Question & Answer: Assess the financial performance forecasting process, identifying the assumptions made that are most likely to cause a gap be…..

A financial forecast is an estimate of future financial outcomes for a company (for futures and currency markets). Using historical internal accounting and sales data, in addition to external market and economic indicators, a financial forecast is an economist’s best guess of what will happen to a company in financial terms over a given time period,which is usually one year. The problem that is most likely to cause a gap between the forecast and actual performance is the accounting errors. A realistic financial forecast for a corporation depends on quality accounting information which fairly and completely reflects the corporate economics, and minimizes measurement errors and bias. High quality accounting information also could minimize the volatility of the stock price by avoiding the restatement which is due to accounting errors. To minimize this gap, I suggest that corporation management should develop effective internal controls to provide a reasonable assurance that its accounting information is relevant and reliable.