 |
Definition of 'Accounting Noise'
The distortion that is caused in a company’s financial statements due to accounting rules and regulations that must be followed. Accounting noise makes it difficult for investors to easily ascertain a company’s true financial condition. Accounting noise can make a company's financial reports look better or worse.
|
 |
Investopedia explains 'Accounting Noise'
Accounting noise can be seen as either a consequence of necessary rules regarding generally accepted accounting principles (GAAP) or a result of management's attempts to massage the numbers to present a rosier financial picture of the firm. Paying attention to the footnotes can help an investor cut through the accounting noise and get the real story.
For example, a company that has recently undergone a significant merger may look very unprofitable on the income statement because the merger may cause serious one-time charges for the company; it may be useful for investors to cut through the accounting noise to get a more accurate picture of the company's prospects.
Conversely, an underperforming company could engage in earnings manipulation, creating accounting noise to hide its poor performance.
|
-
Clear and honest financial statements not only reflect value, they also help ensure it.
Read More »
-
These figures can either shed light on a company's performance or skew it. Find out why.
Read More »
-
A look at the five varieties of EPS and what each represents can help an investor determine whether a company is a good value, or not.
Read More »
|
|
