and reduce audit deficiencies.
> Discuss whether an ethical conflict exists in violation of the AICPA rules in each of the following situations: a. A senior on an audit receives a gift certificate from a client to the most expensive restaurant in town. b. An audit engagement partner at
> When do ethical conflicts arise in the performance of professional accounting services? How should a CPA go about resolving ethical conflicts?
> Can a CPA auditor be independent without being objective and impartial? Can a CPA auditor be objective and impartial without being independent? Explain your answer in the context of recent rule changes by the SEC discussed in the chapter that loosened in
> Do you believe the threats and safeguards approach establishes a situational or relativistic ethic? How might utilitarianism be used to evaluate the ethicality of permitting certain relationships when threats exist?
> Given the discussions in this chapter about conflicts of interest in the performance of professional services and improper relationships with the clients, do you think the accounting profession is trustworthy? Why or why not?
> We all know people who say, “Don’t bother me with the facts. I’ve already made up my mind.” How might such an attitude influence judgment tendencies of auditors?
> What can CPA firms do about the relatively high rate of audit deficiencies identified in PCAOB inspections of firm audits?
> One day your ethics professor comes into class and proclaims that audit firms should be allowed to make materiality judgments when determining whether independence rules have been violated. After all, accountants make materiality judgments all the time.
> In the study of earnings quality by Dichev et al., CFOs stated that “current earnings are considered to be high quality if they serve as a good guide to the long-run profits of the firm.” Discuss how and why current earnings may not be a good barometer o
> Do you believe that CPAs in business should be held to the same high ethical standards as CPAs in public practice? Why or why not? Include in your discussion how those standards would apply to CPAs in business.
> Lloyd Schuman, a former senior internal auditor at Verso Corporation, learned about confidential plans that Verso, a publicly traded paper company, was going to acquire a privately held paper company, NewPage Holdings Inc. In the weeks before Verso went
> Barbara Houston is a CPA with her own accounting and tax practice. One day an audit client asks her to represent him in a conference with the IRS about her prior years’ tax return. It seems the IRS is claiming Barbara owes $50,000 additional taxes. The c
> Explain the difference between the “realistic possibility of success” tax standard for taking a tax position under SSTS Interpretation No. 101-1 and the “reasonable basis” standard. When should each be used?
> What is the role of the board of directors in developing an ethical organization culture?
> Explain how internal auditors’ sensitivity to ethical dilemmas might be influenced by corporate governance mechanisms.
> According to the 2020 Global Study on Occupational Fraud and Abuse, a tip is the most common way to report fraud. What should be the ethical considerations for employees before deciding whether to blow the whistle on wrongdoing through a tip or organizat
> What are the indicators that occupational fraud might exist? Explain.
> Organizational culture can influence moral behavior. Explain how this might work and lead to a defense of subordinates’ behavior we might call “They made me do it.”
> Explain the role of integrity in workplace ethics.
> Schilit describes a variety of financial shenanigans. What is the purpose of using those techniques? Would you call it gimmickry? Explain.
> Review the facts related to the reporting of financial statement fraud by Tony Menendez at Halliburton. In commenting on his actions, Menendez said one reason for bringing a claim under SOX was to be proven right about his views on the premature recognit
> Given the requirements of the Dodd-Frank Act to receive an award, what factors should a potential whistleblower consider before blowing the whistle to the SEC on financial wrongdoing from an ethical reasoning perspective.
> Should whistleblowers be allowed to use confidential company documents to expose fraud and other illegality? Use the ruling in Erhart v. BofI Holdings to guide the discussion.
> Do you believe the U.S. Supreme Court decision in Digital Realty Trust, Inc. v. Somers was the “right” decision? Explain the basis for your answer from a whistleblower’s perspective.
> An important factor in an individual's decision whether to become a whistleblower is their sense of duty and loyalty. Imagine a CPA discovers that their supervisor is committing fraud to make the company's financial statements appear better than they rea
> How do the concepts of cognitive dissonance and organizational/ethical dissonance that was discussed in Chapter 2 relate to whether an accountant might choose to blow the whistle on corporate wrongdoing?
> How does the Sarbanes-Oxley Act seek to create an ethical organization culture?
> While on a lunch break following a dispute with a supervisor, an employee updated her Facebook status to an expletive and the name of the employer’s company. Several coworkers “liked” her status. She later posted that the employer didn’t appreciate its e
> In her book The Seven Signs of Ethical Collapse, Jennings explains: “When an organization collapses ethically, it means that those in the organization have drifted into rationalizations and legalisms, and all for the purpose of getting the results they w
> How do you assess at what stage of moral development in Kohlberg’s model you reason at in making decisions? Do you believe your level of reasoning is consistent with what is expected of an accounting professional? How does the stage you indicate relate t
> Discuss the revenue recognition and internal control challenges when a company uses cloud computing.
> Do you believe all sexual relationships should be forbidden in the workplace? Use ethical reasoning to support your view.
> Explain what you think each of the following statements means in the context of moral development. a. How far are you willing to go to do the right thing? b. How much are you willing to give up to do what you believe is right? c. We may say that we would
> Explain how an overconfidence bias might influence an auditor’s judgment about the proper balance sheet value of inventory.
> How do reasons and rationalizations of GVV influence the culture of the organization?
> Sharon Watkins regrets not taking more action back in 1996 when she first concluded that Enron’s accounting might not be in accordance with GAAP. Please explain how GVV training might have helped her bring the matter to a successful resolution at that t
> One expression in particular seems to sum up why the accounting frauds at companies such as Enron, WorldCom, and HealthSouth were allowed to persist for so long: “If I Do It, I Must Do It Again.” Explain what is meant by this statement in the context of
> Mark Twain once said, “If you tell the truth, you don’t have to remember anything.” Explain what you think Twain meant by this statement and how it addresses one’s character.
> Consider the ethical principle of praising the good and ignoring the bad. Is this a good way to foster ethical behavior?
> Why do bad things sometimes happen to good people? Does this mean they are a bad person?
> Do you think a CPA can justify allowing the unethical behavior of a supervisor by claiming, “It’s not my job to police the behavior of others?”
> The SEC’s new rules on posting financial information on social media sites such as Twitter means that companies can now tweet their earnings in 280 characters or less. What are the problems that may arise in using a social media platform to report key fi
> Assume that a CFO asks you, as the accountant for the company, to omit certain financial figures from the balance sheet that may paint the business in a bad light. Because the request does not involve a direct manipulation of numbers or records, would yo
> One morning a student telephones her professor that she won't be able to take a scheduled exam because her car broke down on the way home from an out-of-town trip. She asks to take it at another time. What would you do if you were the professor and why?
> Do you think the "Resolution of Ethical Issues" section in The IMA Statement of Ethical Professional Practice is a helpful part of its ethical standards?
> Why do you think good people sometimes do bad things? Explain.
> MacIntyre, in his account of Aristotelian virtue, states that integrity is the one trait of character that encompasses all the others. How does this relate to the Principles in the AICPA Code of Professional Conduct?
> Explain the components of Burchard’s Ethical Dissonance Model and how it describes the ethical person-organization fit at various stages of the contractual relationship in each potential fit scenario. Assume a Low Organizational Ethics, High Individual E
> What does the term "civility" mean to you? Do you think it is civil behavior to shout down a speaker with whom you do not agree? What about cancelling someone because you don't agree with their message?
> Answer the following with regard to egoism. (a) Do you think it is the same to act in your own self-interest as it is to act in a selfish way? (b) Do you think “enlightened self-interest” is a contradiction in terms, or is it a valid basis for all action
> David Starr Jordan (1851–1931), an educator and writer, said, “Wisdom is knowing what to do next; virtue is doing it.” Explain the meaning of this phrase as you see it.
> What is the comparative negligence defense? When can it shield auditors from legal liability for their actions?
> Tinseltown Construction just received a $2.6 billion contract to construct a modern football stadiumfor the L.A. Rams and San Diego Chargers at the L.A. Sports and Entertainment District. The company estimates that it will cost $1.8 billion to construct
> Describe the possible entities that may sue an auditor and the possible reasons for a lawsuit.
> Is there a difference between an error in financial statements, fraud, and negligence from a reasonable care perspective? Give examples of each of your response. How would these events affect accountants’ legal liability?
> During a particularly stimulating lecture by your accounting ethics professor on accountants’ legal liabilities, the following question was posed: Assume you are a CPA and have just been sued by a third-party for your failure to conduct a proper audit. W
> Under what circumstances might an auditor be held legally liable for negligent representation versus a fraudulent misrepresentation based on court rulings discussed in the chapter? Include in your discussion the tests for reliance on misrepresentations.
> Explain how the intent requirement of the legal principle of scienter relates to ethical standards of behavior discussed in previous chapters.
