What inhibits companies from providing false or

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What inhibits companies from providing false or misleading good news? There are several constraints. An important constraint imposed by stakeholders is that of audit requirements and egal repercussions associated with inaccurate accounting information. Another relates to reputa- tion effects from disclosures as subsequent events either support or refute earlier news. Costs of Disclosure The costs of supplying accounting information include its preparation and dissemination, competi- ive disadvantages, litigation potential, and political costs. Preparation and dissemination costs can substantial, but companies have often already incurred those costs because managers need similar information for their own business decisions. The potential for information to yield competitive disadvantages is high. Companies are concerned that disclosures of their activities such as prod- t or segment successes, strategic alliances or pursuits, technological or system innovations, and product or process quality improvements will harm their competitive advantages. Also, companies are frequently sued when disclosures create expectations that are not met. Highly visible companies often face political and public pressure, which creates "political costs." These companies often try - appear as if they do not generate excess profits. For example, government defense contractors, large software conglomerates, and oil companies are favorite targets of public scrutiny. Disclosure costs are higher for companies facing political costs. The SEC adopted Regulation FD, or Reg FD for short, to curb the practice of selective dis- losure by public companies (called issuers by the SEC) to certain shareholders and financial
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1-9 Module 1 I Framework for Analysis and Valuation analysts. In the past, many companies disclosed important information in meetings and confer- ence calls that excluded individual shareholders. The goal of this rule is to even the playing field for all investors. Reg FD reads as follows: "Whenever an issuer discloses any material nonpublic information regarding that issuer, the issuer shall make public disclosure of that information ... simultaneously, in the case of an intentional disclosure; and ... promptly, in the case of a non- intentional disclosure." Reg FD increased the cost of voluntary financial disclosure and led some companies to curtail the supply of financial information to all users. International Accounting Standards and Convergence The International Accounting Standards Board (IASB) oversees the development of accounting standards for a vast number of countries outside the U.S. More than 100 countries, including those in the European Union, require use of International Financial Reporting Standards (IFRS) devel- oped by the IASB. For many years, IASB and the FASB operated as independent standard-setting bodies. In the early 2000s, pressure mounted for these two standard-setting organizations to col- laborate and create one set of internationally acceptable standards. At a joint meeting in 2002, the FASB and the IASB each acknowledged their commitment
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