Depreciation of Assets: The value of fixed assets such as plants, vehicles, machinery, building and furniture is written down or depreciated on the base of their probable positive lives. Judgment is wanted to measure the valuable efficient life and fair value of fixed assets, so that the depreciation costs are pointed on financial statements in appropriate way. Underestimating the value of an asset and the useful life can lead to overdrawing the annual depreciation amount that is the unethical aspects related to financial reporting (Williams, 2011).
Extraordinary Items: Extraordinary items of income and expenses must be disclosed separately on financial statement to represent the accurate financial performance of the corporate at the financial year. Non-recurring (extraordinary) items example is gain or losses on the sale of assets and the integration of acquired businesses, so these types of items represent in financial statement at fair value otherwise firm cannot represent its accurate financial performance in front of stakeholders (Wells, 2006).
Provisions: The companies are needed to create in their financial statements provisions for several things such as bonuses, pensions, severance compensation, and unpaid legal proceedings. The judgment of these provisions is based on the assumption of the future enhances in salaries and wages, discount rate, life expectancy, retirement age, and the probability of success in the legal proceedings (Whittington, 2014). These assumptions and provision required actual payment and original estimated and reported in financial statement.
In the same way, it can be said that, in the current time, today’s business organizations should also focus on these kea areas of judgment in financial reporting for the fulfilment of financial objectives in an effective and proper manner.