Question

Without any FASB or SEC actions, do you think CEOs and CFOs would modify the way

in which they provide financial reporting and other corporate disclosure? If yes, what changes do you expect these CEOs and CFOs to make? If no, why

Not?

Answer 1

The CEOs and CFOs would resort to fraudulent financial reporting, earnings manipulation if there is no action from oversight organizations like Security Exchange Commission (SEC). The motivation for these manipulations is to project a positive financial picture to shareholders and prospective investors. They achieve this objective by manipulating earnings using various methods like fictitious or premature recording of revenues, shifting current year expenses like depreciation to a later period. Capitalizing expenses instead of matching with current period revenue. Totally omitting or improperly recording liabilities. They can also use synthetic leases or off-balance-sheet arrangements to hide liabilities from the balance sheet of their companies.