ACCT 2200 Financial Accounting - Essay Example

ACCT 2200 Financial Accounting Spring Extra-credit Assignment Questions for reading Conflicts of interest and the case of auditor independence” by Don Moore et al. What does “conflict of interest” mean? You may use dictionaries, Wikipedia, or other sources to find definitions, but should use your own words to summarize what “conflict of interest” means. Conflict of interest means that a person has several interests at a time and one can corrupt the commitment with other. Why do the authors of reading 1 say that “we should view personal testimonials of auditor independence with skepticism”?

This statement means that auditors claim of independence is not as reliable as perceived and it should be evaluated on factual grounds. What does the phrase “our arguments suggest a pessimistic prognosis for would-be reformers” mean? The phrase means that in the light of arguments presented, it will be a bad omen for reforming planners. The shift in corporate ethics (described on pg 13) was from what to what? The shift in corporate ethics was from what is morally right to what is technically legal.

Who benefits if auditors are biased? If auditors are biased, obviously the corrupt management will be benefited along with some benefit for auditors. Who suffers, if auditors appear to be, but are not in fact independent? If auditors independence is compromised, the stakeholders will suffer. In 2000, the SEC proposed a rule that auditing firms should not be allowed to also provide consulting services to companies they are auditing. How did the accounting firms respond? The major accounting firms lobbied hard against the proposed limitations on their consulting work and dramatically increased their political contributions to the major political parties.

What was the mean amount, and median amount spent on lobbying by the big 5 accounting firms in the year 2000? Mean = $ 1,793,800 Median = $ 1,425,000 What is the last sentence of the section “a brief history of audit regulation”? In legislation, the proverbial devil lurks in the details - details that special interests can often successfully influence as long as politicians project the image of decisive action to the broader public. According to page 24, what is the problem with an expert giving biased advice, and admitting/confessing/disclosing that this advice may be biased?

The disclosure of biased information will not be helpful for the users of financial statements as it will not be the valid information. Questions for reading 2: “Ameliorating conflicts of interest in auditing” by Mark Nelson Nelson argues that recent accounting reforms improve financial reporting. In your own words, summarize the 4 ways that recent reforms are helpful. According to Nelson, recent reforms will affect the chances of: 1. client’s desire to misstate financial statements 2.

client putting pressure on auditors to give leniency 3. detection of misstatements by auditors 4. resistance by auditors against the pressure of client According to the SOX, who chooses a company’s auditor? According to SOX, the Audit Committee will choose companys auditors. How does Nelson argue against the accusation by Moore et al. that accountants only care about appearing independent? Nelson argued on two grounds. One is that we do not trust auditors just because they appear as independent; their work is the sufficient evidence of their independence.

Secondly, auditors are assumed to work for their own interest and there is no psychological mechanism is behind it. Question for reading 3: “Reports of solving the conflicts of interest in auditing are highly exaggerated” by Max Bazerman et al. According to Bazerman et al., what are the 3 tools that tobacco and oil firms are effectively using to avoid disruption of their current ways of making money? 1. Rely on public status of status quo. 2. Obfuscate the evidence. 3. Call for the need for careful, precise cost cost-benefit analysis before taking any action.