Question

On January 20, 2017, Tamira Nelson, the accountant for Picton Enterprises, is feeling pressure to complete the annual financial statements. The company president has said he needs up-to-date financial statements to share with the bank on January 21 at a dinner meeting that has been called to discuss Picton’s obtaining loan financing for a special building project. Tamira knows that she will not be able to gather all the needed information in the next 24 hours to prepare the entire set of adjusting entries. Those entries must be posted before the financial statements accurately portray the company’s performance and financial position for the fiscal period ended December 31, 2016. Tamira ultimately decides to estimate several expense accruals at the last minute. When deciding on estimates for the expenses, she uses low estimates because she does not want to make the financial statements look worse than they are. Tamira finishes the financial statements before the deadline and gives them to the president without mentioning that several account balances are estimates that she provided.

Identify and critique 2 courses of action that Tamira could have taken instead of the one she took. If you were in Tamira’s situation, what would you have done? Briefly justify your response.

Answer 1

2 critiques courses of Tamira in above question is :

• Considering low estimates , in order to make financial statements look good
• She failed to disclose in the financial statements, that several account balances are estimates.

According to my opinion,  Expenses , accruals are always to be considered and accounted in the books of accounts , as per IFRS and accounting standards, policies laid down by an organisation.There are certain business transactions , for which there is no appropriate measurement like loss provision for bad debts , we use accounting estimates based on past judgement, experience, useful life of assets, nature of expense, financial character of an asset or obligation.

Assumptions used for accounting estimates may have a material impact on financial statements and this assumptions, or appropriate methods used are to be clearly mentioned in the financial statements.

Even though my financials would show losses, but I would go for it , and used all accruals, proper accounting estimates and mention such methods or assumptions used in accounting estimates in the financial statements.