IJSRP, Volume 7, Issue 5, May 2017 Edition [ISSN 2250-3153]
McAnthony I. Attah, Dr Priya Jindal
Financial statements are prepared with the view that they will be a representation of transactions entered into by a firm in a financial year. These financial statements are examined by public accountants to certify that they show a true and fair; but it has been observed that despite this measure, there exist some misstatements, fraudulently or otherwise in the statements. These misstatements occur in areas where the accountant is at freedom to use his opinion where alternatives existed. This is the concern of this research paper titled ‘Impacts of misstatements in financial statements on investment decision making. It is a descriptive study that is designed to examine misstatements in financial statements and how they are able to distort results of calculated ratios and their interpretations that most investment decisions are based upon. Three types of financial statements were considered and they are balance sheet, profit and loss account and cash flow, where most ratios are derived. Interviews and opinions of experts who have had practical experiences in industry as accountants and auditors guided the authors in their study. The study found out that there are several areas of a firm’s financial statements that are misstated, such as impairment of assets, inventories, receivables, accrued expenses, etc. Solvency is affected, liquidity is affected efficiency in assets utilization is affected, and also, profitability is affected. This is the reason investors should be aware that misstatements impacts on ratios negatively, therefore should be more diligent in ratios analysis and interpretations. Auditors are not likely to uncover all the misstatements, hence investors may resort to other sources of information about a firm’s performance to complement ratio analysis.