Although accounting is the process of identifying the economic event, its measurement, recording, and summarizing that information in a way that it can be useful for external and internal users for economic decision making. But identifying, measurement recording, and summarising is not always simple. It sometimes requires judgemental analysis and estimations to show prudent and true & fair presentation of financial information.”
Do you agree or not with the above statement? Give your opinion with two logical points supported by an example in either case.
#FIN611 GDB 1 IDEA SOL FALL 2020
Don't copy paste take idea from it than make your own SOL
Yes, I agree with this statement
1. The purpose of the analysis is to verify the assumption according to which most financial information processed by making use of the professional judgment. We have also used a questionnaire to the auditors’ perception of the use of professional judgmental in their daily auditing activities. The desired result of exercising professional judgment is the accounting of financial operations with the observance of accounting principles, by choosing accounting options that lead to the presentation of the economic substance of the items, events and transactions.
2. The selection of accounting policy and estimation techniques is made with the purpose of presenting information useful and relevant for users, which are in line with the company’s specific activities. IAS/IFRS also place particular emphasis on the need to take into account qualitative characteristics of financial information and the use of professional judgment when preparing the financial statements
3. The possibility to select accounting methods based on the Standards’ provisions is meant to generate a true and fair view of the company’s financial position and financial performance. In these cases, it is recommended to use professional judgment in order to reach a conclusion which is in accordance with the accounting principles.
4. the intention is what determines how items are measured or disclosed in the financial statements. The intent is an element that requires the use of professional judgment in such as: establishing the depreciation method or the useful life of tangible or intangible assets.
5. The alternative method limits the measurement of revenues to the number of expenses incurred which can be recovered from the beneficiary. Since no profit can be recognized until the contract is completed, professional judgment acts as a mediator between accounting prudence and optimism.
I think the given solution by Tariq sir is correct