Identify and discuss possible sources of biases in conventional accounting data. Also discuss the challenges that...

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?

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Expert Solution

The potential sources of biases in conventional accounting data are the manner in which revenue is recognised and liabilities are recorded. It is quite possible that management under pressure to show better results may book revenues before the transaction is truly completed. Also some provisioning may be avoided by showing likely liabilities as contingent to increase net-worth.

The major challenges that analyst face in interpreting financial data is that:

1) The data may not be audited at all times

2) Reinstatements of certain figure is also possible

3) The accounting policy of firms can also vary within industry

4) Some off balance sheet items may not be transparently available to analysts for their interpretation

In order to ensure accurate data presentation and analysis, following should be done

1) Prudent approach in analysing financial statements and calculate ratios on a conservative basis

2) Do sensitivity analysis to understand the impact based on various scenarios

3) Get feedback and reviews from industry experts before publishing reports

jeff jeffy answered 1 year ago

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