In financial reporting, there are four main financial statements: balance sheets, income statements, cash flow statements, and statements of shareholders’ equity – all of which are subject to critical accounting observation. With that being said, what does valuation have to do with financial reporting?
Valuation in accounting is a frequent method used to deduce the value of an asset for the purposes of financial reporting. It may seem like a comparatively basic task all in all, but to assess the present value (PV) of certain types of assets can sometimes demand some advanced calculations and deep understanding of applicable regulations.
Financial reporting has been and is still being feared for its complexity until now. As we advocate asset valuation for financial reporting purposes, let this article be your guide in discovering…
How Valuation Works in Favor of Financial Reporting:
1. Accurate Financial Reporting
Valuation helps keep the value of assets stated in your financial statements accurate. Assets never have the same value from the day they were first purchased. A percentage has to be deducted from their value for depreciation, part of a process we call asset valuation.
2. Valuation Validates Data
In financial reporting, there are certain regulations that you would have to observe to establish the authenticity of your report. One of those regulations is stated in the National Internal Revenue Code of 1997. It states that the Commissioner shall, upon consultation with competent appraisers, both private and public sectors, determine the fair market value of real properties – which basically means that the value of assets reported in your financial statements are ratified by the verdict of licensed professional appraisers.
3. Valuation Saves Time
Because of existing rules and regulations in submitting financial reports to the Bureau of Internal Revenue (BIR) and the Securities and Exchange Commission (SEC), delays are evident in the financial reporting scene. Valuation saves time, money, and effort for your company as it helps you avoid misstatements of asset value in your reports and its corresponding penalties – thus making Financial Reporting as efficient as it could ever be.
4. Avoid Tax Overpay
Corporate tax rates are quite high. When companies make a lot of profit, the taxes they would have to pay will be relatively high. Usually, business owners get surprised at how little they have left once they have paid taxes to the government. Can they reduce their tax burden? Unfortunately, they can’t. However, it’s not impossible to effectively avoid tax overpays. In order to achieve this, regular asset valuation is the key – making sure that financial numbers are as accurate as they can be.
The above-mentioned points emphasize why it is imperative to regularly appraise the value of assets when it comes to financial reporting. Routinely updating the value of assets through valuation is a critical factor in ensuring that the actual financial picture of a business is presented. Therefore, through #beatApril15, we firmly advocate valuation for financial reporting. Remember, this year’s financial reporting season has long begun; so #letsbeatit!
