If someone deliberately understates costs and thereby increases profits,this can cause the stock price to rise above its intrinsic value.The stock price will probably fall in the future.Also,those who participated in the fraud can be prosecuted,and the firm itself can be penalized.

Question

Quizplus · Accepted Answer

Deliberately understating costs to increase profits is considered fraud, and can lead to a false inflation of the stock price. Eventually, the true value of the stock will be revealed and the price will fall. Additionally, those involved in the fraud can face legal consequences, and the firm itself can be penalized for misleading investors.

If Someone Deliberately Understates Costs and Thereby Increases Profits,this Can