Analyzing Profitability Measuring Income--Estimation Issues Management discretion is part of income measurement Estimates of skilled and experienced professionals Some consensus (less variability)
Analyzing Profitability Measuring Income--Estimation Issues Management discretion is part of income measurement Estimates of skilled and experienced professionals → Some consensus (less variability)
Analyzing Profitability Measuring Income-Accounting Methods Professional Social experience Influences Accounting standards Regulatory Political governing agendas Income pressures measurement Business Academic happenings research
Analyzing Profitability Measuring Income--Accounting Methods Professional experience Regulatory agendas Business happenings Academic research Social Influences Political pressures Accounting standards governing income measurement
Analyzing Profitability Measuring Income-Accounting Methods Methods reflect the outcome of numerous factors including compromises Discretion is permitted to accommodate different business circumstances Methods geared toward"general-purpose financial statements
Analyzing Profitability Measuring Income--Accounting Methods Methods reflect the outcome of numerous factors, including compromises Discretion is permitted to accommodate different business circumstances Methods geared toward “general-purpose” financial statements
Analyzing Profitability Measuring Income--Incentives for Disclosure Ideally: O Financial statements fairly present transactions and events 2 Accounting is neutral--not affecting how transactions and events are perceived 3 Methods chosen that are most applicable to the circumstances 4 Relevant information is disclosed--favorable and unfavorable
Analyzing Profitability Measuring Income--Incentives for Disclosure Ideally: Financial statements fairly present transactions and events Accounting is neutral—not affecting how transactions and events are perceived Methods chosen that are most applicable to the circumstances Relevant information is disclosed—favorable and unfavorable
Analyzing Profitability Measuring Income--Incentives for Disclosure Reality: O Each of us possess opinions-we see the world from different perspectives 2 Managers bring strong views to the table 3 Managers feel pressures of com petition and society 4 Directors expect results s Shareholders concentrate on the bottom line 6 Creditors want safeguards o Financial analysts dislike surprises 8 Accounting preparers and auditors demand acceptable practices
Analyzing Profitability Measuring Income--Incentives for Disclosure Reality: Each of us possess opinions--we see the world from different perspectives Managers bring strong views to the table Managers feel pressuresof competition and society Directors expectresults Shareholders concentrate on the bottom line Creditors want safeguards Financial analysts dislike surprises Accounting preparers and auditorsdemand acceptable practices