Question 1

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".

Accepted Answer

In "The Moral Problem of Insider Trading," Alan Studler highlights the correlation between legislation banning insider trading and the cost of capital. He argues that banning insider trading can lead to an increase in the cost of capital for companies. This is because when insider trading is banned, insiders are unable to profit from their private information about the company, which may lead to a decrease in the overall value of the company. As a result, investors may demand a higher return on their investment to compensate for the increased risk, thus increasing the cost of capital for the company. Studler's argument suggests that there is a trade-off between the ethical considerations of insider trading and the financial implications for companies.

Question 2

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.

Accepted Answer

The subprime mortgage market played a significant role in the 2008 financial crisis. Richard Nielson outlines how the proliferation of collateralized debt obligations (CDOs) and their subsequent collapse were largely blamed on financial institutions. However, borrowers also have a responsibility in this crisis.

One theory that can be used to contemplate the responsibility of borrowers is the theory of moral hazard. Moral hazard suggests that individuals may take on excessive risk if they believe they will not bear the full consequences of their actions. In the case of the subprime mortgage crisis, some borrowers may have taken on mortgages that they knew they could not afford, believing that they would not bear the full consequences if the housing market collapsed.

Another theory to consider is the theory of asymmetric information. This theory suggests that one party in a transaction has more information than the other, leading to adverse outcomes. In the case of the subprime mortgage crisis, borrowers may have been misled or not fully informed about the terms and risks of their mortgages, leading them to take on loans that were not in their best interest.

Additionally, the theory of rational choice can be applied to the responsibility of borrowers. This theory suggests that individuals make decisions based on their own self-interest and the information available to them. In the case of the subprime mortgage crisis, some borrowers may have made rational choices based on the information and incentives presented to them, even if those choices ultimately contributed to the crisis.

In conclusion, while financial institutions played a significant role in the 2008 financial crisis, borrowers also have a responsibility in the proliferation of CDOs and the subsequent collapse. By considering theories such as moral hazard, asymmetric information, and rational choice, it becomes clear that borrowers played a role in the crisis and should be held accountable for their actions.

Question 3

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:

Accepted Answer

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. B

Question 4

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

A) True 
 B)False

Question 5

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

A) True 
 B)False

Question 6

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.

Accepted Answer

The answer of Colin Boyd, in "The Structural Origins of...

Question 7

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

Accepted Answer

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.

Question 8

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

A) True 
 B)False

Question 9

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

A) True 
 B)False

Question 10

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.

Accepted Answer

The answer of Two articles in this chapter raise doubts...

Question 11

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

Accepted Answer

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 12

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

A) True 
 B)False

Question 13

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

A) True 
 B)False

Question 14

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

A) True 
 B)False

Question 15

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

A) True 
 B)False

Question 16

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

A) True 
 B)False

Question 17

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

A) True 
 B)False

Question 18

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

Accepted Answer

The answer of In "the Moral Problem of Insider Trading"...

Question 19

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

Accepted Answer

The answer of Briefly interpret what Nielson means by "High...

Question 20

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

A) True 
 B)False

Exam 6: Ethical Issues in Finance and Accounting

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".

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:

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.

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.

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

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.

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.

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

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.

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.

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.

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.

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

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.

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

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