The accuracy and validity of financial statements are of utmost importance to investors, as they rely on these documents to make informed decisions about whether or not to invest in a company. As such, it is essential that investors have faith in the credibility and legitimacy of publically released financial reports. Generally Accepted Accounting Principles (GAAP) provide a framework for companies to adhere to when preparing financial statements, and external audits by Certified Public Accountants (CPAs) serve as an additional safeguard against potential errors or misrepresentations. Despite these safeguards, however, there is still potential for discrepancies between what GAAP requires and the actual condition of a company’s finances which could lead investors astray if they do not properly verify the data provided.
In order to ensure that their investment decisions are well-informed and sound, investors must confirm the accuracy of financial statements before investing in any company. While GAAP provides a basic structure for reporting findings regarding income statement accounts such as revenue growth and profitability metrics; balance sheet accounts such as cash flow management; and changes in equity during periods; accounting principles can be tailored depending upon individual interpretations or preferences within certain industries (Fridson & Alvarez 2014). Furthermore, since CPAs only audit historical information provided by companies – rather than providing assurance over future performance – there is always potential for hidden liabilities or issues that may not become apparent until some time later (Khan 2017). Thus, even though GAAP-compliant financial statements undergo rigorous auditing processes conducted by independent third parties like CPA firms, investors should independently check for any discrepancies between reported figures with underlying market evidence prior to making any investment decision.