The following questions address issues concerning internal control.

Ford 10-K and Toyota 20-F

a. Both Ford and Toyota management comment on the fact that internal control over financial reporting has “inherent limitations.” What are those inherent limitations?

b. Locate the CEO certification toward the end of Ford’s 10K. Summarize the main components of the certification. Why should users of the financial statements be assured by the statements made in the certification?

c. How does management obtain comfort that internal control does not contain any material weaknesses?

d. From a conceptual point of view, assume two companies are the same size, participate in the same industry, and have the same reported net income. However, one has a material weakness in internal control over financial reporting and the other does not have any material weaknesses. Should the stock price of the two be different? If yes, what is the rationale for the difference in the stock price?