A case for rearranging the deck chairs?
Article Abstract:
The format of the profit and loss (p&l) account proposed in the Financial Reporting Exposure Draft 1 (FRED 1) issued by the Accounting Standards Board (ASB) seems to be an improvement on the current layout used. FRED 1, which is intended to discourage the tendency to focus on results before extraordinary items, provides a radical rethink of the p&l format with its proposal that extraordinary items be abolished altogether. There is a danger, however, that FRED 1 will only serve to shift these items elsewhere in the p&l account such as in the proposed separate category for exceptional items. The net effect of this is that it may create a new problem in place of the old one, albeit in a disguised new form. A better way to address the issue may be to make the p&l account format extremely simple by allowing only one column and placing all interpretative disclosures, such as exceptional items, in the notes.
Publication Name: Accountancy
Subject: Business
ISSN: 0001-4664
Year: 1992
User Contributions:
Comment about this article or add new information about this topic:
Primacy for the P&L account
Article Abstract:
There is a conflict over whether the balance sheet or the profit and loss (P&L) account should be given primacy when there is a conflict between the two. The International Accounting Standards Committee and David Solomons advocate a balance sheet approach, which holds that all elements are derived from the principal elements of assets and liabilities and all results are derived from the balance sheet. The P&L method analyzes transactions so that revenues are related to the period in which they are incurred and costs are allocated by matching them with revenues to which they are related or expensing them to the period in which they were incurred. The P&L method entails a prudence concept which writes off rather than carries forward costs whose recovery is not assured. An approach that should be explored is running both the balance sheet and the P&L account approach in parallel.
Publication Name: Accountancy
Subject: Business
ISSN: 0001-4664
Year: 1990
User Contributions:
Comment about this article or add new information about this topic:
- Abstracts: Accountants and the seven year itch. ASB - time the talking stopped. Fixed assets: the lull before the storm
- Abstracts: The treatment of interest under SSAP 24. The balance sheet implications of SSAP 24. SSAP 24: time to sort out the balance sheet
- Abstracts: Investigating the investigators. The fall of the House of Fraser. Barlow Clowes: who's to blame?
- Abstracts: Factors affecting the audit of revalued non-current assets: initial public offerings and source reliability. The effect of the distribution of cases on judgmental consensus
- Abstracts: Cash flow statements - what are the choices? The reporting of companies' cash flows could lead to more comparable information