Question

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. Real estate companies would be among the leaders in encouraging the disclosure of the current value of property and equipment if a vast majority of their properties were increasing in value. In this case they could report the gain on their income statement. This would also report a more realistic value of their property versus historical cost, especially if it is in a rapidly growing area.

2. Daimler-Benz chose to disclose the value of its hidden reserves because they needed to in order to be listed on the NYSE. The advantage to having these hidden reserves is that the company's net income will increase. Also if the company incurs a loss they can use this reserve to cover it without having to disclose to investors. By not having to disclose a loss, public sentiment will be more positive.

3. As an auditor I would like to audit a company that uses appraisal values. If accurate appraisals, they would be a more realistic interpretation of the company's property values. That being said I would have some reservations in trusting the appraisals as they may be manipulated, versus historical values which are set in stone. If the appraisals were sufficiently reliable than I would have no problem with using these values

Answer 1

1) Real Estate companies will not want to disclose their true value of assets and pay more taxes on the income earned. Rathar they whould love to undervalue their projects and instead make use of the excess cash to generate more revenue and then to evade taxes they would hide this money or transfer them to no tax treaty land to earn returns without being caught.

2)Yes, The advantage of having hidden reserves is to utilize them in the times of need. This fund is usually used to make investments and have a strong financial background of the company. These funds can be used to manupulate the profits and make the market sentiment according to the owners.

3) The appraisal method is likely to be a huge risk as it will be very difficult to value fairly any asset and prevent it from being wrongly valued. This would highjly manupulate the balancesheet figures. On the other hand valuation of historical costs enables a company to be far more fairly valued than any other method.