Final answer:
Errors in financial statements can arise from misattribution, suggestibility, and bias, potentially causing temporary misstatements until corrected. Strong corporate governance is key to ensuring financial accuracy, yet cases like Lehman Brothers exemplify governance failure. Ultimately, the coherence theory underlines the need for financial statements to correspond with factual evidence.
Step-by-step explanation:
Yes, errors that eventually correct themselves can cause financial statements to be misstated in the meantime. These errors can arise from various sources including but not limited to misattribution of transactions, suggestibility from external parties affecting judgment, and bias in the interpretation of financial data. While such errors may eventually be caught and corrected, the financial statements during the period in question will not present an accurate view of the company's financial position. For example, an error such as misattribution could mean recording a transaction under the wrong account, which in turn affects the related financial statements until the mistake is identified and rectified.
Corporate governance plays a crucial role in ensuring that the financial information made available to stakeholders is accurate and reliable. However, as seen in historical cases like Lehman Brothers, governance can fail, leading to misstated financials that can have significant consequences. It is, therefore, essential that corporate governance mechanisms are strong and effective to prevent or quickly identify errors or misstatements in financial reporting.
In terms of accounting theory, the coherence theory implies that judgments or statements need to be consistent with each other; however, for coherence to be meaningful, it must be grounded ultimately in correspondence, such that the first judgments (statements) are verified directly or indirectly through factual accuracy and evidence.