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If accounting policies only determine how past transactions are recorded and reflected in financial reports, how can the choice
Finance & Accounting
Pages 6 (1506 words)
Name Professor Course Institution Date Market value and change in accounting policy Introduction The main purpose of this study is to determine how the choice of accounting policy, a firm makes in the market, can affect its market value or earning management.
Any organization in the market has to ensure that it chooses the correct accounting policy in order to attract more investors. The investors usually have interest in studying the financial situation of the company to allow them make an effective marketing decision. Insightfully, this means that the choice the company makes will affect the reflection and recording of financial statement to the investors. Consequently, the earning management by a company highly depends on the accounting policy that a firm uses in showing its financial position. Discussion The switch between FC and SE, as accounting methodologies, depend on the reasoning that one capitalizes while another expenses the cost. Successful Efforts refers to the methodology where the unsuccessful exploration cost is expensed and usually integrated as part of the income statement. However, Full Cost involves capitalizing the unsuccessful exploration cost meaning that this cost is not part of the income statement in this case. The choosing of the two alternative methods relies on their effectiveness in achieving transparency related to the accounting information about oil and gas company’s earnings and cash flows. Based on the Successful Cost method, the objective of an oil and gas company is to produce oil or gas from its reserves hence the view that only the costs related to successful efforts are capitalized. ...
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