ANZ Accounting Essay

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Referring to the attached file, provide four examples of accounting policy choices that ANZ Limited may have made in determining profit that may have increased this year's profit



In delineation, an accounting policy is a decision undertaken in advance regarding the manner in which, when and also a decision whether to record and acknowledge an accounting item (Trotman and Gibbins, 2009). It takes into account a specific principle, rule, and approach executed by a firm's management team and is employed in the preparation of financial statements. These accounting policies are employed to copeexplicitly with intricate accounting practices for instance depreciation approaches, recognition of goodwill, grounding of research and development expenses, inventory value and the consolidation of financial accounts (Investopedia, 2016). In particular, these accounting policy choices can be employed to alter the earnings reported by a firm in its financial statements.



One example of an accounting policy choice that ANZ Limited may have made in determining profit, which may have increased the profit generated, is the choice of the depreciation method. There are various methods of computing depreciation that the company can utilize, which include the straight-line method, double-declining balance method, accelerated depreciation method and the sum-of-years digits method.

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In particular, the acceleration depreciation method is more often than not employed by bigger companies so as to ensure there are smooth earnings, and as a result this particular method of depreciation is more probably linked with greater determination of earnings, which is better earnings quality (Fields et al., 2001).



A second accounting policy choice that may have been made by the company is the choice of the method for valuing inventory. The inventory for ANZ Limited is $290,000 and $700,000 for 2011 and 2012 respectively. Several firms are allowed to report levels of inventory either through the use of the first-in, first-out method (FIFO) or the last in-first out method (LIFO). With respect to the latter, when a product is retailed, the last inventory manufactured or produced is sold. On the other hand, with respect to FIFO, when a firm retails a product, the inventory manufactured or produced first is deemed sold. These approaches can be used to increase the reported earnings in the financial statements. During financial periods of increasing inventory prices, a firm can employ one of these accounting policy choices to increase the earnings reported. In particular, it….....

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References


Boundless. (2016). Valuing Accounts Receivable. Boundless Accounting. Retrieved from: https://www.boundless.com/accounting/textbooks/boundless-accounting-textbook/controlling-and-reporting-of-cash-and-receivables-4/overview-of-receivables-30/valuing-accounts-receivable-189-4885/

Fields, T., Lys, T. and Vincent, L. (2001). Empirical Research on Accounting Choice.Journal of Accounting and Economics, 31(1 -- 3), pp. 255 -- 307.

Investopedia. (2016). Accounting Policies. Retrieved from: http://www.investopedia.com/terms/a/accounting-policies.asp

Jennings, A. R. (2001). Financial Accounting. London, Letts Educational.

Trotman, K. and Gibbins, M. (2009). Financial Accounting: An Integrated Approach, 4th edition. Melbourne: Nelson Thomson Learning.

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