“The profession of accounting is itself a somewhat equivocal trade. Sure, there are some clear-cut rules. But then there is a vaguely titled body of suggestions – known as Generally Accepted Accounting Principles (GAAP) – that accountants are supposed to follow. These guidelines afford substantial leeway; they are so general that there’s considerable variation in how accountants can interpret financial statements. And often there are financial incentives to ‘bend’ the guidelines to some degree.
For instance, one of the rules, 'the principle of sincerity’, states that the accountant’s report should reflect the company’s financial status ‘in good faith’. That’s all well and good, but ‘in good faith’ is both excessively vague and extremely subjective. Of course, not everything (in life or accounting) is precisely quantifiable, but ‘in good faith’ begs a few questions: Does it mean that accountants can act in bad faith? And toward whom is this good faith directed? The people who run the company? This who would like the books to look impressive and profitable (which would increase their bonuses and compensation)? Or should it directed toward the people who have invested in the company? Or is it about those who want a clear idea of the company’s financial condition?
Another fuzzy rule is the quaint-sounding 'principle of prudence,' according to which accountants should not make things appear rosier than they actually are."
-- By Dan Ariely, an eminent behavioral economist in his book “The Honest Truth about Dishonesty: How we lie to everyone especially ourselves