The discussion activity for Module 1 is based on Case 1.1, \"Reliability of Fina

Question

The discussion activity for Module 1 is based on Case 1.1, "Reliability of Financial Statements," in Financial and Managerial Accounting: The Basis for Business Decisions, 15th ed., by Williams et al., page 35.

In the early 1980s Chrysler Corporation was in severe financial difficulty and desperately needed large loans for the company to survive. What factors prevented Chrysler from simply providing potential lenders with misleading financial statements to make the company look like a risk-free investment?

Explanation / Answer

1. The statements have to be audited by independent CPA's. No CPA would certify obviously misleading statements. 2. There are civil and criminal penalties for issuing intentionally misleading financial statements. The Board of Directors, the CEO and the CFO could have been in some serious hot water had this happened.

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