Question

Why is it important for companies to go beyond financial and accounting data in accessing their performance?

Answer 1

The company records the details off transaction, expense, cash inflows and outflows, liabilities, assets etc. The firm usually uses the financial and accounting data for evaluating the performance of the firm. There are ,many limitation for the accounting and financial data of the firm. So the evaluation made by the managers only by analyzing the these data’s will be completely wrong.

The accounting and financial reports of the firm is not capable of providing the complete picture of the firm. Mistakes, errors, frauds etc can occur in the preparation of the financial reports. The employees can commit frauds during the preparation of the accounting and financial reports. In some cases there is chance for omission of certain relevant information’s while preparing reports. It will not be appropriate and effective result if the manager takes decision only on the basis of financial and accounting data.

The performance of a company depends on number of factors such as efficiency of manager, creative and innovative skills of employees, decisions taken by the mangers etc. All these factors are not at all considered while preparing the financial and accounting statements. The manager con duct a detailed study regarding all the factors which directly or indirectly affects the p[performance of the firm.  So it is understood that the evaluation made by analyzing the accounting information will be completely wrong. It is very essential to go beyond these data to obtain a fair result.