In 2009, Larry Summers, former Secretary of the Treasury, observed that “in the past 20-year period, we have seen the 1987 stock market crash. We have seen the Savings & Loan debacle and commercial real estate collapse of the late 80’s and early 90’s. We have seen the Mexican financial crisis, the Asian financial crisis, the Long Term Capital Management liquidity crisis, the bursting of the NASDAQ bubble and the associated Enron threat to corporate governance. And now we’ve seen this [global economic crisis], which is more serious than any of that. Twenty years, 7 major crises. One major crisis every 3 years.” How could this happen given the large number of financial and information intermediaries working in financial markets throughout the world? Can crises be averted by more effective financial analysis?
Answer to relevant QuestionsAccounting statements rarely report financial performance without error. List three types of errors that can arise in financial reporting.One of the fastest growing industries in the last twenty years is the memory chip industry, which supplies memory chips for personal computers and other electronic devices. Yet the average profitability for this industry has ...There are very few companies that are able to be both cost leaders and differentiators. Why? Can you think of a company that has been successful at both? A fund manager states, “I refuse to buy any company that makes a voluntary accounting change, since it’s certainly a case of management trying to hide bad news.” Can you think of any alternative interpretation?Refer to the Lufthansa example on asset depreciation estimates. What adjustments would be required if Lufthansa’s aircraft depreciation were computed using an average life of 25 years and salvage value of 5% (instead of ...
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