Using depreciation as an example, explain the challenges accountants face because of the accounting period concept. How are the estimations and other subjective judgements justified in accounting when objectivity and reliability are so important?
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Question about Time period concept (1 Viewer)
- Thread starter ninicole
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turtleface
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These sound like questions straight out of a book...apologies if they aren't, but an attempt at intrepreting the question would be beneficial:
Because an estimate to improve the accuracy of reports is better than no attempt. Accountants have balance the requirement to keep accounts to reflect a true and fair basis, whilst also taking into the consideration the need to be objective, if that makes sense. Its all very well to say "oh we have to make sure the numbers actually match whats going on in the business" but the problem is that this allows all sorts of fudging of figures, meaning that the numbers become even less reliable than their previous "non true and fair reflection, but objective and verified" basis
Depreciation causes issues due to the reporting period concept because of the need to allocate the cost of assets over these periods. The issue arises when there are uncertainties regarding whether a uniform allocation is "true and fair"/reflects the economic circumstances or not. Hence Accountants/Management have to use subjectivity/professional judgement to devise an appropriate allocation method.
Because an estimate to improve the accuracy of reports is better than no attempt. Accountants have balance the requirement to keep accounts to reflect a true and fair basis, whilst also taking into the consideration the need to be objective, if that makes sense. Its all very well to say "oh we have to make sure the numbers actually match whats going on in the business" but the problem is that this allows all sorts of fudging of figures, meaning that the numbers become even less reliable than their previous "non true and fair reflection, but objective and verified" basis
Depreciation causes issues due to the reporting period concept because of the need to allocate the cost of assets over these periods. The issue arises when there are uncertainties regarding whether a uniform allocation is "true and fair"/reflects the economic circumstances or not. Hence Accountants/Management have to use subjectivity/professional judgement to devise an appropriate allocation method.