FINANCIAL ANALYSIS

Management Accounting & Decision Making - Summative Assignment

Management Accounting & Decision Making - Summative Assignment

Subjective Judgment Areas in the Financial Statements of DWIT (2012)

The Conceptual Framework of IAS undertakes the consideration of the nature of reporting authority and uses three primary elements to analyze the preparation of financial statement on true and fair basis. Three primary factors are associated with the financial statements position of the entity, as per the conceptual framework, i.e. assets, liabilities, and equity, and two associated with the income statement of the entity, i.e. expenses as well as income (Clendon, 2011, p.1). So, for reviewing the subjective judgment areas in the financial statements of the DWIT for 2012, these key factors are analyzed and evaluated on the basis of given standards.

Assets

According to the Conceptual Framework of IAS, assets of an entity should be disclosed as current as well as non-current assets in the statement of financial position. The financial statement position of DWIT clearly meet this standard by reporting its assets as current as well as non-current, but on the other hand, company do not reported whether they legally own and control their assets or not (thus not reporting whether assets are their own or leased). Where the requirement of International Accounting Standard (17) clearly asks that if all the considerable risks and rewards of ownership have passed to the lessee, then in such case it should be reported as a finance lease and lessee should recognize an asset on the financial statement with respect to the benefits that it control, even in case the asset subject to the lease is not lawfully owned by the lessee. But in DWIT's case, the company does not reflected any disclosure whether their assets (building, land, or equipments) are legally owned by them or are they on lease. Thus, it is recommended that DWIT should identify the key assets of their firm that are on lease and report them in their financial statements, i.e. whether they are legally owned by DWIT or are at lease.

Liabilities

In the liabilities part of the financials, IAS clearly states that liabilities are generally the present debt of the firm that arise from past events, so the settlement of these obligations lead to an outflow from the firm o the resources embodying economic benefits. As far as DWIT is considered, the firm clearly identifies and reports its current liabilities (such as trade payables, notes payables, bank overdrafts, and others) on the statement of its financial position. However, at the same time IASB's framework requires the entity to identify as well as report the long-term (non-current) obligations of the firm in the statements of its financial position. But in case of DWIT, the company does not identify and disclosed the non-current obligations of the firm in its statement of financial position. There might the reason that firm does not hold any long term liability (which is a rare case), but even in that case the company is required to highlight this factor in ...