Restructuring Charges: Are They An Abuse to Accounting Theory?
Schild, Karin N.
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The recent outbreak of company restructuring has demanded attention. The two most common methods involve the write-down of assets and the restructure of debts. When writing down assets, a company aggregates its losses and reports one great loss in the fourth quarter of its fiscal year. Financial statement users view this as "big bath accounting" and demand more timely information. Management merely views this as a function of identification--when they can finally gather sufficient evidence to measure the value of asset impairment. In debt restructuring, a company reports gains to the extent that its obligations have been discharged. A debate still in process is concerned with whether the reported gains are justifiable. Questions have arisen as to when the gain are earned as part of the culmination of the earnings process. Informative and complete financial statement disclosures can alleviate some doubts the users may have. Auditors have the responsibility to determine that the financial statements present fairly the company's financial position, but it is up to the user evaluate the company's financial health and future prospects.