Question

Submit a thread of at least 400 words on an accounting estimate made by management and how a fraud could be a risk in making this estimate.

Answer 1

AN ACCOUNTING ESTIMATION IS AN APPORXIMATION OF THE AMOUNT OF A BUSINESS TRANSACTION FOR WHICH THERE IS NO PRECISE MEANS OF MEASUREMENTS.FOR EXAMPLE RATE OF DEPRECIATION OF AN ASSET IS DEPEND UPON THE THE JUDGEMENT AND EXPERIENCE OF MANAGEMENT.

HOW ESTIMATES ARE MADE :-

1)ESTIMATES ARE MAINLY BASED ON THE JUDGEMENT OF MANAGEMENT.

2)TYPE OF TRANSACTION OR ACCOUNT FOR WHICH ESTIMATES ARE RELATED ARE DETERMINED.

3)ELIGIBLE PERSONS ARE SELECTED FOR DETERMINING THE ESTIMATES.

4) MANAGEMENT MONITORS THE OUTCOMES OF ACCOUNTING ESTIMATES MADE IN THE PRIOR PERIOD.

FRAUD IS AN INTENTIONAL MISTAKE MADE BY THE MANAGEMENT TO DECEIVE OTHERS.ACCOUNTING ESTIMATES SHOULD NOT INCLUDE FRAUD.

ESTIMATES SHOULD BE GENUINE.IF IT INCLUDES FRAUDS THAN IT IS RISKIER.AS ESTIMATES REQUIRES PAST EXPERIENCE IT SHOULD BE PROPERLY ANALYSED ABOUT THE CATEGORY OF ASSET OR TRANSACTION .FOR EXAMPLE AN ASSET IS PREVIOUSLY DEPRECIATED ON REDUCING BALACE METHOD AT THE RATE OF 20%, THAN NEW ESTIMATES SHOULD BE RELATED TO IT,MEANS THE AMOUNT OF DEPRECIATION SHOULD BE MORE OR LESS THAN EQUALS TO PREVIOUS ESTIMATES.TRHERE SHOULD NOT BE A DRASTIC CHANGE IN ESTIMATES.

IF AN ACCOUNTANT FINDSOUT FRAUDS IN ESTIMATES THAN HE WILL NOT GIVE A GOOD REVIEW AGAINST THE COMPANY WHICH IS RISKIER FOR THE COMPANY FOR VARIOUS PURPOSES LIKE THE COMPANY FINDS DIFFICULT TO TAKE LOAN FROM BANKS AND FINANCIAL INSTITUTION.THE COMPANY ALSO FACE VARIOUS DIFFICUTIES DUE TO THE FRAUD IN ESTIMATES. WE CAN CONCLUDE THAT ESTIMATES SHOULD NOT INCLUDES FRAUDS.