ENG ELC 220 Lecture Notes - Lecture 26: Capital Market, Cash Flow, Cash Flow Statement

• School: LACC
• Department: Electrical Engineering
• Course: ENG ELC 220
• Professor: Saw

Document Summary

Accounting analysis aims to evaluate the degree to which a firm"s accounting captures its underlying business reality. Accounting distortions can be found by identifying accounting flexibility and evaluating the appropriateness of policies and estimates, and these distortions can be undone using cash flow- or other information. Even in the presence of accounting regulation and auditing, the information in corporate financial reports is noisy and biased. There are three sources of noise and bias in accounting data: noise from accounting rules. It is often difficult to restrict management discretion with reducing the information content. The iasb often defines standards that are based on principles instead of detailed rules, whereas the fasb (us) leaves managers with much less discretion in reporting. Principle-based standards aim to ensure that financial statements reflect the economic substance of firms" transactions, instead of their legal form (substance over form). These standards provide less technical guidance, however, and they demand more professionalism from the auditor.