Financial statements can mislead a potential purchaser trying to develop an accurate business valuation.

Question

Quizplus · Accepted Answer

Financial statements can be misleading if they contain errors or if management intentionally manipulates the numbers to hide weaknesses or inflate the value of the business. Therefore, a potential purchaser should not rely solely on financial statements to develop an accurate business valuation, but should also conduct due diligence, review industry trends and comparable transactions, and consider nonfinancial factors such as customer relationships and intellectual property.

Financial Statements Can Mislead a Potential Purchaser Trying to Develop