BUS103: Introduction to Financial Accounting

The final stop on the financial reporting highway - and the final opportunity for bad choices - is the investment decision made by investors, the ultimate consumers of company reports. It is through investment decisions that investors engage in the "conversation" about a company's value that I referred to before.

Bad investment choices can skew a company's market valuation as easily as bad information. Unfortunately, even good information cannot protect investors from the ultimate counter-incentive - greed. We are painfully aware that investors may dispense with critical analysis of financial reports because they want to believe that the numbers are real. Like a child watching Peter Pan, they think they can fly simply because they believe they can, and Neverland becomes a real place. It is worth noting that the Peter Pan syndrome is not limited to small, retail investors, as demonstrated by numerous instances of sophisticated businesses chasing returns without conducting adequate due diligence. And conflicts of interest again reared their ugly head as some banks apparently made lending decisions on a basis other than the customer's creditworthiness.