Investors who rarely look at accounts often have a touching belief in their objectivity.
Handsomely produced, professionally laid-out, printed on nice-smelling paper, the accounts of most listed companies are an essay in courtship, designed to convince the reader that here is a company that knows what it is doing and is a worthy place for you to park your money.
Seasoned investors know different. They know that accounts are full of gaps, guesswork and grey areas.
How do they get away with it?
Managers of public companies know that investors like companies that produce steady earnings growth year after year. If managers know that earnings are heading for a short-term dip, it is tempting to prop them up, not by falsifying the figures, but by using various beautification techniques.
For now, it is enough just to flag that all that glitters is not gold.Recommend Reading
Quote"It is quite possible to lose money if a company's accounts follow UK GAAP [Generally Accepted Accounting Practice in the UK] to the letter, but the picture presented is so misleading that you are unable to interpret them correctly and as a result fail to see that it is financially vulnerable or its earnings are unsustainable."