Key Accounting Issues - Dangers & Deficiencies of Financial Statements

An organization’s financial statements, either used for operating or for investing purposes, will have to require more insight and analysis for a multitude of possible reasons. Also, these statements depend heavily on proper data acquired by the organization in its financial reporting. The Securities and Exchange Commission (SEC) and the Internal Revenue Service (IRS) along with other agencies have had in the past an established and expanded interest over the myriad of reporting issues. These include the possible complications included with the depreciation and amortization of assets that enable many organizations to inflate some of their revenues, while at the same time not being able to accurately include the cost of goods sold amounts that are included in the financial statements.

Throughout this Accounting 600 course, I have learned many important issues that relate to these misreporting and other accounting issues. I will talk about some of the possible conflicts and dangers that are related that can occur when depending on this sort of unstable data to make decisions from a managerial or investor viewpoint. I will talk about some of the key accounting issues and their dangers, such as the depreciating assets and others. Lately these situations have happened quite often with organizations; they lead to recording of information that is erroneous on the financial statements. I will finish by taking a look at how this misinterpreted data will translate into misreporting or inaccurate interpretations about how an organization is actually performing.

There are two important styles to mismanaging or altering financial statements. The basic path is to augment the earnings for the current quarter or year on the income statement; this can happen when management synthetically inflates revenue. This way of inflating figures will lead to a financial situation that is perceived as if the company is actually doing better than it really is. This may be done in order...