Because subjective judgment is increasingly required to make projections of corporate financial performance, directors and senior executives face a growing risk that their companies will produce inaccurate or misleading statements. What’s more, the accountants and auditors responsible for monitoring these estimates are limited in their ability to mitigate that risk. The potential results of failures of judgment include very unhappy shareholders and directors, a precipitous decline in stock price, and the dismissal of top executives.
A version of this article appeared in the July–August 2008 issue of Harvard Business Review.
