Question

1. What are the costs and benefits of management’s use of judgement in financial reporting?

Answer 1

For taking any decision in an organization management usually refers to various reports being prepared by the accounting professional.

These financial reports help in analysing the financial position of the organization as well as they contain various judgements or conclusion on different financial aspects of the organization. Now the management uses these conclusions and judgemens made to take further decision in favour of the organization.

There are various costs and benefits of management using these judgements in financial reporting. Let's discuss them below:

Costs: Using these judgements is not an easy task to do for management. There are various costs associated with it. First is the time which it takes to analyze the judgement and then decide how to use this judgement and what final decision is drwan from this by the management. These decisions are very crucial thus they are time taking and need a deep study on various factors.

Analysing the judgement requires various techniques which have their own costs associated with them which is incurred while the organization uses thise judgement.

If we talk about the benefits associated with these, they are:

• Management takes decision which are in favour of the organization leading to the growth of the organization.
• This helps to detect the various risks associated and tackle or mitigate those risks and thus secures the organization.
• Management decides the future aspects of the organization and thus set long term goals for the organization which satisfies it's going concern of the company.

Thus we saw the costs and benefits of management's use of judgement in financial reporting. As the task is challenging thus it takes time and efforts of the management team but in return gives huge benefits to the organization which includes making plans to mitigate the rusks and add value to the organization which is very important in this era of uncertainty.