Reporting practices

• Overall

  • Not only are accurate financial reports necessary for taxation purposes, but other stakeholder are entitled to access a business’ financial information 
  • To pretend that profit is lower than it should be is to attempt to defraud the ATO → this is not only illegal and unethical, but can have negative consequences
  • Should the business wish to raise additional capital from existing shareholders or from a bank, understating profit may make it more difficult to persuade those sources of finance to lend to the business.
• Impact on the buyer


  If a business decided to sell the business as a going concern, any purchaser would want to see financial reports for a number of years prior to the sale. Understating profit or overstating the value of assets may prove counterproductive when a potential buyer subjects the reports to close scrutiny.