Preparation And Presentation Of A Company 's Financial Statements

1480 Words Oct 3rd, 2015 6 Pages
1 Introduction
1.1 Background to the study
Preparation and presentation of a company’s financial statements is a process that is laden with the use of estimates. The conceptual framework released by the Financial Accounting Standards Board indicates that a company prepares financial statements with the intention of assisting investors assess the company’s future cash flow prospects (Financial Accounting Standards Board, 2010). However, the process used by a company in assessing its cash flows is reliant on the use of estimates and conjecture. For example, the company has to determine the fair value of its assets on an ongoing basis if approximate value in the market is to be reflected in the financial statements. These values are arrived at through the use of cash flow projections that are to be derived from using the assets, even when the company is not certain that these cash flow estimates will come to fruition (Financial Accounting Standards Board, 2010).
The Financial Accounting Standards Board defines fair value as “the price that would be received in selling an asset or paying a liability in an orderly transaction between market participants at the measurement date.” (Business Valuation Resources, LLC, 2007). The definition is contained in FAS 17, which was released by the Financial Accounting Standards Board a few months before the financial crisis of 2007. Indeed, the statement applied to the fiscal years that begun on 15th November, 2007, which was a few months…
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