Academic journal article Global Economic Observer

Three Types of Accounting Policies Reflected in Financial Statements. Case Study for Romania

Academic journal article Global Economic Observer

Three Types of Accounting Policies Reflected in Financial Statements. Case Study for Romania

Article excerpt

1. Introduction

The accounting truth - between to be or not to be

Freedom to choice accounting policies by companies represents one of the barriers to compliance the objective. This enables us to ask how relevant is accounting information reflected on the financial position or financial performance?

Truth offered by accounting can only be the result of a compromise between the expectations and requirements, and for manufacturers, a relationship between sincerity and regularity (respecting the principles and fundamental mies, so the financial policies).

Our pleading about the accountant tmth influenced by accounting policies approved by an economic entity actually refers to that truth built with sincerity. We do not intend to emphasize irregularities, behind which are hidden interests, which deteriorates the image reflected by the financial statements, materialized in manipulation of the result that has a fraudulent nature.

"There is only one accounting tmth?" The answer to this question is, definitely NO, but one answer can be offer by accounting which give to each protagonist to economic and social life the tmth that everybody need1. Starting from this question, our target is to build a study case by using differing accounting policy and to see how is affected the information's image offered by an economic entity.

2. Three accounting policies with different objectives

In our approach to demonstrate that a fact (in our case the image of the financial position) seen from different people looks different without being able to say that someone distorts the truth, we improvised three sets of accounting policies.

First set of accounting policies will aim to maximize profit. Therefore the entity will have an aggressive behaviour that involves selecting accounting policies that include rules that lead to lower costs in the income statements (can not influence the revenue because they have strict rules of recognition: the registration of revenue can neither be brought forward or deferred).

The second set of accounting policies will be subordinated to a strategy targeting conservative behaviour, with the aim of capital maintenance by minimizing costs, starting from the fact that business must be conceived in light of future business and businessman's responsibility is not only profit but also stability of the economic entity. It must be respect the principle of business continuity, and business development too.

Another set of accounting policies will be based on no strategy; will fit into compliance with accounting rules but knowing that the tax mies do not contradict the accounting, tax rules prevail to the detriment of accounts.

The first set of accounting policy aims to minimize costs. In this regard, taking into account:

- Inclusion of formation expenses on intangible assets, in which case the company may immobilize expenses and as a result of this choice recovery will be made through depreciation, the depreciation period is 5 years;

- Recognition of development costs when they are still in the research phase, because the criteria for recognition of the development phase leaves room for subjectivity and interpretations;

- Establishment of large economic life of tangible and therefore their depreciation over a period as long, returning a reduced depreciation expense in the income statement;

- Choice of straight-line depreciation method;

- If the subsequent expenses related to fixed assets are at the limits between change and maintain performance, they will be recognized as a component of current assets;

- Elements which have an input value less than the limit established by legislation in the field (1,800 u.m.) will be recognized as a component of current assets and amortized over a longer period of time;

- Interest on financing the acquisition or construction of qualifying assets will be capitalized; respectively it shall be entered on their value. …

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