Secret Reserves Are Designed to Conceal the True Financial Position

question 22

Multiple Choice

Secret reserves are designed to conceal the true financial position and earnings, which are different than shown on the balance sheet and income statement. The best statement of how secret reserves are related to fraud and ethics is:

• A) Secret reserves often lead to smoothing net income over time.
• B) Secret reserves make the information in financial statements inconsistent.
• C) Secret reserves are legal and normal operating practices in all countries around the world.
• D) Secret reserves can give the sense of financial security to the shareholders and regulators.

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Definitions:

Groupthink

A mental effect experienced by a collective, where the pursuit of agreement or uniformity leads to choices that are illogical or not functional.

Critical Evaluator

A person skilled in assessing situations, policies, or work critically to identify improvements or establish value.

Groupthink

Groupthink is a psychological phenomenon that occurs within a group of people when the desire for harmony or conformity results in an irrational or dysfunctional decision-making outcome.

Membership Homogeneity

Refers to the degree of similarity or uniformity within a group or organization's members.