"Financial Statements Can Be Manipulated by the People Who Prepare Them". - Discuss

The expression “Financial statements can be manipulated by the people who prepare them” is very much disputed for us and we think we can look at this from two different points of view. Firstly, we would like to define the term financial statement; to be sure we mean the same thing. In every enterprise accountants track, organise and record the financial dealings of a company during the accounting cycle. At the close of each period, accountants use the information they have gathered to prepare financial statements. Consequently we can say that financial statements are a set of financial documents which provide all information about the financial performance of a company in a particular period. They determine its present financial situation and help to predict and plan for the future. Financial statements typically consist of a profit and loss account, balance sheet, cash-flow statement and the notes to the accounts (Walton 2000, p.5). We have to remember that financial statements have some limitations. Financial statements are only a starting point for analysis. Individual numbers aren 't good or bad in themselves — the reader has to dig for the reason behind any numbers that seem out of the ordinary. Statements should be used to spot trends and anomalies, and then followed up with further investigation. The regulations of accounting allow flexibility and often the companies with the same kind of problems can find different solutions, so the rules allow individual accounting treatments to be adopted where appropriate. This “creative accounting” leaves some loopholes for manipulation (Black 2000, p. 196). Information in financial statements is based on past events and does not include forecasts of future performance. It can be explained that companies do not want to divulge information which may be of use for competitors. So if it exists, it is so generalised that it cannot be used by anybody. Financial statements do not provide non-financial

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