Current Issues in Finance: An Overview of the Latest Developments of the financial world

“Accounting is defined as a method of reporting economic transactions and events in the form of statements of financial performance”(Barker, 2001) , the problem is that there is not a single method of reporting those transactions. Too much is still left at the discretion of accountants, who, respecting the overall rules set by accounting standards, are still able to produce financial statements that can please the managers who hired them.
Waste Management, Xerox, Boston Chicken and Enron are just the latest examples of bad accounting. Companies that looked sound and in perfect financial health on their financial statements went bankrupt in a few days, revealing that the truth is often very different from what is shown on a company’s financial report.
Producing financial reports is a time and money consuming process, and when big accounting companies are hired to perform this function, the bill, which is paid by investors, may be very large. Shareholders question the reasons for undertaking such a cost if they derive no benefit from it.
Most investors already know the limits of financial reports as a tool to assess companies’ value and more importantly, to evaluate their ability to generate cash in the future. The latest accounting scandals, however, have nothing to do with the limits of accounting per se. What happened to Enron is simply due to manipulated financial statements: information was intentionally distorted; the accountants who produced them were consciously falsifying the financial condition of the company.
The direct result of such a scandal is an overall loss of confidence in the accountancy profession. The general public tends, now, to regard accountants suspiciously and their profession has probably been irremediably downgraded. Accounting firms have lost most of their reputation and the financial reports they produce are read skeptically. Nevertheless, the purpose of this paper is not to evaluate the cases in which accounting information has been fraudulently distorted, but to assess whether or not fairly produced accounting information is useful for investors in valuing firms.
This paper will not find a remedy to misleading accounting information, but it is made in the attempt to tell where misleading information is likely to be found within the financial reports, so that investors can avoid being deceived by it.