Some people believe that the use of executive stock options is directly related to the increased number of earnings restatements. For each of the following items, discuss the potential ethical issues that might be related to earnings management within the firm.
1. Should stock options be expensed on the Income Statement?
2. Should the CEO or CFO be a past employee of the firm’s audit firm?
3. Should the firm’s audit committee be composed entirely of outside members and be solely responsible for hiring the firm’s auditors?4