Measurement Errors Due to Imperfect Application of Estimates
Lack of Perfect Foresight
The measurement of many assets and liabilities requires the estimation of future amounts. Very frequently these estimations are prone to errors. For example, the employee post-retirement benefit liability requires a forecast of healthcare costs decades into the future. Even if management has made a good faith estimate, we should recognize that the amount recorded on the balance sheet might differ greatly from the actual future obligations it represents.
Even if the management has done a thorough job at estimating inherently subjective future amounts, there is still a little probability that it might involve a potential estimation error. Understanding estimation error is important for at least two reasons. First, the precision of forecasts based on financial statement data itself. Second, the inherent risk of a business is a direct function of the risk of its underlying assets and liabilities.
Unfortunately, there are only a few rules that one can give for establishing the amount of potential measurement error associated with particular classes of assets and liabilities. For example, in case of cash and short-term securities we can safely say that there are minimum measurement errors. A bank that lends only to high creditworthy customers will generally be able to measure its receivables with much less potential error than a firm that makes sub-prime loans. A detailed understanding of the nature of the assets and liabilities being measured and the techniques used to measure them is required to make a good assessment of the amount of potential measurement error.
Email based Accounting assignment help - homework help at Expertsmind
Are you searching Accounting expert for help with Measurement errors caused by imperfect application of accounting estimates questions? Measurement errors caused by imperfect application of accounting estimates topic is not easier to learn without external help? We at www.expertsmind.com offer finest service of Accounting assignment help and Accounting homework help. Live tutors are available for 24x7 hours helping students in their Measurement errors caused by imperfect application of accounting estimates related problems. We provide step by step Measurement errors caused by imperfect application of accounting estimates question's answers with 100% plagiarism free content. We prepare quality content and notes for Measurement errors caused by imperfect application of accounting estimates topic under Accounting theory and study material. These are avail for subscribed users and they can get advantages anytime.
Why Expertsmind for assignment help
- Higher degree holder and experienced experts network
- Punctuality and responsibility of work
- Quality solution with 100% plagiarism free answers
- Time on Delivery
- Privacy of information and details
- Excellence in solving Accounting questions in excels and word format.
- Best tutoring assistance 24x7 hours