Unit 4 Flashcards
What is the moving line?
You draw an absolute line (ethical code) that you say that you’re never going to cross. Eventually you start to gradually move the line so your comfort level can adjust and you rationalize the moves.
What does it mean to be ethically clueless?
You are unaware of the rules
What does it mean to be ethically superior/moral egoist?
You believe that rules are made for others less gifted
What does it mean to be inherently ethical?
You always do the right thing
What does it mean to be an amoral technician?
You find out the rules and laws and function within your parameters
What does it mean to be an ethical schizophrenic?
You have one set of ethics at work and another set at home
What does it mean to be an ethical procrastinator/postpone?
You know the rules, but decides to worry about them in the future
What does it mean to be an ethical compartmentalizer/rationalizer?
You say that everyone does this
What does it mean to be ethically desensitized?
You give up on raising ethical concerns
What does it mean to be ethically detached?
You go along in a depressed manner
What does it mean to be an ethical chameleon?
Your ethics depends on the situation
What does it mean to be an ethical sycophant?
You adopt the ethics of those in charge
What is a trade secret?
Information of any sort that is valuable to its owner, not generally known, and that has been kept secret by the owner
What are trade secrets protected under?
State law
List 7 types of technical and business information that can be protected by trade secret law
- Customer lists
- Designs
- Instructional methods
- Manufacturing processes
- Document-tracking processes
- Formulas for producing products
- Inventions and processes that are not patentable
What are the 6 factors that are used to determine whether material is a trade secret?
- The extent to which the information is known outside the business.
- The extent to which the information is known by the company’s employees.
- The extent of the measures taken by the company to guard the secrecy of the information
- The value of the information to the company and it’s competitors
- The amount of effort or money used by the company developing the information
- How easy it is for others to acquire the information
When is information considered to have value?
When it gives rise to actual or potential commercial advantage for the owner of the information
True or False:
A trade secret needs to be unique
False
Which type of information isn’t protected under trade secret laws?
Information that is generally known
When do trade secret protections attach automatically?
When information of value to the owner is kept secret by the owner
What 2 things can you sue under if you cannot make the argument that it is a trade secret?
- Proprietary information
2. Wrongful interference
When will an item no longer be considered a trade secret?
When the requirements for protection, generally the value to the owner and secrecy, stop being met
What is proprietary information?
Information in which the owner has a protectable interest
What is wrongful interference?
The intentional interference with contractual relations
What are the 3 factors that need to be met in order to justify that wrongful interference with a contractual relationship occurred?
- The defendant knows about contract between A and B
- The defendant intentionally induces either A or B to breach the contract
- The defendant benefits from the breach of contract
What are the 3 factors that need to be met in order to justify that wrongful interference with a business relationship occurred?
- There is an established business relationship
- The tortfeasor, using predatory methods, causes relationship to end
- The plaintiff suffers damages
What is a defense against wrongful interference with a business relationship?
Bona fide competitive behavior
What is earnings management?
A process in which business uses accounting rules and financial manipulations to meet goals or make their earnings seem smooth
What are the 4 effects of earnings management on the financial market?
- Markets react to the variability
- Investors and creditors like smooth earning
- Investors and creditors like it when projected earnings are correct
- Investors and creditors rely on financial reports when making decisions
In what 2 ways do markets react to variability?
- It indicates risk
2. Higher risk requires higher return
Fill in the Blank:
Smooth earnings = _______
Stability
How do firms manage earnings?
By creatively working within the rules
How effective is earnings management at increasing shareholder value?
Very effective
How do accountants and managers perceive earnings management?
They are more likely to accept earnings management and will use a wide variety of methods of earnings management
Why are accountants and managers more likely to accept earnings management?
They believe it is necessary to increase the value of the company’s stock by influencing investors’ perceptions about the company’s value
What is agreement to agree?
An agreement between 2 parties where one party is free to back out of the deal after the other party has reflected the revenue from the sale on their financial statements
What is channel surfing?
It’s when inventory is shipped out before delivery is required so it can be reflected in the quarter sales
What is the Bill and Hold Strategy?
Products are sold at a discount to retailers and they are held in third-party warehouses to be delivered at a later date
What was the job of the Public Company Accounting Oversight Board?
To oversee the audit of public companies, establish audit report standards and investigate compliance
What 6 things did the Sarbanes-Oxley Act do?
- Created the Public Company Accounting Oversight Board
- Said that auditors must be independent from the companies they audit
- Said that audit committees of companies must be members of the company board of directors and must be independent
- Required enhanced financial disclosures
- Tried to avoid conflicts of interest of securities analysts
- Says that new crimes can increase penalties on existing crimes
What is an example of Ethically clueless?
George Costanza
What is an example of Ethically superior/moral egoist?
Samjay Kumar
What is an example of Inherently ethical?
Ed Begley
What is an example of an Amoral technician?
Andrew Fastow
What is an example of Ethical schizophrenic?
Tim Donaghey
What is an example of Ethical procrastinator/postponer?
Andrew Carnegie
What is an example of Ethical compartmentalizer/rationalizer?
Willy Loman
What is an example of Ethically desensitized?
Watergate
What is an example of Ethically detached?
Hewlett-Packard pretexting plan
What is an example of Ethical chameleon?
Price fixing
What is an example of Ethical sycophant?
Subprime mortgage scandal
What is the difference between tax evasion and tax avoidence?
Tax evasion is when you fail to report income or improperly claiming deductions that are not authorized. Tax avoidance is when you lawfully arrange your affairs to minimize taxes.
What does the Securities and Exchange Act of 1934 say companies can’t do?
They can’t misrepresent or omit material information concerning the operations, sales, and sales trends for the company
Which types of earnings management did Sunbeam partake in?
- Agreement to agree
- Channel surfing
- Bill-and-hold strategy
Why would it be difficult to develop an international code of ethics for business?
There are so many different cultures and codes of ethics
What are the positive impacts of earnings management?
- It’s very effective at increasing shareholder value
- Higher profit
- Higher return
What is the negative impact of earnings management?
Discovery of earnings manipulation results in stock price drop of 9%
What does the Securities and Exchange Act of 1934 require?
Material information to be disclosed, but it doesn’t define materiality
What does the Foreign Corrupt Practices Act say?
US companies can’t pay bribes, even if you’re doing business in another country that allows it
What are Al Dunlap’s 4 simple rules for business?
- Get the right management
- Cut back to the lowest cost
- Focus on the core business
- Get a real strategy
