Week 4 - Ms. Krupetskiy Professor Wehmhoefer BA 495-E 22...

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Ms. Krupetskiy Professor Wehmhoefer BA 495-E 22 July 2009 Assignment #4 1. As revealed by the recent accounting scandals at Enron and WorldCom, the U.S. accounting system and the operations of boards of directors nationwide were far from perfect. 1 Thus, the Congress was forced to pass the Sarbanes-Oxley Act in 2002, the compliance with which can be very costly, to help solve accounting and auditing problems. 2 However, conflict of interest and other ethical issues still exist today. For example, a CPA firm that performs auditing and consulting services for a company may select certain favorable auditing tactics, not to lose the much more productive consulting revenue stream. 3 Thus, the law has to protect the public and corporations from the insider trading. Two arguments against insider trading include property rights and fairness. 4 However, they both have their own strengths and weaknesses. There are several strengths of property rights. First of all, with legal protection, companies have better incentives to innovate, thus, contribute to the society. 5 Second of all, the information acquired during that innovation can be used by others to make new discoveries, thus contributing even more to the greatest good of the society. On the other hand, a trade secret creates a monopoly that can charge outrageous prices for a specific product. Therefore, a law is trying to achieve a “the optimal trade-off between the
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This note was uploaded on 11/11/2009 for the course BA 495 taught by Professor Wehmhoefer during the Spring '09 term at Regis University.

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Week 4 - Ms. Krupetskiy Professor Wehmhoefer BA 495-E 22...

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