Recently, accounting professionals have been placed under immense pressure by changes in the size and scope of financial markets. The primary means of communicating the financial effects of organizational activities and transactions of a company to outsiders is the financial reporting system. This reporting system includes communicating financial information through various forms such as a prospectus, forecasts, annual reports, and other financial releases. Financial statements are the main source of information conveyed to external parties.

The reporting process is a means of “increasing the trust placed by investors, lenders, and others in the entities with which they deal. The financial reporting process itself relies on trust of its users, and this trust has been threatened due to unreliable and deceptive accounting reports” (Whittington, 1999, p. 3). The difficulty in securing reliable information may be most apparent when “a manager’s compensation is directly tied to accounting based performance measures. Since these measures are generated inside the firm, essentially by the same group of people whose decisions are driving the business performance, the opportunity for manipulation is present” (Weinberg, 2003, p.5). Financial reporting is designed to meet the needs of users by providing information that is relevant to making rational investment and credit decisions, and other informed judgments (Marshall, 2004, p.18).

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