Thursday, February 27, 2020
Finance and Accounting Essay Example | Topics and Well Written Essays - 1500 words
Finance and Accounting - Essay Example The companiesââ¬â¢ compliance with IFRS standards can effectively help predict the future financial outcomes and reduce irresponsible cosmetic accounting practices. The companyââ¬â¢s compliance with all International Financial Reporting Standards will translate to better prediction of forecasting future business outcomes. For example, the compliance with standards requires that the company present the historical sales amount s for the past two years. If the sales for 2010 is $ 250,000 and sales for 2011 is $295,000. Any keen financial statement analyst or reader can easily forecast next yearââ¬â¢s forecasted sales will exceed $300,000, all other factors being equal (Wiley 14). Further, relevant and valid financial information (balance sheet, income statement, and statement of cash flows) must be relevant to the needs of the financial statement users. To relevant, the financial statements must comply with the predictive value tenets of the International Financial Reporting St andards. Consequently, the financial statement users can increase the reliability of the decision makers (Epstein 13). The International Financial Reporting Standards required that the financial statement should be prepared to enhance the decision making process (Jermkowcz 29). For example, International Financial Reporting Standards require the entities to report long term loans under the liabilities section of the financial reports. ... Compliance will make the forecasting activity more realistic (Porter799). In terms of forecasting value of the International Financial Reporting Standards, the financial reports should be prepared using the fair market value in recording sales or other related amounts. For example, the buyer agrees to the sellerââ¬â¢s ?2,000 selling price pegged for one factory production equipment. Consequently, the factory production equipment is recorded in the companyââ¬â¢s assets portion of the companyââ¬â¢s balance sheet at ?2,000. The amount represents the customerââ¬â¢s fair market value of the purchased equipment. Specifically, the fair value portion of the International Financial Reporting Standards can be found in IFRS no. 2, IFRS no. 3, IFRS no 7, International Accounting Standards Board (IASB) no 16, IAS no. 39, IAS no. 40, as well as IAS no 41 (Walton 13). During the preparation of financial statements, there are many situations when International Financial Reporting Standar ds insists on focusing on ensuring the predictive or forecasting goals. For example, the standards describe the companyââ¬â¢s financial assets as any resource that is controlled by the entity as a consequence of the entitiesââ¬â¢ prior transactions. Such asset items must have future economic benefits flowing into the business equation. Consequently, the standards require the companies to raise or lower their asset values, depending on external factors (Shamrock 8). (b) Creative accounting (causes, techniques, & effects) Cosmetic accounting causes trigger some impacts. The companyââ¬â¢s desire to seek the bankââ¬â¢s approval of their long term loan applications prods the company to increase its revenues. Normally, banks base their loan approvals on
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