Section E

Professional Ethics
Part1

Topic 1 Ethical considerations for management accounting and financial management
professionals

Q1:
The IMA Statement of Ethical Professional Practice Integrity standard states that each
member has a responsibility for all of the following except:

Regularly communicate with business associates to avoid apparent conflicts of interest.

Abstain from engaging in or supporting any activity that might discredit the profession.

Communicate information fairly and objectively.

Mitigate actual conflicts of interest.
The correct answer is: Communicate information fairly and objectively.
The IMA Statement of Ethical Professional Practice Integrity standard states that each
member has a responsibility to: mitigate actual conflicts of interest, regularly communicate
with business associates to avoid apparent conflicts of interest, advise all parties of any
potential conflicts, refrain from engaging in any conduct that would prejudice carrying out
duties ethically and abstain from engaging in or supporting any activity that might discredit
the profession. Communicating information fairly and objectively is one of the Statements
Credibility standards.

Q2:
Katelyn is the Controller for Hobbie Corners; a company that produces manufactured
homes. Hobbie Corners year-end is approaching and the forecasted profitability report for
the year is significantly lower than expected. Andrew, a senior Management Accountant that
reports to Katelyn, is responsible for forecasting the year-end profitability reports. In an
effort to lower costs, both Andrew and Katelyn have been asked to join a committee to
review operations. The committee selected several issues to address immediately in an
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attempt to improve
profitability.
Andrew has been asked to work with the purchasing department to select vendors that can
offer raw materials at lower costs without compromising quality. Hazel Enterprises can
provide many of the key raw materials needed at a lower cost; however, the owner of the
company is related to Katelyn. After preparing a cost savings analysis, Andrew recommends
that Hazel Enterprises be selected as a new vendor.
Katelyn has been asked to review the percentage of completion calculations on the homes
that are currently in process. Katelyn has the ability to change the percentage of completion
calculation which would directly impact profitability for the company. Katelyn has modified
the calculation and forwarded the amended report to the auditors.
The IMA Statement of Ethical Professional Practice describes the overarching ethical
principle of Fairness. Identify an example of fairness relevant to the Hobbie Corners case
above.

Ensuring information on reports and statements is accurate.

Conveying information at the appropriate time.

Selecting vendors without bias, prejudice, or favoritism.

Disclosing all necessary and relevant information to outside auditors.
The correct answer is: Selecting vendors without bias, prejudice, or favoritism.
Fairness requires empathetic, just consideration of the needs of others involved in a
particular situation and full disclosure of all necessary contextual information. The
organization deserves adequate and full disclosure that Hazel Enterprises can provide high
quality products at a lower cost; however, the relationship with the controller must be
disclosed.

Q3:
Katelyn is the Controller for Hobbie Corners; a company that produces manufactured
homes. Hobbie Corners year-end is approaching and the forecasted profitability report for
the year is significantly lower than expected. Andrew, a senior Management Accountant that
reports to Katelyn, is responsible for forecasting the year-end profitability reports. In an
effort to lower costs, both Andrew and Katelyn have been asked to join a committee to
review operations. The committee selected several issues to address immediately in an
attempt to improve profitability.
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Andrew has been asked to work with the purchasing department to select vendors that can
offer raw materials at lower costs without compromising quality. Hazel Enterprises can
provide many of the key raw materials needed at a lower cost; however, the owner of the
company is related to Katelyn. After preparing a cost savings analysis, Andrew recommends
that Hazel Enterprises be selected as a new vendor.
Katelyn has been asked to review the percentage of completion calculations on the homes
that are currently in process. Katelyn has the ability to change the percentage of completion
calculation which would directly impact profitability for the company. Katelyn has modified
the calculation and forwarded the amended report to the auditors.
The IMA Statement of Ethical Professional Practice describes the first overarching ethical
principle as Honesty. Identify an example of honesty relevant to the Hobbie Corners case
above.

Selecting vendors without bias, prejudice, or favoritism.

Providing information and feedback objectively.

Disclosing all necessary and relevant information to outside auditors.

Ensuring information on reports and statements is accurate.
The correct answer is: Disclosing all necessary and relevant information to outside auditors.
The first principle, honesty, requires conscientious application to the task at hand and
truthfulness in all analyses and communications. Examples of honesty include: disclosing all
necessary and relevant information to outside auditors; refusing to record information that
is anything less than accurate; and providing factual information to others so that they can
make decisions based on truthful information. In this case, Katelyn has a responsibility to
disclose all relevant information to the outside auditors to justify the amendments to the
percentage of completion report.

Q4:
In which situation is an IMA member allowed to disclose confidential information to
individuals outside of the organization?

The IMA member quits and no longer has an obligation to maintain confidentiality.

There is an ethical conflict and the organization refuses to take action.
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There is a legal obligation to disclose the confidential information.

There is an ethical conflict and the immediate supervisor refuses to take action.
The correct answer is: There is a legal obligation to disclose the confidential information
The IMA Statement of Ethical Professional Practice Confidentiality standard states that each
member has a responsibility to: keep information confidential except when disclosure is
authorized or legally required. In addition, the confidentiality standard requires IMA
members to inform all relevant parties regarding appropriate use of confidential
information. Monitor subordinates' activities to ensure compliance, and refrain from using
confidential information for unethical or illegal advantage.

Q5:
Recently Fan Club Inc. submitted a budget for the coming year to management. Included in
the budget were the plans for a new product, a rechargeable fan. The new fan will not only
last longer than the competitors product but is also more quiet. While not yet approved, the
budget called for aggressive advertising to support its sales targets, as the business
community was not yet aware that Fan Club was close to production of a new fan. A
member of the management accounting staff shared the budget with a distributor. In
accordance with IMAs Statement of Ethical Professional Practice, which one of the
following would best represent an ethical conflict in this situation?

* Source: Retired ICMA CMA Exam Questions

The budget has not been approved and therefore is not for publication.

The price has not been established, so expectations must be managed.

The employee should refrain from disclosing confidential information.

The staff member exposed the company to a potential lawsuit.
Thats correct! The employee should refrain from disclosing confidential information.
According to the IMAs Statement of Ethical Professional Practice, the employee should
refrain from disclosing confidential information. Providing confidential information will
adversely affect the organization in many ways.
Q6:
John Moore was recently hired as assistant controller of a manufacturing company. The
company controller, Nancy Kay, has forecasted a 16% increase in annual earnings however,
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during the last quarter of the year, John esmates that the company will only report a 12%
increase in earnings. When he reports this to Nancy, she tells him that meeting the numbers
wont be a problem. She explains that there are several jobs in production that will finish
after the end of the fiscal year and she will record the associated revenue in the accounting
system for the current year.

What is the first step that John Moore should take at this time?

Discuss the issue with the CFO of another company, who does not know any employees
at Johns company.

Contact his lawyer to determine his rights.

Notify the audit committee of the issue.

Follow his organizations established policies regarding the resolution of this type of
conflict.
The correct answer is: Follow his organizations established policies regarding the resolution
of this type of conflict.

Before taking any steps, John Moore should check to see if his organization has established
policies regarding how to handle this type of conflict. If such policies exist, then he should
follow them.

Q7:
Katelyn is the Controller for Hobbie Corners; a company that produces manufactured
homes. Hobbie Corners year-end is approaching and the forecasted profitability report for
the year is significantly lower than expected. Andrew, a senior Management Accountant that
reports to Katelyn, is responsible for forecasting the year-end profitability reports. In an
effort to lower costs, both Andrew and Katelyn have been asked to join a committee to
review operations. The committee selected several issues to address immediately in an
attempt to improve profitability.
Andrew has been asked to work with the purchasing department to select vendors that can
offer raw materials at lower costs without compromising quality. Hazel Enterprises can
provide many of the key raw materials needed at a lower cost; however, the owner of the
company is related to Katelyn. After preparing a cost savings analysis, Andrew recommends
that Hazel Enterprises be selected as a new vendor.
Katelyn has been asked to review the percentage of completion calculations on the homes
that are currently in process. Katelyn has the ability to change the percentage of completion
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calculation which would directly impact profitability for the company. Katelyn has modified
the calculation and forwarded the amended report to the auditors.
The IMA Statement of Ethical Professional Practice describes the overarching ethical
principle of Responsibility. Identify an example of responsibility relevant to the Hobbie
Corners case above.

Selecting vendors without bias, prejudice, or favoritism.

Disclosing all necessary and relevant information to outside auditors.

Providing information and feedback objectively.

Ensuring information on reports and statements is accurate.
The correct answer is: Ensuring information on reports and statements is accurate.
Responsibility requires actions to be performed with faithfulness and loyalty. Examples of
responsibility include conveying information at the appropriate time, ensuring information
on reports and statements is accurate, and gathering enough information to make an
informed decision. Katelyn has a responsibility to ensure that the
information on the percentage of completion report is accurate.
Q8:
The IMA Statement of Ethical Professional Practice Credibility standard states that each
member has a responsibility to:

Provide decision support information and recommendations that are accurate.

Refrain from using confidential information for unethical or illegal advantage.

Maintain an appropriate level of professional expertise by continually developing
knowledge and skills.

Disclose all relevant information that could reasonably be expected to influence an
intended user's understanding of the information.
The correct answer is: Disclose all relevant information that could reasonably be expected to
influence an intended user's understanding of the information.
The IMA Statement of Ethical Professional Practice Credibility standard states that each
member has a responsibility to: communicate information fairly and objectively, disclose all
relevant information that could reasonably be expected to influence an intended user's
understanding of the reports, analyses, or recommendations, disclose delays or deficiencies
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in information, timeliness, processing, or internal controls in conformance with organization
policy and/or applicable law.

Q9:
Sam Smith has been offered a pair of tickets to the pro football team if Smith purchases a
computerized inventory control system from a specific vendor. Which of the following steps
should Smith take?

Review his companys policies on gifts from vendors.

Refuse any further conversations with the vendor.

Consult with the Audit Committee of the Board of Directors.

Sign the contract for the system if the price of the cket is less than $50.
The correct answer is: Review his companys policies on gifts from vendors.

According to IMAs Statement of Ethical Professional Practice, when faced with ethical
issues, an individual should follow their organization's established policies on the resolution
of such a conflict.
Q10:
At Berwick Enterprises, the controller is one of the key decision-makers in recommending
consulting projects to local accounting professionals. The controller would often receive gifts
around the holidays. In considering whether or not to accept these gifts, the controller
should refer to which IMA Statement of Ethical Professional Practice?

Confidentiality

Integrity

Credibility

Competence
The correct answer is: Integrity
The IMA Statement of Ethical Professional Practice Integrity standard states that each
member has a responsibility to: among other things, refrain from engaging in any conduct
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that would prejudice carrying out duties ethically and abstain from engaging in or supporting
any activity that might discredit the profession.

Q11:
As management accountants progress in the profession, they often have the responsibility
to supervise the work of less experienced workers. Which of the following is an ethical
responsibility of the supervisor?

Ensure that workers handle confidential information appropriately.

Encourage the workers to develop relations with customers.

Maximize the profit or minimize the cost of the department.

Hire new workers who will fit in socially with existing staff.
The correct answer is: Ensure that workers handle confidential information appropriately.

Per the IMAs Statement of Ethical Professional Practice, a management accountant has
the responsibility to keep information confidential except when disclosure is authorized or
legally required. A management accountant also has the responsibility to inform all relevant
parties regarding appropriate use of confidential information. This includes monitoring
subordinates' activities to ensure compliance.
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