CMA® > CMA® Part 2 > F.3. Organizational Ethics and Culture > Flashcards

F.3. Organizational Ethics and Culture Flashcards

Learn about organizational ethics, government influence, sustainability, and data ethics. (64 cards)

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1
Q

What are the three basic core values that should guide all of a company’s actions and decisions?

A
  • Transparency
  • Sustainability
  • Responsibility

Transparency - the company is open and honest with its employees and with the public.

Sustainability - it conducts business in a way that does not rob the future.

Responsibility - it is committed to integrity and social responsibility.

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2
Q

What is corporate culture, and what is its role in ethical decision making?

A

It consists of the shared norms, values, beliefs, customs, rules, and ceremonies that determine employee behavior and ways of resolving ethical issues.

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3
Q

What are the three key elements necessary for an ethical corporate culture?

A
  • Ethical leadership
  • A set of core ethical values
  • A formal ethics program
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4
Q

What is the purpose of a code of ethics in an organization?

A

It provides a common standard and understanding of the company’s definition of ethical behavior, serving as a reference point for decision-making.

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5
Q

According to Section 406 of the Sarbanes-Oxley Act, what must a company that is registered with the SEC disclose regarding its code of ethics?

A
  • Whether or not it has adopted a code of ethics for its senior financial officers and if not, why not
  • Any waivers of the code of ethics for the senior financial officers
  • Any changes made to the code
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6
Q

What is the effect of peer pressure on ethical behavior?

A

It can strongly influence ethical behavior, either encouraging unethical behavior if it is the norm or discouraging it if ethical behavior is the accepted standard.

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7
Q

What is “groupthink” and how does it affect decision-making?

A

It occurs when one or more members of a group feel pressured to conform to the group’s position even if they personally do not agree.

The desire for group unanimity among members overrides the members’ ability to realistically appraise alternative courses of action and make the best decisions.

Groupthink can lead to defective decision-making and unethical behavior due to the suppression of dissent and the illusion of unanimity.

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8
Q

What are the symptoms of groupthink?

A
  • Belief that nothing bad could happen because of a decision
  • Unquestioned belief in the group’s morality
  • Rationalization of the group’s decisions
  • Shared stereotypes of outsiders
  • Intolerance of dissent
  • Members withhold criticism
  • Illusion of unanimity
  • “Mindguards,” members that protect the group from information that would cause them to question the group’s decision
  • Members may not question decisions and actions that are clearly unethical, leading to unethical behavior.
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9
Q

How can groupthink be prevented?

A
  1. Avoid using groups as rubber stamps for decisions already made by senior management.
  2. Take time to consider possible effects and consequences of alternative courses of action.
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10
Q

How does group problem solving differ from groupthink?

A

In group problem solving, group members with diverse perspectives are encouraged to think independently. In groupthink, members are like-minded.

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11
Q

How is diversity among group members an advantage in making ethical decisions, when compared with individual decisions and those of like-minded groups (groupthink)?

A

When the discussion values each member’s skills and knowledge and draws out their varied information, the result can be a decision that is more ethical than any decision that could have been made by one of the members alone or a like-minded group.

Therefore, diverse groups tend to produce more ideas and greater creativity than like-minded groups.

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12
Q

Why is an ethics-based organizational culture important?

A

It creates an environment where employees can make moral and ethical decisions, leading to higher productivity, better teamwork, and improved financial performance.

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13
Q

What is the difference between legal behavior and ethical behavior?

A
  • Legal behavior is rules-based, based on required compliance with a set of written laws.
  • Ethical behavior is principles-based, based on voluntary compliance with a set of values.
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14
Q

What is a values-based ethics culture?

A

An organizational environment where ethical values and behavior are the norm, supported by a code of ethics and a commitment from management.

Ethical behavior starts with values that provide the basis for decisions where laws and rules may not exist. Ethics is the application of values such as honesty, fairness, responsibility, respect, and compassion to decision making.

A values-based ethical culture enhances risk assessment, transparency, and the probability that commitments are practiced.

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15
Q

What challenges do companies face when expanding globally in terms of ethics?

A

Companies may encounter cultural clashes and differing ethical standards, requiring clear definitions of ethical behavior and support for compliance, because values are not uniform across cultures.

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16
Q

What role do human resources play in maintaining an organization’s ethical culture?

A

To make sure its employees’ behavior is consistent with the organization’s desired principles, hiring decisions and employee training must address the alignment of employees’ individual values with organizational values.

Motivated employees are valuable assets, while unmotivated ones can be liabilities, especially in leadership roles.

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17
Q

What is the first step in establishing an ethical culture in an organization?

A

Assess the existing organization values and culture compared to the principles the organization believes in and desires to act upon.

This assessment can be done through focus groups and surveys involving employees, suppliers, and customers.

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18
Q

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

A

It sets the “tone at the top” by modeling ethical conduct, keeping their promises and commitments, supporting adherence to ethics standards, and guiding others toward ethical behavior.

Leaders are expected to demonstrate a commitment to the organization’s ethical framework and internal controls.

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19
Q

What is the concept of servant leadership and why is it important?

A

“Service to followers is the primary responsibility of leaders and the essence of ethical leadership.”

Servant leadership is important to ethical leadership because servant leadership is ethical leadership.

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20
Q

What are the traits of ethical leaders?

A
  • Integrity, honesty, trustworthiness
  • Conscientiousness, inclusiveness, accountability
  • Consideration, humane, focus on teambuilding
  • Consistency, authoritative, encouraging initiative
  • Respectful, good listener, personally moral
  • Give credit where credit is due, objective, fair, and just
  • Courageous, place the interests of the organization above their own
  • Good role model, use ethical decision rules
  • Communicate values, intolerant of ethical violations

Ethical leaders balance the wellbeing of subordinates and the wider community with the organization’s profitability.

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21
Q

What is the importance of ethical leadership by finance and accounting professionals?

A

Finance and accounting professionals have a responsibility to uphold and promote an ethical culture, adhering to professional codes of conduct and encouraging the development, adoption, deployment, and sustaining of an effective code of ethics for the organization they are associated with.

A professional accountant’s responsibility is not exclusively to satisfy the needs of an individual client or employer but to act in the public interest.

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22
Q

What is a corporate psychopath?

A

A corporate psychopath lacks a conscience, has few emotions, and displays an inability to have feelings, sympathy, or empathy for others. They ruthlessly manipulate others to further their own aims, callously disregard the needs and wishes of others, bully, cheat, and cause harm to the welfare of others. They are destructive to the organization.

Corporate psychopaths can undermine an ethical organizational culture. It is important to ensure that such people are not in positions of power.

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23
Q

Why is creating an ethical working environment vital to internal controls?

A

If human behavior is to have any predictability, expectations must be established by the organization. An internal control system cannot function with a high degree of confidence unless there is a comprehensive framework for corporate ethical behavior.

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24
Q

What are the steps to convert a policy from words into action?

A
  • Hire the right people
  • Provide employee training
  • Build ethics into work behavior
  • Build ethics into the design and development, manufacturing, and delivery of products and services and post-sales client support
  • Address third-party ethical issues such as work practices of subcontractors in other countries
  • Integrate ethics into business planning
  • Know what to do when there are no procedures to follow
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25
What is the purpose of a values-based ethics culture?
To provide a framework for decision-making when company policy does not provide a specific answer, leading to consistency in decisions and a common understanding of expected behaviors. ## Footnote A values-based ethics culture helps management accounting professionals improve the working environment and address risks effectively.
26
How can ethical compliance in an organization be monitored?
1. By incorporating ethics into the employee performance review and development systems. 2. By submitting survey questions to employees asking them to rate how well the organization is following its code of ethics 3. By providing a whistleblowing framework or hotline so that anyone, but specifically employees, can report possible violations of the organization’s code of ethics anonymously and without fear of reprisal.
27
What is the **Foreign Corrupt Practices Act** (FCPA)?
A U.S. law enacted to prohibit payments to foreign officials for obtaining or retaining business. It was enacted in response to disclosures of questionable payments that had been made by large companies to obtain or retain business. ## Footnote The FCPA applies to issuers, domestic concerns, and certain persons and entities acting within the U.S.
28
What are the main provisions of the FCPA?
* Anti-bribery provision * Accounting provisions ## Footnote The accounting provisions were enacted because the bribes and questionable payments that had led to passage of the FCPA were facilitated by accounting and recordkeeping practices that made it possible to disguise the payments in the accounting system.
29
What do the anti-bribery provisions of the Foreign Corrupt Practices Act prohibit?
Payments to foreign officials, politicians, or political parties to obtain or renew business.
30
What do the accounting provisions of the Foreign Corrupt Practices Act require?
Companies are required to: 1. Maintain complete, accurate, and reliable accounting records. 2. Devise and maintain a system of internal accounting controls that is adequate to provide reasonable assurance that: * Transactions are authorized by management and recorded as necessary. * Access to assets is limited to management’s authorization; assets are inventoried and reconciled regularly and any differences are investigated.
31
What persons and entities do the anti-bribery provision of the FCPA apply to?
* Issuers of publicly traded securities * Domestic concerns * Persons and entities, other than issuers and domestic concerns, acting while in the territory of the United States The FCPA also applies to officers, directors, employees, agents, and shareholders of the above entities. ## Footnote The anti-bribery provisions of the FCPA apply to both public and private entities. Individuals and companies may also be penalized if they order, authorize, or assist someone else to violate the provisions of the FCPA.
32
What are the **penalties** for violating the anti-bribery provision of the Foreign Corrupt Practices Act?
For each violation of the anti-bribery provisions, the FCPA provides that corporations and other business entities are subject to a fine of up to $2 million. Individuals, including officers, directors, stockholders, and agents of companies, are subject to a fine of up to $250,000 and imprisonment for up to five years.
33
What persons and entities do the accounting provisions of the FCPA apply to?
1. Issuers of securities traded on national securities exchanges in the United States, including American Depository Receipts. 2. Companies whose stock trades in the over-the-counter market in the U.S. 3. Any entity required to file annual or other periodic reports with the SEC. ## Footnote The accounting provisions of the FCPA do not apply to privately held companies that do not report to the SEC.
34
What are the penalties for violating the accounting provisions of the Foreign Corrupt Practices Act?
For each violation of the accounting provisions, the FCPA provides that corporations and other business entities are subject to a fine of up to $25 million. Individuals are subject to a fine of up to $5 million and imprisonment for up to 20 years.
35
What does the U.K. Bribery Act prohibit?
The U.K. Bribery Act of 2010 prohibits bribery both of governmental officials and private businesspeople by all United Kingdom residents and businesses and by foreign companies that have operations in the United Kingdom.
36
What persons and entities does the U.K. Bribery Act apply to?
United Kingdom residents and businesses as well as foreign companies with operations in the United Kingdom can be held liable for bribery, regardless of where the offense is committed or who in the company commits the act, even if the bribe itself has no connection with the United Kingdom. ## Footnote A business is liable if someone who performs services for it, such as an employee or agent, pays a bribe specifically to get business, keep business, or gain a business advantage for the company.
37
What is the main difference between the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act?
The U.S. FCPA applies to bribery of foreign officials only, whereas the U.K. Bribery Act applies to bribery of both governmental officials and private businesspeople.
38
What is the "New York Times Test" in ethical decision-making?
It says that in making decisions, leaders should ask themselves whether they would want to see the action they are contemplating reported in the news.
39
What role do **hotlines** and **whistleblowers** play in monitoring ethical compliance?
They provide a means for confidential, anonymous reporting of ethical violations, helping to detect and address unethical behavior. ## Footnote The Sarbanes-Oxley Act mandates the establishment of such systems for public companies.
40
What is the definition of **sustainability** according to the U.N. Brundtland Commission Report on “Our Common Future.”
Providing for the needs of the present generation while not compromising the ability of future generations to meet theirs.
41
What are the **four levels** of social responsibilities in Archie B. Carroll's definition of CSR?
* Economic responsibilities * Legal responsibilities * Ethical responsibilities * Discretionary (philanthropic) responsibilities
42
What does the "triple bottom line" in corporate social responsibility and sustainability refer to?
It refers to three spheres of corporate social responsibility and sustainability: * Economic (profits) * Social (people) * Environmental (planet) ## Footnote **Economic** (profits) - the company’s creation of financial income and assets **Social** (people) - the quality of people’s lives and equity among people, communities, and nations. **Environmental** (planet) - protection and conservation of the natural environment to preserve its capability to support life.
43
What is the purpose of a corporate social responsibility report?
To inform stakeholders of a company's social responsibility and sustainability efforts and impacts on the environment and the community, including its efforts in ethics, its philanthropic activities, its economic activities, and the company’s impact on its employees.
44
What is **data ethics**?
A branch of ethics addressing the moral obligations in generating, collecting, sharing, and using individuals' personally identifiable information.
45
What are the key **principles** of data ethics?
* Fairness * Privacy * Transparency * Control and Consent (formerly "Ownership") * Accountability
46
What does the principle of **fairness** in data ethics require?
The principle of fairness in the use of data, artificial intelligence, and machine learning focuses on data-driven decisions that can result in unfairness because of the way the systems have been developed. ## Footnote Fairness in data ethics and the use of AI requires addressing and mitigating biases in historical data and AI algorithms built from the historical data.
47
What is **anonymization** in the context of the data ethics principle of **privacy**?
The process of removing information that can identify data with any particular person.
48
What is a **linkage attack** in the context of the data ethics principle of privacy and anonymization?
Tracing anonymous data to individuals using other available data. ## Footnote Linkage attacks are possible because 87% of people in the U.S. can be uniquely identified when only their gender, date of birth, and postal (ZIP) code are available.
49
What is **differential privacy** in the context of the data ethics principle of **privacy**?
To counter the threat of linkage attacks, an algorithm is used to add a predetermined amount of “noise,” or error, to the dataset to protect the privacy of the individuals in the dataset. ## Footnote The data scientists using the algorithm can work backwards to roughly calculate the true results of the computations made from the data. Linkage attacks consist of tracing anonymous data to individuals using other available data.
50
What is the trade-off between privacy and accuracy in data when differential privacy is used with personally identifiable information on persons?
An **inverse relationship** exists between privacy and accuracy in data. The higher the level of privacy, the lower the accuracy and vice versa. ## Footnote Because the data have been made less accurate to protect the privacy of the individuals in the dataset, computations made from the data are less accurate than they would be if the exact data had been used.
51
What is **transparency** in the context of the data ethics principle of data **privacy**?
Communicating to data subjects what information will be gathered and how it will be stored, secured, used, and shared.
52
In the context of data ethics, who are the data subjects, and what does **control by** and **consent of** data subjects mean?
They are the individuals who have provided their personal information. Data subjects should have the right to **control** their data, including the ability to access, correct, and delete their information. Explicit and informed **consent** should be obtained from individuals before collecting their data or using it for any purpose, including sharing it with third parties.
53
What does the data ethics principle of **accountability** mean, and why is it important?
Organizations that collect and use people’s personal data must be answerable for the consequences of their actions. If the data is leaked, the company needs to accept responsibility for the harm done to the data subjects. Accountability includes making sure responsible parties are identified and held responsible for any ethical breaches or lapses in data practices.
54
What is **personally identifiable information** (PII)?
Information that can be used to distinguish or trace an individual’s identity (for example, their name or social security number), alone or when combined with other personal or identifying information that is linked or linkable to a specific individual (for example, date and place of birth or mother’s maiden name)
55
What is the purpose of data protection regulations?
To regulate how entities protect personally identifiable information on consumers, including **data privacy** and **data security**. ## Footnote Criminals can break into databases and steal personally identifiable information if it has not been adequately secured; then apply for credit in the victim's name, make purchases, file a tax return and attempt to claim a tax refund, withdraw money from the victim’s accounts, seek services in the victim’s name, and just about anything else the perpetrator can think of.
56
# True or False: The U.S. Constitution provides individuals with a right to privacy, including the privacy of their data held by businesses.
False ## Footnote The right to privacy in the U.S. Constitution protects individuals from government intrusion only. For that reason, the U.S. Congress has enacted several federal laws to provide legal protections for individuals’ personal information.
57
What does the U.S. Federal Trade Commission (FTC) Act require?
It prohibits unfair or deceptive acts or practices and empowers the U.S. Federal Trade Commission to bring enforcement actions against violators.
58
What is the European Union's General Data Protection Regulation (GDPR) and what entities does it apply to?
It codifies Europe's human rights-based philosophy of data privacy protection. It requires any company or organization in the world, regardless of its location, to comply with its data protection standards and privacy rights if it processes the personal data of anyone in the EU.
59
What rights does the European Union's General Data Protection Regulation (GDPR) confer on individuals?
Rights to: * **Access** - inspect their personal information * **Correction** - request correction of errors * **Portability** - request transfer of their personal information * **Erasure** - request their personal information to be deleted * **Consent** - consent to the selling of their personal information * **Appeal** - appeal a business's denial of their request
60
What is the philosophy of data privacy in the European Union?
Data privacy is a fundamental human right, and individuals own their personal information.
61
What must organizations have to process personal data under the GDPR?
A legal basis for its activities, such as consent or "legitimate interests." ## Footnote The GDPR also includes data breach notification requirements, data security standards, and conditions for cross-border data flows outside the EU.
62
How has the GDPR influenced data protection legislation in other jurisdictions?
It has served as a model for other jurisdictions, including several U.S. states, which have enacted similar rights-based laws.
63
What does Australia's Privacy Act of 1988 regulate?
The collection, storage, use, and disclosure of personal information. ## Footnote The Privacy Act applies to the federal government and private entities, with later amendments addressing healthcare information and data breach obligations.
64
What is the purpose of Canada's Personal Information Protection and Electronic Documents Act?
To regulate companies' and organizations' use of personal information for commercial purposes. ## Footnote Personal information is defined as information that can identify an individual, whether used on its own or combined with other data.
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