Reference no: EM131635084

Accounting Theory and Current Issue Group Assignment -

Group Assignment theme: Evaluate accounting quality, for a company of your choice, by assessing accounting policies and estimates and prepare an investigative report on Managers' Accounting and Reporting Strategy Choice.

Recommended steps/ navigation to complete the assignment project

A) Ready:

a. Form a group (maximum of 4 members)

b. If you have difficulties forming such groups, please contact your lecturer as soon as possible.

c. Select a company and get approval of the company (Any company listed with ASX and not taken by other groups) from your lecturer, on which your group want to progressively analyze

B) Get set:

a) Read and gain in-depth understanding of the various normative and positive theories of financial accounting from the text book and from other relevant & credible literature

b) Be aware of some of the limitations of the various theories of accounting

c) Appreciate that there is no single unified theory of accounting

d) Understand the various pressures and motivations that might have an effect on the methods of accounting selected by an organisation

e) Understand what is meant by 'creative accounting' and why it might occur

f) Understand Financial statement preparation process (from Business Activities to Financial Statements) and the various influencing factors from this document and from other credible sources.

g) In-depth knowledge on Accounting Framework.

C) Go:

a. Download Annual Reports (for 2 years at least) and explore

b. Assess accounting policies and estimates of your selected ASX listed company

i. Which accounting policies and estimates used by the firm?

ii. Are there any flexibilities of accounting policies and estimates used by the firm?

iii. Are these accounting policies and estimates used by their competitors?

iv. Show a comparison of accounting policies and estimates used by the firm with one of its rival company.

v. Do you agree with the policies and estimates?

vi. Is accounting strategy hiding or revealing

vii. Any Red Flags/questionable number in the accounting report?

viii. Which accounting positions capture them? Why? Explain

c. Critically evaluate accounting quality by assessing accounting policies and estimates

i. consider the various pressures, many of which are political in nature, that influence the accounting standard-setting environment.

ii. consider the implications of organisations making particular accounting disclosures, whether voluntarily or as a result of a particular mandate

iii. understand the possible implications of an organisation making particular accounting choices and disclosures

d. Prepare an investigative report on the Managers' Accounting Strategy and Reporting Strategy choices on the basis of the above evaluation. The report should have following sections for minimum:

Section 1: Identify Key Accounting Policies

Key policies and estimates used to measure risks and critical factors for success must be identified.

Section 2: Assess Accounting Flexibility

Accounting information is more open to distortion if managers have a high degree of flexibility in choosing policies and estimates.

Section 3: Evaluate Accounting Strategy

Flexibility in accounting choices allows managers to strategically communicate economic information or distort performance. Issues to consider include:

• Norms for accounting policies with industry peers
• Incentives for managers to manage earnings
• Changes in policies and estimates and the rationale for doing so
• Whether transactions are structured to achieve certain accounting objectives.

Section 4: Evaluate the Quality of Disclosure

Issues to consider include:

• Whether disclosures seem adequate
• Adequacy of footnotes to the financial statements
• Whether notes sufficiently explain and are consistent with current performance
• Whether GAAP reflects or restricts the appropriate measurement of key measures of success
• Adequacy of segment disclosure.

Section 5: Identify Potential Red Flags

Issues that warrant gathering more information include:

• Unexplained changes in accounting, especially when performance is poor
• Unexplained transactions that boost profits
• Unusual increases in inventory or receivables in relation to sales revenue
• Increases in the gap between net income and cash flows or taxable income
• Use of R&D partnerships, SPEs or the sale of receivables to finance operations
• Unexpected large asset write-offs
• Large fourth-quarter adjustments
• Qualified audit opinions or auditor changes
• Related-party transactions.

Section 6: Compliant with the Conceptual Framework

D) Gone/ Done!!!

Submit the report in accordance with assessment policy stated in the Subject Outline and Student Handbook.

Format of the Report and deliverables

1. You at least should have the following details:

a. Assignment Cover page clearly stating your members name and student number s

b. A table of contents, executive summary

c. A brief introduction or overview of what the report is about.

d. Body of the report with sections to answer the above sections and with appropriate section headings

e. Conclusion

f. List of references.

2. Diagrams and tables clearly labelled and explained.

3. Ensure all materials are correctly referenced. Plagiarism will be severely penalised.

Back ground Information - Positive Theory of Accounting (PAT)

PAT seeks to explain and predict accounting-related phenomena, for example, study of capital market's reaction to particular accounting policies; what motivates managers to select a given method of accounting; reasons for the existence of particular accounting based contracts. It relies upon a fundamental assumption that individual action can be predicted on the basis that all action is driven by a desire to maximise wealth. It argues that selection of accounting methods can be explained by either efficiency or opportunistic arguments. So the theory provides insights into why managers favour particular accounting methods in preference to others. PAT also maintains that Accounting methods can impact on cash flows associated with debt and management compensation contracts .The use of particular accounting methods can have conflicting effects, For example, might 'loosen debt covenants' but increase political costs. The theory Emphasises the way in which accounting numbers are actually used throughout society and how a change in accounting methods can have implications for relationships with managers, debtholders, and the broader political environment.

Attachment:- Assignment File.rar