Provisioning - is it a step too far?
Article Abstract:
The Accounting Standards Board (ASB) aimed to eliminate the abusive practice of 'big bath accounting' through the introduction of the Financial Reporting Exposure Draft (FRED) No 14, 'Provisions and Contingencies.' However, it seems that the proposals are excessively radical and rigid, even though there were some who took advantage of the fact that strict rules on provisioning have been lacking. The main concern about the draft is the requirement that a provision be indicated only if a legal or constructive duty to shift economic benefits due to prior events is present. This would prevent directors from recording a provision for an action that they plan to take and know will take place. This reflects the ASB's misguided view that directors will reverse their decisions if they have not yet demonstrated their commitment to these decisions.
Publication Name: Accountancy
Subject: Business
ISSN: 0001-4664
Year: 1997
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Costs or assets? The pending choice
Article Abstract:
Ron Paterson argues that accountanting should be based on the profit and loss account instead of the balance sheet. In his booklets, 'The Future Direction of UK Financial Reporting' and 'The ASB's Framework - A Time to Decide,' Paterson contends that the Accounting Standards Board (ASB) is wrong to increase reliance on the balance sheet because the profit and loss account, which is the transactions view of accounting, is simpler and saves work. However, it is found to prevent an accurate representation of the company and is difficult for lay users to understand. The balance sheet, on the other hand, is a rational staring point for dealing with difficult problems which cannot be solved by just reviewing past transactions. Thus, Paterson is wrong to criticize the ASB for supporting the balance sheet approach.
Publication Name: Accountancy
Subject: Business
ISSN: 0001-4664
Year: 1996
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FRS 11: Impairment of fixed assets and goodwill
Article Abstract:
The Accounting Standard Board's Financial Reporting Standard (FRS) No 11, 'Impairment of Fixed Assets and Goodwill' provides guidance on how to account for impairments of fixed assets and goodwill. The new standard seeks to ensure that financial statements reflect the value of fixed assets and goodwill at no more than their recoverable amount, that the measurement and recognition of any resulting impairment loss are undertaken in a consistent manner, and that financial statements disclose enough information to allow users to understand the significance of impairment on the reporting company's finances and performance. FRS No 11 governs all financial statements that are meant to provide a true and fair assessment of the financial position and profit or loss or a reporting entity for a certain period.
Publication Name: Accountancy
Subject: Business
ISSN: 0001-4664
Year: 1998
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