MFRS 137 Analysis
MFRS 137 Provisions, Contingent Liabilities and Contingent Assets
According to Deloitte, MFRS 137 prescribes the accounting treatment for provisions, contingent liabilities and contingent assets are made by using the best estimates as to ensure that users of financial statements receive adequate and appropriate information for investment decision-making process (Essays, 2013). Provision is made for the doubtful debts and impairment losses. These are adjustments to the carrying amount of the assets and not liabilities (Lazar & Choo, 2012). MFRS 137 defines a provision ‘as a liability of uncertain timing or amount or both’. In other words, a provision is an amount which set aside from profits in the accounts of an entity for the credible. The Standards also aims to ensure that only genuine obligations are dealt in the financial statements such as planned future expenditure. Financial statements should include all information of the …show more content…
For example, not consistent with other standards – probability of recognition criteria, the unclarity on explain identification of liabilities, MFRS 137 is ambiguous when measuring a single obligation and the term ‘provisions’ is useless and there is an existing risk if eliminated. There is one effect which called ‘big bath’. According to Investopedia (Big Bath), big bath is defined as the strategy of manipulating a company’s income statement to make poor results look even worse as it is usually implemented in a bad year to enhance artificially next year’s earning. Big bath is one of the hardest accounting frauds to spot. For example, a new CEO sometimes takes a big bath to artificially inflate earnings in the second year of his tenure. This will allow him to blame the previous bad year on the CEO who came before him and get a chance to receive bonus in the second
According to Deloitte, MFRS 137 prescribes the accounting treatment for provisions, contingent liabilities and contingent assets are made by using the best estimates as to ensure that users of financial statements receive adequate and appropriate information for investment decision-making process (Essays, 2013). Provision is made for the doubtful debts and impairment losses. These are adjustments to the carrying amount of the assets and not liabilities (Lazar & Choo, 2012). MFRS 137 defines a provision ‘as a liability of uncertain timing or amount or both’. In other words, a provision is an amount which set aside from profits in the accounts of an entity for the credible. The Standards also aims to ensure that only genuine obligations are dealt in the financial statements such as planned future expenditure. Financial statements should include all information of the …show more content…
For example, not consistent with other standards – probability of recognition criteria, the unclarity on explain identification of liabilities, MFRS 137 is ambiguous when measuring a single obligation and the term ‘provisions’ is useless and there is an existing risk if eliminated. There is one effect which called ‘big bath’. According to Investopedia (Big Bath), big bath is defined as the strategy of manipulating a company’s income statement to make poor results look even worse as it is usually implemented in a bad year to enhance artificially next year’s earning. Big bath is one of the hardest accounting frauds to spot. For example, a new CEO sometimes takes a big bath to artificially inflate earnings in the second year of his tenure. This will allow him to blame the previous bad year on the CEO who came before him and get a chance to receive bonus in the second