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. Noise

    In a broad analytical context, noise refers to information or ...
  2. Accounting

    The systematic and comprehensive recording of financial transactions ...
  3. Accountability

    Accountability is when an individual or department is held responsible ...
  4. Accounting Theory

    Assumptions, methodologies and frameworks used in the study and ...
  5. Closed Account

    A closed account is any account that has been closed out or otherwise ...
  6. Due From Account

    An asset account in the general ledger that indicates the amount ...
Related Articles
  1. Investing

    Buying a House Near an Airport? Consider These Factors

    Is buying a house near an airport advisable? The pros and cons.
  2. Investing

    What is Accounting?

    Accounting is the recording of financial transactions of a business or organization. It also includes the process of summarizing, analyzing and reporting these transactions in financial statements.
  3. Investing

    Detecting Accounting Manipulation

    "One-time charges" and "investment gains" are two strategies companies can use to distort their numbers.
  4. Investing

    Financial Statement Manipulation An Ever-Present Problem For Investors

    The SEC has taken steps to eliminate this type of corporate fraud, but it remains a real risk for investors.
  5. Managing Wealth

    Accounting Research Manager: Career Path & Qualifications

    Discover the basic responsibilities of an accounting research manager, the path this career usually takes and the qualifications needed for this career.
  6. Investing

    12 Things You Need to Know About Financial Statements

    Discover how to keep score of companies to increase your chances of choosing a winner.
  7. Insights

    A Look At Accounting Careers

    More than just crunching numbers, this career blends detective work with trouble shooting.
  1. What are the objectives of financial accounting?

    Learn about the principle objectives of financial accounting, including the furnishing of the financial statements for those ... Read Answer >>
  2. How does financial accounting help decision making?

    Read a brief overview of some areas where financial accounting helps in decision making for investors, lending institutions ... Read Answer >>
  3. What does financial accounting focus on?

    Learn the main tenets of financial accounting, the guidelines by which it is governed and how outsiders use it to gauge a ... Read Answer >>
  4. How much will it cost to hire an accountant to do my taxes?

    Find out how much it costs to hire an accountant and what benefits and services you can expect from your accountant. Read Answer >>
Hot Definitions
  1. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  2. Liquidity

    Liquidity is the degree to which an asset or security can be quickly bought or sold in the market without affecting the asset's ...
  3. Federal Funds Rate

    The federal funds rate is the interest rate at which a depository institution lends funds maintained at the Federal Reserve ...
  4. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  5. Standard Deviation

    A measure of the dispersion of a set of data from its mean, calculated as the square root of the variance. The more spread ...
  6. Entrepreneur

    An entrepreneur is an individual who founds and runs a small business and assumes all the risk and reward of the venture.
Trading Center