Accounting, Critical

Critical accounting involves the application of financial analysis in contexts that are especially vulnerable to the selective reporting of favorable information. To use critical accounting, an organization must have a critical accounting policy (CAP), which dictates how subjective information will be interpreted. The goal is for the CAP to define a method that is consistent, is accurate, and gives the most useful “big picture” view of the place in the market the business occupies, rather than present information in a way that pleases the intended audience but that may not give them a realistic idea of the organization’s future prospects.