The Reliability of the Working Capital Section of the Balance Sheet

Abstract

The working capital segment of the balance sheet is of interest to short term bankers and trade creditors.  Its proper presentation is basically governed by Generally Accepted Accounting Principles (GAAP) which are pronouncements of the Philippine Institute of Certified Public Accountants (PICPA) through its Accounting Standard Council (ASC).  This paper examines the reliability of this balance sheet segment by studying a number of Audited Financial Statements and interviewing some users.

This paper concludes that the public in general may have some justifications in expressing some doubts on the integrity of audited financial statements through proper compliance to GAAP.  It concludes further that the usefulness of audited financial statements may have been limited by inadequate disaggregation of significant items.