There are several practical reasons for the accountant’s unwillingness to adjust previously reported estimations
unless they were clearly unreasonable or fraudulent:
1. Most decision makers are well aware that many reported figures only present estimates. Discrepancies
are expected and should be taken into consideration when making decisions based on numbers presented in
a set of financial statements. In analyzing this company and its financial health, astute investors and
creditors anticipate that the total of bad accounts will ultimately turn out to be an amount around $7,000
rather than exactly $7,000.
2. Because an extended period of time often exists between issuing statements and determining actual
balances, most parties will have already used the original information to make their decisions. Knowing the
exact number now does not allow them to undo those prior actions. There is no discernable benefit from
having updated figures as long as the original estimate was reasonable.
3. Financial statements contain numerous estimations and nearly all will prove to be inaccurate to some
degree. If exactness were required, correcting each of these previously reported figures would become
virtually a never-ending task for a company and its accountants. Scores of updated statements might have to
be issued before a “final” set of financial figures became available after several years. For example, the
exact life of a building might not be known for fifty years. Decision makers want information that is usable
as soon as possible. Speed in reporting is more important than absolute precision.
4. At least theoretically, half of the differences between actual and anticipated results should make the
reporting company look better and half make it look worse. If so, the corrections needed to rectify all
previous estimation errors will tend to offset and have little overall impact on a company’s reported income
and financial condition.