A major conclusion in a study reported in Frontiers ofInternational Accounting: An Anthology is that accounting measurements

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A major conclusion in a study reported in Frontiers ofInternational Accounting: An Anthology is that “accounting measurements reflected in corporate financial reports represent, in one sense, merely ‘numbers’ that have limited meaning and significance in and of themselves. Meaning and significance come from and depend upon an understanding of the environmental context from which the numbers are drawn as well as the relationship between the numbers and the underlying economic phenomena that are the real items of interest.” REQUIRED:

a. Briefly paraphrase the quote above and discuss the implications for financial ratio analysis.

b. In the same anthology, Professor Jill McKinnon, of Macquarie University in Australia, commented that the concept of consolidation in Japan is actually much different from that in the United States, concluding that the methods of accounting for consolidation under GAAP fail to adequately reflect the nature ofJapanese corporate groups. Discuss how such information might affect an individual who invests in large Japanese and American com¬ panies.

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