Many investors believe they know everything there may be to know of companies, but the SEC made that all happen in its ruling about disclosers in its financial statements in 2002. The SEC now was able to make it possible for everyone, not just insiders to see the company for who they truly were. No creative accounting policy could be done with about a thorough explanation in the companies annual 10-K report. The reason many of us understand these important changes are from the demise of companies as Enron, and WorldCom; which both used creative accounting techniques that were never disclosed to its shareholders. The rules suddenly began to change and critical accounting polices began to become very important. The importance of these policies is not only to clarify the data for investors, but also to explain where the company feels its changes are positive or negatively effecting the company.
The policies are given a specific criterion that is to be met, but because of such diversity amongst accounting methods used in companies, the SEC leaves a broad spectrum of information that must be clarified to the investors. Data ranging from qualitative changes in internal policies that may included new management or lay offs, which will then have an effect on the quantitative data that all investors hone into. Now this quantitative data must also be explain in mathematical, from ratios, to percentage changes from investors to see the real data. The data is essential to any investors who are possibly looking into these companies. The policies are going to offer transparency to all financial data and for data that in the past was not explain, sets the frame work to be explained and clarified. Many of the critical accounting policies are explaining methods for areas ...