Reclassification of assets and the need to providea true and fair view of a business entity
Journal Title: Zeszyty Naukowe Wyższej Szkoły Bankowej w Poznaniu - Year 2016, Vol 66, Issue 1
Abstract
To run a business, economic entities have to use assets: physical assets, intangible assets, and financial assets. Reclassifications are often accompanied by a change in the measurement method. The high initial amounts and/or revalued amounts may significantly impact the balance sheet total and the financial result. This is especially true when it comes to fixed assets. From the perspective of a business entity, it might not be possible, or indeed desired, to reclassify assets in every case or in every sector of the economy. In some situations, however, the move may have a major influence on the profitability (let us call it apparent profitability), contradicting, in a way, the principle of a true and fair view. This is the subject matter of this paper. The paper was written on the basis of a critical analysis of legal regulations and case studies (financial documents and accounting policies) and a deductive method to show potential areas where business entities might manipulate information disclosed in financial statements.
Authors and Affiliations
Ewa Engelgardt
Keywords
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