Corporate Social Responsibility -Chapter 10

In the context of ethical theory, match the functions of lofty compensation packages (in the left column) with the situations in which they serve these functions (in the right column). A utilitarian function An ethical principle

A utilitarian function- =When the packages act as incentives for executives to produce overall improvements An ethical principle- =When the packages compensate people based on what they have earned and deserve.

Match the gatekeepers of the economic system (in the left column) with their roles (in the right column). Auditors Analysts Attorney

Auditors- =They verify a company's financial statements so that investors' decisions are devoid of fraud and deception. Analysts- =They evaluate a company's financial prospects or creditworthiness to help banks and investors make informed decisions. Attorney- =Choice, They ensure that business decisions and transactions comply with the law. They ensure that business decisions and transactions comply with the law.

In the context of the legal duties imposed on board members by U.S. law, which of the following are required by the duty of loyalty? (Check all that apply.)

Board members may never use information obtained through their positions as board members for personal gain. Conflicts of interest should always be resolved in favor of the corporation.

Identify the specifics offered to boards of firms by the Federal Sentencing Guidelines (FSG) for mitigating eventual fines and sentences in carrying out their legal duties by keeping ethics and compliance in mind. (Check all that apply.)

Boards must be truly knowledgeable about the operation and content of ethics programs. Boards should exercise "reasonable oversight" regarding the implementation and effectiveness of ethics/compliance programs. Boards must work with executives to evaluate the incentives for ethical behavior by every employee.

According to the Federal Sentencing Guidelines (FSG), which of the following are the guidelines that should be followed by boards of firms to assess their success when mitigating eventual fines and sentences in carrying out their legal duties? (Check all that apply.)

Boards should analyze their employee development and training materials. Boards should analyze their position descriptions and governance structure.

The _____ _____ _____ _____ covers many of the same issues as the Sarbanes-Oxley Act but applies these requirements and restrictions to companies traded on European Union exchanges.

European Union 8th Directive

The _____ _____ _____ _____ covers many of the same issues at the Sarbanes-Oxley Act but applies these requirements and restrictions to companies traded on European Union exchanges.

European Union 8th Directive

In the context of governance, which of the following are the reasons why excessive executive compensation suggests evidence of a failure of corporate boards to fulfill their fiduciary duties? (Check all that apply.)

Executives being evaluated and paid often serve as chair of the board of directors. The compensation received by board members is determined by the chief executive officer, which creates a conflict of interest.

True or false: Scholar Eugene White believes that markets are effective in resolving conflicts of interest in the financial world.

False

Identify a view of scholar Eugene White on the resolution of conflicts of interest in the financial world.

He believes that the conflicts cannot be eliminated.

Identify the elements that comprise the control structure described by the Committee of Sponsoring Organizations (COSO). (Check all that apply.)

Information and communications Ongoing monitoring Control activities Control environment Risk assessment

Identify the features of the Committee of Sponsoring Organizations (COSO). (Check all that apply.)

It has become one of the most broadly accepted audit systems for internal controls. It was established originally to study fraudulent financial reporting and later to develop standards for publicly held companies.

Which of the following is true of the American Institute of CPAs?

It publishes professional rules to prevent accountants from being put in conflicts of interest.

Which of the following is the best approach that should be used by the board of a firm if it is aware of a practice that it deems unethical but not illegal?

It should prohibit the practice to protect the long-term sustainability of the firm.

Identify a factor on which insider trading is most likely based.

On a claim of unethical misappropriation of proprietary knowledge

Match the types of accounting activities (in the left column) with their responsibilities (in the right column). Public accounting activities Accounting activities conducted by investment banks and securities analysts

Public accounting activities- =To audit and certify information Accounting activities conducted by investment banks and securities analysts- = To provide guidance on the future prospects of venture

The _____ _____ _____ , or the Public Accounting Reform and Investor Protection Act of 2002, was implemented on July 30, 2002, and administered by the Securities and Exchange Commission to regulate financial reporting and auditing of publicly traded companies in the United States.

Sarbanes Oxley Act

Match the significant provisions of the Sarbanes-Oxley Act (in the left column) with their features (in the right column). Section 201 Section 301 Section 307

Section 201- =It prohibits various forms of professional financial services that are found to be consulting and not auditing. It prohibits various forms of professional financial services that are found to be consulting and not auditing. Section 301- =It requires public company audit committees to be independent and mandates total absence of current or prior business relationships. It requires public company audit committees to be independent and mandates total absence of current or prior business relationships. Section 307- =It establishes rules of professional responsibility for attorneys

Match the important provisions of the Sarbanes-Oxley Act that have significant impact on corporate governance and boards (in the left column) with their features (in the right column). Section 404 Section 406 Section 407

Section 404- =It requires that management file an internal control report each year along with its annual report. It requires that management file an internal control report each year along with its annual report. Section 406- =It requires codes of ethics for senior financial officers. It requires codes of ethics for senior financial officers. Section 407- =It requires audit committees to have a financial expert. It requires audit committees to have a financial expert.

Match the organizations that govern accounting practices in the United States (in the left column) with their features (in the right column). The American Institute of Certified Public Accountants The Financial Accounting Standards Board

The American Institute of Certified Public Accountant- =It established a Code of Professional Conduct that relies on accounting professionals' judgment in carrying out their duties. The Financial Accounting Standards Board- =It established generally accepted accounting principles (GAAP).

_____ is often defined as "the process by which any business keeps track of its financial activities by recording its debits and credits and balancing its accounts."

accounting

The _____ of _____ _____ (COSO) is a voluntary collaboration of professional audit and accounting organizations that seeks to improve financial reporting through a combination of controls and governance standards called the Internal Control-Integrated Framework.

committee sponsoring organizations

A(n) _____ _____ _____ exists where a person holds a position of trust that requires that she or he exercise judgment on behalf of others, but where her or his personal interests and/or obligations conflict with those of others.

conflict of interest

a(n) _____ _____ _____ exists where a person holds a position of trust that requires that she or he exercise judgment on behalf of others, but where her or his personal interests and/or obligations conflict with those of others.

conflict of interest

The Committee of Sponsoring Organizations (COSO) describes " _____ " as encompassing "those elements of an organization that, taken together, support people in the achievement of the organization's objectives."

control

In an organization, _____ _____ refers to cultural issues such as integrity, ethical values, competence, philosophy, and operating style.

control environment

_____ _____ is one of the five elements that comprise the control structure described by the Committee of Sponsoring Organizations (COSO), and it "sets the tone of an organization, influencing the control consciousness of its people."

control environment

_____ _____ refers to the structure by which corporations are managed, directed, and controlled toward the objectives of fairness, accountability, and transparency.

corporate governance

The _____ allows directors to rely on information and opinions only if they are prepared or put forth by corporate officers, employees, a board committee, or other professionals the director believes to be reliable and competent in the matters presented.

duty of care

The legal _____ _____ _____involves the exercise of reasonable care by a board member to ensure that the corporate executives with whom she or he works carry out their management responsibilities and comply with the law in the best interests of the corporation.

duty of care

In the context of the legal duties imposed on board members by U.S. law, the _____ does not permit board members to act in a way that is inconsistent with the central goals of the organization.

duty of good faith

In the context of the legal duties imposed on board members by U.S. law, the _____ _____ _____requires faithfulness; a board member must give undivided allegiance when making decisions affecting the organization.

duty of loyalty

A legal duty to act on behalf of or in the interests of another is called a(n)

fiduciary duty or duties

A legal duty to act on behalf of or in the interests of another is called a(n) _____ _____.

fiduciary duty or duties

Professionals such as financial planners are said to have _____ _____ professional and ethical obligations—to their clients, duties rooted in trust that override their own personal interests.

fiduciary duties

Professionals such as financial planners are said to have _____ _____ —professional and ethical obligations—to their clients, duties rooted in trust that override their own personal interests.

fiduciary duties

Some professionals, such as accountants, who act as "watchdogs" in that their role is to ensure that those who enter into the marketplace are playing by the rules and conforming to the conditions that ensure the market functions as it is supposed to function are called _____

gatekeeper

In the context of the legal duties imposed on board members by U.S. law, the duty of _____ _____ is one of obedience, which requires board members to be faithful to the organization's mission.

good faith

According to the Securities and Exchange Commission, _____ _____ generally refers to buying and selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of nonpublic information about the security.

insider trading

Trading by shareholders who hold private inside information that would materially impact the value of a stock and that allows them to benefit from buying or selling stock is known as _____ _____.

insider trading

Processes established internally, by boards and management, to ensure compliance with financial reporting laws and regulations are called _____ _____ mechanisms

internal control

_____ _____ refers to a process effected by an entity's board of directors, management, and other personnel that is designed to provide reasonable assurance regarding the achievement of objectives in the effectiveness and efficiency of operations, reliability of financial reporting, and compliance with applicable laws and regulations.

internal control

Corporate governance structures usually determine _____.

the relationship between the board of directors, the shareholders, and the executives of a firm

Identify the causes for conflicts in the financial markets recognized by scholar Kevin Bahr. (Check all that apply.)

-Compensation schemes for security analysts -Conflicts between the services offered by public accounting firms

In the context of governance, identify the reasons why excessive executive compensation suggests evidence of a failure of corporate boards to fulfill their fiduciary duties. (Check all that apply.)

-In many cases, there is a lack of correlation between executive compensation and performance. -There is little evidence that excessive executive compensation is actually needed as an incentive for performance.

Which of the following are true of the Sarbanes-Oxley Act of 2002? (Check all that apply.)

-It applies to more than 15,000 public corporations in the United States and some foreign issuers. It was enacted very shortly after and directly in response to the Enron scandals of 2001.

Identify the true statements about the European Union 8th Directive. (Check all that apply.)

-It mandates external quality assurances through audit committee requirements and increased auditing transparency. -It provides for cooperation with regulators outside the European Union regulatory infrastructure.

Which of the following are the causes for conflicts in the financial markets identified by scholar Kevin Bahr? (Check all that apply.)

-The financial relationship between public accounting firms and their audit clients -Executive compensation schemes

Identify the factors that make it difficult for individuals to fulfill their professional gatekeeper duties. (Check all that apply.)

-Their self-interest When they are being paid by the businesses over which they keep watch

In which of the following situations can a conflict of interest arise? (Check all that apply.)

-When a person's ethical obligations in her or his professional duties clash with personal interests When a person's personal interests clash with the duty she or he agreed to accept on behalf of someone else

Match the justifications for lofty compensation packages (in the left column) with the purposes that the packages are believed to serve (in the right column). Instructions The consequentialist justification The deontological justification

The consequentialist justification- = The incentivize executive performance. The deontological justification- =They reward accomplishments.

According to Fortune journalists Ram Charan and Julie Schlosser, which of the following should the board members of a firm do to better fulfill their ethical responsibilities? (Check all that apply.)

They should understand where the firm is heading and whether it will realistically get there. They should be aware of how the firm actually makes its money and whether customers and clients actually pay for products and services. They should be critical in their examination of corporate vulnerabilities.

True or false: Insider trading is considered patently unethical and unfair because it prevents fair pricing based on equal access to public information.

True

True or false: One's professional gatekeeper duties should take precedence over one's responsibilities toward one's employer.

True