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Chapter 10

BUS 223 Chapter Notes - Chapter 10: Arthur Andersen, Fiduciary, Financial Statement

Course Code
BUS 223
Haskovon Kriegstein

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Enron Corporation and its accounting firm Arthur Andersen
Milton Friedman believes in free market economy
o Free economy only works when certain rule based conditions are met
Certain professions such as accountants, auditors, financial analysts are though of
as gatekeepers to make sure everyone is playing by the rules
Conflict of interest exists when 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 obligations conflict with those of others
Fiduciary duty: a professional and ethical obligation to their client, duties rooted
in trust that override their own personal interest
How to solve the agency problem
o Develop incentives which connect the agents self-interest with the interest
of the principal
o The carrot: awarding them
o The stick: punishing them if they fail
Sarbanes Oxley imposes major financial cost on firms
COSO is a voluntary collaboration designed to improve financial reporting
through a combination of controls and governance standards called the internal
control integrated framework
o Control environment: refers to cultural issues such as integrity and ethical
values within the firm
Duty of care: involves the exercises of reasonable care by a board member to
ensure that a corporate executive with whom he works carry out their
management responsibilities and comply with the law in the best interest of the
Duty of good faith: one of obedience, requiring members to be faithful to
organizations missions
Duty of loyalty: undivided allegiance when making decisions affecting the
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