Question 1

The subprime mortgage market grew :

Accepted Answer

According to the text, the subprime mortgage market grew from $35 billion to $401 billion from 1994 to 2004.

Question 2

Arthur Andersen was convicted of what crime in relation to its work on Enron?

Accepted Answer

Arthur Andersen was convicted of obstruction of justice for its role in the Enron scandal, specifically for destroying documents related to its audit of Enron.

Question 3

The total restatement of revenues at HealthSouth was:

Accepted Answer

The total restatement of revenues at HealthSouth was $2.5 billion. This was a result of a massive accounting fraud scheme headed by the CEO, Richard Scrushy, where false revenue and earnings were reported to meet analyst expectations and boost the company's stock price.

Question 4

What was part of HealthSouth's vision statement?

Accepted Answer

The answer of What was part of HealthSouth's vision statement?
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Question 5

The KELP program at Tyco:

Accepted Answer

The KELP program at Tyco was poorly supervised and administered, as there were instances of executives granting themselves and other employees interest-free loans without proper approval or disclosing these loans in financial statements. However, there is no evidence that the program was abused or that it violated federal law at the time. Embezzlement implies intentional theft, which may not apply in this case.

Question 6

Which of the following is not a conflict of interest?

Accepted Answer

Being a physician while also serving as a director of a healthcare company is not necessarily a conflict of interest, as long as the director is able to separate their role as a physician from their role as a director and make decisions in the best interest of the company and its stakeholders. However, choices A, B, and D all involve financial ties or potential conflicts that could compromise a director's ability to act in the best interest of the company. Choice A involves a director receiving a consulting contract with the company they serve on the board of, which could compromise their objectivity. Choice B involves a director having a joint investment with the CEO, which could create a personal financial incentive for the director to support the CEO's decisions. Choice D involves a director receiving a donation from the company to a charity they serve on the board of, which could create a perception that the director is being influenced by the company's generosity.

Question 7

You work in the finance division of a NYSE company.You have just learned that your supervisor has been using information on quarterly returns, prior to the time they are made public, to trade in the company's stock.You:

Accepted Answer

The supervisor's actions are a clear violation of insider trading laws and should be reported to the appropriate authorities. Not reporting the activity could make you complicit in the illegal behavior. It is important to take action to maintain the integrity of the company and protect investors' interests.

Question 8

What Enron accounting practice did Arthur Andersen label as medium to high risk?

Accepted Answer

Enron's use of Special Purpose Entities (SPEs), mark-to-market accounting, and having officers act as principals of other firms doing business with Enron were all practices that Arthur Andersen considered to be of medium to high risk. These practices were part of the complex web of financial maneuvers that ultimately led to Enron's downfall, highlighting significant risks and ethical concerns.

Question 9

What auditor practice was stopped by Sarbanes-Oxley?

Accepted Answer

Sarbanes-Oxley stopped the practice of joint audit and consulting contracts for the same companies. This means that an auditing firm cannot serve as both the auditor and consultant for the same company, as this created a conflict of interest.

Question 10

How did Andersen's lead defense lawyer describe David Duncan?

Accepted Answer

The answer of How did Andersen's lead defense lawyer describe...

Question 11

Who reminded employees of Andersen's document destruction policy?

Accepted Answer

Nancy Templeton, the Andersen lawyer, reminded employees of the document destruction policy in a memo.

Question 12

Who recorded phone conversations with Scrushy in order to document numbers manipulation?

Accepted Answer

William Owens recorded phone conversations with Scrushy in order to document numbers manipulation.

Question 13

Prior to the Enron collapse, how many employees did Andersen have?

Accepted Answer

Prior to the Enron collapse, Andersen had 36,000 employees.

Question 14

Dennis Kozlowski, Mark Swartz and Mark Belnick of Tyco:

Accepted Answer

The answer of Dennis Kozlowski, Mark Swartz and Mark Belnick...

Question 15

Which of the following is not a form of earnings management?

Accepted Answer

All of the options listed are forms of earnings management.

Question 16

How many CFOs did Scrushy have at HealthSouth from 1998 through 2003?

Accepted Answer

Richard Scrushy had five CFOs at HealthSouth from 1998 through 2003.

Question 17

WorldCom's accounting scandal resulted from:

Accepted Answer

WorldCom's accounting scandal resulted from both capitalization of ordinary expenses and a downturn in the telecommunications market demand. The company had been capitalizing expenses, inflating their earnings by $3.8 billion. When the market began to decline, the company faced mounting pressure to continue reporting strong earnings, leading to further financial misconduct.

Question 18

The HealthSouth "Pristine Audit" focused on:

Accepted Answer

The answer of The HealthSouth "Pristine Audit" focused on:
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Question 19

The "Monday morning beatings" referred to:

Accepted Answer

The "Monday morning beatings" referred to staff meetings with Scrushy about numbers performance, where the focus was on discussing and scrutinizing the financial performance and numbers.

Question 20

A predatory loan:

Accepted Answer

A predatory loan is a loan that exceeds certain interest limitations or contains certain loan structures that take advantage of a borrower's limited financial literacy or ability to repay the loan. Such loans can be affected by state and local laws. Therefore, option A is the correct choice. Option B is incorrect as not all subprime loans are predatory in nature. Option C is also incorrect as state and local laws can only affect predatory loans, not all loans. Option D is completely incorrect as A, B, and C are true.

Quiz 4: Ethics and Company Culture