Companies have a certain level of discretion concerning the methods they use to evaluate and report their financial performance. Investors are often concerned with whether the accounting method used is more aggressive or conservative as this will affect their ability…

Several reasons would lead a company’s management to issue low-quality financial reports. The prevalence of this practice is, however, mitigated by the existence of a robust regulatory regime that disciplines financial reporting quality. Management Motivations for Low-quality Financial Reporting< The…

The decision to issue low-quality financial reports ultimately lies in the hands of individuals. For these individuals, namely managers, to succeed in doing this, the conditions must be convenient. Conducive Conditions for Issuing Low-quality Financial Reports The issuance of low-quality…

Given the negative implications that low financial reporting quality can have, disciplinary mechanisms need to be established to promote high reporting quality. Even though several mechanisms exist, there are certain limitations to their effectiveness. Mechanisms That Discipline Financial Reporting Quality…

The presentation choices adopted by a company when preparing its financial statements can significantly influence analysts’ and other users’ opinions on these statements. These presentation choices include both GAAP and non-GAAP measures. Presentation Choices That Influence Analyst Opinions Earnings before…

Investors should be mindful of how the choice of accounting method can affect financial reporting. The accounting methods selected do not have to involve complex accounting standards to significantly impact the timing of revenue and the resulting financial reports. This…

Financial manipulation leaves a trail, like tracks on sand or snow. The manipulation could be time-related or location-related. An example of time-related manipulations is expenses capitalization, which would decrease the expenses of the current period and distribute the cost over…

The evaluation of a company’s past financial performance can serve many purposes. Among other things, this evaluation can assist with market-based valuations, provide a basis for forward-looking analysis, and can provide information useful for evaluating the quality of a company’s…

Forecasting a company’s near-term financial performance may lead to market-based valuations or relative valuations. Forecasting generally includes an analysis of the risks in the forecasts. Quantifying these risks requires an analysis of the economics of a company’s business and expense…

The analysis of a company’s historical and projected financial statements is an integral part of the credit evaluation process. It helps determine a company’s ability to meet its debt obligations. Several financial ratios may be computed from these financial statements….