Wgu C254 Topic 1 with well explained answers

America's capital markets are the envy of the world because of their efficiency, liquidity, and resiliency. What role do financial statements play in American capital markets? - They present a fair picture of the financial position and results of the organization Why are American financial statements so widely trusted? - They are prepared with integrity and there is a system that checks all published statements. The SEC views auditors of public companies as "unreliable and frequently incompetent." - False The SEC refers to auditors as the "public's watchdog" in the financial reporting process. Financial statements don't need to be as accurate as possible. There is so much that goes into building them that there are bound to be mistakes. - False Many decisions are based on the information provided in financial statements. When there are substantial errors, companies reissue their statements to provide information as accurate and fair as possible. In 2002, a landmark piece of legislation was signed into law to protect against and deter fraud, which also created a private sector organization called the PCAOB (Public Committee Accounting Oversight Board) to help. What was it? - Sarbanes-Oxley Act (SOX) What is the most significant "red-flag" or tell-tale sign of fraud? - The symptoms, or red-flags, cannot be ranked in order of their significance or extent. Motivations for fraud change from case to case, though there tends to be a common theme. Which of the following is that "common theme?" a. Attempt to improve financial information to support high stock price b. To support a bond or stock offering c. To increase stock price d. All of the above - all of the aboveFinancial statement fraud affects everyone, not just those directly or indirectly involved with the fraudulent company. True or False - True