Question

Identify and briefly discuss the issues with financial statement reliability? How are the financial statements “validated” or reviewed for accuracy?

Answer 1

Financial statement reliability refers to whether financial information can be verified and used consistently by investors and creditors with the same results. Reliability refers to trustworthiness of financial statements. If decision makers cannot trust on the financial statements, financial reporting in general is useless.Financial statements cannot be useful if they are based on unreliable and inaccurate recordings of transactions.

Financial information is verifiable when multiple, independent measures are used to come up with the same result. In other words, auditors and other third parties can measure and evaluate the company’s financial statement accounts and end up with the same result. If the auditors can’t verify financial information, the auditors can’t issue an unqualified opinion.

in order for financial statements to be reliability, they must be neutral. Neutrality requires that management prepare completely unbiased financial statements.