Why is it important for financial statements to be free from bias?

Financial statements must be free from bias to ensure that decisions are made based on accurate information. When financial reports present a true and fair view of a company’s financial position and performance, stakeholders such as investors, creditors, and management can rely on this data to make informed decisions. If financial statements were biased—whether they presented overly optimistic or pessimistic views—it could lead to poor decision-making.

For instance, if a company inflates its earnings, investors may make decisions that lead to financial loss when the true performance is revealed later. Conversely, a pessimistically biased presentation might deter investment or funding needed for growth. Therefore, unbiased financial statements play a crucial role in providing a reliable basis for analysis and decision-making, ensuring that stakeholders can trust the information presented to them and act accordingly based on a clear understanding of the company's actual financial condition.

While compliance with regulations, minimizing complexity, and boosting investor confidence are important aspects of financial reporting, the primary importance of impartiality lies in ensuring the accuracy of the information presented. This underpins effective decision-making in the financial world.