Deficits and risks of accounting

Modern accounting brings many benefits, but also some significant disadvantages. Discretionary assessments, unofficial information, or shortsightedness can jeopardize companies and markets.

Not least because of legal obligations, Swiss companies nowadays have a more or less extensive accounting system. Modern accounting as an achievement of modern times provides a range of stakeholders with insight into the financial situation of companies, thereby promoting their market acceptance. However, the inherent deficits and dangers of the system should not be underestimated.

Discretionary Assessments

Although accounting strives for an objective presentation of the company, depending on the regulatory framework, there is considerable discretion for discretionary assessments. Because the executive level is interested in portraying the company in the best light, the information provided by accounting should not be taken at face value.

Limited Informative Value

A large part of the information represented in accounting is of monetary value. Although the annex in the annual financial statements may provide insights into other relevant events, the facts listed are subject to discretion both in terms of selection and presentation. Not all information that is important for the future development of a company is depicted in the accounting. For example, personnel departures, which can weaken the company's innovative strength, are critical.

Unofficial Information

Although the disclosure of company-relevant events creates trust, the impact of the information provided should not be overestimated. National and international markets are often driven by unofficial information. If market participants base their actions on unreliable sources, bubbles and collapses can occur.

Shortsightedness

One of the greatest dangers to the functioning of markets is short-term motivations that impair the integrity of accounting. Different needs such as the personal interests of the executive staff or political movements can lead to ad-hoc or trend reports that are overestimated by the general public and lead to market distortions.  

Findea helps you to always keep an overview of the financial situation of your company.