Respuesta :
The accounting estimates that are contained in the financial statements must be made by management. Since estimates are dependent on both subjective and objective elements, it takes judgment to determine how much something should be at the time of the financial statements.
What is management estimate:
The majority of the time, management makes decisions based on their knowledge of previous and present events, their experience with them, and their expectations for future conditions and actions.
The consequences of previous business transactions or events, as well as the current position of an asset or liability, are measured by accounting estimates in historical financial statements. Examples include pension and warranty expenses, reserves for property and casualty insurance losses, net realizable values of inventories and accounts receivable, contract revenues reported using the percentage-of-completion approach, and more financial estimates.
Establishing a procedure for creating accounting estimates is the responsibility of management. Even though it might not be formally used or documented. The likelihood of a major falsification of accounting estimates often fluctuates with the process's complexity and subjectivity, the accessibility and dependability of pertinent data, the quantity and importance of the assumptions made, and the level of uncertainty surrounding those assumptions.
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