- Ignoring Accrued Liabilities and Expenses
Impact: Ignoring accrued expenses results in understated liabilities, giving a false impressionof higher equity or lower debt.
How to avoid: Ensure that all accrued liabilities are recognized in the balance sheet, even if they havenβt been paid yet. Review all pending expenses regularly, such as payroll, interest, and taxes
- Overlooking Contingent Liabilities
Impact: Overlooking contingent liabilities can mislead stakeholders about the companyβs actual risk exposure, leading to flawed financial analysis and decision- making.
Avoidance: Always assess potential future liabilities and disclose them in the notes to the financial statements. Keep track of ongoing lawsuits, warranties, or any legal obligations that could arise.
- 3. Overlooking Prior Period Items like incomes & expenses
Impact: Ignoring prior period incomes & expenses results in understatement or overstatement of Income in the financials.
Avoidance: Make sure to disclose it separately in Profit & loss account to ensure the correct reporting & analysis of financial statement of the year.
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