What is the best way to avoid circular references in a hierarchy? For example, in the context of a chart of account, how is it possible to exclude all children of the currently edited account in the parent drop down list?
I was able to test out your example in my environment. I would recommend creating a picker filter in your stepper to achieve your desire result. Please follow these steps below
Navigate to the App Builder, Select your stepper then navigate to Steps > then select Reference Selection and create a Picker Filter similar to this one below to exclude the children's records.
Referenced.ID <> Record.ID AND ( Referenced.FID_ParentAccount <> Record.ID OR Referenced.FID_ParentAccount is null )