ments, and the disclosure of other information relevant to these statements are central to the securities investment process. The disclosure of financial information, more so than any other type of information, has a highly significant impact on investor judgment.
Periods of fiscal turmoil and economic difficulties spawn abuses and deceptions among members of the business and financial communities. The motives for a failure to disclose financial information are numerous. Basically, however, there exists a desire to create an appearance of financial stability and prosperity, where either (1) such conditions do not exist, or (2) where the situation is such that those conditions may not exist in the near future.
Behind the basic reason for a failure to disclose financial information are diverse motives. These motives include: (1) a desire to maintain the market price of a company's stock; (2) the creation of an image of profitability, as a means of favorably influencing current, and/or potential lenders; and (3) to satisfy management greed and ego. Another motive is a desire to either maintain or create a demand for a company's stock, so that management can dump the stock, before any adverse information about the company surfaces. The changes recommended for financial reporting to cause financial reports to be more useful for the valuation of the worth of a business firm and for the assessment of managerial performance involve, to a great extent, the incorporation of the principles of managerial accounting into reports that have hither to have been based entirely on the principles of financial accounting. The following eight factors and characteristics differentiate managerial accounting from financial accounting:
1. Managerial accounting focuses on providing data for the internal use of an organizations managers, while financial accounting focuses on providing data for external uses by inv...