Professional Ethics & Governance Flashcards

The Sarbanes-Oxley Act (SOX) was primarily enacted in response to which type of corporate failure?

Answer: Large-scale accounting fraud and financial statement manipulation

SOX was enacted in 2002 following major accounting scandals such as Enron and WorldCom, establishing requirements for financial reporting accuracy and internal controls.

An organization adopts a policy of 'ethical relativism' in its governance approach. This means the organization believes that:

Answer: Ethical behavior varies based on cultural context and there are no universal standards

Ethical relativism holds that moral standards are not universal but are culturally determined, meaning what is ethical varies across different societies and contexts.

Which internal control is most effective at detecting financial statement fraud committed by senior executives?

Answer: Independent external audit with direct board audit committee oversight

External audits conducted independently with reporting to the board's audit committee (rather than management) are most effective at detecting senior executive fraud, as management cannot influence the process.

The concept of 'materiality' in ethical disclosure means that organizations must disclose information that:

Answer: A reasonable investor or stakeholder would consider significant in their decision-making

Materiality requires disclosure of any information that a reasonable stakeholder would find significant enough to influence their decisions, regardless of whether it reflects positively or negatively.

A strategic manager who applies 'utilitarianism' to an ethical dilemma will choose the course of action that:

Answer: Produces the greatest good for the greatest number of people

Utilitarianism is a consequentialist ethical theory that judges actions by their outcomes, favoring choices that maximize overall well-being or utility across all affected parties.

Which governance document formally defines the responsibilities, authority, and composition of a board of directors?

Answer: Corporate bylaws and board charter

Corporate bylaws and the board charter formally establish the board's structure, responsibilities, authority, committee composition, and decision-making processes.

When a CSM practitioner encounters an ethical gray area not covered by existing policy, the best approach is to:

Answer: Apply core ethical principles and consult with legal or ethics advisors

In the absence of explicit policy, practitioners should apply foundational ethical principles (honesty, fairness, integrity) and seek guidance from ethics or legal counsel to navigate ambiguity.