Paraphrase Financial statements are prepared according to GAAP which permits some discretion to management as to the reporting of transactions. Companies are required to follow these set of principles in the preparation of financial statements. These GAAP at many places permit management to decide the method and timing of reporting certain transactions. Since the management has discretion in deciding when and how to report transactions, it might occur that two companies in the same situation have a different way of presenting their financial statements. It makes it difficult for the analysts to compare different companies purely on the basis of reported financial statements. Overall, yes, the investors need to be cautious about the validity of financial statements even though they are based on GAAP principles and audited by CPAs due to management having a lot of discretion as to the method and timing to report certain transactions