The paper "Company Accounting Assessment" is a wonderful example of a report on finance and accounting. Before a decision is made to develop a standard, the standard-setting board needs to satisfy itself that matter to be ruled on represents a significant problem and that the standard will not impose a cost on the many for which the benefits are few. Many accounting measurements do not have a single correct answer; therefore, a choice must be made among alternative assumptions under conditions of uncertainty (Horngren & Harrison, 2007). The concept of conservatism holds that when reasonable support exists for alternative accounting methods and for different measurement techniques accountants should select the methods or techniques with the least favorable effect on net income and financial position in the current accounting period.
However, the peculiar nature of some business concerns requires a departure from the stated accounting theory. For instance, agricultural crops are usually reported at market value since it is costly to develop precise cost figures on various crops. Whenever a variation emerges it should be determined whether some peculiar features of the type of business involved can explain it before criticizing the procedure followed. An important feature of developing any theoretical structure is the body of basic definitions or elements to be included in the theoretical structure.
Assets are referred to as probable ‘ future economic benefits’ obtained or controlled by a company as a result of the initial transaction or event. Therefore, AASB 112 does not mislead users of accounting information through the recording of Deferred Tax Assets (DTAs). This is because the deferred taxes are under the control of the business and it can use it for economic benefits in succeeding accounting period.
For instance, it can use it to reduce the tax burden for that accounting year. Liabilities are defined as probable future sacrifices of economic benefit. They arise from the present obligation of a company to make asset transfer or service provision to another entity (in the future) as a result of the first transaction or event. AASB 112 does not mislead users of accounting information through the recording of Deferred Tax Liabilities (DTLs). This is because taxes are part of outflows that are brought up within the course of business.
When the business has not met its tax obligations and has thus become accrued, it should be considered as deferred liabilities, which the business will have to honor at some time in the future. In this case, the deferred taxes meet the definition of liabilities since the business will have some future economic benefits in order to pay the debt obligation. Oberuc (2004) observes that the ultimate measure of performance is not what the firms earn but how the earnings are valued by investors.
Investors, when analyzing the firm will consider the risk inherent in the firm’ s operation, the time pattern over which the earning increases or decreases, the quality, and reliability of reported earning among other factors. Thus, managers should need to put all these into consideration the decision on the overall firm’ s valuation. If a decision maintains or increases the firm’ s value, it is satisfactory from a financial perspective. AASB 112 standard of recording DTAs and DTLs, which causes companies with tax losses and significant DTAs to report the financial position that may look better than it is in reality affects the quality of investment decisions by existing and potential investors.
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