Question

What is the primary protection for investors against fraudulent financial reporting by corporations?

A. The requirement that financial statements be audited.
B. The fact that all firms must report the same way.
C. The integrity of management.
D. Criminal statutes.

Answer 1

The primary protection for investors against fraudulent financial reporting by corporations is the requirement that financial statements be audited.

Step-by-step explanation:

The primary protection for investors against fraudulent financial reporting by corporations is The requirement that financial statements be audited (Option A).

Auditing refers to the examination and verification of a company's financial records and statements by an independent third party, known as an auditor. Auditors review the company's financial information to ensure accuracy, credibility, and adherence to accounting principles.

By requiring financial statements to be audited, it adds a layer of assurance and reduces the likelihood of fraudulent reporting as auditors are trained to identify irregularities and non-compliance with accounting standards, improving the transparency and reliability of financial information.