Current liabilities refer to short-term financial obligations of a firm

Current liabilities refer to short-term financial obligations of a firm

Current liabilities refer to short-term financial obligations of a firm usually due within one year. Current assets are usually used to offset any current liabilities. For a firm to remain solvent, it must balance the ratio between current liabilities and current assets. Account payables are the most significant current liabilities within a company. They usually contain the list of supplier invoices which are due (Aljifri & Khasharmeh, 2006). Companies always try to ensure account receivables becomes due first in order to offset the balances present in the account payables.

According to Emaar properties Consolidated statement of financial position in the year ending 31^st December 2019. It contained the following current liabilities

Trade and other payables

This is money owed to suppliers which will be paid within a short duration of time.

Advances from customers

These are monies collected by the company before providing their product or services to their clients. This prepaid money is added to the current liability section. Once the product or service is rendered, it is moved to the revenues collected.

Retentions payable

These are funds withheld for payment until the contractual obligations are fulfilled. The specific percentage of money withheld ensures that services or products are delivered to the highest standards.

Deferred income tax payable

These are income taxes owed to the government and due at a future date. This case usually arises when the company uses different systems for calculating taxes and accounting. This difference in accounting rules leads to company postponing payments.

Interest-bearing loans and borrowings

The company has to pay interest on loans or debts it plans to serve over some time. For example, the company may have to pay interest on trade credit from its suppliers.

Provision for employees’ end-service benefits

The group pays benefits to its employees based on the duration of work and the overall salary. Emaar Properties has established a pension fund. This fund helps in the deduction of a certain percentage of an employee’s salary to pay off these benefits.

Sukuk

Use of Sukuk is based on the fact that Emaar properties operate in the Islamic sharia law. Sukuk is a financial certificate comparable to bonds in the Western markets.

Reporting of current liabilities

The short-term liabilities are listed first in the Emaar properties balance sheet. They are listed first because they take the earliest claim on the company’s current assets.  Assets or current liabilities can be used to pay off any outstanding liabilities as they are usually due within one year.  In the short-term liabilities section, the trade and other payables are listed first in Emaar’s balance sheet. These liabilities are typically due within 30 days. They represent the bills due to the suppliers of the company. In the case of Emaar, short and long-term liabilities are not indicated in separate sections. Instead, they are contained together in the current liability section. They include only those liabilities which are due in the current financial year.

In Emaar properties, the management is responsible for the preparation and presentation of consolidated financial statements in line with IFRS. Also, the statements follow the provisions contained in the federal law of the UAE. This ensures the material is accurate and credible. This prevents any errors or fraud that may tamper with the integrity of the document. Also, any auditing whether internal or external is overseen by the governance (Emmar properties)

. They ensure that all accounting procedures are followed and that the company keeps proper books of account.

In Emmar properties, financial reporting procedures occur on a quarterly base.

Financial reporting procedures

Emmar properties strictly adhere to the accounting rules in line with IFRS. The principle of faithful representation under IFRS is used to ensure the current liabilities section is complete and neutral. No detail is withheld whether loans or any debt or borrowings from other financial institutions. The information presented is clear. So, any investor or group who is interested in the financial position of Emaar properties will be given an accurate representation of the state of the company. The current liabilities are reported in the perspective of the whole organization and not just a single section of the company (Emmar properties).

The management also follows the rule of financial statements being reported on the going concern basis. This means that the company will still be in operation in future. The entity also uses the current value measurement in recording current liabilities. The measurement is based on the current cost of the liabilities. While preparing the books of account, the management ensures fair value was used as a current value basis. Emmar properties have not presented liabilities in terms of current and non-current. Preferably the company has prepared in order of liquidity (Byard, Li & Yu, 2010). This ensures the information provided is reliable and relevant for any stakeholder.

Manual content analysis

Research question: How do companies use accounting provisions contained in IFRS in the documentation of liabilities?

The interviewees indicated that the majority of companies used IFRS, notably the current value measurement in preparing accounting books. A few responses revealed that other companies prefer the historical costing method to prepare accounting books. It further showed that IFRS methods helped standardize accounting procedures in many firms. This ensured uniformity in the application of rules in accounting. 50% of interviewees expressed optimism about the future of accounting when IFRS is fully applied.

Therefore, this discussion has shown the application of IFRS provisions in Emmar properties. The management of the company has taken a leading role in overseeing the preparation of books of account. This approach has seen the organization keep proper books of accounts within its set up.  Accounting professionals benefit a lot when there is uniformity in the application of accounting rules. This situation makes a comparison of books of account an easier task.  Regulators are also able to streamline the sector, and any interested party will find it easier to check books when investors or other groups want to analyze financial statements. IFRS ensures they get a clear and accurate picture of the financial position of the organization.  For any organization to thrive, it must ensure there is a balanced ration between current assets and current liabilities. Any organization which does not have sufficient current assets value faces the risks of being unable to pay off its debts. Also, much precision needs to go into preparing financial reports. Otherwise, essential measurements relating to the costs of assets and liabilities will be missed. One recommended action is that policymakers must tighten enforcement to ensure all organizations adhere to IFRS provisions.

Byard, D., Li, Y. and Yu, Y. (2010)The effect of mandatory IFRS adoption on financial analysis information environment, Journal Of Accounting Research, 49(1) 69–96.

CONDENSED, U. I., & STATEMENTS, C. F. (2011). Emaar Properties PJ SC and its Subsidiaries.

Aljifri, K. and Khasharmeh, H. (2006). An investigation into the suitability of international accounting standards to the United Arab Emirates environment, International Business Review, 15, 505–26.