Businesspeople know that financial statements are impressionistic. Because GAAP requires accountants to include forecasts in statements, some numbers are, by definition, educated guesses (quick: What’s your pension liability for employees retiring in 2020?). That guesswork may not be obvious to observers, in part because financial statements often lump together hard numbers and forecasts.
A version of this article appeared in the June 2004 issue of Harvard Business Review.
