Audit the segment on Sarbanes-Oxley (26-1a) and the informant prerequisites in the Securities Exchange Act of 1934.

1. Under Sarbanes-Oxley, list the three occasions that a reviewer would have to answer to the review panel of the customer's governing body. For what reason is it significant for these occasions to be accounted for? What is the detailing intended to forestall?

2. Rundown the three activities included if a reviewer speculates a customer has submitted an illicit demonstration. For what reason are these activities thought about fundamental? What are the activities intended to forestall?

26-1a Sarbanes-Oxley After the financial exchange tumbled, Congress acted to reestablish financial backer certainty by passing the Sarbanes-Oxley Act of 2002 (SOX). The significant arrangements of SOX as it identifies with reviewers are as per the following: ? The Public Company Accounting Oversight Board. Congress set up the Public Company Accounting Oversight Board (PCAOB) to guarantee that financial backers get precise and complete monetary data. The board has the power to manage public bookkeeping firms, building up everything from review rules to morals rules. All bookkeeping firms that review public organizations should enroll with the board, and the board should investigate them consistently. The PCAOB has the power to deny a bookkeeping association's enlistment or disallow it from reviewing public organizations. The PCAOB has detailed that it had discovered defects in over onethird of the reviews performed by Big Four bookkeeping firms, a rate that is expanding over time.3 ? Reports to the review board. Under SOX, reviewers should answer to the review advisory group of the customer's directorate, not to senior administration. The bookkeepers should educate the review panel regarding any (1) huge blemishes they find in the organization's inner controls, (2) elective alternatives that the firm viewed as in setting up the budget reports, and (3) bookkeeping conflicts with the board. ? Consulting administrations. SOX forbids bookkeeping firms that review public organizations from giving counseling administrations to those customers on themes like accounting, monetary data frameworks, HR, and lawful issues (random to the review). Reviewing firms can't put together their workers' remuneration with respect to deals of counseling administrations to customers.

A few spectators contend that these irreconcilable circumstance rules are excessively merciful?that examiners should never really review. They contend that in any event, giving counsel on charges or inner control frameworks, as SOX grants, could twist a bookkeeper's objectivity about inspecting issues. In the United States, the biggest bookkeeping firms procure 39% of their complete incomes from counseling work (ordinarily to nonaudit customers). Additionally, SOX rules on these issues apply just in the United States. All around the world, the Big Four procure 57 percent of their pay from counseling. ? Conflicts of interest. A bookkeeping firm can't review an organization on the off chance that one of the customer's top officials has worked for that bookkeeping firm inside the earlier year and was engaged with the organization's review. So, a customer can't enlist one of its examiners to guarantee an amicable mentality. ? Term limits on review accomplices. Following five years with a customer, the lead review accomplice should pivot off the record for at any rate five years. Different accomplices should turn off a record at regular intervals for in any event two years.

Whistleblowing

Reviewers who speculate that a customer has submitted an illicit demonstration should advise the customer's top managerial staff. On the off chance that the board neglects to make a proper move, the reviewers should give an authority report to the board. On the off chance that the board gets such a report from its reviewers, it should advise the SEC inside one work day and send a duplicate of this notice to the evaluators. On the off chance that the evaluators don't get this duplicate, they should tell the actual SEC.

Muhamet Yildiz Instructions. You are encouraged to work in groups, but everybody must write their own solutions. Each question is 33 points. Good Luck! 1. Exercise 2.1 in lecture notes. 2. Consider the set of lotteries (Pr; Py; p=) on the set of outcomes {r, y, =} where Pr; Py; and p: are the probabilities of r, y, and z, respectively. (a) For each (partial) preference below, determine whether it is consistent with ex- pected utility maximization. (If yes, find a utility function; if so, show that it cannot come from an expected utility maximizer.) 1. (0, 1, 0) > (1/8, 6/8, 1/8) and (7/8, 0, 1/8) > (6/8, 1/8, 1/8) 2. (1/4, 1/4, 1/2) > (3/4, 0, 1/4) > (5/6, 1/6, 0) > (1/2, 1/3, 1/6) (b) For each family of indifference curves below, determine whether it is consistent with expected utility maximization. (If yes, find a utility function; if so, show that it cannot come from an expected utility maximizer.) 1. Py = e - 2pr (where c varies) 2. Py = c(Pr + 1) (where c varies) 3. Py = c - 2vps (where c varies) (c) Find a complete and transitive preference relation on the above lotteries that sat- isfies the independence axiom but cannot have an expected utility representation. 3. Under the assumptions P1-P5, prove or disprove the following statements. (a) If AllBi, And By, and Aj n A, = 0, then Aj U Azz B, U By. (b) For any given event D. define "_ given D" by A> B given Diff An DE BAD. The relation > given D is a qualitative probability. (c) For any two partitions (A1, . .., A,) and (B1, ..., B,) of S with Aj ... ~ An and B1~ . .. ~ Bn, we must have A1 ~B1.Instructions. This is an open-book exam. You can use the results in the notes and the answers to the problem sets without proof, but you need to invoke them explicitly. You have 80 minutes. Each question is 25 points. Good Luck! 1. Ann is an expected utility maximizer. She is to submit a bid b in an auction to buy an object. The resulting price for the object is p, which is uniformly distributed on [0, 1], independent of b. Ann gets the object at price p if the price turns out to be less than or equal to b. The value of the object for Ann is v e [0, 1]. Ann does not know v, but by expending effort c 2 0 she can obtain an estimate o for v where Var (0) = c, E = 1/2, and E [vo] = 0. The von Neumann and Morgenstern utility function of Ann is u (u, p, b, c) = " -p-c ifb2p otherwise. The price p is stochastically independent from v and i. (a) Compute Ann's optimal bid as a function of o and c. (b) Compute the optimal c for Ann. 2. Consider a finite state space S with at least two elements and a set C = [0, 1] of consequences. The decision maker is risk-neutral and ambiguity averse, i.e., f _ g min f (s) > ming (s) BES SES for any two acts f : S - C and g : S - C. Which of the postulates Pl and P2 of Savage are satisfied by 2? (Show your work.) 3. For each of the pairs X and Y below, check whether X necessarily stochastically dominates Y; check for both first- and second-order dominance. (It suffices to give an example to show that X does not necessarily dominate Y.) (a) X = (Y + Z) /2 where Y and Z are iid. (b) X = 0 + 61 and Y = 0 + 62 where # ~ N (0, 1), 21 ~ N (1, 1), and 62 ~ N (0, 1). 4. Ann has initial wealth W and an asset X that pays a with probability 1/2 and -r with probability 1/2, where a ( [x, a] and W 2 W for some z, a, W with 0 (1/8, 6/8, 1/8) and (7/8, 0, 1/8) > (6/8, 1/8, 1/8) 2. (1/4, 1/4, 1/2) > (3/4, 0, 1/4) > (5/6, 1/6, 0) > (1/2, 1/3, 1/6) (b) For each family of indifference curves below, determine whether it is consistent with expected utility maximization. (If yes, find a utility function; if so, show that it cannot come from an expected utility maximizer.) 1. Py = c - 2pr (where c varies) 2. Py = c(Pr + 1) (where c varies) 3. Py = c -2VPz (where c varies) (c) Find a complete and transitive preference relation on the above lotteries that sat- isfies the independence axiom but cannot have an expected utility representation. 3. Under the assumptions P1-P5, prove or disprove the following statements. (a) If All BI, Azz B2, and A, n A2 = 0, then A, U Azz B, U B2. (b) For any given event D, define "_ given D" by AB given Diff An DEBAD. The relation > given D is a qualitative probability. (c) For any two partitions (Al, ...; A,) and (B1, . .., B,) of S with A ~ ... ~ A, and B|~ ~B,, we must have A] ~ BI-Instructions. You are encouraged to work in groups, but everybody must write their own solutions. Each question is 33 points. Good Luck! 1. Problem 3 in Problem Set 2. 2. Bob has just retired and has wy dollars. His utility from a consumption stream (Co, CI, . . . ) is where u : R - R is a von Neumann-Morgenstern utility function with constant relative risk aversion p > 1. For each t, he dies in between periods t and * + 1 with probability p, in which case he gets 0 utility. (a) Take n = 1, and find the optimal consumption stream c* with q to s wo. (b) Take a = co, and find the optimal consumption stream c' with cite + ... up. (c) What would be your answer to part (b) if p = 1? (d) Solve part (c), assuming instead that Bob can get me from each dollars saved at t, i.e., w dollars saved at t becomes wr, dollars at t + 1, where (r, ) is i.i.d. with re >0 and 6E logr,] e (0, 1). 3. For any real-valued random variables X and Y and any increasing function g : R - R. prove or disprove the following statements. (a) If X first-order stochastically dominates Y, then g (X) first-order stochastically dominates g (Y). (b) If X second-order stochastically dominates Y, then g (X) second-order stochastic cally dominates g (Y). (c) If X first-order stochastically dominates Y', then X first-order stochastically dom- inates aX + (1 - a) Y for every a e [0, 1). 4. Ann has constant absolute risk aversion o > 0 and initial wealth w. She can buy shares from two divisible assets that are sold at unit price. One of assets pays a dividend X ~ N (2p, o') and the other pays a dividend Y ~ N (u, o') where X and Y are independently distributed and a > 1. She can buy any amount of shares from each asset, and she can keep some of her initial wealth in cash. Find the optimal portfolio for Ann.Instructions. This is an open-book exam. You can use the results in the notes and the answers to the problem sets without proof, but you need to invoke them explicitly. You have 80 minutes. Each question is 25 points. Good Luck! 1. Ann is an expected utility maximizer. She is to submit a bid b in an auction to buy an object. The resulting price for the object is p, which is uniformly distributed on 0, 1), independent of &. Ann gets the object at price p if the price turns out to be less than or equal to b. The value of the object for Ann is e e [0. 1). Ann does not know , but by expending effort c 2 0 she can obtain an estimate " for u where Var (0) = c, E = 1/2, and E [ole] = e. The von Neumann and Morgenstern utility function of Ann is u (up, b, c) = up- ifb2p otherwise. The price p is stochastically independent from a and e. (a) Compute Ann's optimal bid as a function of o and c. (b) Compute the optimal e for Ann. 2. Consider a finite state space S with at least two elements and a set C = [0, 1] of consequences. The decision maker is risk-neutral and ambiguity averse, i.e., f z g = min f (:) > ming (8) for any two acts f : 5 - C and g : S - C. Which of the postulates Pl and P2 of Savage are satisfied by >? (Show your work.) 3. For each of the pairs X and Y below, check whether X necessarily stochastically dominates Y'; check for both first- and second-order dominance. (It suffices to give an example to show that X does not necessarily dominate V.) (a) X = (Y + 2) /2 where Y' and Z are iid. (b) X = # + 1 and Y = 0 + 62 where 8 ~ N (0, 1), 21 ~ N (1, 1), and 22 ~ N (0, 1). 4. Ann has initial wealth W and an asset X that pays a with probability 1/2 and -r with probability 1/2, where r E [z, a] and W 2 W for some 2. 5, IL with 0