This assignment is to be completed in groups of two and comprises 25% of the marks for this course. There are three questions.
Student work will generally be assessed in terms of the following criteria:
1. Effectiveness of communication – i.e. readability, legibility, grammar, spelling, neatness, completeness and presentation will be a minimum threshold requirement for all written work submitted for assessment. Work that is illegible or incomprehensible and does not meet the minimum requirement will be awarded a fail grade.
2. Demonstrated understanding – This will be evidenced by the student’s ability to be dialectical in the discussion of contentious issues.
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3. Evidence of research – This will be evidenced by the references made to books, journal articles and inclusion of a bibliography.
Part A: (7+7=14 Marks)
Choose any two of the following topics and present an essay based on the questions given.
1. Historical cost
2. Current Cost
3. Exit Cost
4. Positive Accounting Theory
5. Behavioural Accounting
6. Social Accounting
1. HISTORICAL COST
q The historical cost model and its application
q The reasons for the dominance of the historical cost model, and the arguments against the model
q Historical cost valuation issues
q Criticisms of historical cost accounting.
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1. What do you understand by ‘stewardship’ in the historical cost model?
2. Why is profit important to the model?
3. How is matching and the concept of costs attaching used in the determination of profit?
4. Why is net worth not an important concept under the historical cost model?
5. What concept of capital is used in historical cost accounting?
6. Although the historical cost model is a cost-based model, there are some valuation issues.
7. Give the main reasons for the dominance of the historical cost model over others that have been proposed.
8. There are many criticisms of historical cost accounting. Which do you think are the most important? Why?
9. Discuss the proposition that ‘historical costs are less subject to manipulation than other cost or valuation alternatives’.
2. EXIT COST
q Arguments for reporting exit prices
q The concept of adaptive capital
q The difference between value in use and value in exchange
q Criticisms of exit price accounting.
1. Explain how an ‘exit’ price differs from a ‘liquidation’ price.
2. Why are exit prices important to an entity’s management when making decisions about the entity’s changing environment?
3. How do exit prices help to overcome the asymmetry of information between management and shareholders?
4. Differentiate value in use from value in exchange.
5. What is adaptive capital?
6. How is adaptive capital maintained?
7. List the advantages of using exit prices in a measurement system for financial statements.
8. What are the main disadvantages of using exit prices?
9. What are the advantages of including changes in the purchasing power of money in an exit price system?
10. How is financial position determined within an exit price system?
3. POSITIVE ACCOUNTING THEORY
q The philosophy of positive accounting theory
q The strengths of positive accounting over normative accounting
q The scope of positive accounting theory
q Capital market research
q The efficient market hypothesis
q The influence of accounting information on investor behaviour and share prices
q Mechanistic behavioural effects
q Why the firm can be described as a ‘nexus of contracts’
q The role of accounting in contractual specifications to reduce agency costs of equity and debt
q How managers’ ex post accounting decisions can transfer wealth from shareholders to managers
q How price protection and expost settling up constrain opportunistic reporting
q How managers’ ex post accounting decisions can transfer wealth from lenders to equity holders
q The difference between ex post opportunism, efficient contracting and the information perspectives of accounting, and how signalling theory relates to each perspective
q How accounting can be used to signal information about the firm
q How accounting can be used to reduce the political costs faced by the firm
q Key criticisms of positive theories of accounting choice, and their validity.
1. Describe what is meant by positive accounting theory.
2. What is different between positive accounting theory and normative theory?
3. Explain the difference between agency theory and contracting theory.
4. Name the different types of agency costs.
5. What are the criticisms of positive accounting theory?
6. Explain the meaning of an efficient market.
7. What is meant by weak form efficiency, semi-strong form efficiency and strong form efficiency?
4. BEHAVIOURAL ACCOUNTING
q The behavioural perspective and the nature of behavioural accounting
q The contribution to our understanding of the role of accounting information provided by studying behaviour
q The fact that organisations are complex environments and accounting disclosures are trade-offs between competing perspectives and interests
q The influence of accounting information on behaviour and upon decision processes the inherent constraints on behavioural research.
1. Discuss why BAR research has been linked with capital markets research and agency theory?
2. How did behavioural accounting evolve?
3. Explain the Brunswik lens model.
4. What is the significance of the Chernoff faces?
5. List the probabilistic judgement studies.
6. Has accounting changed with research into BAR?
7. What are the limitations of BAR?
5. SOCIAL ACCOUNTING
q Social and environmental reporting issues
q Issues causing business entities to give greater consideration to social and environmental issues
q A theoretical model that outlines the development of corporate concern for social and environmental issues
q Social and environmental reporting practices
q Accounting and reporting issues that are problematic when considering social and environmental issues.
1. Describe corporate social responsibility.
2. Give examples of the environmental issues affecting accounting.
3. What is meant by social reporting?
4. What are the types of social accounting?
5. Explain the factors that have led to increased corporate accountability.
6. What role has government had in regulating environmental issues?
7. Do many companies comply with social reporting?
The IFRS Framework discusses 2 concepts of capital and capital maintenance: financial and physical.
Part C: (7 Marks)
AASB139 is to be replaced by AASB9 as from 1st January 2018. I am a little confused with understanding Financial Instruments and this new standard. Please explain it to me.