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Economic Principles of Asset Evaluation in Fair and Objective Reporting on Net Asset Value - Case of Croatia

Company financial statements record and present all financial effects of transactions related to assets, capital, liabilities, expenses and revenues. These elements should reveal real flow of transactions in a company resulting in fair and objective presentation. In this way financial reporting achieves its basic aim of providing various users with information on the company financial position, performance, and changes in financial position. This work highlights the financial position of the company presented in the Balance Sheet by asset, capital, and liabilities, and in the Profit and Loss Account by expenditures and revenues. Company financial position is affected by the economic resources managed and used in the business process to create new value. Assets are resources controlled by the company that result from previous transactions and from which it expects the future inflow of economic benefits. The sub-elements of assets recorded in the Balance Sheet and classified according to their character or function in the business process should be presented in amounts that reflect their economic value. Thus it can be said that the assets presented in the Balance Sheet assume the characteristics of fair and objectively presented elements. At the same time profit tax is an item in the Profit and Loss Account presenting the amount that is deducted from profit before tax to determine the net profit. In the legal systems in which accounting principles for defining accounting profit before tax are in compliance with the accounting principles for defining the current period tax liability base this tax liability is also shown in the Profit and Loss Account as the item to be deducted from profit before tax. It can be said that such cases are rare and „ideal“. On the other hand, a more frequent situation occurs when accounting principles are not in compliance with the tax principles for determining the tax base in the same accounting period. The authors present the principles that should be followed in the accounting practice in order to present financial statements fair and objectively. They especially focus on accounting principles that are frequently misinterpreted and then implemented in subsequent long term asset evaluation. They also point to the principles contained in IAS 12 – Profit Tax which can misinterpreted in the economies in which the legal framework allows temporary differences. Noncompliance with these principles results in financial reporting that is not fair and objective, which provides the decision makers with wrong information on the net asset value, i.e. the financial position and power of the observed company.

Financial statements; International Accounting Standards; Asset evaluation; Net asset value; Fair and objective reporting

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