Business Ethics & Professional Conduct for FMAA™

What are the two arenas in which professional ethics are tested in the FMAA exam?

Business ethics
Ethical considerations for management accounting and financial management professionals

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Define:

business ethics

A field of study that analyzes the practices within organizations to determine whether they are acceptable.
It is also a set of principles or a code of conduct by which business activities are judged to be appropriate or questionable.

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What are the three basic core values that undergird all others in a company?

Transparency
Sustainability
Responsibility

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What does fairness mean in the context of ethical decision-making?

It means acting in a manner that is free from bias, dishonesty, or injustice.
It involves equality, reciprocity, and optimization.

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What is a conflict of interest?

A situation in which a person in a position of trust might receive personal gain and not from their official or professional actions.

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What is the role of integrity in ethical decision-making?

It means being honest and upstanding and adhering firmly to a code of values.
It involves making decisions consistent principles and in the best interests of stakeholders.

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What is due diligence in a business context?

It refers to research done before a transaction to avoid harm.
It involves examining the other party’s financial position, business record, and other material information.

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What is fiduciary responsibility?

The obligation to act in the best interests of principals/beneficiaries when managing assets or authority.

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What is the importance of incorporating ethics into an organization’s culture?

It helps influence behavior, and communicates values to employees, managers, customers, and other stakeholders.

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What is a whistleblower?

A person who reports wrongdoing or corruption, often anonymously or confidentially.

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What is the significance of ethical due diligence?

Ensures that the corporate culture and ethical values of another party match those of the company, especially in partnerships, acquisitions, or supplier selection.

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What is a fiduciary responsible for?

Acting in the best interests of principals or beneficiaries
Managing assets or authorities with care
Avoiding conflicts of interest
Making full disclosure of material facts

A fiduciary is held to a high standard of conduct and trust, often involving professionals like accountants and auditors.

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Who are stakeholders to whom accountants and auditors provide fiduciary services?

clients
shareholders
employees
governments
creditors
SEC
public

Accountants and auditors must maintain trust and adhere to standards to ensure fairness to all stakeholders.

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What is the primary duty of professional accountants and auditors?

To ensure the accuracy and reliability of their work for the benefit of the public.

Their loyalty is due first to the public interest and then to the accounting profession, above any individual client or employer.

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What should a professional accountant do if ethical resolution fails?

Disassociate from the organization.

This guidance is from the IMA Statement of Ethical Professional Practice, effective July 1, 2017.

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What is business fraud?

Any intentional deception for unlawful financial gain, harming others.

Fraud can be committed by individuals or groups and can involve various schemes, often exploiting technological opportunities.

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What is asset misappropriation?

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Illegal possession of property belonging to another entity by someone responsible for its care.

It includes actions like cash theft, inventory theft, accounts receivable fraud, and payroll fraud.

What is accounts receivable fraud?

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Fraud involving misappropriation of cash receipts and manipulation of receivables, such as write-off schemes and lapping.

Lapping involves using receipts from one customer to cover another’s receivable, creating a cycle of deception.

What is manipulation of financial statements?

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Includes fraudulent financial reporting and unethical actions like aggressive accounting, earnings management, and income smoothing.

These actions may not always be illegal but are unethical and can lead to severe consequences.

What is marketing fraud?

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Dishonest creation/promotion/selling of products, including false advertising and deceptive practices.

Examples include puffery, implied falsity, literal falsity, and ambiguous statements.

What is consumer fraud?

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When a consumer attempts to deceive a business to gain an unfair economic advantage.

Examples include friendly fraud, price arbitrage, return fraud, wardrobing, and returning stolen goods.

What are the three conditions of the Fraud Triangle?

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Pressure
Opportunity
Rationalization

These conditions must be present for an employee to commit fraud, as per Donald R. Cressey’s theory.

What is a Ponzi scheme?

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A fraudulent investment operation where returns are paid to earlier investors using the capital from newer investors.

The scheme collapses when new investments stop and existing investors demand their returns.

Define:

Intellectual Property Infringement

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Violation of someone’s rights to their intellectual property, including copyright, patent, trademark, or design infringement.

It can lead to loss of profits, reputation damage, and consumer harm.

What are the **IMA's overarching ethical principles**?

* Honesty * Fairness * Objectivity * Responsibility ## Footnote These principles guide the ethical conduct of IMA members.

What does the **standard of competence** require?

Maintaining **professional leadership and expertise**, performing duties according to **laws and standards**, and providing **accurate decision support**. ## Footnote Competence involves keeping up with changes in laws, regulations, and accounting standards.

What does the **standard of confidentiality** entail?

**Keep information confidential** unless **authorized or legally required**; safeguard information from unauthorized use. ## Footnote Confidentiality includes safeguarding information and not disclosing it to unauthorized parties.

What actions are suggested to maintain **personal integrity**?

* Reject gifts or favors that influence behavior. * Avoid conflicts of interest. * Communicate both good and bad news. * Follow laws and regulations. ## Footnote Integrity involves adhering to ethical codes and maintaining consistent principles and values.

What is the role of an independent **Audit Committee** in fraud prevention?

To **understand the company's fraud risk exposure** and evaluate and monitor the company's controls. ## Footnote An empowered Audit Committee is part of a control environment that deters fraudulent behavior.

What is the purpose of an **employee hotline** under **Sarbanes-Oxley**?

To provide a means for employees to **report suspected wrongdoing**, serving as a fraud deterrent. ## Footnote The existence of a hotline can discourage potential fraud by making reporting accessible.

What is the definition of **credibility** in the IMA standards?

**Believability** and **trustworthiness**, requiring objective, fair, and relevant communication. ## Footnote Credibility requires maintaining competence and providing relevant information to influence understanding.

What is the purpose of a **fraud hotline** in a company?

To provide a **reporting mechanism** and **deter fraud**. ## Footnote The existence of a hotline can discourage potential fraudulent activities by making employees aware of the reporting mechanism.

What are the key components of a **control environment** to prevent fraud?

* An independent and empowered **Audit Committee** * An annual **risk assessment** * A **hotline** available to vendors, customers, and employees * A written **anti-fraud policy** * **Employee training** sessions * A written policy for **investigating fraud** allegations ## Footnote These components are designed to prevent, detect, and deter fraudulent behavior by limiting opportunities for illegal activities.

What is the role of an **Audit Committee** in fraud prevention?

To understand the company’s **fraud risk exposure** and evaluate and monitor the company’s controls. ## Footnote An empowered Audit Committee is crucial for overseeing the effectiveness of the company's fraud prevention measures.

Why is an **annual risk assessment** important in fraud prevention?

To** identify specific fraud risks** and **key controls** designed to address those risks. ## Footnote Regular risk assessments help in updating and strengthening the control environment to mitigate potential fraud.

What should a **written anti-fraud policy** include?

A clear **definition of fraud** and standards of conduct, training and the importance of ethical behavior. ## Footnote The policy should be reviewed in employee training sessions to ensure understanding and compliance.

What is the significance of having a **written policy for investigating fraud allegations**?

To ensure a **consistent and fair process** for **resolving** fraud allegations. ## Footnote A clear policy helps maintain integrity and trust in the investigation process.

# Define: Principles

Specific **boundaries** for behavior that should not be violated.

# Define: Values

**Beliefs** and **ideals** that are socially enforced.

# Define: Norms

**Standards of behavior** that are judged to be proper and acceptable.

Business Ethics & Professional Conduct Flashcards

Understand ethical responsibilities and standards for accountants. (40 cards)