Section II Reading Comprehension
Part A
Directions: Read the following four texts. Answer the questions below each text by choosing A, B, C, or D. Mark your answers on ANSWER SHEET 1.(40 points)
Text 1
As the post-Enron wave of corporate scandals washed over America last year, a common response in Europe was: it couldn’t happen here. Far from having the world’s best-policed markets, the United States, many European politicians claimed, suffered uniquely from a lethal combination of greedy and overpaid bosses, conflicted auditors and investment bankers, reliance on accounting rules not principles, and an obsession with quarterly profit numbers. In America, as many as 1,200 companies have been forced to restate their accounts in the past five years, in Europe the number is barely in double digits. So it is outrageous, many Europeans now argue, that America is seeking to impose the unwieldy Sarbanes-Oxley act, passed in the wake of Enron, on European companies listed in New York.
As more sensible European regulators recognize, this smugness was never justified; it is only necessary to recall scandals such as Vivendi and Elan. But Europe’s claim of immunity from corporate slackness has now been blown out of the water by this week’s revelations that Royal Ahold of the Netherlands overstated its profits for 200-02 by as much as $500m. The company’s Amsterdam-based auditors, Deloitte & Touche, failed to pick the problems up in 2001, even though worries about Ahold’s accounts were widely expressed in the markets for most of last year. The Dutch market regulator admitted this week that it had no powers of discipline over faulty auditing.
What about the relative numbers of restatements? Because America’s GAAP accounting system relies on thousands of pages of rules, it is more vulnerable to manipulation than Europe’s more principles-based approach. But given the largely non-existent regulation of auditors and the poor corporate governance prevalent in much of Europe, a more plausible conclusion is that Europe has had fewer accounting scandals than America mainly because nobody has seriously looked for them, not because they are not there.
This is not to say that Europe should adopt Sarbanes-Oxley in toto. That hastily drafted law was designed for America’s very different system. Many of the law’s rules on managers and boards seem unduly intrusive even for America. But statutory, independent regulation of auditors, as prescribed by Sarbanes-Oxley, makes sense everywhere. So do rules to stop accounting firms doing consulting work for audit clients; and it is also worth considering mandatory rotation of auditors.
The case for independent regulation is the stronger because European Union companies are due to adopt international accounting standards by 2005. It is little use taking this welcome step towards tougher standards, which the Europeans are urging on America in the interests of global harmonization, if there is nobody to oversee the rules. Yet the European Federation of Accountants admits that, in six EU countries, there is in effect no enforcement at all.
21. Which of following it true according to Paragraph 1?
[A] Many European politicians would boast of immunity from America’s corporate ills.
[B] Many companies suffered from their absolute reliance upon accounting rules.
[C] Many Europeans protested against America’s principles imposed upon European firms.
[D] Many European regulators responded sensibly to the wave of corporate scandals.
22. The phrase “in toto” (Line 1, Paragraph 4) most probably means
[A] based upon sensibility.
[B] following in a haste.
[C] given a difference system.
[D] acting in a similar fashion.
23. In contrast to American, Europe, in coping with faulty corporate auditing, would attach importance to
[A] rule enforcement.
[B] reliable principles.
[C] justified prescription.
[D] frequent restatements.
24. It seem that the ultimate solution to the problem of corporate scandals lies in
[A] the interests of global harmonization.
[B] the independent regulation of auditors.
[C] the adoption of tougher standards.
[D] the supervision of consulting work.
25. According to the author, the European corporate situation is
[A] fairly optimistic.
[B] quite promising.
[C] somewhat depressing.
[D] very astonishing.
