Monday, May 23, 2011

INTEGRITY AND ACCURACY IN REPORTING FINANCIAL INFORMATION AND ITS IMPACT ON GENERAL INVESTORS


 INTEGRITY AND ACCURACY IN REPORTING FINANCIAL INFORMATION AND ITS IMPACT ON GENERAL INVESTORS

             Today, one of the most important corporate responsibilities of the corporation or the business organization is reporting of true corporate information mainly financial information in terms of balance sheet and financial statement.  Especially if the publically traded company provides inaccurate and insufficient information then all the investors may have to lose their money. In most of the situation companies’ window-dress their financial troubles as a result their financial position looks strong.

            Integrity and accuracy in reporting financial data and information by the corporation and business organization is even vital in recent economic downturn and present creeping or sluggish recovery. Investors, governments and even general public has right to know the accurate financial information about any publicly traded corporation. One of the reason or objectives of reporting accurate financial information is to inform investors or general public and to help them to make wise investment decisions. Therefore, false reporting of the information leads to the wrong decision by the investors. Because investors always make decision on the basis of what they have seen in the financial statement of the company and if the investors make decision relying on false and inaccurate data presented by the corporation in their financial statement then obviously they will make wrong investment decision. Furthermore, if the business corporation report or disclose the wrong or falsify information then its impact goes far beyond loss of general investors who make investment decision using those manipulated information; but it will have huge and ripple effect on the overall economy depending up on the scope and nature of the business.

         Although there is rules and regulation to control, operate, and disclose financial information about the business, all investors, general public and even government in some extent have to rely on information reported by the company in their financial statement. Therefore, reporting the accurate and reliable financial information about the present position of the company is biggest responsibilities of corporation.    For example, “for the first three months of 2001, the 100 companies that make up the NASDAQ 100 reported $82.3 billion in combined losses to the securities and exchange commission (SEC). For the same period these companies reported $19.1 billion in combined profits to share holders via headline, “Pro forma” earnings reports- a difference of $101.4 billion or over $1 billion per company”. (Wild, Subramanyam, & Halsey,  2002).

          CEO or mangers are the key person responsible for reporting financial information to the public because they are the people who have ultimate control over the accuracy of financial information and financial and accounting systems of the company. While preparing the financial statement of companies judgment and manger discretion is unavoidable but accounting and financial standers helps business executives and managers to narrow down the forecasting errors and to choose the best available alternatives.  For example, “a manager could decrease the allowance for bad debts based on inside information such as the improved financial status of major customers. Still, in practice, too many managers abuse this discretion to mange earnings and window-dress financial statements. This earnings management can reduce the economic content of financial statements and can reduce confidence in reporting process”.  (Wild, Subramanyam, & Halsey, 2002).

Accuracy of financial information for non-profit organization:
         Non-profit organizations are the one who provide pertinent services to the community which are not roofed by government and business enterprise.  Basically the activities on which non-profit organization provides services are education, health care, research, social work, environment protection and others. Their roles enhance the performance of society as well as nation and economy. Because of the services they provide, non-profit organizations get funds from different sources and they get tax exemption on their earnings. Accuracy and integrity of financial statement is necessary for the non-profit organization. In real word there are numerous examples available where even non-profit organization misuses the funds received from the various donors all over the world manipulating their financial information.  The possibilities of misuse of funds by the personnel in non-profit organization is some time even higher than for profit organization because the people or general public are prone to trust them and non-profit organization are not required to publish their financial statements annually.

           The most interesting lesson learnt after seven weeks of class is about the world economic crisis and the role of the fiscal and monetary policy to mitigate the impact of the crisis. It is learnt that both fiscal and monitory policy are good for the health of the deteriorating global economy.  But the fact is that impact of both of these measures is different. For example, monitory policy can react quickly and the Fiscal policy has wide range macro economic impact in rebuilding and revitalizing the economic base in long run.  Not only this but also fiscal policy can be use as a mechanism to stimulate and control the broad range of economic functions.

        Another interesting topic discussed during the seven week of class is about economic downturn and the role that Obama administration played to mitigate the impact of such downturn and housing market collapse. The most important factors that lead to current economic downturn are huge sum of home mortgage and collapsing of housing and real estate market. As a result of housing market collapse, small and mid-size banks were failing and still are continue to fail. This situation leads to the crisis of economy. Beside the bank collapse other big organizations which were the big pillar for the economy went bankruptcy. As a result, bunch of people loses their jobs, economic condition get slump and now situation get worse that government is funding different companies and states in the form of bailout to make situation better. 









References
Financial Statement Analysis (9 ed). McGraw-Hill Irwin publication. Published by Wild,
        J. John, Subramanyam, K.R., & Halsey, R.F. (2002).

Financial Management: Theory and Practice (12 ed). Thomson South-Western publication,
        Published by Brigham, E.F. & Ehrhardt, M.C. (2005).

1 comment:

  1. Did you think about using the best Bitcoin exchange company: YoBit.

    ReplyDelete