Author Archives: Lancy Jiang

When we speak about the so called “truth” in nowadays accounting pratices, we might be referring to as this is the best assumption made based on what’s known.  If you lost tons of money because you relied only on the flattering numbers in a company’s quarter or year end financial statement and made the investment for its “solid” business performances, you might find yourself be completely on your own for this one.

The company in which you invested in might just tell you that they did their best they could to come up with those numbers. But were those numbers telling the entire truth? Probably not. What they might not be telling you was that in order to boost up their acquisition offering for next quarter, the management needed to create “better-looking” financial statements with higher profits for this quarter, meaning they might have a substantial liability that would not be booked till after the acquisition.

Long ago, the word “accrual accounting” was born to replace the simple tallying of cash in and out. With that and other current general accounting principles, helped created goal-driven but not truth-driven accounting pratices.  It allows managers to manipulate the assets and liabilities based on what they want to achieve. The author had clearly stated in his article that more disciplined accounting principles or guidances should be taken in place to better regulates and monitor how accurately decision makers are when revealing financial information. For example, he suggested that consistent discrepancies should be tracked to make sure managements are not making the some mistakes over and over again knowingly.

The article also urged the investors to scrutinise the numbers harder. Never judge a book by its cover. Knowing that even accounting numbers can be subjective, one needs to take a more closer and deeper look into the company and its managers history as well as information provided by a reliable third party before making any intuitive decision.