CIMA BA4 · Chapter 1
Business ethics and the role of the professional accountant MCQs with Answers
10 multiple-choice questions on Business ethics and the role of the professional accountant for CIMA BA4 Fundamentals of Ethics, Corporate Governance and Business Law. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
Which of the following best describes business ethics?
- A) The set of laws that a company must obey in the countries in which it trades
- B) The policies a company adopts to maximise shareholder wealth over the long term
- C) The application of moral principles and standards of right and wrong to business decisions and behaviour
- D) The internal rules an organisation sets to make sure staff arrive at work on time
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Answer: C) The application of moral principles and standards of right and wrong to business decisions and behaviour
Business ethics concerns applying moral principles (what is right and wrong) to business conduct. Law sets a minimum standard of behaviour enforced by the state, but ethics often requires more than legal compliance. Wealth maximisation and attendance rules are business objectives or policies, not ethics as such.
Question 2
How does ethical behaviour generally relate to legal compliance?
- A) Anything that is legal is automatically ethical
- B) Ethics often demands a higher standard than the law, so an action can be legal yet unethical
- C) Ethics and law cover exactly the same ground in every jurisdiction
- D) Ethical rules override the law, so an accountant may break the law to act ethically
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Answer: B) Ethics often demands a higher standard than the law, so an action can be legal yet unethical
The law represents a minimum enforceable standard; ethics goes further and asks what is right. An action can therefore be perfectly lawful but still unethical, for example exploiting a loophole to mislead customers. Ethics does not authorise breaking the law, and law and ethics do not overlap completely.
Question 3
Why is ethical behaviour particularly important for professional accountants?
- A) Because ethical accountants are always paid more than other professionals
- B) Because ethics removes the need for accountants to comply with accounting standards
- C) Because only accountants are subject to the law of contract
- D) Because they have a responsibility to act in the public interest, not only to satisfy an individual client or employer
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Answer: D) Because they have a responsibility to act in the public interest, not only to satisfy an individual client or employer
A distinguishing mark of the accountancy profession is its acceptance of a responsibility to act in the public interest. Users of financial information such as investors, lenders and government rely on accountants' integrity. Ethics supplements technical standards rather than replacing them.
Question 4
An accountant believes that following clear, detailed rules is the best way to ensure ethical conduct, because it leaves no room for personal judgement. What is the main weakness of relying only on a rules-based approach to ethics?
- A) Rules cannot anticipate every situation, so people may comply with the letter of a rule while defeating its purpose
- B) Rules-based approaches are never enforceable by professional bodies
- C) Rules-based approaches require too much professional judgement
- D) Rules cannot be written down and so cannot be communicated to members
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Answer: A) Rules cannot anticipate every situation, so people may comply with the letter of a rule while defeating its purpose
A rules-based system cannot foresee every circumstance and encourages a 'tick-box' mentality in which people look for loopholes. A principles-based approach, such as the conceptual framework in the CIMA Code of Ethics, requires members to apply fundamental principles to any situation. Rules are enforceable and easy to communicate, and it is principles, not rules, that require more judgement.
Question 5
Which of the following is a feature of a principles-based approach to professional ethics?
- A) Members are given an exhaustive list of prohibited actions and anything not listed is permitted
- B) Members follow fixed procedures and do not need to exercise judgement
- C) Members are only bound by ethical requirements that are also criminal offences
- D) Members must identify, evaluate and address threats to the fundamental principles in each situation they face
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Answer: D) Members must identify, evaluate and address threats to the fundamental principles in each situation they face
Under a principles-based (conceptual framework) approach, members apply the fundamental principles to their own circumstances by identifying threats, evaluating them and addressing them with safeguards. An exhaustive list of prohibited actions and fixed procedures describe a rules-based approach. Ethical requirements go beyond the criminal law.
Question 6
Which of the following personal qualities is most closely associated with 'professional scepticism'?
- A) Distrusting every client and assuming that all management representations are false
- B) Refusing to rely on the work of any other professional
- C) Having a questioning mind and critically assessing evidence rather than accepting it at face value
- D) Following management's instructions without question to save time
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Answer: C) Having a questioning mind and critically assessing evidence rather than accepting it at face value
Professional scepticism means maintaining a questioning mind and critically assessing the evidence obtained, being alert to conditions that may indicate misstatement. It does not mean assuming dishonesty in everyone. Blindly following instructions is the opposite of scepticism.
Question 7
An accountant is described as having 'independence in appearance'. What does this mean?
- A) Avoiding facts and circumstances so significant that a reasonable and informed third party would conclude that objectivity had been compromised
- B) Having a state of mind that permits an opinion to be expressed without being affected by influences that compromise judgement
- C) Being employed by a different organisation from the one being reported on
- D) Holding no shares in any listed company
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Answer: A) Avoiding facts and circumstances so significant that a reasonable and informed third party would conclude that objectivity had been compromised
Independence in appearance concerns how a situation looks to a reasonable and informed third party: circumstances that would lead such a person to doubt the accountant's objectivity must be avoided. The state of mind description is independence of mind. Being employed elsewhere or holding no shares are not the definition, although they may help.
Question 8
Which of the following is the best example of an organisation acting with social responsibility rather than merely complying with the law?
- A) Paying employees the legal minimum wage
- B) Voluntarily reducing waste and emissions below the levels permitted by regulation
- C) Filing annual accounts by the statutory deadline
- D) Deducting income tax from employees' pay as required by law
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Answer: B) Voluntarily reducing waste and emissions below the levels permitted by regulation
Social responsibility involves going beyond legal obligations to act in the interests of society and the environment. Cutting emissions below legal limits is voluntary. Paying the minimum wage, filing accounts on time and deducting tax are legal requirements, so they show compliance rather than social responsibility.
Question 9
A finance manager discovers that a new cost-cutting plan is fully legal but will mislead customers about the durability of a product. The managing director says: 'If it is legal, it is not our problem.' Which statement best evaluates the managing director's view?
- A) It is correct because a professional accountant's only duty is to ensure that the law is obeyed
- B) It is flawed because legality is a minimum standard and the plan conflicts with the principle of integrity, which requires being straightforward and honest
- C) It is correct because ethical principles only apply to the preparation of financial statements
- D) It is flawed because any misleading statement is automatically a criminal offence
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Answer: B) It is flawed because legality is a minimum standard and the plan conflicts with the principle of integrity, which requires being straightforward and honest
Legal compliance does not make conduct ethical; the law is only a minimum standard. Knowingly being associated with misleading information breaches the principle of integrity, and accountants' ethical duties apply to all their professional activities, not just financial statements. Not every misleading statement is a crime, so the claim that it is automatically an offence overstates the position.
Question 10
Which of the following best explains why professional bodies such as CIMA require members to undertake continuing professional development (CPD)?
- A) To ensure that members earn enough income to remain independent of clients
- B) To replace the need for members to comply with the fundamental principles
- C) To demonstrate integrity by recording the number of hours spent in training
- D) To maintain professional knowledge and skill at the level required to provide competent professional services, supporting the principle of professional competence and due care
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Answer: D) To maintain professional knowledge and skill at the level required to provide competent professional services, supporting the principle of professional competence and due care
The principle of professional competence and due care requires members to attain and maintain professional knowledge and skill so that clients and employers receive competent service. CPD is the mechanism for keeping that knowledge up to date as standards, law and technology change. It supports, rather than replaces, the other principles and is not mainly about income or hours recorded.