Are financial statements always transparent? How can financial statements be manipulated to show short-term gains? Present some real-life cases. Solution Importance of Financial Statement Before discussing importance of transparency in financial reporting, you must first understand what the word transparent means. The best definition of transparent in business circles is financial statements of high quality. There are so many definitions in the dictionary. However, the relevant meanings here are very clear, easily understood, candid, and frank. Before discussing importance of transparency in financial reporting, you must first understand what the word transparent means. The best definition of transparent in business circles is financial statements of high quality. There are so many definitions in the dictionary. However, the relevant meanings here are very clear, easily understood, candid, and frank. Here is an example. Think of two companies having similar financial leverage, market capitalization and overall market risk exposure. Take for granted that the earnings, growth rate of earnings, and Return On Capital (ROC) are also same. They have only one difference and that only difference is very crucial for the market analysts. The first company is running only one business and the financial reporting is easy to understand. On the contrary, the second company is involved in running several types of businesses and has complex financial reporting. Now which company would you prefer making an investment in? Chances are that experts will favor the first company because of simplicity and transparency in financial reporting. Companies that understand the importance of transparency in financial reporting, are also well informed about the psychology of the investors. A complex and opaque financial report gives no idea about the true risks involved and real fundamentals of the company. Here is a simple example of this. An important indicator of future growth of a company is how it has invested the money. When, after going through the financial reports, you cannot find any concrete information regarding the investments made by the company because of so many holding companies, then evaluating investments becomes difficult. Obscure statements also hide the level of debt, thereby hiding whether the company is on the brink of bankruptcy. How can financial statements be manipulated to show short-term gains? According to Dr. Howard Schilit, in his famous book \"Financial Shenanigans\" (2002), there are seven primary ways in which corporate management manipulates the financial statements of a company. Let\'s look at these seven general categories of financial statement manipulation and the typical accounting processes that facilitate the manipulation. .

1. Are financial statements always transparent? How can financial statements be manipulated to
show short-term gains? Present some real-life cases.
Solution
Importance of Financial Statement
Before discussing importance of transparency in financial reporting, you must first understand
what the word transparent means. The best definition of transparent in business circles is
financial statements of high quality. There are so many definitions in the dictionary. However,
the relevant meanings here are very clear, easily understood, candid, and frank.
Before discussing importance of transparency in financial reporting, you must first understand
what the word transparent means. The best definition of transparent in business circles is
financial statements of high quality. There are so many definitions in the dictionary. However,
the relevant meanings here are very clear, easily understood, candid, and frank.
Here is an example. Think of two companies having similar financial leverage, market
capitalization and overall market risk exposure. Take for granted that the earnings, growth rate of
earnings, and Return On Capital (ROC) are also same. They have only one difference and that
only difference is very crucial for the market analysts. The first company is running only one
business and the financial reporting is easy to understand. On the contrary, the second company
is involved in running several types of businesses and has complex financial reporting. Now
which company would you prefer making an investment in? Chances are that experts will favor
the first company because of simplicity and transparency in financial reporting.
Companies that understand the importance of transparency in financial reporting, are also well
informed about the psychology of the investors. A complex and opaque financial report gives no
idea about the true risks involved and real fundamentals of the company. Here is a simple
example of this. An important indicator of future growth of a company is how it has invested the
money. When, after going through the financial reports, you cannot find any concrete
information regarding the investments made by the company because of so many holding
companies, then evaluating investments becomes difficult. Obscure statements also hide the level
of debt, thereby hiding whether the company is on the brink of bankruptcy.
How can financial statements be manipulated to show short-term gains?

2. According to Dr. Howard Schilit, in his famous book "Financial Shenanigans" (2002), there are
seven primary ways in which corporate management manipulates the financial statements of a
company. Let's look at these seven general categories of financial statement manipulation and
the typical accounting processes that facilitate the manipulation.