Financial Report: Objectivity And Neutrality

Introduction

Financial report refers to the documents offered by the enterprise to the outsiders that can reflect and evaluate the company's basic financial position, operating results and cash flow position during a particular period of time. A financial report is a complete reporting system, and it shall be composed of the accounting statement, notes to the accounting statement and explanations on financial conditions. With the purpose of satisfying the demand of the users of financial reports with maximum limit as well as making best use of the role of financial reports, some requirements should be followed in the preparation of financial reports. Such as: objectivity and neutral; comprehensive and complete; relevant and comparable; timely;

This essay plans to discuss that whether can financial reports be considered objective and neutral. It aims to prove that people can only get relative objective and neutral financial report from a theory angle and subjectivity angle.

Discussion

There are a series of factors lead to the fact that the objectivity and the neutral of financial reports are relative, hence full and complete objective and neutral cannot be achieved. Objectively speaking, the imperfect of accounting theory and judgment standard, and the uncertainty of accounting objects, result in the fact that the objectivity and the neutral of financial reports can only be relative. First of all, the criterion for judging the objectivity and the neutral of accounting information are relative. From the perspective of philosophy, the accounting information belongs to the category of consciousness, so it is a notional or subjective thing. Whether subjects can truly reflect the objects and to what extent, that depends on many factors. In consequence, it is obvious that using

Enron Corporation was a famous case. Before Enron announced its second quarter earnings report in October 16, 2001, this is undoubtedly that people are glad to see the financial reports of Enron Corporation. In Enron, the unit to measure business growth is not percentage, but multiple. This situation enables all of the investors beam with smiles. However, by the second quarter of 2001, the company suddenly suffered a loss up to $618 million. After investigation, Enron's partnership was mostly controlled by senior officials, so Enron's huge amount of foreign loans was often listed in these companies, not on the balance sheet of Enron. In this way, it would not be known by investors that Enron had a huge debt of $13 billion; meanwhile some Enron officials could seek private profits from these partnership companies. The importance of subjective factors in resulting in the distortion of the financial reports can be seen from the case of Enron. By analyzing and summing up, it can be found that these subjective factors are