US CMA Part 2 · Chapter 9
Professional ethics MCQs with Answers
23 multiple-choice questions on Professional ethics for US CMA Part 2 Strategic Financial Management. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
Which of the following are the four overarching ethical principles in the IMA Statement of Ethical Professional Practice?
- A) Honesty, Independence, Transparency and Accountability
- B) Honesty, Fairness, Objectivity and Responsibility
- C) Competence, Confidentiality, Integrity and Credibility
- D) Integrity, Objectivity, Professional Competence and Due Care
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Answer: B) Honesty, Fairness, Objectivity and Responsibility
The IMA's overarching ethical principles are Honesty, Fairness, Objectivity and Responsibility. Competence, Confidentiality, Integrity and Credibility are the four standards that members must comply with. Professional competence and due care is a principle in other professional codes, not the IMA statement.
Question 2
Under the IMA Statement of Ethical Professional Practice, which four standards must members comply with?
- A) Competence, Independence, Integrity and Transparency
- B) Competence, Confidentiality, Integrity and Credibility
- C) Confidentiality, Loyalty, Diligence and Objectivity
- D) Honesty, Fairness, Objectivity and Responsibility
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Answer: B) Competence, Confidentiality, Integrity and Credibility
The IMA statement sets out four standards: Competence, Confidentiality, Integrity and Credibility. Honesty, Fairness, Objectivity and Responsibility are the overarching principles that underpin those standards.
Question 3
A management accountant is assigned to evaluate a lease accounting change but has not kept up with recent developments in lease accounting. She enrolls in a technical course before starting the work. Which IMA standard does this action most directly support?
- A) Competence
- B) Confidentiality
- C) Integrity
- D) Credibility
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Answer: A) Competence
The Competence standard requires members to maintain an appropriate level of professional leadership and expertise by enhancing knowledge and skills, and to perform duties in accordance with relevant laws, regulations and technical standards. Updating technical knowledge before an assignment directly supports this standard.
Question 4
A cost accountant learns from internal reports that his company will soon announce an unexpected loss. He sells his shares in the company before the announcement. Which IMA standard has he most directly violated?
- A) Competence
- B) Confidentiality
- C) Credibility
- D) Fairness
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Answer: B) Confidentiality
The Confidentiality standard requires members to keep information confidential except when disclosure is authorized or legally required, and to refrain from using confidential information for unethical or illegal advantage. Trading on non-public company information also likely breaches securities laws on insider trading.
Question 5
A plant controller is asked to evaluate competing bids for a maintenance contract. One bidder is owned by her brother. Under the IMA Integrity standard, what should she do?
- A) Keep the relationship confidential to protect her brother's privacy
- B) Ensure her brother's company submits the lowest bid so the decision is defensible
- C) Disclose the relationship to all relevant parties and mitigate the conflict, for example by withdrawing from the evaluation
- D) Evaluate the bids herself, since she is confident she can remain objective
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Answer: C) Disclose the relationship to all relevant parties and mitigate the conflict, for example by withdrawing from the evaluation
The Integrity standard requires members to mitigate actual conflicts of interest, communicate regularly with business associates to avoid apparent conflicts, and advise all parties of any potential conflicts. Disclosing the relationship and removing herself from the decision addresses both the actual and the apparent conflict.
Question 6
A management accountant discovers a significant weakness in the controls over vendor master file changes and reports it promptly to management in accordance with company policy. Which IMA standard does this action most directly reflect?
- A) Integrity
- B) Confidentiality
- C) Competence
- D) Credibility
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Answer: D) Credibility
The Credibility standard requires members to communicate information fairly and objectively, to disclose all relevant information that could reasonably influence users' understanding, and to report any delays or deficiencies in information, timeliness, processing or internal controls in conformance with organization policy and applicable law.
Question 7
According to the IMA Statement of Ethical Professional Practice, what should a member do FIRST when faced with an ethical issue?
- A) Contact the appropriate regulatory authority
- B) Follow the organization's established policies on the resolution of such conflicts
- C) Resign from the organization to avoid being associated with the issue
- D) Consult a personal attorney about legal obligations
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Answer: B) Follow the organization's established policies on the resolution of such conflicts
The IMA statement says a member facing an ethical issue should first follow the organization's established policies, including use of an anonymous reporting system if available. If there are no such policies (or they do not resolve the issue), the member could discuss it with the immediate supervisor (or the next level of management if the supervisor appears to be involved), call IMA's anonymous helpline for guidance, and consult a personal attorney. Disassociating from the organization is considered only if resolution efforts fail.
Question 8
A management accountant believes her immediate supervisor is involved in manipulating inventory counts. Company policy has not resolved the issue. According to IMA guidance, what should she do next?
- A) Discuss the matter with her immediate supervisor before taking any other step
- B) Present the issue to the next level of management above her supervisor
- C) Ignore the issue because the supervisor has authority over inventory
- D) Report the matter to a local newspaper to protect shareholders
Show answer & explanation
Answer: B) Present the issue to the next level of management above her supervisor
The IMA statement says the resolution process could include a discussion with the immediate supervisor, but if the supervisor appears to be involved, the issue could be presented to the next level of management. Ignoring the issue is not acceptable, and going to the press would breach the Confidentiality standard, which requires information to be kept confidential except when disclosure is authorized or legally required.
Question 9
According to the IMA Statement of Ethical Professional Practice, what should a member consider when deciding which steps to follow in resolving an ethical issue?
- A) All risks involved and whether protections exist against retaliation
- B) Whether the issue has already been reported in the financial press
- C) Whether the member's supervisor agrees that an ethical issue exists
- D) Whether the amount involved is material to the financial statements
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Answer: A) All risks involved and whether protections exist against retaliation
The IMA statement says members should not ignore unethical issues but should actively seek resolution, and that in determining which steps to follow they should consider all risks involved and whether protections exist against retaliation. Materiality, press coverage and the supervisor's agreement are not the tests set out in the statement; an immaterial ethical breach still needs to be resolved.
Question 10
A management accountant wants to clarify whether a situation she faces is an ethical violation before taking action. Under IMA guidance, which step is appropriate?
- A) Call IMA's anonymous ethics helpline to ask how key elements of the IMA Statement could be applied to the issue
- B) Post a description of the situation on social media to obtain public opinion
- C) Discuss the details informally with a friend at a competitor
- D) Ask the external auditor to resolve the matter on her behalf
Show answer & explanation
Answer: A) Call IMA's anonymous ethics helpline to ask how key elements of the IMA Statement could be applied to the issue
The IMA statement notes that IMA offers an anonymous helpline that members may call to request how key elements of the Statement of Ethical Professional Practice could be applied to an ethical issue. Sharing details on social media or with someone at a competitor would breach the Confidentiality standard, and the external auditor cannot resolve the member's own ethical obligations.
Question 11
The chief financial officer of a company reports directly to the chief executive officer. The CFO discovers that the CEO has been directing staff to record fictitious sales. Internal policy has not resolved the matter. Applying the IMA guidance that an issue involving the supervisor should be presented to the next level of management, to whom should the CFO present the issue?
- A) The audit committee or board of directors, which oversees the CEO
- B) The Securities and Exchange Commission, immediately and before any internal escalation
- C) The company's sales staff, so they can stop recording the transactions
- D) The CEO, since the CEO is the CFO's immediate superior
Show answer & explanation
Answer: A) The audit committee or board of directors, which oversees the CEO
The IMA statement says that if the supervisor appears to be involved, the issue could be presented to the next level of management. When the supervisor is the CEO, the next level is the governing body that oversees the CEO, such as the audit committee or board of directors. Raising it with the CEO is pointless because the CEO is involved, telling the sales staff does not resolve it, and going straight to an outside regulator skips the internal resolution steps.
Question 12
What are the three elements of the fraud triangle?
- A) Motive, means and concealment
- B) Pressure (incentive), opportunity and rationalization
- C) Pressure, collusion and detection
- D) Opportunity, materiality and intent
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Answer: B) Pressure (incentive), opportunity and rationalization
The fraud triangle, developed from criminologist Donald Cressey's research, explains that fraud is more likely when three conditions exist: pressure or incentive to commit fraud, an opportunity to commit and conceal it (often weak controls), and the ability to rationalize the act as acceptable.
Question 13
Which element of the fraud triangle can management most directly reduce by designing and enforcing strong internal controls?
- A) Opportunity
- B) Financial need
- C) Rationalization
- D) Pressure
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Answer: A) Opportunity
Internal controls such as segregation of duties, authorization requirements, reconciliations and monitoring limit the chances to commit and conceal fraud, so they target opportunity. Pressure and rationalization are personal or cultural factors that controls influence less directly, though a strong ethical culture can affect rationalization.
Question 14
A payroll clerk who has been diverting small amounts tells herself, "The company underpays me, and I'm only borrowing what I'm owed; I'll pay it back." This reasoning illustrates which element of the fraud triangle?
- A) Concealment
- B) Rationalization
- C) Pressure
- D) Opportunity
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Answer: B) Rationalization
Rationalization is the mental process by which a person justifies dishonest behavior as acceptable, such as viewing theft as borrowing or as compensation for unfair treatment. Pressure is the motive (for example, personal debts) and opportunity is the ability to commit and conceal the act.
Question 15
Which situation is the clearest example of the PRESSURE (incentive) element of the fraud triangle?
- A) A division manager whose bonus and job security depend on meeting aggressive quarterly earnings targets
- B) An accounts payable clerk who can both set up vendors and approve payments
- C) A manager who believes that everyone in the industry manipulates results
- D) A company that lacks an internal audit function
Show answer & explanation
Answer: A) A division manager whose bonus and job security depend on meeting aggressive quarterly earnings targets
Pressure is the motivation to commit fraud, such as compensation tied to targets, financial difficulties or expectations from analysts. The clerk with incompatible duties and the absence of internal audit illustrate opportunity, and believing that "everyone does it" is a rationalization.
Question 16
The phrase "tone at the top" refers to:
- A) The tone of voice used by managers in performance reviews
- B) The financial ratios reported at the top of the annual report
- C) The level of detail in the company's top-level budget
- D) The ethical climate set by the board and senior management through their words and behavior
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Answer: D) The ethical climate set by the board and senior management through their words and behavior
Tone at the top describes the ethical atmosphere created by an organization's leadership. When directors and senior managers visibly demonstrate integrity and hold others accountable, employees are more likely to behave ethically. It is widely regarded as the foundation of an effective ethics and compliance program.
Question 17
Which feature is most important for an effective whistleblower (ethics) hotline?
- A) Reports are routed only to the executives in the area being reported
- B) Callers must provide proof of wrongdoing before a report is accepted
- C) Reports can be made confidentially or anonymously, with protection against retaliation
- D) All reports must be made in person to the employee's immediate supervisor
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Answer: C) Reports can be made confidentially or anonymously, with protection against retaliation
Employees are much more willing to report misconduct when they can do so confidentially or anonymously and trust that they will not suffer retaliation. Effective hotlines are often operated independently and report to the audit committee or a compliance officer, rather than to managers who may be implicated.
Question 18
Under the anti-bribery provisions of the US Foreign Corrupt Practices Act, which payment is generally permitted?
- A) A payment to a foreign official to influence the award of a government contract
- B) A small facilitating payment to a foreign clerk to expedite a routine, non-discretionary government action such as processing a visa
- C) A payment through a third-party agent, knowing it will be passed to an official to obtain a license
- D) A gift to a foreign minister's relative in exchange for a favorable tax ruling
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Answer: B) A small facilitating payment to a foreign clerk to expedite a routine, non-discretionary government action such as processing a visa
The FCPA prohibits paying anything of value to foreign officials to obtain or retain business, whether directly or through intermediaries. It contains a narrow exception for facilitating ("grease") payments made to expedite routine governmental actions that involve no discretion. Many companies prohibit such payments as a matter of policy, and other countries' laws may not allow them.
Question 19
In addition to its anti-bribery rules, the US Foreign Corrupt Practices Act requires SEC-registered companies to:
- A) Pay a fixed percentage of foreign revenue into a compliance fund
- B) Register all foreign sales agents with the Department of Commerce
- C) Keep accurate books and records and maintain an adequate system of internal accounting controls
- D) Obtain an annual audit of their foreign subsidiaries by a government agency
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Answer: C) Keep accurate books and records and maintain an adequate system of internal accounting controls
The FCPA's accounting provisions require issuers to make and keep books and records that accurately and fairly reflect transactions and to devise and maintain a system of internal accounting controls. These provisions help prevent off-book accounts used to conceal bribes.
Question 20
A company evaluates its performance not only on profit but also on its impact on employees, communities and the natural environment. This approach is commonly described as:
- A) The balanced scorecard's financial perspective
- B) Shareholder primacy
- C) Activity-based management
- D) The triple bottom line (people, planet and profit)
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Answer: D) The triple bottom line (people, planet and profit)
The triple bottom line expands performance measurement to social (people) and environmental (planet) outcomes as well as economic results (profit). It is closely linked to corporate social responsibility and sustainability reporting. Shareholder primacy focuses solely on returns to shareholders.
Question 21
Which of the following practices is MOST likely to undermine an organization's ethical culture even if a written code of conduct exists?
- A) Rewarding managers solely on aggressive financial targets while tolerating misconduct by top performers
- B) Requiring annual ethics training and code of conduct certification
- C) Including ethical behavior as a criterion in performance evaluations
- D) Having the audit committee review hotline reports
Show answer & explanation
Answer: A) Rewarding managers solely on aggressive financial targets while tolerating misconduct by top performers
A code of conduct is undermined when incentives and enforcement signal that results matter more than how they are achieved. Rewarding only financial outcomes and excusing misconduct by high performers creates pressure and invites rationalization. Training, ethics-based evaluation criteria and independent oversight of hotline reports all reinforce an ethical culture.
Question 22
A US company discovers that one of its overseas suppliers uses child labor, which is not prohibited by local law in that country. Which response best reflects good practice in applying corporate values internationally?
- A) Continue purchasing but stop disclosing the supplier's identity
- B) Apply the company's supplier code of conduct, require corrective action and be prepared to end the relationship if the practice continues
- C) Take no action, because the supplier is complying with local law
- D) Leave the decision to the supplier's local managers because cultural norms differ
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Answer: B) Apply the company's supplier code of conduct, require corrective action and be prepared to end the relationship if the practice continues
Organizations should apply their values and ethical standards consistently across all operations and their supply chains, not merely the minimum local legal requirement. A supplier code of conduct, monitoring, remediation requirements and willingness to terminate relationships demonstrate commitment to human rights and protect the company's reputation.
Question 23
Near year-end the controller of a division tells a management accountant to defer recording $250,000 of known expenses until next year so the division meets its profit target. The controller is the accountant's immediate supervisor. Company policy has not resolved the matter. Which action would be INCONSISTENT with IMA guidance?
- A) Raising the matter with the controller's superior, such as the division general manager
- B) Consulting her own attorney about her legal obligations and rights
- C) Anonymously sending details of the matter to a financial journalist
- D) Calling IMA's anonymous ethics helpline for guidance on applying the IMA Statement
Show answer & explanation
Answer: C) Anonymously sending details of the matter to a financial journalist
Because the immediate supervisor is involved, IMA guidance is to present the issue to the next level of management. Members may also call IMA's anonymous helpline for guidance and should consider consulting their own attorney about legal obligations, rights and risks. Leaking details to a journalist breaches the Confidentiality standard, which requires information to be kept confidential except when disclosure is authorized or legally required.