Examples
What was the major corporate scandal in the early 2000s that involved accounting fraud and resulted in one of the biggest bankruptcies in U.S. history? (It also played a key role in the creation of the Sarbanes-Oxley Act)
Enron
Define "advisory network" and how it differs from friendship networks
A person from your advisory network is someone you know through professional encounters like visiting the same University, working for the same company or even in the same field of work
Between which 2 kinds of networks of social ties does the author distinguish?
One of the members of the audit committee of a large corporation has gone to High school and University with the current CEO and they worked together in the same company a few years ago. What actions do you take?
No immediate action needs to be taken, as the article found no negative impact of social ties through advisory networks. Maybe check for potential friendship ties.
Define the role of an audit committee (Name one specific task)
An audit committee is a committee of a company's board of directors that is responsible for overseeing the financial reporting process. Specific tasks would be reviewing the financial statements, monitoring external auditors or oversight of risk management
Name one of the 2 hypotheses stated in the article
H1: As the proportion of social ties between the CEO and audit committee members increases, the quality of the audit committee’s oversight will decrease
H2: The quality of the audit committee’s oversight will decrease more for social ties based on friendship networks than for social ties based on advice networks.
How does the Madoff Ponzi scheme relate to the topic of CEOs social ties
A number of personal ties with SEC officials, auditors and important investors in the industry left his scheme unnoticed
Define what the SOX is and name one rule it introduced (mentioned in the article)
The Sarbanes–Oxley Act of 2002 is a United States federal law that mandates certain practices in financial record keeping and reporting for corporations. One example is the requirement for all audit committee members to be independent.
According to the article's data, how much percent of the companies show existing social ties between the CEO and audit committees members.
In 39% of the companies that is the case