How and why are Accounting Choices Being Made? A case study concerning accounting choices of component depreciations in Swedish real estate companies

Abstract

Background and problem discussion A large accounting choice is which depreciation method to use since it has a large impact on the financial statements. In K3 there is a new area, namely component depreciation, which has to be implemented on current assets if they have more than one substantial component. Especially for real estate companies, this will have a large impact. Since the area is new, there is a lack of guidance for how to implement component depreciation and there is almost no praxis available. Purpose Because of the problematic discussions around the new accounting choice of component depreciations, the purpose of this thesis has been to investigate how and why they have made these choices of for example which component to use and their depreciation period. Method Qualitative interviews have been performed with seven real estate companies in order to understand how they have implemented this new area in practice. We have had interview questions of which components they have chosen and why they have chosen those components. Moreover, internal documents consisting of examples and calculations regarding component depreciation have been received from the companies. Analysis and conclusion Component depreciation is a part of K3 to increase the true and fair view in accounting. Most companies have chosen rather similar components and they have had similar drivers behind their choices. Also, the managers have been affected by almost the same external forces as there was a lack of guidance there were no praxis of how to implement it.