Answer:
If someone deliberately understates costs and thereby causes reported profits to increase, this can cause the stock price to rise above its intrinsic value. The stock will probably fall in the future. Both those who participated in the fraud and the firm itself can be prosecuted.
Explanation:
When a companie's profits are overstated this gives investors the confidence to buy more shares demand increases and so does price.
When the fraud is discovered shareholders will lose confidence in the firm and stock prices will fall.
When a fraud occurs those involved will be prosecuted. The firm will also be prosecuted for negligence because if internal controls were properly put in place, the fraud would have been detected.