How to read better financial reporting

Accounting is an information system. Like all information systems, it is only effective if you can read it. However, the accounting information provided by companies can take slightly different forms from those which, in theory, we are entitled to expect. On the one hand, there are the consolidated accounts, which are governed by special rules, and on the other, we have been witnessing for several years the development of what is known as creative accounting.

In a way, we could say that creative accounting and consolidation are the direct consequences of the evolution of the economy, whose contradictions they also illustrate.

The systematic presentation of consolidated financial statements by large and medium-sized companies stems not only from the application of legal texts (notably the 1985 law), but also from developments in the financial markets. Disintermediation, in particular, has encouraged companies to go directly to the markets to raise the capital they need. In return, they need to provide better information, and the presentation of consolidated financial statements is one way of doing this.

On the other hand, it can be argued that accounting creativity owes its development mainly to the proliferation of financial engineering techniques. However, these techniques are linked to the evolution of financial markets and, if translated into accounting terms, can lead to a reduction in the quality of information, if we are not careful.