Accounting Noise


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.

BREAKING DOWN '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.

  1. Balance Sheet

    A financial statement that summarizes a company's assets, liabilities ...
  2. Amortization

    1. The paying off of debt in regular installments over a period ...
  3. Goodwill

    An account that can be found in the assets portion of a company's ...
  4. Cookie Jar Accounting

    A disingenuous accounting practice in which periods of good financial ...
  5. Aggressive Accounting

    The practice of misreporting income statement and balance sheet ...
  6. Cook The Books

    A buzzword describing fraudulent activities performed by corporations ...
Related Articles
  1. Markets

    The 5 Types Of Earnings Per Share

    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.
  2. Investing Basics

    The Importance Of Corporate Transparency

    Clear and honest financial statements not only reflect value, they also help ensure it.
  3. Fundamental Analysis

    Understanding Pro-Forma Earnings

    These figures can either shed light on a company's performance or skew it. Find out why.
  4. Investing

    What a Family Tradition Taught Me About Investing

    We share some lessons from friends and family on saving money and planning for retirement.
  5. Professionals

    4 Must Watch Films and Documentaries for Accountants

    Learn how these must-watch movies for accountants teach about the importance of ethics in a world driven by greed and financial power.
  6. Active Trading

    An Introduction To Depreciation

    Companies make choices and assumptions in calculating depreciation, and you need to know how these affect the bottom line.
  7. Markets

    Operating Cash Flow: Better Than Net Income?

    Differences between accrual accounting and cash flows show why net income is easier to manipulate.
  8. Investing Basics

    How To Efficiently Read An Annual Report

    Annual reports are clearly prepared without any intent to deceive or mislead investors. Still, investors should read them with a dose of skepticism.
  9. Investing Basics

    Explaining Financial Statement Analysis

    Financial statement analysis is the process of reviewing a company’s statements to gain an understanding of its financial health.
  10. Investing Basics

    How Financial Statements Are Manipulated

    Financial statement manipulation is an ongoing problem, and investors who buy stocks or bonds should be aware of its signs and implications.
  1. Can working capital be depreciated?

    Working capital as current assets cannot be depreciated the way long-term, fixed assets are. In accounting, depreciation ... Read Full Answer >>
  2. Do working capital funds expire?

    While working capital funds do not expire, the working capital figure does change over time. This is because it is calculated ... Read Full Answer >>
  3. How much working capital does a small business need?

    The amount of working capital a small business needs to run smoothly depends largely on the type of business, its operating ... Read Full Answer >>
  4. What does high working capital say about a company's financial prospects?

    If a company has high working capital, it has more than enough liquid funds to meet its short-term obligations. Working capital, ... Read Full Answer >>
  5. How can working capital affect a company's finances?

    Working capital, or total current assets minus total current liabilities, can affect a company's longer-term investment effectiveness ... Read Full Answer >>
  6. What can working capital be used for?

    Working capital is used to cover all of a company's short-term expenses, including inventory, payments on short-term debt ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  2. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  3. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  4. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  5. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
  6. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) lost almost 22% in a single day. That event marked the beginning ...
Trading Center