Accounting Distortions

                In accrual accounting basis, by nature of it can provide information with distortion. Accrual accounting basis have many benefit such as this method has relevance than cash accounting basis, provide number of account in timely. Many cause of distortion are accounting standard, estimate some number by manager or earning management.

                Accounting standard define many rule that manager can decide to use rule sustained with them company. FIFO inventory rules can reflect number in balance sheet more than use LIFO inventory rules, LIFO can reflect number of cost in income statement. Another cause of distortion is conservatism that is accountant will record number suddenly about bad news and not record suddenly about good news for company.

                Because accrual accounting need to provide information in a timely manner so many transaction make by estimate by manager. Estimate is one cause of distortion. Example estimate is allowance for bad debts.