Bill Simon says, "We should get rid of the FASB and SEC since free market forces will make sure that companies report reliable information.". Do you agree? Why or why not?
We partly agree with Bill on the point that corporate managers will disclose only reliable information when rational managers realize that disclosing unreliable information is costly in the long run.The long-term costs associated with losing reputation, such as incurring a higher capital cost when visiting a capital market to raise capital over time, can be greater than the short-term benefits from disclosing false information. However, free market forces may work for some companies but not all companies to disclose reliable information.
Note that Bill's argument is based on the assumption that there is no information asymmetry between corporate managers and outside investors. In reality, the outside investors' limitation in accessing the private information of the company makes it possible for corporate managers to report unreliable information without being detected immediately.
The SEC and FASB standards attempt to reduce managers' ability to record similar economic transactions in dissimilar ways either over time or across firms. External auditors, who attempt to ensure that managers' estimates are reasonable, enforce compliance with these standards. Without the SEC, FASB standards, and auditors, the likelihood of disclosing unreliable information would be high.
You might also like to view...
Living organisms on Earth share many common characteristics. Which statements are TRUE and which are FALSE about nearly all living things?Only multicellular organisms need to maintain homeostasis.
Answer the following statement true (T) or false (F)
________ represents stable factors that affect the observed score in the same way each time the measurement is made, such as mechanical factors (see Fig. 9.6 in the text)
A) Systematic error B) Measurement error C) Random error D) Variable error
Cleo is part of a team with a collective sense of belonging. This can be referred to as ______.
A. synergy B. team viability C. team affect D. team creativity
In its early years, the American Federation of Labor allowed only skilled labor members to join
Indicate whether the statement is true or false