Introduction
In the private and public sectors, some entities require an overview of the existing accounting standards. Therefore, financial reporting is necessary since it provides a documented report on all the economic activities undertaken by a specific entity. In Australia, the government mandates every public and private agency to provide financial statements within a particular period. The standard period for submitting the documents is once a year. The Australian Accounting Standards Board sets the blueprint for financial reports’ minimum quality requirements (Roychowdhury et al., 2019). To achieve the standard measures for financial reporting, the company looks keenly at different accounting treatments.
Evaluation of Differential Accounting Treatments
Companies adopt different accounting treatments based on the services they offer. For instance, a production company may continue using completely depreciated machinery for valuable purposes. Since the machinery is not helpful for sale, disposal and seizure of use are the only remaining options. During accounting treatment, the company does not include machinery under depreciation expense but will be included under accrued depreciation. In this strategy, the business report will address the different accounting treatments and their reasons for the occurrence.
Cash and accrued accounting are the primary accounting treatments that bring about different accounting standards’ reports. In cash accounting, financial reporting of revenues is done once payments are done or received in cash, while authorization statements are the only messages needed to generate reports in accrued accounting. It is a breakdown of cash and accrued accounting in expenditures related to research and exploration (Lee, 2019). Intangible assets in a company bring about various accounting treatments since they are not physically visible.
Research is a critical part of intangible assets, and bringing these assets into account will be the central part of this report. The main objective of financial reporting is to give an account of all the assets, either tangible or intangible, a firm has in its possession. Tangible assets are relatively easy to measure and account for. Therefore, differences in financial reporting occur due to intangible assets within a company. Claims to these resources are substantiated since they vary with time; for instance, a lease period of working machinery may end; therefore, time is critical when undertaking financial accounting.
The General Purpose of Financial Reporting
Cash accounting is the act of recording revenues when an institution receives money for a service and then pays off its debts. Accrued accounting, on the other hand, is the record of finances on a form earns or incurs expenses. Comparing two companies using different types of accounting at a specific time, their financial reports will vary significantly since cash accruing. However, it ensures certainty in financial reports but lags in providing updated financial reports. The Australian Accounting Standard board lacks the power to dictate the type of accounting treatment since public institutions have the right to adopt their preferred choice. However, the standardization board has the power to set rules on account of intangible assets since they make excellent martin financial reporting (Almagtome et al., 2020). Resources used in research have a significant impact on the financial ratios, and failing to include them in the incurred cost within the company’s balance sheet leads to misleading audit repo
Exploration expenditures account for the resources used to purchase and maintain the property in an organization. Using money to procure these assets makes a difference in financial reporting, mainly when companies use cash accounted. Estimating the remaining life of a property is a relative venture, although the international accounting standards board (IASB) gives the minimum standards for valid life estimates. The gross impact of using different accounting treatments is non-conformity to the financial reporting standards; hence, the estimates lack criticality.
Qualitative Analysis of the Relevance of Comparability
The Australian Accounting Standard Board provides the domain for comparative work in research. For a financial statement to be acceptable, it should be close to the shared values, and this is achieved by lacking a conflict of interest when preparing a profit and loss account for companies (Khoja et al., 2019). Financial tools in a business are particular elements that are used to measure economic parameters in an organization. The specific business elements determine how research and exploration help in financial analysis. Capitalizing on both the research and exploration expenditure is necessary to acquire a reliable estimate of the assets and liabilities within a company. In my opinion, both types of accounting treatments are warranted since the companies set particular accounts for the maintenance of the assets and miscellaneous funds to cater for extra fees on research.
Conclusion
Research and exploration expenditures affect the company’s revenue estimation. They are specific variables, also referred to as financial ratios, affecting the performance of public and private organizations in Australia. Creating a standard method to account for these variables would lead to correct account estimates. Tangible and intangible assets should be appropriately accounted for preparing financial reporting to promote an accurate account of the business performance. As an Australian accounting and standards board representative, additional financial reporting on businesses is acceptable, but all business variables need to be addressed in the annual reports.
References
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Roychowdhury, S., Shroff, N., & Verdi, R. S. (2019). The effects of financial reporting and disclosure on corporate investment: A review.Journal of Accounting and Economics, 68(2-3), 101246. Web.