The analysis of financial expenses in accordance with accounting standards and principles

Firms need resources in order to continue their operations, and purchase goods and services according to their operating areas. Mainly, firms prefer equity as the resource; however it?s inevitable to choose the borrowing method when the equity of the firm is insufficient Firms usually can not use equity as the single source for acquiring assets; this situation may not be feasible for both technical and rational point of views. Furthermore, a manager who uses equity as the single for acquiring assets does not benefit from financial leverage effect. Acquiring some portion of the needed resources from foreign sources, booking the interest as expense and decreasing the tax payable, by this way increasing the net profit is common in competitive business areas. The ease of acquiring foreign resources compared to other resources and the ability to write-off the acquisition costs, makes foreign resources attractive. Firms follow borrowing policies in short, medium and long terms in order to provide the need for investment capital and working capital. Along these policies, firms face costs like interest, commission, foreign currency differences. These costs constitute the firms? financial expenses. The main method for booking the financial expenses is booking these expenses as current period?s expense. However financial expenses of some assets, named as specialty assets, have different characteristics. This situation is detailed in the ?Turkish Accounting Standard? no 23, ?Accounting of Borrowing Expenses?. These types of expenses are added to specialty assets? costs if it is possible to measure confidently and it is certain that the firm will benefit from the future economic advantages. Borrowing costs other than these are booked as current period?s expense. The general point of view is the same in the legislations of Turkey. According to the Law Legislation, the foreign currency differences occurring till the end of the period that the fixed asset is purchased, and till the capitalization date for stocks are added to related assets? costs. The capitalization or writing-off the foreign currency differences occurring after the period that the fixed asset is purchased, and after the capitalization date of the stocks is set free in Law Legislation. Capital Markets Board (CMB) does not differentiate the capitalization method of financial expenses for fixed assets and stocks. If the foreign resources are directly related to asset capitalization, the financial costs occurring till the capitalization date can be booked as expense. International Accounting Standards is in line with the Turkish Accounting Standards in accounting of borrowing costs except some insignificant differences.