3. Context for Assessing Financial Reporting Quality

## d. describe motivations that might cause management to issue financial reports that are not high quality; ## e. describe conditions that are conducive to issuing low-quality, or even fraudulent, financial reports; ## f. describe mechanisms that discipline financial reporting quality and the potential limitations of those mechanisms;

What are four motivations for managers to issue less than high quality financial reports? - Mask poor performance - Boost stock price - Improve incentive compensation - Meet debt covenants

What are three conditions that are conducive to issue low-quality financial reports? - Opportunity is generally provided through weaknesses in internal controls. - Motivation can be imposed due to personal financial problems or unrealistic deadlines and performance goals. - Rationalization occurs when an individual develops a justification for fraudulent activities.