Question 1

Under the Sarbanes-Oxley Act of 2002, the provision that established the PCAOB to supervise accounting firms is an example of

Accepted Answer

The establishment of the PCAOB under the Sarbanes-Oxley Act of 2002 reflects supervisory oversight, as the board is responsible for overseeing the audit of public companies to ensure compliance with established accounting standards and rules.

Question 2

If firms have an incentive to hide information from mandatory disclosure because the information is proprietary, then which of the following remedies is the least intrusive way to overcome this incentive?

Accepted Answer

The answer of If firms have an incentive to hide...

Question 3

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 authorized investors to bring lawsuits against credit-rating agencies for a reckless failure to get the facts when providing a credit rating. This is an example of which remedy of conflicts of interest?

Accepted Answer

The Dodd-Frank Act allows investors to sue credit-rating agencies, which is a market-based remedy, as it relies on market participants (investors) to hold agencies accountable through legal action.

Question 4

Under the Global Legal Settlement of 2002, the provision that requires investment banking firms to make their analysts' recommendations public is an example of

Accepted Answer

The provision that requires investment banking firms to make their analysts' recommendations public falls under the category of regulating for transparency. It ensures that investors have access to information that may influence their investment decisions, promoting transparency and accountability in the financial industry.

Question 5

Under the Sarbanes-Oxley Act of 2002, the clause that makes it unlawful for a registered public accounting firm to provide any nonaudit service to a client contemporaneously with an impermissable audit is an example of which remedy of conflicts of interest?

Accepted Answer

The clause mentioned in the question is an example of the separation of functions remedy of conflicts of interest. It aims to prevent a conflict of interest by prohibiting a registered public accounting firm from providing nonaudit services to a client at the same time as conducting an audit, which could compromise the auditor's independence and objectivity. Separation of functions requires the segregation of conflicting activities to avoid potential conflicts of interest.

Question 6

Under the Global Legal Settlement of 2002, the provision that requires investment banking firms to sever the link between underwriting and research is an example of

Accepted Answer

The provision that requires investment banking firms to sever the link between underwriting and research is an example of separation of functions. This is because it separates the two functions of underwriting and research, ensuring that there is no conflict of interest and that research is conducted objectively.

Question 7

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 created an Office of Credit Ratings at the SEC with its own staff and the authority to fine credit-rating agencies and to deregister an agency if it produces bad ratings. This is an example of which remedy of conflicts of interest?

Accepted Answer

The creation of an Office of Credit Ratings at the SEC with its own staff and the authority to monitor and penalize credit-rating agencies is an example of supervisory oversight, which aims to prevent conflicts of interest by monitoring the behavior of the agencies and taking action when necessary.

Question 8

Under the Sarbanes-Oxley Act of 2002, the provision that gives more funding to the SEC is an example of

Accepted Answer

The answer of Under the Sarbanes-Oxley Act of 2002, the...

Question 9

Under the Global Legal Settlement of 2002, the provision that requires, for a period of five years, brokerage firms to contract with independent research firms to provide information to their customers is an example of

Accepted Answer

The answer of Under the Global Legal Settlement of 2002,...

Question 10

Of the remedies for conflicts of interest, which one is the most intrusive

Accepted Answer

The answer of Of the remedies for conflicts of interest,...

Question 11

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 did not prohibit companies issuing securities from paying the credit-rating agencies to rate them. This is an example of which remedy of conflicts of interest?

Accepted Answer

The Dodd-Frank Act did not prohibit the practice, indicating a reliance on market forces to address potential conflicts of interest rather than imposing direct regulatory measures.

Quiz 15: Conflicts of Interest in the Financial Industry