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Ethical Obligations and Decision Making in Accounting Final PDF to printer Ethical Obligations and Decision Making in Accounting Text and Cases Fifth Edition Steven M. Mintz, DBA, CPA Professor Emeritus of Accounting California Polytechnic State University, San Luis Obispo Roselyn E. Morris, Ph.D., CPA Professor Emerita of Accounting Texas State University–San Marcos min69460_fm_i-xxii.indd i 10/03/1810:46AM Final PDF to printer ETHICALOBLIGATIONSANDDECISIONMAKINGINACCOUNTING:TEXTANDCASES, FIFTHEDITION PublishedbyMcGraw-HillEducation,2PennPlaza,NewYork,NY10121.Copyright©2020byMcGraw-Hill Education.Allrightsreserved.PrintedintheUnitedStatesofAmerica.Previouseditions©2017,2014and2011. Nopartofthispublicationmaybereproducedordistributedinanyformorbyanymeans,orstoredinadatabase orretrievalsystem,withoutthepriorwrittenconsentofMcGraw-HillEducation,including,butnotlimitedto, inanynetworkorotherelectronicstorageortransmission,orbroadcastfordistancelearning. Someancillaries,includingelectronicandprintcomponents,maynotbeavailabletocustomersoutsidethe UnitedStates. Thisbookisprintedonacid-freepaper. 123456789QVS212019 ISBN978-1-259-96946-1 MHID1-259-96946-0 PortfolioManager:Rebecca Olson ProductDeveloper:Caitlyn Johnston, Agate Publishing MarketingManager:Zach Rudin ContentProjectManagers:Pat FredericksonandDaryl Horrocks Buyer:Sandy Ludovissy Design:Matt Diamond ContentLicensingSpecialist:Jacob Sullivan CoverImage:©Frank Peters/Shutterstock Compositor:SPi Global Allcreditsappearingonpageorattheendofthebookareconsideredtobeanextensionofthecopyrightpage. Library of Congress Cataloging-in-Publication Data Names:Mintz,StevenM,author. Title:Ethicalobligationsanddecisionmakinginaccounting:textandcases/ StevenM.Mintz,DBA,CPA,EmeritusProfessorofAccounting,California PolytechnicStateUniversity,SanLuisObispo,RoselynE.Morris,Ph.D., CPA,ProfessorEmeritaofAccounting,TexasStateUniversitySanMarcos. Description:Fifthedition.|NewYork,NY:McGraw-HillEducation,[2020] Identifiers:LCCN2018044426|ISBN9781259969461(alk.paper)| ISBN1259969460 Subjects:LCSH:Accountants—Professionalethics—UnitedStates—Casestudies. Classification:LCCHF5616.U5M5352020|DDC174/.4—dc23 LCrecordavailableathttps://lccn.loc.gov/2018044426 TheInternetaddresseslistedinthetextwereaccurateatthetimeofpublication.Theinclusionofawebsitedoes notindicateanendorsementbytheauthorsorMcGraw-HillEducation,andMcGraw-HillEducationdoesnot guaranteetheaccuracyoftheinformationpresentedatthesesites. mheducation.com/highered min69460_fm_i-xxii.indd ii 10/03/1810:46AM Final PDF to printer Dedication Wededicatethisbooktoallthestudentswehavetaughtovertheyears,withoutwhomourburningdesire toteachethicswouldlaydormant.Inthisbook,westrivetoawakenstudents’interestinethicsandethical behavior.Ourgoalsaretoeducateaccountingstudentstobefutureleadersintheaccountingprofession, stimulateyourethicalperceptionsothatyounotonlyknowwhattherightthingtodoisbuthavethecour- agetodoit,andsensitizeyoutoyourdutytoservethepublicinterestaboveallelse. “Educatingthemindwithouteducatingtheheartisnoeducationatall.” Aristotle min69460_fm_i-xxii.indd iii 10/03/1810:46AM Final PDF to printer About the Authors Steven M. Mintz, DBA, CPA, is a Professor Emeritus of Accounting from 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 been acknowledged by accounting researchers as one of the top publish- ersofresearchpapersonaccountingethicsandaccountingeducation.He was selected for the 2014Max 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 CourtesyofStevenMintz the American Accounting Association. He also has received the Faculty ExcellenceAwardoftheCaliforniaSocietyofCPAs.Dr.Mintzwritesthree award-winning blogs under the names “ethicssage,” “workplaceethicsad- vice,”and“higheredethicswatch.” Roselyn E. Morris, Ph.D., CPA, is a professor emerita of accounting of the Accounting Department of McCoy College of Business, Texas State University.Dr.MorrisreceivedherPh.D.inbusinessadministrationfrom the University of Houston. She is a past president of the Accounting Education Foundation. She is currently appointed for a six year term as chairoftheQualificationsCommitteeoftheTexasStateBoardofPublic Accountancy(TSBPA)andisaboardmemberoftheNationalAssociation ofStateBoardsofAccountancy(NASBA). CourtesyofRoselynE.Morris BothProfessorsMintzandMorrishavedevelopedaccountingethicscourses attheirrespectiveuniversities. min69460_fm_i-xxii.indd iv 10/03/1810:46AM Final PDF to printer Preface Ethical Obligations and Decision Making in Accountingwaswrittentoguidestudentsthroughthemine- fieldsofethicalconflictinmeetingtheirresponsibilitiesundertheaccountingprofessions’codesofcon- duct.Ourbookisdevotedtohelpingstudentscultivatetheethicalcommitmentneededtoensurethat theirworkmeetsthehigheststandardsofintegrity,independence,andobjectivity.Wehopethatthisbook andclassroominstructionwillworktogethertoprovidethetoolstohelpstudentstoinstilltheethical valuesoftheaccountingprofessionandprofessionalismineverythingtheydo.Hereisabriefoverviewof enhancementstothefifthedition.Additionaldetailsfollow. Overview of 5th Edition Anexpandeddiscussionofprofessionaljudgmenthighlightsthechallengestoethicaldecision-making forinternalaccountantsandauditors,andexternalauditors.Newmaterialonbehavioralethicsaddresses cognitivechallengesintheperformanceofanaudit.Weexamineemergingissuesinorganizationsrelated toequity,diversity,andinclusion,aswellassexualharassment.Webuildontraditionalphilosophicalrea- soningmethodsbytakingtheprocessonestepfurther,thatis,toconvertethicalintentintoethicalaction byapplyingthe“GivingVoicetoValues”methodology.GVVcoveragehasbeenexpandedtoincludenew casesinordertoprovideinstructorswithmorechoiceswhenandhowtouseGVVinclassdiscussions. WhistleblowingobligationsofCPAsarecoveredinfullincludingthe2018U.S.SupremeCourtdecision inDigital Realty Trust, Inc. v. Somersthatclarifieswhenanaccountantmustreportfinancialwrongdoing totheSECundertheDodd-FrankFinancialReformAct.Wealsoexaminewhetherprotectionsagainst retaliationundertheSarbanes-OxleyActareworkingasintended.A2018courtdecisioninErhart v. Bofl Holdingsheldthatwhistleblowerscanuseconfidentialcompanydocumentstoexposefraudmaybea gamechanger.Inthisbook,wearecommittedtothoroughlyexploringethicalobligationsofaccountants andauditors.Inthatregard,wehaveexpandeddiscussionofsomeoftherulesofconductincludinginde- pendence,objectivityandintegrity,andprofessionalskepticism.Wealsodevotemorecoveragetoacts discreditabletotheprofession,agrowingproblemofprofessionalbehavior.Newrulestodisclosecritical auditmattersandwhentoincludeaseparateparagraphintheauditreportarediscussed.Expandedcov- erageofnon-GAAPmetricsraisesquestionsabouttheusefulnessofsuchdata,itsconformitywithGAAP, andSECguidelines.Ethicalleadershipisdiscussedinthecontextofprofessionalrole,professionalobli- gationsasaCPA,anddealingwithorganizationalinfluences. Severalstatesnowrequiretheiraccountingstudentstocompleteanethicscoursepriortobeinglicensed asaCPA.Thisbookhasbeendesignedtomeettheguidelinesforaccountingethicseducationincluding: • encouragingstudentstomakedecisionsinaccordancewithprescribedvalues,attitudes,andbehaviors. • providingaframeworkforethicalreasoning,knowledgeofprofessionalvalues,andethicalstandards. • prescribingattributesforexercisingprofessionalskepticismandbehaviorthatisinthebestinterestof theinvestingandconsumingpublicandtheprofession. • instillingthedesiretodotherightthingandadheretothestandardssetforthintheAICPACodeof ProfessionalConduct. Accountingstudentsshouldstrivetobethebestaccountingprofessionalspossible.Tothatend,wededi- catethebooktoinstillingasenseofethicsandprofessionalism. min69460_fm_i-xxii.indd v 10/03/1810:46AM Final PDF to printer vi Preface What’s New in the 5th Edition? Inresponsetofeedbackandguidancefromnumerousaccountingethicsfaculty,theauthorshavemade manyimportantchangestothefiftheditionofEthical Obligations and Decision Making in Accounting: Text and Cases,includingthefollowing: Connect • Connect is availablewithassignablecases,testbankassessmentmaterial,andSmartBook.SmartBook isanexcellentwaytoensurethatstudentsarereadingandunderstandingthebasicconceptsinthe bookanditpreparesthemtolearnfromclassroomdiscussions.SeveraloftheChapter Casesare availableinanauto-gradedformattofacilitategradingbyinstructors.Thepurposeofusingthedigital formatistobetterpreparestudentsaheadofclasstofreeupinstructorstodiscussabroaderrangeof topicsintheirlecturesandinthegive-and-takebetweenteacherandstudent.Connect Insight Reports willalsogivetheinstructorabetterviewintotheoverallclass’sunderstandingofcoretopicspriorto classtoappropriatelyfocuslecturesanddiscussion.TheConnect Libraryalsooffersmaterialstosup- porttheeffortsoffirst-timeandseasonedinstructorsofaccountingethics,includingacomprehensive Instructor’sManual,TestBank,AdditionalCases,andPowerPointpresentations. • Learning Objectiveshavebeenaddedandlinkedtospecificcontentmaterialineachchapter. End-of-Chapter Assignments Eachchapterincludes25discussionquestions(20inchapter8)thataredesignedtoreviewimportant topicsinthetextwithstudentsandapplytheirknowledgetonewsituations.Tencases(5inchapter8) coveravarietyoftopicsdeemedmostimportantineachchapter.Wehavepurposefullykeptmostofthese casesshorttoprovideampletimefordiscussioninclassabouttheethicalissuesandtonotgettoobogged downwithfinancialanalysis.However,wedoprovidemanySECcasesthatfocusonthenumbersandare
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