Description
“In a perfect world, investors, board members, and executives would have full confidence in companies’ financial statements. They could rely on the numbers to make intelligent estimates of the magnitude, timing, and uncertainty of future cash flows and to judge whether the resulting estimate of value was fairly represented in the current stock price. And they could make wise decisions about whether to invest in or acquire a company, thus promoting the efficient allocation of capital.
Unfortunately, that’s not what happens in the real world, for several reasons. First, corporate financial statements necessarily depend on estimates and judgment calls that can be widely off the mark, even when made in good faith…..” (Sherman and Young, 2106, p.1).
The above clearly shows how crucial it is for accountants to apply their professional judgment in arriving at the most reasonable/appropriate accounting choices/estimates, which can be quite a challenging process. There is not necessarily one correct answer in most cases, and therefore, accountants need to be vigilant while dealing with accounting information.
You have recently taken an internship and joined the accounting department of an ASX listed company. To demonstrate your understanding of the application of professional judgment, you are asked to look into the company’s annual report, undertake required research on the company’s choices relating to the accounting estimates and policies on property, plant and equipment, and prepare a report for presentation to members of the accounting department and audit committee.
To complete this assignment, you will need to select a suitable company yourself that meets the following criteria:
• The company must be a constituent of the S&P/ASX 300 index (www.asx300list.com).
• The company must publish audited annual financial reports in English, fully complying with IFRS or AASB standards.
• The company has FY2019 annual report available.
Your report must address each of the following:
a) Discuss how professional judgment is applied to the accounting policies and estimates your company uses to measure Property, Plant and Equipment (PPE) for FY2019. (10 marks)
b) Based on your findings in part a), critically evaluate and discuss whether the professional judgment applied in accounting estimates and policies of PPE has been reasonable/appropriate by comparing to another company in the same industry. (15 marks)
c) Critically evaluate and discuss whether the disclosure made by the company regarding the accounting estimates and policies of PPE reflects the qualitative characteristics of financial information according to the Conceptual Framework. (15 marks)
Solution
Question 1
The company selected for this analysis is CSR Limited which operates in the materials industry and which has prepared its annual statements for 2019 using AASB standards. Among the company’s assets are property, plant, and equipment (PPE) that is measured at carrying value. Professional judgment in preparing financial reports entails the process by which an accountant reaches a decision in situations with multiple alternatives. The judgment includes researching and interpreting standards.
Question 2
For the purpose of this analysis, the appropriateness of CSR Limited professional judgment in valuing PPE is compared to that of Dacian Gold, a materials company hence a competitor. Dacian Gold prepares its financial statements according to the guidelines of IFRS.………………please following the link below to purchase the solution at $10
