Question

Identify and discuss possible sources of biases in conventional accounting data.

Also discuss the challenges that analysts can encounter when attempting to interpret financial data. What recommendations would you give analysts to ensure ease and accuracy of data report in this situations?

Answer 1

In the conventional accounting data, the audits are more likely to report the facts which are in the positive light of the company. The auditors are likely to hide the facts which are distorting in nature and hence giving the company a cousion against any possible market repurcussions.

One of the possible challenge while analysts analyse such company's financial data is that the observations are based on the facts which may not be reflecting the true picture of the company. The moment they issue an advisory of either buying the stock or selling the stock may not reap the required returns in future.

I would suggest the analysts to try and get the filings of the company from time to time with the stock exchange. Also, if they are trying to follow any financial reporting standard then it is worth waiting until the statements come which are in complaine with those accounting standards.