Abstract
Accounting estimates form part of the preparation of financial statements and should not affect faithful representation. The use of accounting estimates does not yield exact amounts, but, rather, amounts based on assumptions. The frequency of use of accounting estimates in financial statements depends on the measurement criteria prescribed by International Financial Reporting Standards (IFRSs). For example, in the absence of prices in an active market, and if measurement is at fair value, the fair value is based on assumptions. Disclosure of the assumptions on which accounting estimates are based enables the users of financial statements to judge if amounts are faithfully represented. The objective of the research on which this article is based was to establish what IFRSs require in terms of the disclosure of assumptions and estimation uncertainty and also if listed companies in the construction and materials sector comply with these disclosure requirements.
Highlights
Beechy (2005) argues that almost all the amounts on the statement of financial position of entities are based on accounting estimates
The use of accounting estimates does not yield exact amounts, but, rather, amounts based on calculated guesses, judgement and discretion
According to Lendez and Dewey (2009), estimates almost always vary from actual results
Summary
Beechy (2005) argues that almost all the amounts on the statement of financial position (balance sheet) of entities are based on accounting estimates. The use of accounting estimates does not yield exact amounts, but, rather, amounts based on calculated guesses, judgement and discretion. According to Lendez and Dewey (2009), estimates almost always vary from actual results. Estimates may vary materially from actual results if future events differ dramatically from the assumptions the estimates are based on. Estimating amounts to be included in financial statements is an accepted practice in accounting. If an exact amount is not available, under certain circumstances it is required by accounting principles to estimate the specific amount
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
