Đang tải... (xem toàn văn)
Ethical obligations and decision making in accounting text and case 4e mintz Ethical obligations and decision making in accounting text and case 4e mintz Ethical obligations and decision making in accounting text and case 4e mintz Ethical obligations and decision making in accounting text and case 4e mintz Ethical obligations and decision making in accounting text and case 4e mintz Ethical obligations and decision making in accounting text and case 4e mintz Ethical obligations and decision making in accounting text and case 4e mintz
Ethical Obligations and Decision Making in Accounting Text and Cases Fourth Edition Steven M Mintz, DBA, CPA Professor of Accounting California Polytechnic State University, San Luis Obispo Roselyn E Morris, Ph.D., CPA Professor of Accounting Texas State University–San Marcos ETHICAL OBLIGATIONS AND DECISION MAKING IN ACCOUNTING: TEXT AND CASES, FOURTH EDITION Published by McGraw-Hill Education, Penn Plaza, New York, NY 10121 Copyright © 2017 by McGraw-Hill Education All rights reserved Printed in the United States of America Previous editions © 2014, 2011 and 2008 No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of McGraw-Hill Education, including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning Some ancillaries, including electronic and print components, may not be available to customers outside the United States This book is printed on acid-free paper QVS ISBN 978-1-259-54347-0 MHID 1-259-54347-1 Senior Vice President, Products & Markets: Kurt L Strand Vice President, General Manager, Products & Markets: Marty Lange Vice President, Content Design & Delivery: Kimberly Meriwether David Managing Director: Tim Vertovec Senior Brand Manager: Natalie King Director, Product Development: Rose Koos Director of Digital Content: Patricia Plumb Lead Product Developer: Kristine Tibbetts Senior Product Developer: Rebecca Mann Marketing Manager: Kyle Burdette Senior Digital Product Analyst: Xin Lin Senior Director, Content Design & Delivery: Linda Avenarius Program Manager: Daryl Horrocks Content Project Manager: Angela Norris Buyer: Jennifer Pickel Designer: Tara McDermott Content Licensing Specialists: Jacob Sullivan / Melissa Homer Cover Image: (c) Olaser/Getty Images Compositor: SPi Global Typeface: STIX Mathjax Main 10/12 Printer: Quad/Graphics All credits appearing on pages or at the end of the book are considered to be an extension of the copyright page Library of Congress Cataloging-in-Publication Data Names: Mintz, Steven M., author | Morris, Roselyn E., author Title: Ethical obligations and decision making in accounting : text and cases / Steven M Mintz, DBA, CPA, Professor of Accounting California Polytechnic State University, San Luis Obispo, Roselyn E Morris, Ph.D., CPA, Professor of Accounting Texas State University-San Marcos Description: Fourth Edition | New York, NY : McGraw-Hill Education, 2016 | Revised edition of the authors' Ethical obligations and decision making in accounting, 2014 Identifiers: LCCN 2015044426 | ISBN 9781259543470 (alk paper) Subjects: LCSH: Accountants Professional ethics United States Case studies Classification: LCC HF5616.U5 M535 2016 | DDC 174/.4 dc23 LC record available at http://lccn.loc.gov/2015044426 The Internet addresses listed in the text were accurate at the time of publication The inclusion of a Web site does not indicate an endorsement by the authors or McGraw-Hill Education, and McGraw-Hill Education does not guarantee the accuracy of the information presented at these sites mheducation.com/highered 2013011582 Dedication “Educating the mind without educating the heart is no education at all.” Aristotle What Aristotle meant by this statement is intelligence that is not informed by our hearts by compassion is not really intelligent at all We strive in this book not only to educate accounting students to be future leaders in the accounting profession but to stimulate your ethical perception and cultivate virtue thereby awakening your sense of duty and obligation to the public interest About the Authors Steven M Mintz, DBA, CPA, is a professor of accounting in the Orfalea College of Business at the California Polytechnic State University–San Luis Obsipo Dr Mintz received his DBA from George Washington University His first book, titled Cases in Accounting Ethics and Professionalism, was also published by McGraw-Hill Dr Mintz has recently been acknowledged by accounting researchers as one of the top publishers in accounting ethics and in accounting education He was selected for the 2014 Max Block Distinguished Article Award in the “Technical Analysis” category by The CPA Journal Dr Mintz received the 2015 Accounting Exemplar Award of the Public Interest Section of the American Accounting Association He also has received the Faculty Excellence Award of the California Society of CPAs Dr Mintz writes two popular ethics blogs under the names “ethicssage” and “workplaceethicsadvice.” Roselyn E Morris, Ph.D., CPA, is a professor of accounting in the Accounting Department at the McCoy College of Business, Texas State University–San Marcos Dr Morris received her Ph.D in business administration from the University of Houston She is a past president of the Accounting Education Foundation and chair of the Qualifications Committee of the Texas Board of Public Accountancy Dr Morris has received the Outstanding Educator Award from the Texas Society of CPAs Both Professors Mintz and Morris have developed and teach an accounting ethics course at their respective universities Preface Ethical Obligations and Decision Making in Accounting was written to guide students through the minefields of ethical conflict in meeting their responsibilities under the professions’ codes of conduct Our book is devoted to helping students cultivate the ethical commitment needed to ensure that their work meets the highest standards of integrity, independence, and objectivity An expanded discussion of professional judgment highlights the challenges to ethical decision-making for internal accountants and auditors, and external auditors We hope that this book and classroom instruction will work together to provide the tools to help students to make ethical judgments and carry through with ethical actions The fourth edition of Ethical Obligations and Decision Making in Accounting: Text and Cases incorporates a behavioral perspective into ethical decision-making that encourages students to get in touch with their values and learn how to voice them in the workplace when conflicts arise and ethical dilemmas exist We build on traditional philosophical reasoning methods by taking the process one step further, that is, to convert ethical intent into ethical action The “Giving Voice to Values” (GVV) approach provides this link If accounting professionals are successful in voicing values in a way that encourages doubters and detractors to join the effort, then there may be no need for whistle-blowing We also connect many of the issues discussed in the book with a new final chapter on “Ethical Leadership.” Several states now require their accounting students to complete an ethics course prior to being licensed as a CPA This book has been designed to meet the guidelines for accounting ethics education including: encouraging students to make decisions in accordance with prescribed values, attitudes, and behaviors providing a framework for ethical reasoning, knowledge of professional values and ethical standards prescribing attributes for exercising professional skepticism and behavior that is in the best interest of the investing and consuming public and the profession What’s New in the 4th Edition? In response to feedback and guidance from numerous accounting ethics faculty, the authors have made many important changes to the fourth edition of Ethical Obligations and Decision Making in Accounting: Text and Cases, including the following: Connect is available for the first time with assignable cases, test bank assessment material, and SmartBook SmartBook is an excellent way to ensure that students are reading and understanding the basic concepts in the book and it prepares them to learn from classroom discussions Several of the Chapter Cases are available in an auto-graded format to facilitate grading by instructors The purpose of using the digital format is to better prepare students ahead of class to free up instructors to discuss a broader range of topics in their lectures and in the give-and-take between teacher and student Connect Insight Reports will also give the instructor a better view into the overall class’s understanding of core topics prior to class, to appropriately focus lectures and discussion The Connect Library also offers materials to support the efforts of first-time and seasoned instructors of accounting ethics, including a comprehensive Instructor’s Manual, Test Bank, Additional Cases, and PowerPoint presentations Learning Objectives have been added and linked to specific content material in each chapter Giving Voice to Values (GVV) approach is explained in Chapter and used throughout the text GVV is an innovative pedagogical method that complements the traditional philosophical reasoning vi Preface approaches to ethical decision-making by emphasizing developing the capacity to express one’s values in a way that positively influences others The technique is used post-decision-making and is based on developing and fine-tuning an action plan using scripting and rehearsal It is ideal for role-playing exercises International auditing and ethics issues are incorporated into existing chapters Added five new Discussion Questions to each chapter as well as revised questions with more current topics and issues Replaced many of the cases with more current and topical issues Eighteen of the 76 cases have been specifically developed to enable students to practice the “Giving Voice to Values” technique in the context of the decision-making model Expanded the discussion of whistleblowing obligations of accounting professionals in Chapter including guidelines for reporting under Dodd-Frank and the AICPA rules of conduct Added a comprehensive section on professional judgment in accounting and auditing to Chapter and models for making judgments and exercising professional skepticism Updated Chapter to incorporate the Revised AICPA Code of Professional Conduct Expanded the discussion of the PCAOB inspection process in Chapters and for audits of companies listing stock in the U.S., including Chinese companies and audit deficiencies noted in inspections of U.S companies Updated case examples used throughout the text to describe earnings management techniques with expanded coverage in Chapter New Chapter on “Ethical Leadership” that ties together many of the topics in the chapters in the text Ethical leadership is explored in the context of making ethical decisions and judgments in the performance of professional accounting services Improved and expanded the scope of major cases that can be used as an end-of-course project to enhance the experiences of upper-division undergraduates and graduate students Revised and greatly enhanced Instructor’s Resource Materials and supplements Chapter New discussion of the use of social networks and social media communications, personal responsibility, and workplace ethics Expanded discussion of moral philosophies and implications for ethical reasoning in accounting and auditing Expanded discussion of the Principles of the AICPA Code of Professional Conduct, the public interest obligation, and regulation in the accounting profession Chapter New discussion of moral intensity and influence on ethical decision making New discussion of Kidder’s Ethical Checkpoints and link to moral action Expanded discussion of Behavioral Ethics and cognitive development New and comprehensive discussion of the GVV technique that provides a mechanism for students to act on ethical intent Chapter discusses the foundation of the approach including examples on applying the methodology There are five cases in the chapter to engage students in discussions of the GVV approach to ethical action Subsequent chapters also contain cases with a GVV dimension Preface vii Chapter New section on “Organizational Ethics and Leadership.” New discussion of “Character and Leadership in the Workplace.” Updated results from the National Business Ethics Survey, Association of Certified Fraud Examiners Global Survey, and KPMG Integrity Survey Expanded discussion of financial statement fraud schemes New discussion of the morality of whistleblowing Added discussion of major whistleblower case of Anthony Menendez v Halliburton, Inc Expanded discussion of Dodd-Frank provisions for whistleblowing by internal accountants and auditors, and external auditors including when external auditors can blow the whistle on their audit firms Expanded discussion of subordination of judgment rules and their application to whistleblowing Chapter Extensive new discussion of professional judgment in accounting Added an explanation of KPMG Professional Judgment Framework Expanded discussion of professional skepticism New discussion of professionalism and commercialism Comprehensive discussion of the Revised AICPA Code of Professional Conduct including: Conceptual Framework for Members in Public Practice and Conceptual Framework for Members in Business New discussion of ethical conflict requirements and decision-making model under the Revised Code Expanded discussion of AICPA Conceptual Framework for Independence Standards Expanded discussion of integrity and subordination of judgment rules New discussion of confidentiality and disclosing fraud Expanded discussion of ethics in tax practice Expanded discussion of “Insider Trading” cases against CPAs New discussion of Global Code of Ethics Chapter Expanded discussion of errors, illegal acts, and fraud New discussion of Private Securities Litigation Reform Act and reporting requirements to the SEC; fraud and confidentiality issues explored Discussion of Professional Skepticism Scale that measures traits conducive to developing a questioning mind and informed judgment Discussion of findings of the Center for Audit Quality of audit deficiencies Expanded discussion of PCAOB audit inspection process and high rate of deficiencies of audit firms viii Preface Chapter New cases that explore in depth legal obligations of accountants and auditors Expanded discussion of auditor legal liabilities Expanded section on legal liabilities under Sarbanes-Oxley New discussion of International Financial Reporting Standards and international enforcement New discussion of principles versus rules-based standards and SEC position on objectives-oriented standards New section on “Compliance and Management by Values.” New section on “Global Ethics, Fraud, and Bribery” and the Foreign Corrupt Practices Act Expanded discussion on regulatory issues and PCAOB inspections Chapter New section on “Non-Financial Measures of Earnings.” Expanded discussion of earnings management and professional judgment Expanded discussion of the use of accruals and earnings management Introductory discussion of new revenue recognition standard Detailed examples of financial statement restatements of Hertz Corporation and Cubic Corporation, and CVS-Caremark merger Chapter – New Chapter on Ethical Leadership Chapter links back to discussions in Chapters through by incorporating material on “Ethical Leadership.” The purpose is to leave students with a positive message of the importance of being a leader and ethical leadership in building organizational ethics Leadership in decision-making in accounting, auditing, tax, and advisory services engagements is addressed The chapter includes 20 discussion questions and new cases The chapter includes the following major topics: Discussion of moral decision-making and leadership Exploring different types of leaders: authentic leaders, transformational leadership, followership and leadership, and how social learning theory influences leadership Revisiting moral intensity in the context of ethical leadership Ethical leadership and internal audit function Ethical leadership and tax practice Gender influences in leadership Causes of leadership failures Case studies on ethical leadership Implications of ethical leadership for whistleblowing activities Values-based leadership Ethical leadership and the GVV technique Ethical leadership competence ® Required=Results McGraw-Hill Connect® Learn Without Limits Connect is a teaching and learning platform that is proven to deliver better results for students and instructors Connect empowers students by continually adapting to deliver precisely what they need, when they need it, and how they need it, so your class time is more engaging and effective 88% of instructors who use Connect require it; instructor satisfaction increases by 38% when Connect is required Using Connect improves passing rates by 10.8% and retention by 16.4% Analytics Connect Insight® Connect Insight is Connect’s new one-of-a-kind visual analytics dashboard—now available for both instructors and students—that provides at-a-glance information regarding student performance, which is immediately actionable By presenting assignment, assessment, and topical performance results together with a time metric that is easily visible for aggregate or individual results, Connect Insight gives the user the ability to take a just-in-time approach to teaching and learning, which was never before available Connect Insight presents data that empower students and help instructors improve class performance in a way that is efficient and effective Students can view their results for any Connect course Find more at www.downloadslide.com Find more at www.downloadslide.com Name Index Note: Page numbers followed by n indicate notes A Aesoph, John J., 481 Akers, Michael D., 419 Albrecht, W Steve, 140 Allaire, Paul, 440 Allgyer, Robert E., 583, 585 Allred, Gloria, 199 Anderson, Christopher, 266 Anderson, John, 106 Anderson, Warren M., 195, 196, 199 Andreae, Jan, 331 Antar, Eddie, 353 Apotheker, Leo, 401 Aristotle, 6, 16, 31, 37 Armstrong, Lance, 18 Armstrong, Mary Beth, 74 Atkinson, Tom, 491 Austen, Ian, 489 Avolio, Bruce J., 513 B Baier, Kurt, 36 Baitz, Norman, 105 Barnhill, Douglas, 329 Bartov, Eli, 408 Bass, Carl E., 504, 505, 513 Battista, Orlando Aloysius, 22 Bauman, Jackie, 532, 533 Bazerman, Max H., 3, 298 Beam, Aaron, 516 Beatty, Douglas, 468–473 Bellovary, Jodi L., 419 Bennett, Darren M., 481 Bennis, Warren, 128 Bentham, Jeremy, 27 Berardino, Joseph F., 504, 505, 510, 513 Beshere, Thomas M., 536n4 Blackwell, Richard, 488n1 Blanford, Lawrence, 410 Boller, Kate, 262 Bondi, Enrico, 534, 537 Boo, El’fred H.Y., 117–118 Borden, Will, 494–495 Boyce, Gordon, 208 Boyle, Joseph T., 275 Boynton, Andrew C., 224 Bray, Chad, 537n5 Brennan, N., 519 Brockmeyer, Kara, 365 Brown, James, 553–555 Bruns, William J., 419 Buffett, Warren, 407 Bullinger, Eric S., 300 Buntrock, Dean, 580, 583, 584 Burchard, Mary Jo, 116, 117, 409 Burger, Hans, 328 Burger, Warren, 203 Butterfield, Kenneth D., 13 Dunlap, Albert J., 420, 427, 483, 484 Dunn, Frank, 468–473 C Ebbers, Bernie, 4, 108, 109, 508, 510 Eddie, Crazy, 352, 353 Edwards, John, 21–22 Elkind, Peter, 62, 444, 445 Erhard, Werner, 408 Erhard, William, 408 Escott, Barry, 352 Call, Andrew C., 409 Callan, Erin M., 212 Campbell, Frank, 177–180 Cardozo, Benjamin, 341, 343 Carlson, Rick, 258 Carroll, Archie B., 116, 120 Casstevens, Randy, 543 Caswell, Wiliam, 550, 553, 554 Causey, Richard A., 504 Cercavschi, Walter, 583 Ceresney, Andrew, 366, 428 Chan, Allen, 488, 490 Chang, Rebecca, 532 Cherelstein, Stan, 106–108 Collins, Jim, 372 Conway, Michael A., 275 Cook, Jeffrey, 181 Cooper, Cynthia, 4–5, 24, 33, 42, 83, 108–109, 118, 148, 514, 522 Corigliano, Cosmo, 568, 574 Coster, Donald, 355 Cox, Christopher, 213 Crain, William, 67 Cramer, Jim, 346 Crawford, Christopher, 492–495, 492n1 Cressey, Donald R., 276 Cupertino, Tony, 179 Curtis, Mary B., 511, 518, 519 Cutler, Stephen, 223 D Davies, Matt, 393–394 Davis, Robert W., 479 Day, Jason, 327 De Cremer, David, 509, 510 Deadman, Davis, 349, 350 Dearlove, Gregory M., 548–557 Dechow, P.M., 416, 417 Dell, Michael, 478 Derrick, James V., 448, 449 Dichev, Ilia, 420 Dim, Vincent, 98 Dingell, John, 210 Disraeli, Benjamin, 8–9 Dolanski, Anthony P., 275 Donner, Glen, 532, 533 Duncan, David, 62 E F Fahlin, Roland, 331–332 Fastow, Andrew S., 504 Fastow, Andy, 41, 119, 444–451, 504 Feakins, Nick, 330 Feinberg, Kenneth, 142 Ferrell, Linda, 115 Ferrell, O.C., 114, 115 Fiedelman, Richard, 494, 495 Finn, Patrick, 106 Fisher, Jodie, 199 Fiske, Susan E., 116 Flanagan, Thomas P., 224–225 Fletcher, Joseph, 10 Flynn, Timothy, 541 Fogarty, Timothy, 408 Folsom, David, 426 Footer, Frank, 328 Forbes, Walter A., 569, 574 Foster, Timothy P., 175 Fostermann, Kelly, 314 Frank, Anne, 30 Franklin, Benjamin, 23 Franks, Joan, 182 Fray, Jeff, 488, 488n1 Freeh, Louis, Freeman, Gill, 318 Fuerst, Linda, 491 Fuld, Richard, 212 Fuller, Joseph, 408 G Gandal, Jonathan, 267 Gardner, William L., 513 Garson, Natalie, 180 Geithner, Timothy, 213 Gerstner, Louis V., 113 Getz, Herbert A., 581, 583, 584 Giacomino, Don E., 419 IN-1 Find more at www.downloadslide.com IN-2 Name Index Giles, Ed, 52–53 Gilligan, Carol, 64 Gilmore, Madison, 565–567 Ginsburg, Douglas H., 548 Ginsburg, Ruth Bader, 359 Gioia, Dennis, 122 Glover, Steven M., 206 Gluck, Robert J., 483 Goldberg, Josh, 565, 567 Goldblum, Stanley, 356, 357 Gollogly, Michael, 468–473 Gomez, Jose, 219 Gonzalez, Manny, 323–325 Gordon, Bennie, 182–183 Graham, Jill W., 519 Graham, John R., 409 Gray, Jeff, 488n1 Gray, Lily, 122 Gregory, Paul Roderick, 490n6 Griffith, Lee B., 483 Grimshaw, Richard, 122 Grubel, Patricia, 561 Gupta, Poornima, 401 H Hahn, Steve, 477 Hamilton, V Lee, 118 Han, Ki-Suck, 53 Hand, Learned, 121 Hannezo, Guillaume, 576, 578 Hanson, Kirk O., 372 Harlow, Phillip, 483, 486, 487 Harrison, John, 55 Harrison, Ken, 477 Hau, Thomas C., 581, 583, 584, 587 Hayward, Walter, 179 Healy, P.M., 416, 417, 425 Heidman, Eric, 329 Heinen, Nancy, 143 Henderson, Darren, 473 Henley, Paul, 473, 474 Hernandez, Gloria, 55 Higgins, Henry, 37, 39, 40 Higgins, Sarah, 182 Hiltebeitel, Kenneth M., 116 Hiznay, Paul, 569, 570, 573, 574 Ho, George, 490 Hobbes, Thomas, 29 Hoffman, Andy, 488, 488n1 Hoffman, Mayer, 221 Hofmann, Ivan, 553, 554 Hofstede, Geert, 14, 67 Hollander, Edwin P., 509 Hopwood, William S., 416, 417 Howe, Stephen, 307 Hung, Alfred, 490 Hunt, Shelby D., 204 Hunter, Rielle, 22 Hurd, Mark, 199–200 Hurtt, R Kathy, 298 Hussain, Sushovan, 404 I Imhoff, Randall D., 479 Ip, Albert, 490 J Jennings, Marianne, 118–120 Jensen, Michael C., 140, 408 Jensen, Vick, 314 Jobs, Steve, 120, 143 Johnson, Sarah, 499n2 Jones, Barbara, Jones, Thomas, 116, 511, 512 Jones, Vanessa, 182 Josephson, Michael, 16–20 K Kabureck, Gary, 363 Kahneman, Daniel, 80 Kaiser, Mark, 561 Kamen, Billy, 261 Kang, Joe, 262 Kant, Immanuel, 29, 154 Kaplan, Lewis A., 248, 536 Kaplan, Tamara, 125 Katz, David K., 108, 108n1 Kearney, Kevin, 568, 569, 573 Keenan, John P., 199, 518 Keller, Jamie, 327 Kelley, J., 519 Kelly, J Michael, 265 Kelman, Herbert, 118 Kemper, Theodore D., 510 Kersh, Russell A., 483 Khuzami, Robert, 475, 478, 483 Kilberg, Arnold, 388, 389 Kilgore, Carl, 234–235 King, Max, 326 Koehnen, Markus, 490 Koh, Hian Chye, 117–118 Kohlberg, Lawrence, 63–67 Kohn, Harry, 98 Kolb, Sue, 264 Kopper, Michael, 446, 448 Kouzes, James M., 523 Kozlowski, Dennis, 119, 123, 131, 277, 278, 280, 281, 508, 510, 516 Kreme, Krispy, 541–543 Kross, Gunther, 386 Kutsenda, Robert G., 583, 586 L Land, Carl, 260 Larson, John, 248 Lawley, James, 81 Lawson, Raef A., 13 Lawton, Alan, 507 Lay, Ken, 140, 447–449, 451 Le, Diem-Thi, 520–522 Leroy, James, 57–58 Lesjak, Cathie, 199 Leske, Nicola, 401 Lester, Ethan, 314 Leung, Herman, 151 Levin, David, 565–567 Levin, Gerald, 265 Levitt, Arthur, 407, 408, 414, 415, 427 Lewis, Dustin M., 300 Lewis, Paul, 387 Liu, Caixing, 409 Liu, M.H Carol, 409 Livengood, Scott, 542, 543 Locke, John, 29 Lowe, Kevin, 56 Lowitt, Ian, 212 Lynch, Michael, 400–404 M MacIntyre, Alasdair, 16, 32 Madoff, Bernie, Mahoney, Dan, 403 Mahoney, Frank, 307 Maier, Edward G., 583 Markowicz, Sammie, 103–104 Marrocco, Frank, 472, 473 Marsch, Nicholas, 318 Martin, Michael D., 517 Marwick, Peat, 210 Mason, Donna, 477 Maxwell, John, 506 McCabe, Donald L., 11, 13 McCoy, Bowen H., 171 McFarland, Janet, 488, 488n1 McKee, Thomas E., 417, 439 McKenna, Francine, 404n4 McLean, Bethany, 62, 444, 445 McVay, Malcolm, 517 Meckling, William H., 140 Mendes, Michael, 329 Menendez, Anthony, 522 Menendez, Tony, 188–190, 192 Merchant, Kenneth A., 419 Mesmer-Magnus, Jessica R., 518 Messier, Jean-Marie, 576, 578 Meurs, A Michael, 331 Mian, Atif, 212 Michaels, Steve, 531 Miles, Cheryl, 477 Mill, John Stuart, 27 Milton, Irv, 102 Minkov, Michael, 14 Minkow, Barry, 315–318, 355 Mintz, Steven M., 4, 22, 32 Monus, Mickey, 106 Morris, Jan Taylor, 513 Morse, Alan, 544 Morse, Gene, Müller, Heinrich, 385–387 Myers, David, 108 Find more at www.downloadslide.com Name Index IN-3 N Nappier, Denise L., 584 Needles, Belverd E., 417, 418, 422 Neil, Steven, 329 Nelson, Mark W., 297 Nolan, Caroline, 340 Norris, Denise, 544 O Obama, Barack, 20, 142, 143 O’Meara, Christopher, 212 O’Neill, Paul, 124 Owens, William T., 517 P Padilla, Art, 118 Paez, Iliana, 507 Pahapill, Maryanne, 468, 469, 471 Palmrose, Zoe-Vonna, 341 Pandit, Vikram, 144 Parkman, Jim, 515 Paterno, Joe, 2, 3, 18 Paulson, Henry, 213 Pember, Anne M., 568, 569, 574 Piazza, Michael L., 271 Pincoff, Edmund L., 19 Plaff, Robert, 248 Plato, 6, 32 Plotkin, Ann, 102–103 Polverari, Mary Sattler, 569 Ponemon, Larry A., 512 Popperson, Lance, 259 Posner, Barry P., 523 Prawitt, Douglas F., 206 Pulliam, Susan, 109n2 R Rabinowitz, Marc, 570 Raju, Ramalinga, 112, 397 Rakoff, Jed, 360 Rand, Michael T., 496, 498 Rao, M Rammohan, 398 Rawls, John, 30–31 Regas, Susan, 52–53 Rest, James, 24, 69–72 Rezaee, Zabihollah, 145 Rigas, John, 548–550, 552–557 Rikey, Ricardo, 105 Rindner, Steven, 265 Ripp, Joseph A., 265 Rivard, Richard J., 415 Rogers, Kelly, 264 Rollins, Kevin, 478 Romello, Tony, 326 Romeril, Barry D., 440 Rooney, Phillip B., 580, 581, 583, 584 Roosevelt, Eleanor, 19 Rose, Anna, 419 Rose, Jacob, 419 Rosen, Cyndie, 58–59 Rosenthal, Richard, 248 Ruble, Raymond J., 248 S Sabatino, Casper, 568, 569, 573, 574 Safran, Ronald A., 275 Sala, Luca, 535 Sanders, Teresa Rubio, 515 Sandusky, Jerry, Scalzo, Richard P., 281, 282 Schilder, Arnold, 207 Schilit, Howard, 436, 443, 485–486, 485n5 Schipper, K., 416, 417 Schleibaum, Patrick, 136, 137 Scrushy, Richard, 81, 120, 134, 153, 515–517, 522 Scully, Robert, 144 Sells, Brenda, 98 Shapira, David, 106 Shecter, Barbara, 489n5 Shelton, E Kirk, 569 Shore, Andrew, 486–487 Silverstein, Michael A., 388, 389 Sims, Randi L., 518 Skilling, Jeffrey K., 146–147, 444, 446–449, 451, 504, 508, 510 Skinner, P.J., 416, 417 Sloan, Grace, 258 Smedmor, Charles, 472, 491 Smith, Adam, 24–25 Smith, H.R., 116 Smith, Weston L., 153, 516 Socrates, Spanier, Graham, Speaks, Steven, 569 Stanley, Bill, 319–321, 323, 325 Stein, Jeffrey M., 248 Stone, W Clement, Straher, Steven R., 267n2 Strine, Leo, 145 Strom, Helen, 260 Stuebs, Mary J., 33 Sturgeon, Jamie, 472n6 Styron, William, 30 Sufi, Amir, 212 Sugofsky, Ira, 103–104 Sullivan, Scott, 4, 5, 10, 41, 108–109 Sutherland, Edwin, 276 Swartz, Marc, 277, 281 Swartz, Mark, 131 T Tanzi, Calisto, 534–536 Tate, John, 542, 543 Taylor, Eileen Z., 511, 518, 519 Taylor, Shelley E., 116 Tedesco, Theresa, 472n6 Tenbrunsel, Ann E., 298, 509, 510 Thoman, G Richard, 440 Thompson, Michelle, 326 Thorne, L., 73, 74, 77 Thornton, Grant, 219, 349–350, 534, 536 Thornton, Linda, 517 Thornton, Sam, 182 Tobecksen, Bruce, 581 Toffler, Barbara Ley, 62, 244 Tompkins, Penny, 81 Tonna, Fausto, 534 Toobin, Jeffrey, Treadway, James C., 211 Trebrunsel, Ann, Treviño, Linda Klebe, 11, 13 Turner, James, 491 Turner, Lynn E., 208, 363 Tushoes, Billy, 55 U Ungarala, Pratima, 197, 197n14 Uzzi, Donald R., 483 V Vadlamani, Sirinivas, 397 van Cleave, Jennifer, 561 van der Hoeven, Cees, 331 Vanstraten, Pete, 494–495 Victor, Bob, 566 Vinson, Betty, 5, 10, 17, 24, 32, 81, 109, 522 Viswesvaran, Chockalingam, 518 Vitell, Scott, 204 Volkov, Michael, 366 Von Hildenberg, Greta, 386 Vorhies, James Brady, 424 W Wald, Beverly, 104 Washington, George, 18 Watkins, Sherron, 448, 449, 511, 512 Webb, Wilse B., 509 Webster, Maron, 515, 516 White, Mary Jo, 151 Whitman, Meg, 403 Wilchfort, Kenneth, 570 Wiles, Quentin T., 136, 137 Wilkinson, Brett M., 33 Woodford, Michael C., 183 Wyden, Ron, 210 Y Yellen, Barry, 328 Yeung, Simon, 490 Young, Sarah, 473, 474 Find more at www.downloadslide.com Subject Index Note: Page numbers followed by n indicate notes A absolutes, moral, 29 acceptable payments, 364 accountability, defining, 139 accountants See also certified public accountants (CPAs) earnings management, perception of, 418–420 internal, 158–159 accounting ethical domain in, 67–68 moral relativism in, 10 for nuts, 329–330 public interest in, 33–36 role in financial crisis, 212–213 Accounting and Auditing Enforcement Release (AAER) 2125, 425 Accounting and Review Services Committee of AICPA, 347 Accounting Exemplar Award, accounting fraud See financial fraud; fraud accruals, earnings management and, 421–422 Ace Manufacturing, 79–80 ACFE See Association of Certified Fraud Examiners (ACFE) acquisition accounting, creative, 427 Acts Discreditable, 237–240 actually foreseen third parties, 344–345 act-utilitarians, 27, 29 Adelphia Communications, 548–558 Advanced Battery (ABAT) technologies, 384–385 adverse interest threat, 216, 231, 292 adverse opinion, in audit report, 291 advertising, 241–242 advocacy threat, 216, 230, 231 Affordable Care Act (Obamacare), 208 agency theory, 140 aggressive tax position, 250 Ahold (Royal Ahold N.V.), 331–334, 558–565 AICPA (American Institute of Certified Public Accountants), 357 Accounting and Review Services Committee, 347 Auditing Standards Board, 287 Code of Professional Conduct, 202, 203, 206, 208, 290, 373 financial statement fraud, 271 Statements on Standards for Tax Services (SSTS), 245–247 AICPA Code of Professional Conduct, 23, 35–36, 214, 373 See also Statements on Auditing Standards (SAS) advertising and solicitation, 241–242 auditor independence, SEC position on, 221–226 IN-4 client books and records, 239 commercialism and accounting profession, 244–245 commissions and referral fees, 241 conceptual framework, 215–216 confidential information, 242–243 contingent fees, 240–241, 250 due care principle, 342 ethical conflicts, 226–231 forms of organization and names, 244 global Code of Ethics, 218 independence standard, 215–216 members in business, conceptual framework for, 231–235 members in public practice, 215 nonattest services to attest client, 218–219 principles of, 32 public interest principle, 35 relationships that may impair independence, 218–221 Revised Code, 214 risk-based approach, 215–216 safeguards to counteract threats, 217 Statements on Standards for Tax Services (SSTS) (AICPA), 245–247 tax services, 245–252 tax shelters, 247–250, 262–263 Alcoa Inc., 124 alternative practice structures (APSs), 221, 244, 261 American Accounting Association, Accounting Exemplar Award, American Continental, 211 American Depositary Receipt (ADR), 331, 398, 534, 559n5 American Depositary Share (ADS), 398, 398n1 American Institute of Certified Public Accountants (AICPA) See AICPA (American Institute of Certified Public Accountants); AICPA Code of Professional Conduct American Institute of Certified Public Accountants (AICPA) Hall of Fame, American International Group (AIG), 142 Analysis of Alleged Auditor Deficiencies in SEC Fraud Investigations: 1998–2010, 273 anchoring tendency, professional judgment, 206 ancient Greeks, 6, 24 Anjoorian, 388–390 Anthony Menendez v Halliburton, Inc., 155–157 anti-fraud controls, 132–133 antisocial behavior, 510 AOL-Time Warner, 265–266 Apple Computer, 143 Aristotelian ethics, 16 Arnold Kilberg & Co., 388–390 Arthur Andersen & Co., Credit Alliance v., 344 Arthur Andersen LLP, 62–63 Enron and, 62–63, 209, 248, 504, 505 Navistar International and, 268 rules of professional practice, 244 tax planning and, 248 Waste Management fraud, 579, 584–586 Arthur Young, 211 Ashcroft v Iqbal, 360 asset valuations, improper, 136 Association of Certified Fraud Examiners (ACFE), 130–135 Global Fraud Survey 2014, 270 AT&T, 442 attest clients, employment/association with, 220 audit committees, 145, 148 accounting firm communication with, 251–252 auditor’s direct access to, 147 communications with, 301–303 compliance function, 152 COSO findings on financial statement fraud and, 283 fraud risk assessment, 285 internal control and, 282–283 Nortel Networks Corporation, 470–472 PCAOB rules on, 251 preapproval of nonauditing services, 251 reporting illegal acts to, 273–274–276 tax services preapproved by, 251 United Thermostatic Controls, 177, 179 audit evidence, 296–297, 301 audit opinions, 290–292 audit planning, 309, 555, 557 audit procedures, 296–297 audit report background information, 287 example paragraphs in, 291–292 independent, 288 limitations of, 292–295 opinion paragraph, 290–292 overview, 287, 289–290 paragraphs in, 291–292 sample, 288 audit risk, 271, 296 See also risk assessment; risk factors auditing standards See also AICPA Code of Professional Conduct; GAAS (generally accepted auditing standards); PCAOB standards AS No 5—internal control, 299–300 Find more at www.downloadslide.com Subject Index IN-5 AS No 7—engagement quality review, 300 AS No 14—evaluating audit results, 300–301 AS No 15—audit evidence, 301 AS No 16—communications with audit committees, 301–303 AS No 18—related-party transactions, 303–305 Consideration of Fraud in a Financial Statement Audit (AU-C Section 240), 271 No 16, 149 Auditing Standards Board, AICPA, 287 auditor independence, 221–226, 250 auditor responsibilities, 185–186 in audit report, 288 expressing an opinion on financial statements, 296 fraud risk assessment, 282 illegal acts, 273–274 Jacobs, Stanley & Company, 324–325 management representations and, 286–287 materiality and, 293–294 misstatements and, 272 reporting illegal acts, 274–276 risk assessment by, 282 unmodified opinion, 288 auditor-client relationship, 209, 343–344 auditors See also certified public accountants (CPAs) communication with those charged with governance, 285–286 communications with audit committees, 301–303 COSO findings on fraud and, 283 defense against third-party lawsuits, 348–359 defenses of, 348–349 ethical reasoning in, 67 external, 139, 145, 147, 149, 159, 212, 520 FCPA and, 363–367 illegal acts and, 273–276 internal, 148, 514–515 investigations of profession, 209–211 legal liability of, 341–350 Nortel Networks Corporation, 470–472 professional judgment by, 73–74 PSLRA and, 358–361 SEC actions against firms, 221–226 audits See also auditor responsibilities court decisions and procedures for, 355–361 deficiencies, 305–307 defining, 271 Enron, 62–63 errors, fraud, and illegal acts, 272–274 ethical domain in, 67–68 ethical leadership, 512–513 evaluating results, 300–301 external, 131 fraud considerations in, 282–287 fraud risk assessment, 282–287 fraud triangle, 276–282 internal, 131 Jacobs, Stanley & Company, 321 KBC Solutions, 258 opinions, 288, 290–292 PCAOB standards, 250–252, 271, 289 professional skepticism role, 297–299 responsible leadership, 512 risk assessment during, 282 tax services versus, 246 authentic leaders followership and leadership, 509–510 moral intensity, 511 overview, 508 social learning theory, 510 transformational leadership, 509 Autonomy (company), 401–404 availability tendency, professional judgment, 205–206 Avon Products Inc., 222–223 B backdating stock options, 143 banks, income smoothing by, 414–415 BarChris Construction Corp., 352 Basic Inc v Levinson, 423 BDO USA LLP (BDO), 248–249 Beacon Partners, Inc., 208 Beauda Medical Center, 259 Beazer Homes, 496–501 behavioral ethics, 80–82 Bell Atlantic Corp v Twombly, 360 Bennie Gordon, 182–183 Bernstein v Crazy Eddie, Inc., 352, 353 Best Buy, 225 Better Boston Beans, 58–59 Beverly Hills Savings & Loan, 211 Bhopal gas leak disaster, 192–199 big-bath charges, 427 Bill Young, 330–331 bill-and-hold scheme, 434 Bily v Arthur Young (1992), 346 Black and White, LLP, 523 blind spots, ethical, Blue Bell, Inc v Peat, Marwick, Mitchell & Co (1986), 345 board of directors See also audit committees corporate governance and, 139, 140 DigitPrint case study, 37 due care exercised by, 140 Enron, 62 executive compensation and, 142, 144, 145 HealthSouth, 134 reporting obligations and, 275, 276 tax services and, 250–251 Tyco fraud and, 280 weak, 120 WorldCom, 108 bogus revenue transactions, 437 Bond Linked Issue Premium Structure (BLIPS), 539 Booz & Company, 208, 244 Brazil, 14, 15 breach of contract, 342 bribery, 373–375 Bribery Act, 374 BRIC countries, cultural values in, 14 Buddhism, Burger Court, 203 business ethics defining, 174, 451 evaluations and intentions, 115–116 business judgment rule, 146 bystander effect, 53–54, 158 C Cactus ventures (Enron), 444 CalAbco, 137 California, 241, 244, 346 California Accountancy Act, 241 Canadian Institute of Chartered Accountants (CICA), 73 cancellation reserves, 570 capitalization, versus expensing, 55 CAQ (Center for Audit Quality), 202 cardinal virtues, 32 Cardio-Systems Monitoring, Inc (CSM), 259 caring, 19–20 categorical imperative, 10, 29, 343 Caterpillar, Inc., 249 Cayman Fund, 350 CBIZ, 221 Cegetel and Maroc Telecom, 577 Cendant Corporation, 567–575 Center for Audit Quality (CAQ), 202 Center for Financial Research and Analysis (CFRA), 403 CEOs accountability of, in conflict of interest charges, 199–200 clawbacks and, 143 corporate responsibility for financial reports, 362–363 ethical behavior, 512 fraud involvement, 212, 283 GVV framework, 235 pay packages for, 142 shareholder perspective of corporate governance and, 140 certified public accountants (CPAs), 418 See also auditors advertising and solicitation by, 241–242 in business, 231–235 client books and records, 239 commissions and referral fees, 241 confidentiality obligation, 275 contingent fees accepted by, 240–241 ethical conflicts, 226–231 ethical obligations of, 36–37 ethical reasoning in, 68 financial relationships impairing independence, 219–220 forms of organization and names, 244 identifying control deficiencies, 424 integrity and, leadership in firms, 514 Find more at www.downloadslide.com IN-6 Subject Index certified public accountants (CPAs)—Cont nonattest services, 220 nontraditional forms of ownership, 221 “Operation Broken Gate,” 226 professional judgment, 203 professional skepticism, 207 public interest in accounting, 208, 209 reputation of, 21 SEC actions against, 222–224 tax services, 245–252 tax shelter arrangements made by, 250, 262–263 threats to independence, 215–216 CFOs clawbacks and, 143 conflicts of interest, 233 corporate responsibility for financial reports, 362–363 earnings quality, 420–421 ethical leadership, 516–517 followership and leadership, 510 fraud involvement, 212, 283 GVV framework, 235 HealthSouth Corporation, 516–517 materiality criteria, 293 channel stuffing, 415, 433–434, 485 character, pillars of See Six Pillars of Character cheating, student, 11, 51 Chemical Bank, 107 Chewco (Enron), 446, 451 chief compliance officer (CCO), 152 China, 14, 15 China Securities Regulatory Commission (CSRC), 308, 375 Chinese companies, PCAOB inspections of, 375–376 Christianity, Citigroup, 144 Citizens State Bank v Timm, Schmidt, & Company, 345 citizenship, 20 civility, 22–23 Clarified Statements on Auditing Standards (SASs), 290 clawback policies, 143–144 clawbacks, 143–144 Clean Sweep: A Story of Compromise, Corruption, Collapse, and Comeback (Minkow), 315 Cleveland Custom Cabinets, 57–58 client service fees, 239 client-auditor relationships, 209, 343–344 client-provided records, 238 CNF, Inc., 395 code of ethics, 34, 67, 118, 124, 372, 446 See also AICPA Code of Professional Conduct cognitive development approach, 63–67 cognitive dissonance, 81 Cohen Commission, 209–210 college, cheating in, 11, 51 Comcast, 557 commercialism and accounting profession, 244–245 professionalism versus, 208–209, 261–262 commissions fees, 241 Committee of Sponsoring Organizations (COSO) See COSO (Committee of Sponsoring Organizations) Committee on Improvements to Financial Reporting (CIFiR), 206 common-law liability, 342–343, 348 competence, 236–237 ethical leadership, 524–525 compilations, 347 of financial statement, 240 reviews versus, 347 compliance with standards, 237 CompuAdd, 137 Comp-U-Card (CUC), 567–574 SEC filings against, 568–569 concentration of effect, 72 confidentiality, 218 and disclosing fraud, 242–243 information gained through employment, 237–238 confirmation tendency, professional judgment, 206 conflicts of interest, 227–229, 233–234 Confucian dynamism, 14 Confucianism, consequentialism, 25 Consideration of Fraud in a Financial Statement Audit (AU-C Section 240), 271, 278, 282, 285, 286, 296 Consolidated Data Services, Inc (CDS), 243 constructive fraud, 343–344, 346, 348 Continental Illinois National Bank and Trust, 210 contingent fees, 240–241 contractual adjustment, 415 control activities, defining, 150 control environment, defining, 150 controllers, 18, 37, 293 convergence approach, 369 Con-way Inc., 395–397 cookie-jar reserves, 415, 427, 484–485 Coopers & Lybrand, 106, 136 corporate culture, at HealthSouth, 516–517 corporate governance See also organizational culture/ethics agency theory, 140 case studies, 171–200 chief compliance officer (CCO), 152 compliance function, 152 defining, 139 ethical culture, 123–127 ethical decision making, 116–118 ethics in workplace, 127–130 ethics reflection, 112–113 foundations, 139–144 fraud in organizations, 130–139 internal auditors, 148 internal controls, 147, 149–152 organizational ethics and leadership, 114–116 regulation, 141–142 signs of ethical collapse in, 118–120 stakeholder orientation, 120–123 structures and relationships, 145–154 views of, 140–141 at Waste Management, 587 whistleblowing, 154–162 Corporate Governance and Ethics (Rezaee), 145 corporate responsibility for financial reports, 362–363 COSO (Committee of Sponsoring Organizations), 149–151, 211 enterprise risk management, 283, 284 findings on financial fraud, 283 counteract threats, safeguards to, 217 CPA-client relationship See auditor-client relationship CPAs See certified public accountants (CPAs) creative acquisition techniques, 427 Credit Alliance, 344 Credit Alliance v Arthur Andersen & Co., 344 credo, 124–125 CSRC (China Securities Regulatory Commission), 375 Cubic Corporation, 456, 457 cultural values, 14–15 culture corporate, at HealthSouth, 516–517 Kohlberg’s stages of moral development and, 67 Cumberland Lumber, 532–533 CVS Caremark, 428–432 D Data Systems Solutions (DSS), 473 Defense Contract Audit Agency (DCAA), 520–522 Defense Criminal Investigative Services (DCIS), 521 Dell Computer, 478–480 Deloitte & Touche LLP Adelphia Communications Corporation and, 548–558 Ahold and, 333, 334, 558–565 insider trading, 224–225 materiality criteria, 293 Navistar International and, 266–268 North Face and, 492–495 Parmalat and, 534–538 savings and loan industry failure, 211 SEC investigation, 224 Vertical Pharmaceuticals Inc et al v Deloitte & Touche LLP, 391 Deloitte Netherlands, 558–560, 563, 564 Deloitte Touche Tohmatsu, 308 Denver-based Bronco Resources, Inc., 264 deontologists, 28 deontology, 28–30 Department of Defense Inspector General (DoD IG) Hotline, 521 Department of Justice (DOJ), 363–367, 449, 544 Department of Labor (DOL), 190 DePuy Orthopaedics, 126 Find more at www.downloadslide.com Subject Index IN-7 Detecting Financial Statement Fraud: What Every Manager Needs to Know, 135 Diamond Foods Inc., 329–330 Difference Principle, 31 DigitPrint case study, 37–41 directors, ethical and legal responsibilities of, 145–146 disclaimer of opinion, in audit report, 291, 292 disclosure, 212–213, 237–238, 246 of confidential information, 242 fraud, 242–243 discretionary accruals, 421 distributive justice, 31 Dodd-Frank Financial Reform Act (2010), 152, 158–161 clawback requirement under, 143 “say-on-pay,” 144 Dodd-Frank Wall Street Reform and Consumer Protection Act, 143, 158–161 dot.com businesses, 354 due care standard, 295, 342, 343 in AICPA Code of Professional Conduct, 36 Enron and, 62 legal interpretation of, 343 tax services and, 245 due care test, 19 due diligence defense, 352 Duke Energy, 447 duties, in deontology, 28 duty of care, 145 duty of good faith, 145–146 duty of loyalty, 145 Dynegy, 447 E earnings guidance as motivation for earnings management, 408–410 social media reporting, 412–413 earnings management accruals, 421–422 case studies, 468–501 characteristics of, 416 CVS Caremark, 428–432 defining, 416–417 earnings guidance, 408–413 earnings quality, 420–421 Enron case, 443–450 ethics of, 417–418 ethics reflection, 406–407 financial shenanigans, 436–439 financial statement restatements, 452–457 income smoothing, 414–415 judgments, 422–426 Lucent Technologies case, 442–443 manager/accountant perception of, 418–420 materiality perspective of, 422–426 motivation for, 408–415 new revenue recognition standard, 434–435 nonfinancial measures of, 413–414 overview, 407–408 red flags of, 439–440 revenue recognition, 433–434 techniques, 427–436, 569–570 Xerox case, 440–442 earnings manipulation, earnings management, 416 earnings quality, 420–421 egoism, 25, 27 8-K form, 275, 276, 292, 353 Emery Transnational, 395, 396 empathy, 20 emphasis-of-matter paragraph, audit opinions, 290–292 Employee Retirement Income Security Act (ERISA), 558–559 Employees’ Retirement System, et al v Green Mountain Coffee Roasters, et al., 410 endorsement approach, 369 ends-justifies-the-means approach, 518 enforcement proceedings, PCAOB, 306 engagement letter, 347 engagement quality reviews, 300 engagement withdrawal, 292 enlightened egoism, 25, 27 Enron, 112–113, 210, 245, 252, 368, 397, 511 Arthur Andersen and, 62–63, 209, 248, 504, 505 board of directors, 140 culture at, 446 earnings manipulation, 408 executive compensation at, 447 FCPA and, 367 financial statement fraud, 272, 273 lessons to be learned from, 451 moral manager, 508 Parmalat and, 533–538 Powers Committee, 448–449 professional judgment and, 73, 202 social learning theory, 510 SOX Act and, 451 special-purpose-entitities, 444–445 story of, 443–450 tax shelters, 248 enterprise resource planning (ERP), 531 enterprise risk management (ERM), 283–285 defining, 283 elements, 284 EPI Printers, 486 Epic Resorts, 349 Equity Funding Corporation of America Securities Litigation, 356–357 Equity Funding scandal, 356–357 ERM See enterprise risk management (ERM) Ernst & Ernst v Hochfelder, 354–355, 562 Ernst & Whinney, 211, 315–317 Ernst & Young (EY), 212, 213, 223, 308, 341, 404 Cendant fraud and, 570–573, 575 Groupon and, 335, 336 HealthSouth Corporation, 517 PCAOB inspections program, 307 savings and loan industry failure, 211 settlements with, 575 ZZZZ Best Company, 315 Escott v BarChris Construction Corp., 352 ESM Government Securities, 210, 219 ethical blind spots, ethical collapse, seven signs of, 118–120 ethical conflicts AICPA Code of Professional Conduct, 226–231 in business, 227, 232–233 conflicts of interest, 227–229 in public practice, 227, 232–233 ethical culture corporate culture, 123 Johnson & Johnson, 124–127 trust in business, 124 ethical decision making See also ethical reasoning Arthur Andersen and, 62–63 behavioral ethics, 80–82 case studies, 96–109 cognitive development approach, 63–67 Enron and, 62–63 ethical domain in accounting and auditing, 67–68 gender influence on, 513–514 Giving Voice to Values, 82–87 integrated process, 77–80 models, 74–80 moral intensity, 72–73 moral reasoning and behavior, 68–69 organizational influences on, 116–118 professional judgment and, 73, 204 Rest’s four-component model of, 69–72 virtue-based decision making, 73–74 ethical dissonance model (Burchard), 117–118, 409 ethical issue intensity, 114 ethical leadership audit firms, 512–513 authentic leaders, 508–511 case study, 520–522 competence, 524–525 ethics reflection, 504–506 failure, 517–522 HealthSouth case, 515–517 internal audit function, 514–515 moral person and manager, 507–508 overview, 506–507 principles of, 506 role of CFOs, 516–517 tax practice, 515–516 whistleblowing implications, 518–520 Ethical Leadership Scale, 524–525 ethical (moral) motivation, 71 ethical reasoning See also ethical decision making; ethics AICPA code of conduct, 36 applied in accounting, 37–41 case studies, 37–41, 51–59 integrity and, 4–5 modern moral philosophies, 24–33 Penn State child abuse scandal, 2–3 religious and philosophical foundations of, 5–7 reputation and, 21–22 Six Pillars of Character, 15–21 virtue, character, and CPA obligations, 36–37 Find more at www.downloadslide.com IN-8 Subject Index ethical relativism, 9–10, 281 ethical slippery slope, Ethicon, 126 ethics, 22–23 See also business ethics; moral philosophies behavioral, 80–82 business, 115–116, 174, 451 defining, of earnings management, 417–418 global, 372–373 individual versus group, 173–175 laws and, 8–9 and morals, overview, religious and philosophical foundations of, 5–7 situation, 10–13 and tax services, 245–252 Tyco fraud and, 281 values and, in workplace, employee perceptions of, 127–130 Ethics and Compliance Officer Association (ECOA), 152 Ethics Resource Center (ERC), 129 ethics standards See PCAOB (Public Company Accounting Oversight Board); PCAOB standards ethos, Euronext, 559 executive compensation, 142–144, 447 expensing, capitalization versus, 55 external audits/auditors, 4, 131, 139, 145, 147, 212, 272, 287, 520 external governance mechanisms, 139, 145 external whistleblowing, 158, 161 Extraordinary Circumstances: The Journey of a Corporate Whistleblower (Cooper), EY’s Global Expatriate Management System (EY/GEMS), 223 F Facebook, 412 Fair Funds, 472 fair presentation framework, 294–295 fairness, 19, 30–32, 65 Fairway Capital Corporation (FCC), 388–389 false certifications, liability for, 151–152 familiarity threat, 216, 231 Family Games, Inc., 260 FASB (Financial Accounting Standards Board), 420 FASB Interpretation 46(R), 450–451 rules on SPEs, 450 FASB Interpretation 46(R), 450–451 Faulty Budget case study, 99–100 FCPA See Foreign Corrupt Practices Act (FCPA) FDA liability concerns, 96–98 Federal Deposit Insurance Corporation (FDIC), 210 fees commissions, 241 contingent, 240–241 referral, 241 fieldwork, standards of, 296 Final Accounting (Toffler), 62 Financial Accounting Standards Board See FASB (Financial Accounting Standards Board) financial crisis, 2007-2008 executive compensation and, 142 role of accounting profession in, 212–213 financial fraud, 5, 41, 153, 307, 410, 416, 442 Phar Mor case study, 107 financial reporting, 285, 302 corporate responsibility for, 362–363 internal control over, PCAOB rule on, 251, 361–362 restatements due to errors in, 456–457 standards of, 296 financial reporting framework, 295 financial reporting oversight roles, PCAOB rule on, 250–251 Financial Reporting Releases (FRRs), 353 financial results, social media reporting, 412–413 financial self-interest threat, 216 financial shenanigans, 407 examples of, 440–451 at Sunbeam, 485 financial statement certification process, 148 financial statement fraud, 130, 135–139 See also material misstatements COSO findings on, 283 defining, 276 Enron and, 272, 273 errors, fraud, and illegal acts, 272–274 ethics reflection, 270–271 fraud triangle, 276–282 misstatements, nature and causes of, 272 reporting illegal acts, 274–276 financial statement restatements, 452–457 financial statements See also material misstatements audit committee role and, 148 auditor opinion on, in audit report, 288 certification, 286–287 failing to record expenses, 438 fair presentation of, 294–295 management’s responsibility for, 288 one-time gains, 437 recording bogus revenue, 437 recording revenue, 436–437 shifting current revenue, 438–439 shifting expenses, 437–438 Vivendi Universal, 577–578 first-in, first-out (FIFO) method, 296 Fischer v Kletz (1966), 243 Fitch & Jones, LLP, 544 followership, and leadership, 509–510 Ford Motor Company, 121–123 Foreign Corrupt Practices Act (FCPA), 273, 274, 330, 363–367, 395–397 Foreign Leveraged Investment Program (FLIP), 539 foreseen third-party concept, 345, 347 forms of organization and names, 244 Fostermann Corporation, 314 Franklin Industries’ whistleblowing, 180–181 fraud See also financial fraud; financial statement fraud auditor liability for, 341–350 business practices, 138–139 CEO/CFO involvement, 212, 283 Chinese companies, 307–308 confidentiality, 242–243 considerations, 282–287 defining, 130 detection of, 131–132 disclosure, 242–243 ESM Government Securities, 210, 219 financial statement, 130, 138–139 fraud triangle, 276–282 global, 373 honest services, 146–147 incentives/pressures to commit, 277–279, 282 internal control and, 276, 282–283 management, 273, 286–287 Miniscribe, 136–138 misstatements due to, 273 occupational, 131–132, 135 opportunity to commit, 277–281 in organizations, 130–139 perceived opportunity, 138 rationalization for, 138, 278–281 red-flag warnings of, 133–134 reporting, 157 risk assessment, 282, 285 situational pressure, 138 Tyco, 277, 278, 280–282 Vivendi Universal, 578–579 ZZZZ Best Company, 316–317 fraud triangle, 276–282 Fraudulent financial reporting, 272, 273, 276, 278 comprehensive analysis of, 283 misstatements arising from, 278–280 Fraudulent Financial Reporting: 1998-2007 (COSO), 283 Fred Stern & Company, 343 Frost Systems, 262 full disclosure principle, 16 G GAAP (generally accepted accounting principles), 287 Adelphia Communications Corporation, 550–552, 554, 556, 557 Cendant fraud and, 570–573 earnings quality, 420 financial statement restatements, 456 IFRS, 369–370 Krispy Kreme Doughnuts, Inc., 545 legal and regulatory obligations, 341, 353 management fraud and, 273 misapplication, 293 opinion paragraph, modified, 290 professional judgment and, 204 standards of reporting, 296 tax services, 245 GAAS (generally accepted auditing standards), 62, 271 Adelphia Communications Corporation, 550–552, 554–557 Find more at www.downloadslide.com Subject Index IN-9 Arthur Andersen and, 62 audit evidence, 296–297 audits in conformity with, 425 general standards, 295 legal and regulatory obligations, 341, 353 overview, 295 professional skepticism, 297 reasonable assurance statement in context of, 293 standards of fieldwork, 296 standards of reporting, 296 Gas Bank (Enron), 444 Gateway Hospital, 100–101 Gemstar-TV Guide International, Inc., 425 gender, influence on ethical decision making, 513–514 General Electric (GE) Co., 475–477 general standards, 295 General Standards Rule, 236–237 Getaway Cruise Lines, 392–394 Giant Eagle, 106, 107 Giant Stores, 345 Giving Voice to Values (GVV), 82–87, 234–235, 261–262 Getaway Cruise Lines, 392–394 Madison Gilmore’s Ethical Dilemma, 565–567 Müller, Heinrich, 385–387 Research Triangle Software Innovations, 531–532 Rhody Electronics, 544–54 values-based leadership, 523–524 global code of ethics, 218, 372 global ethics, 372–373 Global Fraud Study, 130, 270 Global Fraud Survey (2014) (ACFE), 130, 132–133, 270, 373 going concern issue, in audit report, 291 Gold v DCL Inc (1973), 243 Golden Rule, the, 5, 6, 8, 18, 29 Grant Thornton, 206, 219 Grant Thornton LLP v Prospect High Income Fund, et al., 349–350 grease payments, 364 Greeks, ancient, 6, 24 Green Mountain Coffee Roasters, 410–412 gross negligence, 343, 346–348, 354 Groupon, Inc., 150–151, 334–337 Guidance on Monitoring Internal Control Systems (COSO), 284 GVV See Giving Voice to Values (GVV) H Halliburton, 188–192 Han, Kang & Lee, LLC, 262 Harrison Industries, 477–478 Harvard University, cheating case study, 51–52 HealthSouth Corporation, 134, 153, 415, 515, 516 Heinz and the Drug dilemma, 63–67 Hen Sportswear, 328 Herbalife, 225 Hertz Global Holdings, Inc., (Hertz), 453–456 Hewlett-Packard (HP), 199–200, 400 HFS Incorporated (HFS), 567–569, 571, 574 Higginbotham v Baxter Int’l., 362 high organizational ethics, high individual ethics, 117–118 high organizational ethics, low individual ethics, 118 Highland Capital Management Corporation, 349 Hinduism, Hodgins and Gelman LLP, 259 Hofstede’s cultural dimensions, 14 Hofstede’s framework, 368–369 Homestore, Inc., 265 honesty, trustworthiness and, 16 Hospital Corporation of America (HCA), 264 Houbigant, Inc v Deloitte & Touche LLP, 348 House Subcommittee on Oversight and Investigations (1986), 210 Houston Natural Gas Corporation, 444 I IBM, 14, 208, 243 IESBA See International Ethics Standards Board for Accountants (IESBA) IFAC (International Federation of Accountants), 368–370 IFRS (International Financial Reporting Standards), 295, 420, 534 earnings quality, 420 tax inversion and, 327 IIA See Institute of Internal Auditors (IIA) illegal acts auditor’s responsibility, 273–274 reporting, 274–276 ill-gotten gains Cendant Corporation fraud, 569, 573 Vivendi Universal fraud, 578 Waste Management fraud, 580, 581 IMA See Institute of Management Accountants (IMA) Imperial Valley Community Bank, 319–326 In re Eastside Investors v Krispy Kreme Doughnuts, Inc., 545n2 In re Lattice Semiconductor Corp., 362 In re Royal Ahold N.V Securities & ERISA Litigation, 559n2 In re WatchGuard Secs Litig., 362 In the matter of Christopher F Crawford, 495n3 In the matter of Sunbeam Corporation, Respondent, 484n1 income smoothing, 414–415 independence See also auditor independence in AICPA Code of Professional Conduct, 35 contingent fees and, 240 defining, 215 employment/association with attest clients, 220 financial relationships impairing, 219–220 general standards, 222, 295 PCAOB rules on auditor, 250–252 providing nonattest services to an attest client, 220–221 safeguards to counteract, 217 SEC position on auditor, 221–226 tax services and, 245–252 threats to, 215–216 Independence Rule, 219, 220 India, 14, 15 individual versus group ethics, 173–175 individualism, 17 indulgence versus restraint, 14 Infant Products Inc., 330 information and communication systems, 150 insider trading, 224–225 Institute of Chartered Accountants in England and Wales (ICAEW), 34 Institute of Internal Auditors (IIA), 34 Institute of Management Accountants (IMA), 39–40 DigitPrint case study, 37 Standards of Ethical Professional Practice, 38 instrumental virtues, 73 integrity, 4–5, 218, 226, 233–234 considerations, 159–161 Golden Rule and, tax services, 245 trustworthiness and, 16–17 Intel, 478, 479 intellectual virtues, 73 interests mutuality of, 223 public, 35, 37–41, 203, 207–208–209 internal audits/auditors, 4–5, 131, 148, 514–515 internal control assessment, 282–283 internal control over financial reporting (ICFR), 299–300 Internal Control–Integrated Framework (COSO), 149, 287 internal controls, 149–152, 251 environment, 283 FCPA and, 366 Groupon and, 334–336 Jacobs, Stanley & Company, 322 management and, 286–287 materiality and, 424 over financial reporting, 251, 361–362 PCAOB audit standard on, 299–300 weaknesses, 134–135 internal governance mechanisms, 139, 145 Internal Revenue Code (IRC), 249 Internal Revenue Service (IRS), 239, 240, 246–249, 262 internal whistleblowing, 154, 155 International Auditing and Assurance Standards Board (IAASB), 207 International Ethics Standards Board for Accountants (IESBA), 208, 218, 372 International Federation of Accountants (IFAC), 34, 207, 218, 368–370 Handbook of the Code of Ethics for Professional Accountants (2015), 207–208 A Public Interest Framework for the Accountancy Profession, 207 international financial reporting See also IFRS (International Financial Reporting Standards) IFRS, 369–370 influence of culture on, 368–369 International Financial Reporting Standards (IFRS) See IFRS (International Financial Reporting Standards) Find more at www.downloadslide.com IN-10 Subject Index International Organization of Securities Commissions (IOSCO), 370 International Standard on Quality Control 1, 207 InterNorth Inc., 444 IOSCO (International Organization of Securities Commissions), 370 IRS See Internal Revenue Service (IRS) Islam, J Jacobs, Stanley & Company, 319–321, 324 Japan, 14, 15 JEDI (Enron), 446 Jenner & Block, 212 Jet Energy Company, 182–183 Johnson & Johnson, 124–127 Joint Committee on Internal Revenue Taxation, 241 joint ventures (JVs), 558–560, 563, 565 Jones-Hiltebeitel model, 116 Josephson Institute of Ethics, 11 Six Pillars of Character, 15–21 Judaism, judgment See also professional judgment in accounting earnings management, 422–426 materiality, 422 moral, 70–71 subordination of, 229–231, 234 Juggyfroot, 105–106 justice, 30–32, 40 Justice Department See Department of Justice (DOJ) K Kant’s categorical imperative, 29 Kay & Lee LLP, 392 KBC Solutions, 258 K-Cup portion, 410–412 Kidder’s ethical checkpoints, 75–76 Kohlberg’s stages of moral development, 63–67 KPMG, 108, 208, 252, 308 See also Peat, Marwick, Mitchell & Co cognitive processes, 205–206 Gemstar-TV Guide International, Inc., 425 independence violations, 223–224 insider trading scandal, 225 Maxwell v KPMG LLP, 354 “Operation Broken Gate,” 226 PCAOB’s inspection report, 307 professional judgment framework, 204–206 SEC sanctions on, 441–442 tax shelter, 248, 249, 539–541 WorldCom whistleblowing, 108 KPMG LLP, Maxwell v., 354 Krispy Kreme Doughnuts, Inc., 541–544 L Labor Department See Department of Labor (DOL) Laramie Systems, 475 last-in, first-out (LIFO) method, 296 Lattice Semiconductor, 362 laws, ethics versus, 8–9 lawsuits, 343, 348, 574–575 leader ethicality, 509 leader’s legitimacy, 510 leadership followership and, 509–510 organizational ethics and, 114–116 transformational, 509 lease accounting, 440–441 legal and regulatory obligations See also Sarbanes-Oxley Act (SOX); statutory liability of auditors, 341–350 court decisions and auditing procedures, 355–361 FCPA and, 363–367 PSLRA and, 358–361 third party liability, 344 legal issues Cendant Corporation, 573–575 materiality and, 422–423 legal liability of auditors, 341–350 to third parties, 346–347 ZZZZ Best Company, 317 Lehman Brothers, Inc., 341, 535 financial crisis of 2007-2008 and, 212–213 Lennar, 318 liability of auditors, 341–350 common-law, 342–343, 348 privity relationship with clients, 343–344 proportionate, 358–359 Sarbanes Oxley (SOX) legal, 361–363 statutory, 350–355 third-party, 344, 388–390 Liberty Principle, 31 likely misstatements, 585, 586 Lincoln Savings and Loan, 211 LinkedIn, 101–102 listed transaction, 247 LJM2, 447 LJM Cayman, 447 loans, financial self-interest threat and, 216 Lockheed Corporation, 363 Lone Star school district, 54 Longs drugstores, 428–432 long-term orientation (LTO), 14, 15 low organizational ethics, high individual ethics, 118 low organizational ethics, low individual ethics, 118 low-balling, 226 loyalty, 17–18, 119–120 Lucent Technologies, 442–443 M Madison Gilmore’s Ethical Dilemma, 565–567 magnitude of consequences, 72 management See also CEOs; CFOs audit report responsibility, 288 auditor’s inquiry of, 304 compensation, 142–144 earnings management, perception of, 418–420 fraud and GAAP, 273 management representations, 286–287 management participation threat, 216, 230 margin normalization, 441 masculinity, 14 material misstatements See also misstatements audit procedures and, 297 defining materiality and, 427 ethical obligations and, 37, 39 financial statement restatements, 406 Groupon, 334 identifying risk of, 282 internal control deficiencies, 424 legal decisions, 422–423 nature and causes of, 272 reasonable assurance and, 271, 288, 292 risks assessment, 286 material weakness, 150, 151, 280, 286, 299, 322, 329, 335, 361, 424, 455, 472, 481, 482, 500 materiality, 293–294, 296 concept of, 427 Gemstar-TV Guide International, Inc., 425 in internal control deficiencies under SOX, 424 judgments, 422 and legal decisions, 422–424 principles-based accounting, 426 rules-based environment, 426 materiality defense, 352 Matrixx Initiatives, Inc v Siracusano, 423–424 Maxwell v KPMG LLP, 354 McCabe and Trevino (1997), 11 McKesson & Robbins, United States v., 355–356 McNeil Consumer Products, 125 member-prepared records, 238 member’s work products, 238, 239 member’s working papers, 238 Menlo Worldwide Forwarding, Inc., 395 merger and acquisition (M&A) transaction, 263–264 mergers of HFS and CUC, 567–568 Metcalf Committee, 209–210 Metcalf (Moss) Report, 209 Mikan, Inc., 263 Milton Manufacturing Company, 102–105 Miniscribe, 136–138 misstatements See also material misstatements by Ahold, 334 nature and causes of, 272 risk factors, 278–280 modified opinion, in audit report, 290–292 monitoring, 150, 284 Monroe v Hughes (1991), 361 moral behavior, 68–69 moral blindness, 53–54 moral character, 71–72 moral development Kohlberg’s stages of, 63–67 professional judgment and, 73–74 Find more at www.downloadslide.com Subject Index IN-11 moral hazard, 212 moral intensity, 72–73, 116, 511 moral judgment, 70–71 moral manager, 507–508 moral motivation, 71 moral person, 507–508 moral philosophies, 7, 24–33 See also ethics deontology, 28–30 justice, 30–32 teleology, 22–25 virtue ethics, 32–33 moral point of view, 9, 36–37 moral reasoning, 68–69 moral relativism in accounting, 10 moral sensitivity, 70 moral virtue, more likely than not standard, 250, 540 motivated blindness, 62 Motorola, 222, 225 multiple deliverables, 433 Murphy v BDO Seidman, LLP (2003), 346 N National Association of Securities Dealers (NASDAQ), 141, 150, 548 National Business Ethics Survey (NBES), 129, 130 National Commission on Fraudulent Financial Reporting, 211 National Highway Traffic Safety Administration (NHTSA), 121 Navistar Intern Corp v Deloitte & Touche LLP, 266n1, 267n3 Navistar International, 266–268 near-privity relationship, 344, 346 Needles’ continuum of ethical financial reporting, 417–418 network CPA firm, 221 new revenue recognition standard, 434–435 New York State Rules of the Board of Regents, 239 New York Stock Exchange (NYSE), 176, 251, 287, 454 nonattest services, 218–221, 235 nondiscretionary accruals, 421 nonfinancial measures, of earnings management, 413–414 nontraditional forms of ownership, 221 Nortel Networks Corporation, 408, 468–473 North Face, Inc., 293, 492–496 Nuevo Financial Group, 319 NYSE See New York Stock Exchange (NYSE) NYSE Euronext, 331 O objectivity, 218, 226, 233–234 in AICPA Code of Professional Conduct, 35–36 justice and, 31 occupational fraud, 130–134 off-balance-sheet financing, 318, 504 officers, ethical and legal responsibilities of, 145–146 Offshore Portfolio Investment Strategy (OPIS), 539 Olympus Corporation, 183–187 Omnibus Trade and Competitiveness Act of 1988, 364 1136 Tenants Corp v Max Rothenberg & Co (1967), 347 one-time gains, 584, 586 boosting income with, 437 “Operation Broken Gate,” 225–226 opinions, audit, 288, 290–292 Option Care, 225 Oracle Corporation, 366 organizational culture/ethics See also corporate governance business ethics evaluations and intentions, 115–116 employee perceptions of, 129–130 Enron, 446 ethical issue intensity, 114 ethical/unethical behavior, 116 individual factors, 115 and leadership, 114–116 opportunity, 115 organizational factors, 115 signs of ethical collapse in, 118–120 Tylenol poisoning incident, 124, 125 organizational dissidence, 154 organizations fraud, 130–139 other-matter paragraphs, in audit opinions, 290 Ottman v Hanger Orthopedic Group, Inc., 562 overconfidence tendency, professional judgment, 206 ownership, nontraditional forms of, 221 P Paine Webber, Inc., 486 “Parable of the Sadhu” (McCoy), 171–175 Parmalat, 368, 533–538 PAs (promotional allowances), 559–561, 565 Pascarella & Trench (P&T), 388–390 Paul V Anjoorian v Arnold Kilberg & Co., 388–390, 388n1 pay packages, executive, 142–143 payments acceptable, 364 defining, 364 grease, 364 permissible facilitating, 364 PCAOB (Public Company Accounting Oversight Board), 67, 287 audit report content and, 289–290 enforcement proceedings, 306 financial statement fraud, 271 inspections of Chinese companies, 375–376 inspections program, 305–308 non–Big Four firms, 225 professional skepticism, 299 public interest in accounting, 208 quality inspection program, 210 related to ethics and independence, 250–252 Rule 3520—auditor independence, 250 Rule 3521—contingent fees, 250 Rule 3522—tax transactions, 250 Rule 3523—tax services for persons in financial reporting oversight roles, 250–251 Rule 3524—audit committee preapproval of certain tax services, 251 Rule 3525—audit committee preapproval of nonauditing services related to internal control over financial reporting, 251 Rule 3526—communication with audit committees concerning independence, 251–252 PCAOB standards, 149, 271, 289 AS No 5—internal control, 299–300 AS No 7—engagement quality review, 300 AS No 14—evaluating audit results, 300–301 AS No 15—audit evidence, 301 AS No 16—communications with audit committees, 301–303 AS No 18—related-party transactions, 303–305 audit deficiencies—SEC actions, 305 audit report, 289–290 GAAS and, 295 overview, 299 Peat Marwick Main & Co., Security Pacific Business Credit v., 344 Peat, Marwick, Mitchell & Co., 352, 353 See also KPMG Penn Square Bank, 210 Penn State sex abuse scandal, 2–3, 18 PeopleSoft case, 223 permissible facilitating payments, 364 personal responsibility, for reporting, 519 personality traits, professional skepticism, 298 Pettit & Schayes, LLP, 263–264 Pfizer, 364–366 PG&E, 447 Phar Mor case study, 106–108 Phar-Mor v Coopers & Lybrand, 348 Philippine Economic Zone Area, 395 Philippines Bureau of Customs, 395 Phillips v LCI Int’l, Inc., 562 philosophical foundations of ethics, 5–7 Pinnacle Holdings Inc., 222–223 Plato, 6, 32, 506 Ponzi schemes, Portland General Corporation, 447 postclosing entries, 569–570 Power Distance index (PDI), 14, 15 Powers Committee (Enron), 448–449 prescriptive reasoning, 70 present fairly, 29, 40, 290, 294–295 PricewaterhouseCoopers (PwC), 112–113, 308 audit deficiencies—SEC actions, 305 Dell Computer and, 480 escapes liability, 359–361 Gold v DCL Inc (1973), 243 Krispy Kreme Doughnuts, Inc., 542, 545–546 legal and regulatory obligations, 340 nonaudit services influence, 222 public interest in accounting, 208 tax shelter, 249 Tyco and, 281–282 Find more at www.downloadslide.com IN-12 Subject Index PricewaterhouseCoopers Private Limited, 399 prima facie case, 351 principle-centered leadership approach, 506 principles of professional conduct AICPA, 35 IFAC, 368–370 principles-based standards, 370–371 printed circuit board assembly (PCBA), 565 Private Securities Litigation Reform Act (PSLRA), 274–275, 358–361, 384, 561–562 privity relationship, 343–344 pro forma profit, 468, 468n2 probability of effect, 72 procedural justice, 32 product liability, 126 product tampering, 125 professional accounting association, 34 professional behavior, 218 professional competence and due care, 218 professional judgment in accounting, 73–74 anchoring tendency, 206 attitudes, behaviors, and judgment, 204 availability tendency, 205–206 confirmation tendency, 206 ethics reflection, 202–203 KPMG framework, 204–206 overconfidence tendency, 206 professional practice, rules of Acts Discreditable, 237–240 advertising and solicitation, 241–242 commercialism and accounting profession, 244–245 commissions and referral fees, 241 confidential information, 242–243 contingent fees, 240–241 form of organization and name, 244 General Standards Rule, 236–237 professional responsibilities, 504 professional skepticism, 36, 41, 62, 296–299, 306, 357, 457 professional judgment, 202, 205 role of, 206–207 professionalism versus commercialism, 208–209, 261–262 prohibited tax shelter transaction, 247 promotional allowances (PAs), 559–561, 565 proportionate liability, 358–359 proximity, 72 prudent person test, 352 PSLRA (Private Securities Litigation Reform Act), 274–275, 358–361, 384, 561–562 Public Company Accounting Oversight Board (PCAOB) See PCAOB (Public Company Accounting Oversight Board) Public Employees’ Retirement Association of Colorado; Generic Trading of Philadelphia, LLC v Deloitte & Touche, LLP, 558 A Public Interest Framework for the Accountancy Profession, 207 public interest in accounting AICPA Code of Conduct, 35, 203 ethical reasoning, 37–41 overview, 207–208 professionalism versus commercialism, 208–209 public trust, 30 CPA conduct, 35, 253 financial reporting, 33 restoring, 368 PurchasePro.com, Inc., 265 Purple Industries, Inc., 98–99 Q qualified opinion, in audit report, 289–291 quality of financial reporting, 415 R realistic possibility of success standard, 246–247, 249 reasonable assurance, 149 audit report, 271, 288, 292–293 PCAOB Standards, 299 reasonable basis, 540 reasonable fee, 239 “reasonable person/observer,” 19, 242, 293 reasonableness standard, 352 reasonably foreseeable third parties, 345–348 records request rule, 238–239 referral fees, 241 Regulation Fair Disclosure, 412 Reisman v KPMG Peat Marwick LLP, 348 reissuance restatements, 452, 458 related-party transactions, 303–305, 328 reliability, 17 religion, ethics and, 5–7 “Repo 105,” 212–213, 341 Report Card on the Ethics of American Youth, 11 Report of the National Commission on Fraudulent Financial Reporting, 147 Report to the Nation on Occupational Fraud and Abuse (ACFE), 130 reportable transaction, 247 reporting See financial reporting representational faithfulness, 408 reprisals, fear of, 119 reputation, 21–22 Research Triangle Software Innovations, 531–532 reserves, 570 cancellation, 570 cookie-jar, 415, 427, 484–485 resource dependency, 141 respect, 18 responsibility, 18–19 responsible leadership, 512 Restatement (Second) Law of Torts, 344, 345, 347 Restatement test, 389 restatements, financial statement, 452–457 Rest’s Four Component Model of Moral Behavior, 511 Rest’s four-component model of ethical decision making, 69–72 retaliation, 114, 154, 155 revenue overstatements, 135 revenue recognition, 407, 421, 428, 433–434, 438, 456 reviews, compilations versus, 347 revision restatements, 452, 458 Rhody Electronics, 544–54 Richards & Co., 387 rights in deontology, 28 duties and, 28 rights theory, 30, 40 risk assessment defining, 150 fraud, 282–287 procedures, 309 risk factors, 278–280 risk management, 148 culture develops, 284 enterprise, 283–285 risk-benefit analysis, Ford Pinto case, 121–122 Rite Aid inventory surplus fraud, 175–176 Romello Accounting LLP, 326 Rooster Sportswear, 328 Rosenblum, Inc v Adler (1983), 345 round-tripping, 434 Royal Ahold N.V., 331–334, 558–565 Royal Dutch Shell, 368 rule deontologists, 28–29 Rule 3520—auditor independence (PCAOB), 250 Rule 3521—contingent fees (PCAOB), 250 Rule 3522—tax transactions (PCAOB), 250 Rule 3523—tax services for persons in financial reporting oversight roles (PCAOB), 250–251 Rule 3524—audit committee preapproval of certain tax services (PCAOB), 251 Rule 3525—audit committee preapproval of nonauditing services related to internal control over financial reporting (PCAOB), 251 Rule 3526—communication with audit committees concerning independence (PCAOB), 251–252 Rules of Civility & Decent Behavior in Company and Conversation, 18 rules-based standards, 370–371 rule-utilitarians, 28 Rusch Factors, 344 Rusch Factors, Inc v Levin (1968), 344, 346 Russia, 14, 15 S SAB 101, 427 safeguards in applying conceptual framework, 217 to counteract threats, 217 employing organization implementation, 232 ethical conflicts, 228 threats and, 231–232 salaries See executive compensation Sarbanes-Oxley Act (SOX), 251, 252 backdating stock options, 143 Cohen Commission Report and, 210 Enron in, 451 financial report certification, 287 GVV framework, 235 intended goal, 152–154 internal controls, 151, 336, 366 Find more at www.downloadslide.com Subject Index IN-13 legal liabilities, 361–363 materiality considerations, 424 nonaudit services, 235 PCAOB standards and, 275, 287 perspectives on accomplishments of, 363 public interest in accounting, 208 Section 302, 362–363, 424 Section 404, 361–362, 406 SAS See Statements on Auditing Standards (SAS) Satyam, 112–113, 368, 397–400 savings and loan industry failures, 211 “say-on-pay” provisions, 144 scienter, 348, 354–355 scope and nature of services, in AICPA Code of Professional Conduct, 36 Sears, 225 SEC See Securities and Exchange Commission (SEC) SEC v KPMG LLP, 275 SEC v Price Waterhouse, 563 SEC v Vivendi Universal, S.A., 576n1 Securities Act of 1933, 203, 221, 350, 352–353, 361 Securities and Exchange Commission (SEC), 67, 270, 370, 441 Accounting and Auditing Enforcement Release (AAER) 2125, 425 Adelphia Communications, charges against, 548–552, 554–557 Ahold and, 331–332 Arthur Andersen, charges and sanctions against, 585–586 audit deficiencies, 305 CAQ and, 202 CIFiR framework, 206 Con-way, Inc., charges against, 395 court decisions and auditing procedures, 355–356 CUC/Cendant settlements, 573–574 Dell Computer, charges against, 478 external auditors, 520 FCPA enforcement actions, 366–367 on financial statement certifications, 287 financial statement restatements, 453, 456 HealthSouth Corporation, charges against, 415 investigations by, 140, 143, 221–226 KPMG sanctions, 441–442 Krispy Kreme Doughnuts, Inc., 542, 543, 545–546 Lehman failure and, 213 nonaudit services, 235 North Face, charges against, 495 “Operation Broken Gate,” 225–226 Parmalat and, 534, 537–538 PCAOB inspections program, 306–308 Pfizer, case against, 364–366 PSLRA and, 274–275 public interest in accounting, 208 reporting illegal acts obligation, 274–275 SAB 99, 294 statutory liability, 351 Sunbeam, charges against, 483 Tyco fraud and, 281–282 Vivendi Universal, 578 Waste Management and, 409, 579, 580, 582–586 Securities and Exchange Commission v Walter A Forbes et al., 574n6 Securities Exchange Act of 1934, 134, 157, 203, 265, 275, 520 auditor independence, 221 explanation, 353–355 intent to deceive or defraud, 354–355 reliance by plaintiff, 354 Section 10A, 157 statutory liability, 350, 351, 353–355 violations of, 365 Security Pacific Business Credit, Inc v Peat Marwick Main & Co (1992), 344 Seidman & Seidman, 356 selection-socialization mechanism, 512 self-interest threat, 232 self-review threat, 215, 230, 232 Senate Banking Committee, 213 Serious Fraud Office (SFO), 374 servant leadership, 509 settlements Cendant Corporation, 573–574 DOJ, 367 with EY, 575 SEC, 573–574 Seven Signs of Ethical Collapse, The (Jennings), 118–120 sexual harassment case, 199 SFAS See Statement of Financial Accounting Standards (SFAS) shareholder model of corporate governance, 140–141 shareholders, “say-on-pay” vote, 144 Shifty Industries, 56–57 Sidley Austin, 248 Sino-Forest, 488–492 situation ethics, 10–13 Six Pillars of Character, 15–21 caring, 19–20 citizenship, 20 expectations of millennials, 20–21 fairness, 19 respect, 18 responsibility, 18–19 trustworthiness, 16–18 60 Minutes, 277, 278 Skechers, 225 skeptical judgment, 297–299 Small Business Administration (SBA), 388 The Smartest Guys in the Room (McLean/ Elkind), 62 social consensus, 72 social learning theory, 510 social media, 412–413 social networkers, 13–14 Socrates, solicitation, 241–242 Solutions Network, Inc., 473–475 Sophie’s Choice (Styron), 30 SOX (Sarbanes-Oxley Act) See SarbanesOxley Act (SOX) special-purpose entities (SPEs) Enron, 444–446 FASB rules on, 450 SSARS (Statements on Standards for Accounting and Review Services), 347–348 SSTS See Statements on Standards for Tax Services (SSTS) (AICPA) Staff Accounting Bulletins (SABs), 294, 353 stakeholder orientation, 120–123 in Vivendi Universal, 578 stakeholder interests, standards of fieldwork, 296 standards of reporting, 296 Star Wars transitions (Enron), 446 State Administration of Industry and Commerce (SAIC), 384 state boards of accountancy, 242, 244 State of Compliance study, 2012, 152 State Street Trust Co v Ernst, 348 Statement of Financial Accounting Concepts (SFAC) 2, 293 Statement of Financial Accounting Standards (SFAS) No 5, 441 No 8, 457 No 125, 556n6 No 141, 427 No 142, 427 No 144, 427 Statements on Auditing Standards (SAS), 290 Statements on Standards for Accounting and Review Services (SSARS), 347–348 Statements on Standards for Tax Services (SSTS) (AICPA), 245–247 statutory liability, 350–355 court cases, 350–351 explained, 342 key court decisions, 352–353 Securities Act of 1933, 350, 352–353 Securities Exchange Act of 1934, 350, 353–355 summary of, 342 stewardship theory, 140–141 stock options, backdating, 143 student cheating, 11 at the University of North Carolina, 11–13 and workplace behavior, 13 subordination of judgment, 229–231, 234 substantial authority, 247, 540 Sunbeam Corporation, 420, 427, 483–487 Sunrise Savings, 211 System thinking, 80–81 System thinking, 80–81 T Tamco, 106, 107 Taoism, Tar & Heel, LLP, 531, 532 tax compliance services, 245 tax inversion, 327–328 tax law, auditor responsibility and violation, 274 tax planning, 245–248 tax positions, 540 tax practice, 515–516 Find more at www.downloadslide.com IN-14 Subject Index Walmart inventory shrinkage, 181–182 Waste Management, 138, 579–587 Westec Corporation, 210 Western Savings Association, 211 Westinghouse Credit Corporation, 107 whistleblowing among public accounting, 511 bystander effect and, 158 confidentiality and, 157 DCAA, 521–522 defining, 154 Dodd-Frank provisions, 158–161 experiences, 161–162 external, 158, 161 HealthSouth Corporation, 517 implications in accounting, 518–520 internal, 154, 155 morality of, 154, 161 obligation to report fraud, 157 procedural justice and, 32 rights and duties, 155–157 at WorldCom, 4–5, 33, 108 Whittman-Hart, 354 withdrawal from engagement, in audit report, 292 workplace behavior, 22–23 character and leadership in, 128 employees perceptions of ethics, 129–130 ethics in, 127–130 student cheating and, 13 trust in, 128–129 workplace ethics, 13–14 World Values Survey, 14 WorldCom, 4–5, 81, 108–109, 209, 210, 245, 252, 368, 514, 533 audit committee, 108 earnings manipulation, 408 FCPA and, 367 fraud, 108, 136 moral manager, 508 pressure to maintain the numbers, 119 professional judgment and, 73, 202 shifting expenses, 437 whistleblowing at, 4–5, 33, 108 tax provisions, 245 tax reserves, 245 tax return position, 246 tax returns case study, 98–99 contingent fees and, 240 Tektron’s workpapers and, 239–240 tax rules, integrity and, tax services for audit client, 245, 246 ethics and, 245–252 PCAOB rule on, 251 Statements on Standards for Tax Services (SSTS) (AICPA), 245–247 tax shelter, 247–250, 262–263 KPMG, 539–541 tax transactions, PCAOB rule on, 250 taxpayer, 246 Teaching Values, teleology, 22–25 Tellabs, Inc v Makor Issues & Rights, 358, 360 temporal immediacy, 72 10-K (annual) reports, 287, 353, 362, 387 10-Q (quarterly) reports, 287, 353, 387 Terms of Engagement (AU-C Section 210), 276 Texas State Board of Public Accountancy (TSBPA), 34, 241 Texas State Board Rule 501.76, 239 Texas Supreme Court, 350 Textron Inc v United States, 239 third parties auditor’s defense against, 348–349 foreseen, 344–348 third party liability, 344, 388–390 Thorne’s integrated model of ethical decision making, 73–74 302 certifications, 362–363 TierOne Bank, 481–483 Time Warner, Inc., 557, 576 tort actions, 343 tort liability, 343 Touche Ross & Co., 343 Toyota, 121 transformational leadership, 509 transparent information, 16 Treadway Commission, 147, 149, 211 Treasury Circular 230, 540 Trigen Laboratories (TLI), 391 TSC Industries, Inc v Northway, Inc., 423 Twitter, 412 two-tier voluntary peer review program, 209, 210 Tyco, 119, 123, 131, 277, 278, 408, 516 fraud, 280–282 moral manager, 508 Tylenol poisoning incident, 124, 125 uncertainty avoidance (UAI), 14, 15 undue influence threat, 216, 232 Uniform Accountancy Act, 33 Union Carbide, 192 United Kingdom, cultural values in, 14, 15 United Parcel Service of America, Inc (UPS), 395 United States, cultural values in, 14, 15 United States Securities Exchange Commission v Navistar International Corp., 267n5 United States v Carroll Towing (1947), 121 United States v McKesson & Robbins, 355–356 United States v Peltz (1970), 351 United States v Schwartz (1972), 351 United States v Textron Inc., 239 United Thermostatic Controls, 176–180 Universal Music Group (UMG), 576 Universal Studios Group, 576 universality perspective, 343 unmodified opinion in audit report, 271, 290, 291 nonpublic companies, 288, 289 public companies, 289 U.S Federal Sentencing Guidelines, 374 U.S Food and Drug Administration (FDA), 423 U.S Foodservice (USF), 331 USA Networks Inc., 576 utilitarianism, 27–28, 40 U W Z U.K Serious Fraud Office (SFO), 374 Ultramares principle, 344, 346 Ultramares v Touch (1933), 341, 343–344 Wagenheim v Alexander Grant & Co (AG) (1983), 243 Wall Street (film), 447 Zanett Commercial Solutions, 208 Zoroastrianism, ZZZZ Best Company, 210, 315–318 V Valley View Hospital, 264 values cultural, 14–15 and ethics, values-driven leadership, 522–524 vendor rebate, 559, 564 Vertical Pharmaceuticals Inc et al v Deloitte & Touche LLP, 391 Vinson & Elkins, 446, 448–449 virtue(s) CPA obligations and, 36–37 defining, 15–16 ethical decision making, 73–74 instrumental, 73 intellectual, 73 philosophy of, virtue ethics, 15, 32–33, 40 virtue-based decision making, 73–74 Vivendi Universal, 576–579 earnings releases, 577 financial commitments, 577–578 X Xerox, 275, 363, 440–442 Y Yale Express System, Inc., 243 Yardley, Inc., 263 ... Processes and Ethical Decision Making in Accounting 61 Earnings Management Organizational Ethics and Corporate Governance 111 Ethical Leadership and Decision- Making in Accounting Ethics and Professional... Moral Intensity 72 Aligning Ethical Behavior and Ethical Intent: VirtueBased Decision Making 73 Ethical Decision- Making Models 74 Kidder’s Ethical Checkpoints 75 Integrated Ethical Decision- Making. .. Congress Cataloging -in- Publication Data Names: Mintz, Steven M., author | Morris, Roselyn E., author Title: Ethical obligations and decision making in accounting : text and cases / Steven M Mintz, DBA,