The firm has contractual and legal obligations with various other bodies, which are also called stakeholders of the firm. The following bodies for their decision-making processes rely upon the financial information provided by the firm.
If the firm is proved to be misrepresenting its financial statements later on, it will lose its confidence in the trust of its stakeholders, on which the whole business of the firm is based and it shall be difficult for the firm to survive for a lengthy period.
In case of any kind of misrepresentation found in the financial statements, they shall be severely liable for not fulfilling their duties and the responsible individual managers are likely to penalize for not being reliable in dealings with the external parties.
The parties such as banks and financial institutions that are interested to provide funds to the firm and other individuals interested to invest in the firm or often require third parties to attest the financial statements served by the firm for reliance in the information provided.
External audit firms, investment bankers and underwriting firms, provide these certification services. Various clients are served by these third parties and thus they are strongly interested in maintaining their reputation and credibility with the financial community.
The report provided by these third parties serves as reasonable assurance in the true and fair disclosure of information in the financial statements. In case of any discrepancy found in the financial information provided by the firm, the reports on the financial statements shall not be clean. Thus adversely affects the credibility of the firm.
In case of any frau
(d) Legal Penalties
In case of any fraudulent or misrepresentation of information found in the financial statements served by the firm, there are heavy penalties for the persons responsible for the fraud which may lead to even insolvency of the firm.
Most juridical laws across the globe have severe civil and criminal liabilities for misrepresentation of financial information.
Costs Associated with disclosure
The various costs associated with the disclosure of financial statements can be classified as under:
Collection and Processing costs
Competitive disadvantages ...
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(Financial Analysis Essay Example | Topics and Well Written Essays - 6750 Words)
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