Chapter 1, Problem 1.1EC

LO 5

(Learning Objective 5: Identify ethical principle violated)

For each of the situations listed, identify which of three principles (integrity, objectivity and independence, or due care) from the AICPA Code of Professional Conduct is violated. Assume all persons listed in the situations are members of the AICPA (Note: Refer to the AICPA Code of Professional Conduct contained for descriptions of the principles.)

1. a. Erica is eager to please her supervisor and wants to earn a promotion at the CPA firm. When Erica puts together her firm’s financial statements and related information for the past year, she buries unfavorable results deep in the report and presents the good news prominently. She figures that by making the firm look good it will make her case for promotion stronger.
2. b. Evan is in charge of putting together his company’s financial statements, but does not understand the newest financial reporting standard that went into effect last year. He decides to do the best he can with interpreting and applying the new standard because he does not have time right now to learn about the new standard in depth.
3. c. Jay receives a large year-end bonus if his company s sales grow by 8% this year. Sales only grew by 7.5% so Jay created false sales documentation to make it appear that the sales growth goal was met.
4. d. This year Gabby’s company incurred higher cost of goods sold than expected, which resulted in an overall net loss for the company Gabby does not want the company to lose investors due to the net loss, so she adjusts cost of goods sold so that the company has a positive net income.