One use of the financial statements is to derive metrics to indicate entity financial health, efficiency, profitability, etc. Identify five different or separate examples of these metrics and describe how inappropriate accounting treatment can lead to inaccurate misrepresentation of this metric. The inappropriateness you describe can be unintentional (i.e. due to error) or intentional (i.e. due to fraud). Be as specific as possible in your responses. For example, your response should extend way beyond something like this:

Ratio #1 is calculated by A divided by B. The ratio will go up if either A is higher than it should be or B is lower than it should be. Of course that will be the case; that it just basic arithmetic. WHY was any component misrepresented: what GAAP was not followed, what misjudgments were made, what was misclassified, etc. are the bigger issues here. It’s also more than merely not recording something.

By different I mean 5 different metrics and 5 different accounts. Please do not use a single metric and state five things that can affect it. In addition, do not show how the same account misrepresentation can affect 5 different metrics in a relatively similar way.

Answer rating: 100% (QA)

Financial statements depict the financial position and the state of affairs of the company We discus... View the full answer