Deck 6: Ethical Issues in Finance and Accounting

Question 1

Ronald F. Duska and Brenda Shay Duska in "Ethics in Auditing: The Auditing Function" appeal to Kant's first formulation of the Categorical Imperative, the "universalizability principle" in order to illustrate what

A)That since deception in business is so universal it is to be expected.
B)That all businesses must utilize auditors in order to create a level playing field in the business world.
C)That auditors have conflicting duties between the business clients they represent and their duties as an auditor.
D)That if deceitful practices in business were universalized the trust necessary for the successful operation of markets would cease to exist.

Answer 1

D

Question 2

Strudler's main conclusion in "the Moral Problem of Insider Trading" is that legalizing insider trading would simply give corporation's the benefit of cheap compensation for their employees at no cost to them.

Answer 2

False

Question 3

The Sarbanes-Oxley Act fails to provide any sort of a provision to address conflicts of interest arising from the transfer of employees

Answer 3

False

Question 4

Richard Nielson defines leverage as which of the following

A)A strategy designed to reduce one's risk
B)The amount of money borrowed relative to the amount of capital owned or invested
C)A financial engineering instrument
D)A form of insurance against risky investments

Question 5

Understanding how Duska and Duska invoke Kant's universalizability principle, they would suggest that no matter the moral corruption of individuals within corporations, if every auditor acted honestly and with objectivity, trust in the world markets would remain high.

Question 6

Ronald F. Duska and Brenda Shay Duska in "Ethics in Auditing: The Auditing Function" argue that auditors have equally powerful and often conflicting duties to both the public and the clients they are hired to audit.

Question 7

John Boatright explains that determining the suitability of a broker's recommendations to a client is difficult to do with any one security and is more easily determined within the context of a client's portfolio.

Question 8

It is appropriate to infer from John Boatright's essay, "Ethical Issues in Financial Services", that he believes insider-trading is a clear moral wrong and that there is little to no support for its advocacy.

Question 9

Nielsen outlines four potential reforms for what he calls today's high leverage Finance capitalism. These reforms include all but which of the following solutions

A)More stringent leverage requirements and oversight
B)Compensation reform for financial executives
C)Increased tax dollars set aside for bailouts
D)Increased transparency of financial institutions

Question 10

According to Colin Boyd in "The Structural Origins of Conflicts of Interest in the Accounting Profession" the primary reasons for conflicts of interest that led to the Enron scandal include all of these except:

A)The consolidation of the major auditing firms into the "Big Five."
B)Offering under the table monetary exchanges for more lenient auditing practices.
C)The practice of selling consulting services to clients whom they are performing auditing functions for.
D)The practice of junior auditors (articling students)moving from auditing firms to positions in client companies.

Question 11

As argued by Duska and Duska, auditors should strive for as little "independence risk" from the companies they audit as possible so that they can act as insiders to their operations.

Question 12

In "High Leverage Finance Capitalism: Ethical issues and Potential Reforms", Nielson suggests that the economic crisis of 2007-2009 ushered in a new period of capitalism that is now equipped to handle the shortcomings of previous versions.

Question 13

"Opinion shopping", according to Colin Boyd, is a thing of the past since the passage of the Sarbanes Oxley Act.

Question 14

Duska and Duska describe "professional skepticism" as one of an auditor's basic responsibilities which calls for due professional care on the part of the auditor to assume inconsistencies in reports might exist within a given company.

Question 15

For Ronald F. Duska and Brenda Shay Duska in "Ethics in Auditing: The Auditing Function", so long as an auditor is honest this is all that matters, even if there are appearances of a conflict of interest.

Question 16

Colin Boyd explains that the homogeneity of services and relative homogeneity of accounting standards across nations were largely what made possible the wave of mergers that resulted in what is known today as the "Big Five" accounting firms.

Question 17

John Boatright suggests that one argument in favor of insider trading is that the markets might act more efficiently and with less cost.

Question 18

In "The Structural Origins of Conflicts of Interest in the Accounting Profession", Colin Boyd suggests that the Sarbanes Oxley Act may fall short of the necessary regulation.

Question 19

In John R. Boatright's "Ethical Issues in Financial Services" churning is defined as: excessive or inappropriate trading for a client's account by a broker who has control over the account with the intent to generate commissions rather than to benefit the client.

Question 20

According to Colin Boyd in "The Structural Origins of Conflicts of Interest in the Accounting Profession" the primary result of the Enron scandal was:

A)The passage of the Sarbanes-Oxley Act.
B)The requirement of an independent secondary audit to ensure accuracy.
C)The breaking up of the "Big Five" auditing firms to ensure greater reliability through increased competition.
D)All of the above

Question 21

In "the Moral Problem of Insider Trading" Strudler presents three arguments to explain the moral wrongs of insider trading. How does he conclude that principles of fairness are the best explanation for the moral shortcomings of insider trading.Where does he find flaws in the arguments for deception and harm as explanations

Question 22

Briefly explain the correlation between legislation banning insider trading and the cost of capital as highlighted by Alan Studler in "The Moral Problem of Insider Trading".

Question 23

Colin Boyd, in "The Structural Origins of Conflicts of Interest in the Accounting Profession", details the events that led to the collapse of Enron and scandals at other companies. Do you believe that corporate capital punishment was a just outcome for Arthur Andersen and its many employees and partners. Why, or why not. Appeal to moral theories that have been discussed in class and in this chapter in defending your position.

Question 24

Duska and Duska in "Ethics in Auditing: The Auditing Function" defend the rather demanding position that, based upon Kant's universalizability principle, auditors must avoid even the perception of conflict of interest. Begin by providing the best possible explanation/defense of their arguments leading to this conclusion, including an explanation of the universalizability principle and how it supports their conclusions. Then explain whether you believe that the authors' reasoning supports the conclusion they argue for.

Question 25

Briefly interpret what Nielson means by "High Leverage Finance Capitalism".

Question 26

Conflicts of interest are outlined in a number of articles in the chapter. Name and explain two sources of the conflicts of interest in the accounting firm-client relationship.

Question 27

Two articles in this chapter raise doubts about the ethical problems that underlie insider trading, primarily relying on utilitarian reasoning to support their positions. Examine the practices of insider trading from the perspective of deontological reasoning. Does this lead to different conclusions regarding the moral permissibility of these practices Explain. Additionally, with both sides of the argument presented in John Boatright's essay, where do you stand on insider trading.Be sure to explain both sides of the argument.

Question 28

As outlined by John Boatright, explain the practice of "churning" a client's account.

Question 29

Consider the role the subprime mortgage market played in the crisis as outlined by Richard Nielson. Although blame for the CDO proliferation and subsequent collapse was largely blamed on financial institutions, what responsibility do borrowers have in this crisis.Evaluate theories discussed thus far to contemplate their responsibilities.

Question 30

Boyd, in "The Structural Origins of Conflicts of Interest in the Accounting Profession", highlighted "horizontal integration" of accounting firms. Explain what this means.