Interpreting financial statements requires knowledge of how these statements are prepared.
Because the Balance Sheet, Income Statement, and Statement of Retained Earnings are all influenced by management assumptions, it is critical to not take the figures on these statements at face value and instead perform a thorough examination of these assumptions.
For this week's discussion question, provide an example of a management assumption that could have a significant impact on one of the aforementioned financial statements and explain how you would scrutinize this assumption.