Overview: It requires you to: (i) directly address two parts (Parts A and B), worth a total of 18 marks (see Sections 3 and 4 of this document), and (ii) to do so with ‘Academic Quality’, worth 2 marks (see Section 2, Item c and Section 5 Assignment Marking Rubric). 2. Instructions: (a) Obtain the annual report of a top 200 ASX listed company. It does not have to be the latest year. (b) No group is allowed to select the same company. Therefore, your choice of company must be approved by your lecturer. (c) In terms of ‘Academic Quality’ (worth 2 marks out of 20 marks), this assignment must be written/structured in the form of a ‘business report’. That is, it must have a/an; (a) Executive summary (between 100 to 200 words), (b) Introduction that; (i) succinctly summarizes this assignment’s topic (i.e., ‘The Choice of Accounting Methods’ – see the prescribed textbook, Henderson et al. 2014, Chapter 5) and its key issues, controversies, etc (no more than 250 words), and (ii) outlines the core business activities of your selected/approved company (no more than 250 words), (c) Body that addresses all the requirements for both Parts – see below (no more 1800 words), (d) Conclusion that sums up the mains issues of Part A and Part B of this assignment (no more than 200 words), and (e) Reference list containing all cited works. (f) Proper English Grammar, appearance, format, etc. 2.
Part A; Accounting Policy Choice and Creative Accounting (15 marks) Preamble ‘This chapter is concerned with choice between alternative accounting recognition, measurement and disclosure policies, and the factors that influence that choice.’ (Henderson et al. 2014, page 110). ‘Those responsible for preparing financial statements must choose the accounting policy that is best suited to particular transactions and events.’ (Henderson et al. 2014, page 114). ‘The term ‘creative accounting’ describes a situation where the choice of accounting policy is made to ensure that the published financial statements present the impression desired by the statement preparers.’ (Henderson et al. 2014, page 115). ‘There are four ways in which accountants may be ‘creative’ in the preparation of and presentation of financial statements. They may: Unit Code; MA601 Unit Title; Theory and Current Issues in Accounting Page 3 of 6 Last Updated: April, 2018 1 choose an accounting policy or change accounting policies to achieve a desired outcome; 2 make estimates or predictions of future events in a way biased towards achieving a desired outcome; 3 disclose transactions or events in a way that influences the interpretation of the financial statements; and 4 time transactions to take advantage of generally accepted accounting practices.’ (Henderson et al. 2014, page 115-116). For the purposes of this assignment, we describe these ‘four ways’ as follows; 1. Accounting Policy Choice 2. Biased Estimates or Predictions 3. Disclosure for Influencing Interpretation 4. Timing of Transactions ‘There has been considerable speculation about the reasons why a particular accounting policy is preferred in some circumstances while another accounting policy is preferred in other circumstances.’ (Henderson et al. 2014, page 117). Required Having carefully read Chapter 5 of the prescribed textbook (Henderson et al., 2014), from the annual report of your selected/approved company; (i) Clearly identify and explain THREE EXAMPLES of how the accountants (and therefore those responsible for the preparation of the financial statements – the directors!) have (or may have) used accounting to be ‘creative’ in the preparation and/or presentation of the financial statements. (ii) (ii) Provide the main reason (i.e., ‘motivation’) for the accountants’ (directors’) choice of such ‘accounting creativity’. Your response for this part must be structured so that each of your THREE EXAMPLES of ‘creative accounting’ represents one of the ‘four ways’ mentioned by Henderson et al. (2014). For each of your three examples, provide a sub-heading in the body of your business report that states which of the ‘four ways’ it represents. E.g., your three sub-headings could be; Creative Accounting Example No.1: Accounting Policy Choice, Creative Accounting Example No.2: Accounting Policy Choice, Creative Accounting Example No.3: Biased Estimates or Predictions.
Part B; Accounting Policy Choice and Opportunistic Behaviour (3 marks) Preamble ‘Opportunistic behaviour by managers means that managers choose accounting policies to maximise their own benefits at the expense of others.’ (Henderson et al. 2014, page 121). Required From the annual report of your selected/approved company; (i) Provide an example of ‘opportunistic behaviour’. (ii) Discuss and describe how you would use the ‘process of contracting’ (Henderson et al. 2014, page 119) to control or reduce this ‘opportunistic behaviour’. Your response must detail a ‘bonding and/or monitoring procedure’ (Henderson et al. 2014, page 122). In responding to (i) and (ii) above, in the body of your business report create a sub-heading ‘Opportunistic behaviour’.
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