Financial Reporting and Stock essays

Financial Reporting and Stock essays Financial Reporting and Stock Price Movements The relationship between financial reporting numbers and stock price movement is an important one to anyone studying accounting. We spend four years learning the ins and outs of financial reporting so that some day we can get a job to prepare or audit the financial statements. Do these statements and the numbers that are in them actually affect shareholder value and if so then to what extent? Studies show that earnings do have an affect on stock price. That fact leads us to consider how managers can use GAAP to manipulate those earnings. Open up any intermediate accounting textbook, flip to chapter one and you e bound to come upon the section dealing with the principal users of financial statements. Investors and creditors are the individuals for which financial reporting exists to give information. It not enough to provide them just with financial statements, but information that is useful for decision making. We use the term ecision usefulness quite often but if you were to ask most people what that really means they wouldn be able to define it well enough for a serious discussion. Information has decision usefulness if it has predictive and feedback value. In other words, it must have some ability to d While this may seem boring and redundant it does offer a good foundation for this analysis. Financial reporting is the most important and widely distributed information source for anyone having anything to do with the stock market (and therefore stock prices). If financial statements provide no decision usefuln ess then they have no concrete impact on stock prices. Numerous empirical studies show that the earnings figure at the bottom of the income statement has a direct impact on stock price. In essence, earnings convey a measure of firm value to investors. As 2003 came to a close, companies in the S&P 500-stock index were on track to post a 20%-plus rise in stock price and a ...