Financial Statements We See Nowadays Have Gone Through

Decent Essays

Financial statements we see nowadays have gone through so many changes, in its complicated yet sophisticated way. Even though it consists of a sophisticated system, a proper judgement concerning the uncertainties and outcomes from the balance sheet are still need to be done. IAS37 helps to handle that matters properly, where this standard covered on how the company should treats provisions, contingent liabilities and contingent assets in accounts. Although, the IAS 37 may lead to a high volatility in retained earnings which resulted in the increasing in the usage of creative accounting unless the standard follows the prudence concept. Hence, in this essay, there will be discussions on the relationship between IAS 37 and prudence concept …show more content…

Besides, there have been a lot of dissatisfactions from firms regarding the firms disclose of contingent legal liabilities (Hennes, 2014). This is because the disclosure of contingent liabilities could be a sign of company 's good motive and transparency for the stakeholders. Although, they sometimes can be the image of company 's weaknesses, being capable of affecting the perception of shareholders (Manuela and Nenonila, 2015, p.4). The contingent liabilities are not recorded in a systematically way since the note disclose is more qualitative rather than quantitative, which may lead to other problem such as the high volatility in earnings where it will be discussed later in the essay (Dick and Missionier-Piera, 2010). Clearly, contingent liability not follows the prudence concept fully, under the IAS 37 for contingent liabilities the liabilities only recorded once it is incurred which opposite of prudent. Likewise, from the IFRS (2014), prudence concept basically is how to make appropriate judgements for the estimations that required under the uncertainties events such as the payable of doubtful receivables. Transactions from the financial statements should not focus only on the past events. In fact, under the prudence and accrual concept, the company must take into account of the prospective disbursements, especially in the earnings and costs (Dick and Missionier-Piera, 2010). Additionally, prudence concept proposes that the information in the

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