Lack of Consistency, Comparability, And Transparency In Financial Reporting Can Distort Analysis

Few investors will buy a company’s debt or equity without at least a cursory look at its income statement, balance sheet, statement of cash flows, accompanying notes, and the management discussion and analysis. Standard & Poor’s Rating Services believes financial statements too often lack the consistency, comparability, and transparency investors and other financial statement users need for analysis. The reports upon which global financial statement users depend are an amalgam of accounting standards, regulatory mandates, and management discretion, which can result in an unpredictable mix of information–or lack thereof–that makes analyzing financial statements more complicated than we believe necessary. Without an understanding of what financial metrics actually measure, how different industries or comparable companies in the same industry might use those numbers, and how disparate standards can change the disclosures afforded the public, investors risk misunderstanding a company’s financial strength and misallocating their capital.

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