Hello, Ruma,
I;m only guessing at this.
Financial accounting = Economic truth + error + manipulation.
Economic truth
Financial accounting is the practice of identifyinmg, recording, and assessing the flow of money in an operation with the goal of providing an accurate analysis of financial health and identifying areas of possible improvement.
error
It can be difficult tracking all the elements that make up a financial analysis, and errors may occur. Rules for depreciation, tax deductions, accounts receivable, inventories, and potential liabilities all require some level of judgement. Errors may be incurred that can significantly impact financial resilts.
manipulation
The fiancial health of an entity affects that entities' ability to borrow, stock price, and tax liabilities. The role of a financial accountant is to manipulate the data, within legal constraints, to
- Highlight the areas of excellece and risk
- Miinimize tax liabilities
- Maximize apparent value (stock market value or potential aquisition target)
- Maximize top management's bonus
OK, #4 isn't in the Financial Analysis manual, but it can lead to the negative side of manipulation: unethical or even illegal manipulation of the data to povide a different view that keeps management satisfied.
Bob
