Professional Judgment Based on Accounting Theory - Report Writing - Accounting & Finance Assignment Help

Assignment Task

Your report must address each of the following:
a) The role of professional judgment in accounting and how normative and positive accounting theories influence the professional judgments of the accountants when undertaking impairment of assets. Use an example to explain your answer.
b) Provide a detailed explanation of the impairment write-down(s) made by your company for the year ended 30 June 2020. Your explanation should include a discussion of
- the asset/s that were impaired;
- the type of estimations required to write / calculate the impairment;
- the amount of the impairment write-down and
- relevant disclosures in the 30 June 2020 financial report in relation to impairment testing

c) Based on your findings in part b, critically discuss whether the professional judgments used to estimate:
- cash flows;
- discount rates;
- carrying amount of the CGUs;
- fair values; and
- impairment related disclosures have been reasonable / appropriate.

To make a valid judgment on this, you will need to review one of your company’s competitor’s (whose Total Asset base is within 80 -100% range of your chosen company) annual report for the same period to see how the competitor has disclosed the above information regarding its impairment of assets and then compare with your company.

d) Based on your findings in part c, critically analyse which accounting theory based on your judgment would have influenced the levels and types of disclosures made by your company and why?

e) Recommend actions (if any) for improvement in the application of professional judgments relating to these estimations. Please refer to the ASIC media release and other relevant information sources to answer this question.

“In a perfect world, investors, board members, and executives would have full confidence in companies’ financial statements. They could rely on the numbers to make intelligent estimates of the magnitude, timing, and uncertainty of future cash flows and to judge whether the resulting estimate of value was fairly represented in the current share price. And they could make wise decisions about whether to invest in or acquire a company, thus promoting the efficient allocation of capital. Unfortunately, that’s not what happens in the real world, for several reasons. First, corporate financial statements necessarily depend on estimates and judgment calls that can be widely off the mark, even when made in good faith…..” (Sherman and Young, 2016, p.1).
Also, accounting theories which assist accountants and managers in financial reporting are crucial tools tha contribute to shaping and giving structure to accounting policies and estimates. The above clearly shows how crucial it is for accountants to apply their professional judgment in arriving at the most reasonable / appropriate accounting choices / estimates which can be a challenging process. There is not necessarily one correct answer in most cases as different accounting theories such as normative and positive theories also influence this judgment process and therefore accountants need to be vigilant while dealing with such situations.

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