Not only do investment banks facilitate mergers and financially advise corporations about issuing new securities, but some also have a division of securities research, which communicates with investors about the value and risk in buying securities. The research analyst should have objective information independent from the interests of the investment banking personnel, or else conflict of interest can arise. This is when the personnel sees an opportunity to further their business by influencing the financial decisions of the involved parties, so it pressures or compromises with the research analysts to post favorable research and evaluations to induce investors in making decisions in favor of the investment banking personnel’s interests. There are many regulations put in place to maintain this separation, such as the Global Research Analyst Settlement and SRO Rules. It was settled in this agreement that budget allocation for the research department was to be independent of investment banking and firms were required to separate information between the investment banking and research departments, as well as separate the departments physically, in efforts to separate research and evaluation from the pressures of investment banking personnel and to protect investors from being misled (Pinedo, Evans & Rosenberg 2013).
In one relevant case, RBC provoked Rural/Metro Corp. to self itself for less by telling it that its shares are worth $8 to $16, because Warburg Pincus LLC was selling it for $17, when actually the shares were worth $19 (Hoffman 2014). This looked like a great deal in which Warburg benefited and received something more valuable than the actual price they paid, and Rural/Metro lost out on money beca...
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...mpany they are auditing so the financial statements are accurate and do not influence people’s decisions to invest in the company favorable to the personnel’s interests. Financial statements are to be unbiased and objective- accountants are not to overstate revenues or the value of assets, or understate liabilities. Accountants are to keep information obtained from working for one client separate from the information it attains from working with another client, and they are not to act for a current client against a former client. Accounting firms should not provide non-audit consulting to audit clients because auditors can be hesitant about criticizing the financial advice given by the non-auditors in the firm. Separation of information between auditing and consulting services is important to avoiding conflicts of interests and keeping auditors’ judgments objective.
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