Question

In: Accounting

What factors influences accounting treatment of events & conditions in entities’ financial statements'? (e.g. Professional Judgment)

What factors influences accounting treatment of events & conditions in entities’ financial statements'?

(e.g. Professional Judgment)

Solutions

Expert Solution

Events and conditions coupled with the factors helps an entity in accounting policy choice which ultimately determines the impact of transactions on a financial statement. These factors are accounting estimates, judgements, assumptions and accouting principles & customs.

Estimates are best knowledge of manageement of current events and actions. Assumptions and judgements about the concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities.

These estimates, judgements and assumptions are required to be made by the Accounting standard e.g revenue percentage of completion assessment, attrition rate for the pension liabilities etc.

Current events and conditions are uncertain and these estimates, judgements and assumptions help an entity in preparation of financial statement to present the information in best manner possible.


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