CURRENT ISSUES IN FINANCIAL REPORTING Essay Example | Topics and Well Written Essays - 1500 words

CURRENT ISSUES IN FINANCIAL REPORTING - Essay Example The amendments are intended to clarify what can be designated as a hedged item in a hedge accounting relationship. The exposure draft specifies the risks that qualify for designation as hedged risks when an entity hedges its exposure to a financial instrument. In addition, it clarifies when an entity may designate a portion of the cash flows of a financial instrument as a hedged item. Whether a hedge relationship can be designated in this way depends upon whether it is possible to designate as a hedged item a portion of the forecast cash flows that is equivalent to a theoretical sold option embedded in the hedged item. The exposure draft explains how this can be done. In July 2007, the International Financial Reporting Interpretations Committee (IFRIC) issued Interpretation 1 4, IAS 19-The Limit on a Defined Benefit Asset Minimum Funding Requirements and Their Interaction, which addressed defined benefit pension assets and their minimum funding requirements. Exposure Draft has resolv ed many issues of financial reporting which are discussed below: This proposal provides guidance for valuing assets and liabilities that are required to be measured at fair value under other pronouncements. The ultimate goal of the fair-value project is to improve comparability, consistency, and reliability of fair-value measurements by creating a model that can be broadly applied to financial and non-financial assets and liabilities. The framework would also remove policies that disagree with SEC guidelines for investment funds, and clarify the use of fair-value measurements in other authoritative pronouncements. The exposure draft would not replace, but instead would expand upon, current disclosures relating to the use of fair-value measurements for assets and liabilities. Disclosures would include information about fair-value amounts, how they are determined, and the effect of any remeasurement on earnings, including unrealized gains and losses (Aldridge, 1997). Tax uncertainties Once it is determined that a benefit for a tax position may be recognized, the amount must be determined based on the best estimate of the amount that will be sustained. The "best estimate" is defined as the single most likely amount in a range of possible estimated amounts. For example, if a company believes that its position would be sustained on litigation, but typically settles with the taxing jurisdiction to avoid the expense and hazards of litigation, it would record the most likely settlement amount as the benefit. Fundamentally, the proposal entails that a tax position recognized on the tax return be probable of being sustained under audit prior to recognition in the financial statements, and the company must presume that the taxing authorities will review it. In order to derecognize, it must be more likely than not (Glanville, 2004). Business Combination Exposure draft gives some recommendation to avoid any issues, which may arise during business combination, which are: 1. All business combinat