Reference no: EM132570689

You are a graduate accountant of a second-tier accounting firm and your senior partners have approached you regarding concerns from a client of the firm, Horgan's Wholefood. The Director at the client company, Mr Happy Horgan, has concerns about the objectivity of the financial reports being used when investors evaluate their company's performance. Mr Horgan's belief was that the information provided in a statement of financial position (balance sheet) was very objective, however it has been brought to Mr Horgan's attention that financial accounting requires the use of significant professional judgement. Mr Horgan is unsure what this actually means and how this can impact on the information reported in the financial reports. Mr Horgan was also of the understanding that equity was something 'real' however he has concerns that this is not possible due to the influence of accountants/managers having to rely on professional judgement and therefore this could suggest that accounting information is actually 'constructed'. Mr Horgan believes that this would ultimately present information that is unreliable. In view of these concerns from the client, Mr Horgan, your senior partner has asked you to make brief to explain how accountants/managers use professional judgement. In doing so, you need to allay any concerns expressed by the client regarding the issue of presenting unreliable information, but also present a balanced and ethical viewpoint. However, you can explain to Mr Horgan some of the potential issues with reliance on information reported in the statement of financial position as an objective measure of company's wealth. The use of examples is encouraged.

Required:

Question 1: providing a short brief that can be distributed to your internal team and that the client can also take away.