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Many investors believe they know everything there may be to know of companies, but the
SEC made that all happen in its ruling about disclosers in its financial statements in 2002.
The SEC now was able to make it possible for everyone, not just insiders to see the
company for who they truly were. No creative accounting policy could be done with about
a thorough explanation in the companies annual 10-K report. The reason many of us
understand these important changes are from the demise of companies as Enron, and
WorldCom; which both used creative accounting techniques that were never disclosed to
its shareholders. The rules suddenly began to change and critical accounting polices began
to become very important. The importance of these policies is not only to clarify the data
for investors, but also to explain where the company feels its changes are positive or
negatively effecting the company.
The policies are given a specific criterion that is to be met, but because of such diversity
amongst accounting methods used in companies, the SEC leaves a broad spectrum of
information that must be clarified to the investors. Data ranging from qualitative changes
in internal policies that may included new management or lay offs, which will then have
an effect on the quantitative data that all investors hone into. Now this quantitative data
must also be explain in mathematical, from ratios, to percentage changes from investors to
see the real data. The data is essential to any investors who are possibly looking into these
companies. The policies are going to offer transparency to all financial data and for data
that in the past was not explain, sets the frame work to be explained and clarified. Many of
the critical accounting policies are explaining methods for areas that company estimate
their numerical values, therefore the SEC saw it as a grey area, and is now regulating the
information to be explained in depth. These estimations can range from simple inventory
changes to large estimations of sales and other areas that may cause changes in profit
margins. The greatest area for investors is the methodology used by companies to estimate
future revenues and progress. With the disclosure of the accounting policies many issues
are resolved, because the method is explained along with the risk factors that may affect
the profitability of the company as a whole. Every companies has its effective way of
calculating its estimations as well as its other key financial data, but to outsiders that
