Demand for financial reports exists because users believe that the reports help them in decision… 1 answer below »

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Safe Harbor In 1995, Congress passed the Private Securities Litigation Reform Act (the Act). The principal provisions of the Act are intended to curb abusive litigation, and improve the quality of information available to investors through the creation of a safe harbor for forward-looking statements. Forward-looking statements were defined to include statements relating to projections of revenues and other financial items, plans and objectives, future economic performance, assumptions, reports issued by outside reviewers, or other projections or estimates specified by rule of the SEC. The safe harbor applies to both oral and written statements. Management frequently uses signals as “we estimate,” “we project,” and the like, where forward-looking statements are not otherwise identified as such. The forwardlooking statements must be accompanied by meaningful cautionary statements. The cautionary statement may be contained in a separate risk section elsewhere in the disclosure document. Osmonics included statements that would likely be construed as forward-looking in their 1998 second quarter report to shareholders. This included a statement by D. Dean Spatz, Chairman & Chief Executive Officer. “I am gratified to see our employees enthusiastically embrace the Company’s restructuring and re-engineering. Their dedication and ideas will have even greater impact on our business as we implement streamlined systems and new management practices. We believe our revitalized organization, integrated products, and rationalized manufacturing operations will enable Osmonics to be a dominant supplier of high technology water purification and filtration products and cost-effective components in the years ahead.” The Osmonics report included this cautionary statement: “The Private Securities Litigation Reform Act of 1995 provides a ‘safe harbor’ for forward-looking statements. Certain information included in this document and other materials filed or to be filed with the Securities and Exchange Commission (as well as information included in oral or other written statements made or to be made by the Company) contains statements that are forward-looking. Such statements may relate to plans for future expansion, business development activities capital spending, financing, the effects of regulation and competition, or anticipated sales or earnings results. Such information involves risks and uncertainties that could significantly affect results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by or on behalf of the Company. These risks and uncertainties include, but are not limited to, those relating to product development activities, computer systems implementation, dependence on existing management, global economic and market conditions, and changes to federal or state laws.”

Required a. Demand for financial reports exists because users believe that the reports help them in decision making. In your opinion, will forward looking statements as provided by the Private Securities Litigation Reform Act aid users of financial reports in decision making?

b. To some extent, investors rights are limited by the curb of abusive litigation. In your opinion, is there a net benefit to investors from a safe harbor for forward-looking statements?

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