The SEC's Center for Risk and Quantitative Analytics is charged with developing procedures to identify filings that are most likely to contain misleading information. One technique is use of an Accounting Quality Model to identify filings most likely to contain misleading information.
Required
a. Briefly discuss how recent changes in reporting standards may have increased the potential for reporting misleading information. Provide a specific example.
b. How has the information environment increased the SEC's ability to use quantitative models to flag suspicious filings?
c. Identify four financial ratios that could be included in the Accounting Quality Model and explain the rationale behind each ratio.

Question

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The Answer of The SEC's Center for Risk and Quantitative Analytics is charged with developing procedures to identify filings that are most likely to contain misleading information. One technique is use of an Accounting Quality Model to identify filings most likely to contain misleading information.
Required
a. Briefly discuss how recent changes in reporting standards may have increased the potential for reporting misleading information. Provide a specific example.
b. How has the information environment increased the SEC's ability to use quantitative models to flag suspicious filings?
c. Identify four financial ratios that could be included in the Accounting Quality Model and explain the rationale behind each ratio.

The SEC's Center for Risk and Quantitative Analytics Is Charged