CONCLUSION
Motivational speakers assure their audiences that if they visualize success, success will follow. Some of the corporate executives who live by the selfhelp creed take this advice a bit too literally.
Seeing conditional sales and dubious memberships, they visualize GAAP revenues, believing that reality will follow. They transfer their own mirage to the financial statements, pumping up their companies’ perceived market value and credit quality. When the revenues derived from wishful thinking fail to materialize, the managers may resort to fraud to maintain the illusion. The positive mental attitude that overstates revenues in the early stage is no less damaging, however, than the fraud responsible at a later point. When evidence of overly aggressive revenue recognition appears, analysts must act swiftly and decisively, lest they become infected by the managers’ dangerous optimism.
Source:
Fridson M., Alvarez F.. Financial Statement Analysis. John Wiley & Sons, Inc.,2002. — 413 p. 2002
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