Final desperate look at financial statements;

              Howard I. Ross
A final
desperate look
at financial
statements
1. On Being Informative But Not Misleading
The purpose of financial statements is to provide use­ful
accurate information. This implies two problems—
positively to give reliable information and, negatively,
to avoid giving information that is misleading. To some
extent these are conflicting obligations. It is impossible
to provide financial information of any sort which may
not prove in some circumstances to be misleading.
As a profession, we have done a splendid job of warn­ing
people about the danger of being misled by financial
statements. We have made it clear enough that no one
should rely on financial statements in valuing invest­ments—
because fixed assets are stated at historical cost,
and for other reasons. Moreover financial statements
may not safely be compared with those of competitors
—because they may be made up on quite different as­sumptions.
Financial statements are basically historical
and are not reliable in predicting the future. Even the
best of audited financial statements do not guarantee
against fraud. In short we would appear to have dis­couraged
anyone from resorting to financial statements
in any possible circumstance in which they might be
likely to need them.
This is all very well, but it seems to invite the ques­tion—
if financial statements cannot be relied upon for
any of these purposes, how can it be important to pro­duce
them? George O. May used to say—accountants are
*From a summer course at the Institute of Chartered Account­ants
in England and Wales . . . at Oxford, September 16th, 1962.
apt to be so careful not to mislead that they forget to
provide information.
2. Good Talk — Poor Action
Before concluding that financial statements are not
worth producing or, if they have to be produced to
comply with legal requirements—that we should devote
the entire efforts of the profession to trying to persuade
people not to rely on them—perhaps it might be well
to have one final look at them.
The first thing that becomes clear is surely the en­couraging
fact that financial statements are (and this
cannot be said of too many things) getting better and
better. A great deal of fine work has gone into research
and into the practical application of refinements in pub­lished
statements—particularly in recent years. State­ments
that would have been perfectly acceptable a
generation ago would no longer pass muster in the best
circles.
This improvement reflects credit on our profession—
on accountants in practice and in industry alike.
However, this should not obscure the fact that the
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