Deck 2: Ethics Governance Scandals

Question 1

In 1984, Edward Freeman published an article on stakeholder theory. Which of the following is not true?

A)A firm needs the support of its stakeholders to enhance the firm's reputation.
B)Stakeholder theory took years to mature.
C)Stakeholder theory is not a useful framework for those interested in governance.
D)Firms need stakeholders to achieve their corporate objectives.
E)Stakeholder theory occurred at the same time as the rise in social and corporate activism.

Answer 1

C

Question 2

The Dodd-Frank Wall Street Reform and Consumer Protection Act was created after the subprime lending fiasco to protect consumers from deceptive practices related to:

A)mortgages.
B)credit cards.
C)cars.
D)financial derivatives.
E)All of the above

Answer 2

A,B,D

Question 3

Which of the following is not covered under the Sarbanes-Oxley Act of 2002 (SOX)?

A)The responsibilities of shareholders
B)The responsibilities of the board of directors
C)The responsibilities of management
D)The responsibilities of auditors
E)Conflicts of interest

Answer 3

A

Question 4

The overall requirement of the Internal Revenue Service Circular 230 is to ensure that tax professionals:

A)know their clients.
B)always develop tax plans for their clients.
C)make tax planning suggestions that, even if they don't have a chance of success, will save the client some money in the short term.
D)never develop tax shelters.
E)only be professional accountants.

Question 5

Ralph Nader contributed to the lack of credibility of corporations by exposing:

A)their excessive bonus schemes.
B)their greed.
C)their poor car safety.
D)their poor environmental record.
E)the "seller beware" attitude of toy manufacturers.

Question 6

As a result of the spectacular stock market crash in 1929, the government enacted the Securities Act of 1933 , the Securities Act of 1934 , and:

A)The Glass-Steagall Act .
B)The Investment Advisers Act .
C)The Gramm-Leach-Bliley Act .
D)All of the above
E)Only a and b

Question 7

Which was the largest fraud or bankruptcy leading to the crisis of investor confidence in 2002?

A)Enron
B)Global Crossing
C)WorldCom
D)HIH Insurance
E)Xerox

Question 8

The U.S. Federal Sentencing Guidelines were introduced in 1991 to:

A)help judges formulate sentences.
B)avoid sentences that were too light.
C)signal potential sentences to executives and directors.
D)encourage executives and directors to avoid environmental damage.
E)All of the above

Question 9

Which of the following is not a sign of an ethical collapse within an organization, according to Marianne Jennings, author of The Seven Signs of Ethical Collapse: How to Spot Moral Meltdowns in Companies ?

A)Pressure to meet financial goals
B)Hubris
C)Nepotism, favoritism, and hiring sycophants
D)An open and candid organizational culture
E)A weak board of directors

Question 10

A collateralized debt obligation (CDO):

A)is an insurance policy that any investor can purchase.
B)is a bond that is secured by a portfolio of mortgages.
C)protects an investor in the event that the issuer of the mortgage defaults on the contract.
D)acts as a hedge against changes in interest rates.
E)was outlawed with the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act .

Question 11

SOX contained sections with regard to the auditors and/or audit committee that were designed to:

A)increase the independence of management.
B)increase the financial literacy of audit committee members.
C)limit the conflicts of interest related to the services an auditor can perform.
D)restrict the ability of auditors to serve on the audit committee.
E)All of the above

Question 12

The crisis in investor confidence in 2002 was caused by:

A)a lack of integrity of business leaders.
B)the manipulation of financial results.
C)the boards of directors that did not provide proper oversight.
D)the findings of alert auditors.
E)All of the above

Question 13

Who among the following demonstrated extraordinary hubris (the arrogant belief that rules are for other people but not for us)?

A)Kenneth Lay
B)Bernie Ebbers
C)Arthur Andersen
D)Scott Sullivan
E)All of the above

Question 14

The U.S. Internal Revenue Service (IRS)implemented Circular 230 to remedy problems found with regard to the marketing of tax shelters thought to:

A)have no other purpose than reducing taxes.
B)have lower than 50% chance of success if challenged by the IRS.
C)not be in accordance with the client's needs.
D)create fictitious losses.
E)All of the above

Question 15

Due diligence programs developed to reduce penalties levied under the U.S. Federal Sentencing Guidelines for environmental harm did not include:

A)awareness programs for employees.
B)guidelines for employees.
C)compliance oversight by corporate officials.
D)rewards for noncompliance.
E)encouragement for whistleblowers.

Question 16

Freddie Mac and Fannie Mae:

A)were created to support the U.S. housing market.
B)stimulated the U.S. housing bubble.
C)provided bailout funds to the U.S. government.
D)acted in the best interests of consumers.
E)acted in the best interests of lenders.

Question 17

Why didn't investors caught in the subprime lending crisis take earlier note of the risks inherent in investments known as collateralized debt obligations (CDOs)?

A)Investors were driven by greed and the desire for high returns.
B)Banks were selling and buying them.
C)The risks were buried in complex, jargon-oriented documents.
D)The risks were diversified over many mortgages.
E)Only three of the above

Question 18

The U.S. government created the Troubled Asset Relief Program (TARP)to:

A)bail out investors in U.S. financial firms and institutions.
B)avoid a worldwide financial crisis.
C)stimulate the U.S. economy.
D)resolve the financial crisis in Iceland.
E)make a profit on the ultimate sale assets bought at a low value.

Question 19

Which of the following financial crises or fiascos were not related to the subprime lending crisis?

A)Bear Stearns
B)Lehman Brothers
C)Bernie Madoff
D)AIG
E)Galleon Group

Question 20

A Ponzi scheme, such as the one Bernie Madoff ran, is: hard to hide forever.

A)a card game.
B)a sound investment scheme.
C)a scheme to improve the environment.
D)hard to hide forever.
E)None of the above

Question 21

Deutsche Bank closed down a business segment producing roughly 20% of its business because:

A)it was an unprofitable business segment for banks in general.
B)the leader of that business segment was disgraced.
C)there were damning reports from the German regulator.
D)there was negligent strategic thinking.
E)the culture in that business segment was beyond remediation.

Question 22

The QuadrigaCX cryptocurrency exchange went bankrupt because:

A)the founder and operator died.
B)the founder fired all professional accounting and control personnel.
C)Canada had no regulatory framework to oversee such exchanges.
D)the founder dissipated most of the exchange's funds.
E)cryptocurrency is a very risky investment.

Question 23

The Carillion plc bankruptcy was important because:

A)it had major infrastructure construction and operations projects all over the world.
B)it left tens of thousands of active and pensioned workers without financial support.
C)it attracted the largest number of short sellers on the London Stock Exchange.
D)it went bankrupt within six months of receiving a clean audit report.
E)All of the above

Question 24

Large drug and chemical manufacturers have been fined huge sums for harmful products that they marketed aggressively and that:

A)were seriously harmful to humans.
B)were priced at absurdly high margins of profit.
C)involved a very high risk of addiction.
D)have generated over 2,000 lawsuits.
E)All of the above

Question 25

At least two major accounting bodies have begun to reimage the accounting profession because of the following.

A)A lack of basic accounting knowledge
B)Faulty basic auditing practices
C)Poor risk assessment practices
D)A lack of competency with modern tools
E)Three of the above