I’m working on a finance discussion question and need an explanation and answer to help me learn.
Financial statements are critical to investors and there needs to be accuracy and transparency. The Sarbanes-Oxley Act of 2002 was passed by the federal government to make sure that executives are held more accountable for financial statements. Investors need to do their own due diligence, but if there is no trust between companies and investors it will cause long term problems.
In light of recent accounting and financial scandals (Enron, Tyco, Adelphia Communications), can or should investors solely rely on financial statements? Can investors have confidence in analysts employed by securities firms? What alternatives are there for investors?