Answer the following questions.
a. Why do you think rules exist that restrict auditors from investing in companies that are audited by their firms?
b. Some accountants argue that they should be allowed to invest in a company's stock as long as they
themselves aren't involved in working on the company's audit or consulting. What do you think of this idea?
c. Today, a very high percentage of publicly traded companies are audited by only four very large public
accounting firms. These firms also do a high percentage of the consulting work that is done for publicly traded
companies. How does this fact complicate the decision regarding whether CPAs should be allowed to invest in
companies audited by their firm?
d. Suppose you were a CPA and you had invested in IBM when IBM was not one of your firm's clients. Two
years later, after IBM's stock price had fallen considerably, your firm won the IBM audit contract. You will be
involved in working with the IBM audit. You know that your firm's rules require that you sell your shares
immediately. If you do sell immediately, you will sustain a large loss. Do you think this is fair? What would you
do?
e. Why do you think PricewaterhouseCoopers took such extreme steps in response to the SEC investigation?
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