SUBJECTIVITY AND ACCOUNTING

Subjectivity as Heart of Accounting

Subjectivity as Heart of Accounting

Introduction

The Accounting is defined as a system adapted to classify economic events occurring in a business. So that will become the backbone to carry out the various procedures that will lead to the maximization of economic performance that involves up a company determined (Berger 2008, 11).

Thus, this work contains an introductory overview about the historical background of accounting, definition, objectives, importance, keeping books, difference between it and the accounting and principles and accounting procedures, among other aspects related to the topic discussed. It was generally expected that, as trainees of the Department of Accounting, is made first contact with the basic knowledge required for carrying cash in it (Berger, 2008).

Accounting Subjectivity in Balance sheet and Income Statement

It is worth remembering some of the potential problems that can arise when using the income statement and balance sheet to assess performance. Two in particular:

Valuing some assets and liabilities on the balance sheet involves subjective judgment. For example, management has some discretion about what provisions they need to make for trade debtors that may not pay or for obsolete stocks.

Accounts are largely descriptive about what has occurred in the past - rather than explaining why. Publicly quoted companies are required to provide much more detailed commentary on the financial statements in the Annual Report. However, the vast majority of companies are not publicly quoted!

The risk of material misstatement of accounting estimates normally varies with the complexity and subjectivity associated with the process, the availability and reliability of relevant data, the number and significance of assumptions that are made, and the degree of uncertainty associated with the assumptions (Eisenberg 2007, 19).

Finally, there is considerable criticism of the assumptions regarding renewal options and contingent rent that are factored into the calculation of the lease obligation. As a result, many people in the financial community think that the subjectivity in making the aforementioned assumptions can distort comparability of financial data across companies, rather than promote transparency as the FASB intended.

Accounting Knowledge

Accounting is a social science, which is responsible for studying, measuring and analyzing the assets of companies and individuals, to serve in the decision-making and control, presenting the information previously recorded, so systematic and useful for different stakeholders. It also has a technique that produces systematic and structured and valuable quantitative information expressed in monetary units about transactions that affect the economic entities and certain identifiable and measurable economic events that affect it, for the purpose of providing it to the various audiences interested (Lang 2000, 65).

The purpose of accounting is to provide information on economic and financial situation of a company at a given time and the results obtained over a period of time, which is useful to the users of accounting in making their decisions, both for the past management control, as for estimates of future results, providing such decisions of rationality and efficiency.

Origin of Accounting

Accounting dates back to ancient times when man is forced to carry logs and control of their property ...