Accounting Noise
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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. |
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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. |
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