ift.world-Part 2 (1).pdf - Part 2 ift.world\/booklets\/fra-financial-reporting-quality-part2 R29 Financial Reporting Quality 3 Context for Assessing

ift.world-Part 2 (1).pdf - Part 2...

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Part 2 ift.world /booklets/fra-financial-reporting-quality-part2 R29 Financial Reporting Quality 3. Context for Assessing Financial Reporting Quality 3.1. Motivations Managers may be motivated to issue financial reports that are not high quality in order to: mask poor performance. boost the stock price. increase personal compensation. avoid violation of debt covenants. 3.2. Conditions Conducive to Issuing Low-Quality Financial Reports The three conditions conducive for issuing low-quality financial reports are presented below: Opportunity: It can be the result of weak internal controls, ineffective board of directors, and accounting standards that allow a range of choices. Motivation: It can result from pressure to meet some criteria for some personal reasons. Rationalization: It can result from justifying a wrong choice as seen in Enron’s case. Enron’s CFO sought board approvals, legal and accounting opinions for misstated financial statements. 3.3. Mechanisms that Discipline Financial Reporting Quality Market Regulatory Authorities Regulators in every country can play a key role in enforcing financial reporting quality.
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  • Spring '16
  • U.S. Securities and Exchange Commission, Market Regulatory Authorities

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