Many people think that there is no need for financial analysis especially in a perceived efficient capital market. This is a very wrong presumption; there are very many ways in which financial analysis add value to the capital market even when it appears to be efficient. Financial analysts are very important for both the internal and external players in the financial market. As the efficiency of the capital market concentrates on the stock market future prices, analysts do entire analysis of the industry. They take care of the new policies and regulations that may have an impact of the market; they also check the economic trends and find out possible effect on the earnings of the business. For the achievement of accurate forecast of the future prices in the capital market, analyses are very important especially to the new companies aiming at selling their shares in the market for the first time. In the contemporary market, analysts contribute to the financial reporting standards globally. They set standards and principles that enhance efficient reporting of finances. Financial analyses also help companies manage their portfolio, and be able to have efficient allocation of resources that lead to cost reduction, and increase in the profitability of the firm.
Indicators showing the looming crisis that the world has experienced had been there but given the least attention or ignored intentionally. Some of the policy makers and financial analyst got scared of the uncertainties of what would transpire. They would have managed to intervene the occurrence or the impact of these financial crises witnessed. Most of these crises have occurred because of failed financial regulations. When identity of these weaknesses and their corrective measures are in place, this is when the crisis will reduce if not finished. With the dynamics witnessed in the financial markets, financial analysts should be able to monitor the possible policies that will take care of these changes to minimize risks that normally associate with them. Earlier warnings of any kind showing possible financial distress reexamined, to ensure timely and appropriate response by authority. Proper analysis is necessary as responding to signals that are misleading can be very costly. Analyses that are necessary to prevent future crisis are financial ratios, data from credit agencies, financial analysts, systematic risks and many more. Both the macroeconomic indicators and financial indicators, need proper monitoring and instant response, the crisis will be no more in the future financial market.
Financial reporting has a number of errors. In most cases, the errors are not intentional hence an error. When they are intentional, then they are no longer an error but fraud. List of the errors that occur in financial reporting include:
- Error resulting from rigidity of accounting standards
Accounting standards have rules followed by those preparing financial statement. Any deviation should not occur even when they do not seem right. This has always led to error when reporting.
- Errors due to random forecast
Inconsistency in the company’s forecast may mislead accountants preparing the reporting leading to erroneous report. Accountants normally have no control of this error.
- Math error
Many times accountants make mistakes when doing their calculation, not corrected when doing entries to the final books from where the reports made. Addition, omission, commission can be part of this error in reporting.
