Core 2 Self-Assessed Entrance Exam Solution
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78. Which of the following is an example of an ethically questionable action committed
by a controller?
a. Near the end of a fiscal year with lower-than-expected profits, suggesting that an
expensive advertising campaign be delayed until the next fiscal year
@ Answer a) is incorrect. Delaying an expensive advertising campaign does not
represent an ethically questionable action and could be a reasonable option in the
circumstances. Even if the advertising expenditure was not delayed, it could be argued
that the matching principle would support expensing the advertising costs in the next
fiscal year, if the impact on sales is likely to be felt only in the next fiscal year. Answer c)
is correct. The controller should not capitalize development costs if the probability of
success of the product in the market is low. To do so, even at the request of a divisional
manager, compromises the accountant’s competence, objectivity, and integrity, and
would violate the Rules of Professional Conduct (associating oneself with false or
misleading financial information).
b. Accepting a gift of a box of chocolates from a regular supplier and sharing the
chocolates with all of the company’s employees
@ Answer b) is incorrect. Accepting such a gift and sharing it with other employees
would not represent an ethically questionable action as the gift is small, all employees
can partake of the gift, and the giver is a regular supplier. It is unlikely that the gift would
influence any decisions made by the controller or any other employees of the company.
Answer c) is correct. The controller should not capitalize development costs if the
probability of success of the product in the market is low. To do so, even at the request
of a divisional manager, compromises the accountant’s competence, objectivity, and
integrity, and would violate the Rules of Professional Conduct (associating oneself with
false or misleading financial information).
*c. At the request of a manager, capitalizing instead of expensing the development
costs of a new product when the probability of its success in the market is low
@ Answer c) is correct. The controller should not capitalize development costs if the
probability of success of the product in the market is low. To do so, even at the request
of a divisional manager, compromises the accountant’s competence, objectivity, and
integrity, and would violate the Rules of Professional Conduct (associating oneself with
false or misleading financial information).
d. Reporting to the chief financial officer a suspicion that a line manager is providing
incorrect production data in an effort to increase his year-end bonus
@ Answer d) is incorrect. This represents a correct response to a suspicion of a co-
worker committing an unethical act. Answer c) is correct. The controller should not
capitalize development costs if the probability of success of the product in the market is
low. To do so, even at the request of a divisional manager, compromises the
accountant’s competence, objectivity, and integrity, and would violate the Rules of
Professional Conduct (associating oneself with false or misleading financial
information).