(227)-VARIATIONS IN ACCOUNTING PRACTICE

Variations in Accounting Practice

The accounting standards programmed has sought to eliminate the scope for variations in accounting practices, both within company annual reports and between one company and another. Nevertheless there remains significant scope for variations. Some of the more common areas are referred to below.

Impact of fixed asset revaluations

Depreciation charges may be based on either historical cost or revalued amount.

Long term contracts

Where a particular contract of less than 12 months’ duration is accounted for as long-term may well be a matter of fine judgment.

In addition, for long-term contracts which are expected to be profitable, there are several acceptable ways of allocating profit over the life of the contract.

Group accounts matters

Business combinations which satisfy the merger conditions may be consolidated either on a merger accounting basis or an acquisition accounting basis.

Where foreign subsidiaries are translated using the closing rate/net investment method, profit and loss accounts items may be translated at either average rate or loosing rate.

Under acquisition accounting, there is scope for determining the extend to which provisions for losses and reorganization costs may be taken into account under the fair value exercise. A future standard is likely to restrict this scope significantly.

Extraordinary and exceptional items

Until there has been considerable scope for deciding whether particular reorganization costs should be treated as exceptional or extraordinary. However, a financial reporting standard effectively abolish extraordinary items and introduces significant changes in both accounting disclosures.

Intangible fixed assets

Goodwill- purchased goodwill may be eliminated against reserves are as soon as it arises. Alternatively it may be carried forward as an intangible fixed asset amortized over useful life.
Development costs which satisfy the criteria may be written off to profit and loss account as they arise. Alternatively they may be capitalized as an intangible fixed asset amortized over a period.

Deferred revenue expenditure

Certain borrowing costs may be capitalized as part of the cost of a fixed asset or they may be charged to profit and loss as incurred.

Pre-opening expenses relating to new hotels or store may be carried forward in the balance sheet and expenses over a period. Alternatively they may be written off as incurred.

Pension costs

Companies were offered a choice of radically different traditional provisions. The effect of this choice will last many years.

Post balance sheet events

Certain post balance sheet events which would normally be classified as non-adjusting may be treated as adjusting in special circumstances.

The above examples are many and varied but the list is by no means comprehensive. The purpose of the above is underlining the scope for significant variations in accounting practice between different companies.