The importance of professional judgement applied
in the context of the International Financial
Reporting Standards
Author:
Ionela IVAN
JEL:
M00, M10, M14, M42, M49
DOI:
10.20869/AUDITF/2016/142/1127
Keywords:
Professional judgement, principle-based
accounting, true and fair view, disclosures, financial
reporting, lease accounting.
Abstract:
Guidance has always been welcome in terms of
applying professional judgement in the context of the
principles-based accounting standards – International
Financial Reporting Standards. This fact is the result of
the complexity and diversity of some situations, which
might give rise to difficulties in terms of choosing the
appropriate accounting policies and methods
(depreciation, inventory valuation on hand at the end of
an accounting period, the recognition of revenues and
expenses from a construction contract, accounting for
lease contracts by the proper determination of the type
of lease: financing or operating), and respectively the
need to verify if the criteria set by the principles-based
accounting standards are met. This “freedom” of choice
and disclosure might create problems in terms of
accounting information quality. The possibility to select
accounting methods based on the Standards’ provisions
is meant to generate a true and fair view of the
company’s financial position and financial performance.
In these cases it is recommended to use professional
judgement in order to reach a conclusion which is in
accordance with the accounting principles and is not
enforced by any accounting rules, since the exercise of
individual professional judgement is preferred against
the “pure” compliance with prescriptive legal
requirements.
Abstract(172KB)
Article(485KB)