Which firm provides the better signal when trying to decide which of the firms' stock to buy?
A)Firm A, which uses an independent accounting firm for auditing.
B)Firm B, which uses an internal group for auditing.
C)Firm C, which has seen its stock go up by $20 per share in the last week.
D)Firm D, which hasn't been under SEC investigation for over 5 years.

Question

Quizplus · Accepted Answer

Firm A's use of an independent accounting firm for auditing provides a more objective and reliable signal of the company's financial health compared to Firm B's use of an internal group. Firm C's recent stock price increase may not be sustainable and may not reflect the underlying financial performance of the company. Firm D's lack of SEC investigation is a positive sign but does not provide information on the company's financial health.

Which Firm Provides the Better Signal When Trying to Decide