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.

Accepted Answer

Ronald F. Duska and Brenda Shay Duska use Kant's universalizability principle in order to illustrate that if deceitful practices in business were universalized, the trust necessary for the successful operation of markets would cease to exist. This highlights the importance of auditors in preventing such practices and maintaining the trust necessary for the functioning of markets.

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.

Accepted Answer

While Strudler does argue that legalizing insider trading would not necessarily have the negative effects that many assume, his main conclusion is not that it would benefit corporations by providing cheap compensation. Rather, his main conclusion is that insider trading should be legalized because it is not inherently morally wrong and can actually benefit market efficiency and fairness.

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

Accepted Answer

The Sarbanes-Oxley Act includes provisions to address conflicts of interest, including those that could arise from the transfer of employees between auditing firms and their clients, aiming to enhance corporate governance and prevent financial fraud.

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

Accepted Answer

Leverage refers to the amount of money borrowed relative to the amount of capital owned or invested. It is a measure of how much debt a company uses to finance its assets. Option A is incorrect because leverage increases risk instead of reducing it. Option C refers to financial engineering instruments in general, not just leverage. Option D refers to hedging, which is a separate concept from leverage.

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.

Accepted Answer

Duska and Duska are invoking Kant's universalizability principle to suggest that if every auditor acted honestly and with objectivity, this action could be universalized without leading to any contradictions, and therefore trust in the world markets would remain high. It does not matter if some individuals within corporations are morally corrupt as long as all auditors adhere to ethical principles. Therefore, option A is correct.

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.

Accepted Answer

The answer of Ronald F. Duska and Brenda Shay Duska...

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.

Accepted Answer

Boatright states in the sentence 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.

Accepted Answer

The answer of It is appropriate to infer from John...

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

Accepted Answer

The potential reforms outlined by Nielsen include more stringent leverage requirements and oversight, compensation reform for financial executives, increased transparency of financial institutions, and improved corporate governance. There is no mention of increasing tax dollars set aside for bailouts as a solution.

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.

Accepted Answer

While offering under the table monetary exchanges for more lenient auditing practices is certainly a conflict of interest that could lead to scandal, it is not mentioned specifically as a primary reason for the Enron scandal in Boyd's article. The other three choices are listed as primary reasons for conflicts of interest that led to the scandal.

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.

Accepted Answer

Duska and Duska argue that auditors should strive for independence from the companies they audit in order to maintain an objective perspective and avoid conflicts of interest. Acting as insiders to the company's operations can compromise the auditor's ability to provide an unbiased assessment of the company's financial statements.

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.

Accepted Answer

Nielson argues that the crisis exposed the ethical and structural problems of high leverage finance capitalism, and that potential reforms are needed to address these issues. He does not suggest that the crisis resulted in a new and improved version of capitalism.

Question 13

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

Accepted Answer

Colin Boyd's statement is incorrect. The Sarbanes Oxley Act has provisions that require companies to disclose conflicts of interest and restrict certain types of opinion shopping, but it has not completely eliminated the practice.

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.

Accepted Answer

Duska and Duska define professional skepticism as a basic responsibility of auditors, which requires them to exercise due professional care and assume that there may be inconsistencies in reports within a company, thereby supporting the veracity and efficacy of their findings, recommendations and assertions.

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.

Accepted Answer

The authors argue that while honesty is necessary for an auditor, it is not sufficient for ethical behavior in auditing. They argue that appearances of impropriety, such as a conflict of interest, can damage public trust in the auditing profession and must be avoided. Therefore, simply being honest is not enough to fulfill the ethical responsibilities of an auditor.

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.

Accepted Answer

Colin Boyd's statement suggests that the homogeneity of services and accounting standards were key factors in the mergers that formed 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.

Accepted Answer

Boatwright suggests that insider trading can lead to quicker and more accurate price discovery, as well as reducing the cost of obtaining and processing information for investors. However, this argument is controversial and not universally accepted. Many people argue that insider trading is unethical and harmful to market fairness and investor confidence.

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.

Accepted Answer

In the article, Boyd argues that while the Sarbanes Oxley Act was a step in the right direction, it may not be enough to fully address the structural issues that lead to conflicts of interest in the accounting profession.

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.

Accepted Answer

This is the correct definition of churning as stated by John R. Boatright in "Ethical Issues in Financial Services".

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

Accepted Answer

The primary result of the Enron scandal was the passage of the Sarbanes-Oxley Act, which introduced stricter regulations and oversight for public companies and accounting firms. While there were other consequences of the scandal, such as increased scrutiny on accounting practices and the dissolution of Arthur Andersen as one of the "Big Five" auditing firms, the Sarbanes-Oxley Act was the most significant outcome. The requirement of an independent secondary audit and the breaking up of auditing firms are not accurate outcomes of the Enron scandal.

Quiz 6: Ethical Issues in Finance and Accounting

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