Provides a framework that explains helps these real observations about accounting and financial statement analysis. If managers have superior information about firm strategies, and if investors believe that managers have incentives not to fully disclose this information, the accounting is an important management tasks topic. Managers’ superior information is a source of value and bias in accounting data. Accounting conventions and standards over time evolve to restrict ma … Read more »

Provides a framework that explains helps these real observations about accounting and financial statement analysis. If managers have superior information about firm strategies, and if investors believe that managers have incentives not to fully disclose this information, the accounting is an important management tasks topic. Managers’ superior information is a source of value and bias in accounting data. Accounting conventions and standards over time to managers’ ability to falsify financial data are limited to developing, but they leave plenty of room for managers to reflect their superior knowledge of their businesses. The result of these forces is that accruals are biased and noisy data, and investors, businesses can evaluate the performance imprecise. Managers can improve investors evaluate their companies’ performance through sound disclosure policies. Financial analysts try to create insider information from public data and therefore play an important role in the communication between managers and investors.
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Krishna G. Palepu
8 pages.
Release Date: 10 May 1990. Prod #: 190188-PDF-ENG
Note to Financial Reporting Strategy and analysis, when managers have only information about HBR case solution