Question

In Financial Statement Analysis, investors are aware of the Manifestations of BIAS and Uncertainty when analysts and managers prepare their reports. Discuss what you think is meant by BIAS and Uncertainty in the reporting process. Indicate both the positive and negative implications of those issues for the financial statement analysis process.

Answer 1

By BIAS I think it means that analysts and managers may window dress and mould the representation and interpretation of information which may suite them and hide their inefficiency. For ex, they may quote in the highlist section that sales grown by 10% in 2017, delebriately hiding that in 2016 it grown by 20%. Though there is increase in sales figure but the growth % has fallen down which may not be indicated out of biasness to show their performance in a good light.

Positive:

• Helps in getting more investment as biasness may not be equal to financial frauds everytime.
• Gets to see positive out of negatives.

Negative:

• Does not give true picture of the financials and may doom common investors who do not have much knowledge of financials analysis
• May lead to potential frauds.

Hope this helps, thanks!!