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1. What are the fundamental differences between the Nasdaq and the NYSE? Do firms and investors need these markets at all?
NASDAQ is an electronic dealer and Traders make transactions through the dealer, also called a market maker. However, NYSE is the physical location exchange, and operate as an auction market, thus trades occur between buyers and sellers by matching their bid and ask prices respectively. Besides that, NASDAQ is easier to access than NYSE, and NYSE has a more rigorous review. Both exchanges are popular because they provide services that meet the needs of different companies or investors. Therefore, both exchanges have the necessary existence.
2. The WorldCom and Enron accounting scandal involved the firm classifying operating expenses as capital investments. Discuss the impact on Enron and WorldCom’s operating cash flow and their overall cash position. Did the financial statements contain any clues that could have warned investors of the fraud? Could the Enron debacle have Been Prevented? What could actions have been taken by auditors, regulators, and lawmakers?
The Enron incident has hit investors’ confidence to a large extent, causing a serious decline in the US stock market and also having a serious impact on markets such as foreign exchange futures. The net income in the financial statements is easy to falsify compared to the cash flow statement. But for ordinary investors, it is generally not going to analyze financial statements. In many cases, they are looking at some of the indicators related to the company’s net profit. Before the Enron scandal, if you analyze Enron’s cash flow statement, you will find that its cash and operating income are extremely disproportionate. If you compare the balance sheet, income statement, and cash flow statement, you can further analyze the problem of inappropriate records of assets, liabilities, and profits. After the whitewashed financial statements, it is difficult for ordinary people to identify them. Therefore, for the auditor, independent objectivity is especially important. After the Enron incident, the United States enacted the Sarbanes-Oxley Act, which imposed stricter requirements on auditor independence and increased criminal liability to company management to strengthen supervision of accounting professions.