Senior Management Is Most Likely to Understate Business Performance in the Financial

question 2

Multiple Choice

Senior management is most likely to understate business performance in the financial statements for which of the following reasons?

• A) To reduce the value of an owner-managed business for purposes of a divorce settlement
• B) To comply with loan covenants
• C) To increase the value of a corporate unit whose management is planning a buyout
• D) To trigger performance-related compensation or earn-out payments

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Definitions:

Bargained-for Exchange

An essential principle of contract law involving the mutual exchange of promises or consideration between parties entering an agreement.

Legal Sufficiency

The adequacy of evidence or legal grounding in an agreement, claim, or defense that meets minimum legal standards to proceed or withstand scrutiny in a court of law.

Legal Right

An entitlement derived from a legal system that allows or empowers a person to act in a certain way or requires others to interact with the person according to specified rules.

Binding Contract

An agreement between parties that is legally enforceable in a court of law.