Accounting theory and practice
3101AFE Accounting Theory and Practice
GROUP RESEARCH ASSIGNMENT
Semester22015
OVERVIEW
The research assignment is a workbook that comprises three (3) newspaper articles that demonstrate issues of relevance to accounting theory.
Draft Due Date: Seminar 7 (week 9)
Assignment Due Date: Friday 9 October at 2.00pm
Weighting: 15%
Word Length: 500 words per article (excluding the 100 word summary)with a 10% leeway.
ACCOUNTING THEORIES
Select an accounting theory that is relevant to the article:
DO NOT invent a theory – you MUST only use the theories listed on page 5of this document. Note: the ‘market for lemons’ is NOT a theory.
ANALYSIS/REPORT
A word count MUST be included at the end of each section within each of your three reports, plus an overall word count must be given at the end of each report.
For each article, apply the chosen accounting theory in a report style format:
Title of the Article and Article Reference Number (as shown in this document)
Then, the four sections of your report, each with a word count at the end:
Summary (Part A):
Summarise the article in a maximum of 100 words.
Accounting Theory (Part B):
Identify and briefly describe the accounting theory that you will be using in this analysis. Use appropriate references. (Suggested word count = 100 words)
Analysis (Part C):
Provide an analysis of the relationship between the theory and the newspaper article. Show how the facts of your article are directly related to the accounting theory chosen. Use references to support your arguments. (Suggested word count = 350 words)
Conclusion:
Provide a brief conclusion. (Suggested word count = 50 words)
DO NOT reproduce the articles which you select from this document– include only the title and number of each article.
IF YOU DO NOT FOLLOW THESE INSTRUCTIONS, YOU WILL LOSE MARKS FOR PRESENTATION.
WRITTEN COMMUNICATION
MARKS FOR WRITTEN COMMUNICATION
There are 7.5 marks for written communication. Please refer to the criteria sheet and note:
Structure:Use a report format with sub-headings, as described above in Part C(4) onpage 2.
Written communication:
It is important to use sub-headings and short paragraphs to give clarity to your answer – clarity and succinctness* are what distinguishes the very good from the average case study (*succinctness means explaining the answer completely but concisely, i.e. in a relatively small number of words).
Allow time for overall editorial work on conclusion of the assignment (each person will have an individual writing style).
SPELLCHECK (English) and GRAMMAR check must be run prior to submission
English help is available to assist students with written communication. You can make weekly appointments – refer to the Learning@Griffith website.
SUBMISSION/PRESENTATION
PRESENTATION
PLEASE ENSURE THE SUBMISSION IS TYPED, double line spacing in 12 point Arial font is used, andthe submission isAPPROPRIATELY REFERENCED.
FAILURE TO FOLLOW THESE 2 INSTRUCTIONS WILL RESULT IN MARKS BEING DEDUCTED
A title page.
A table of contents with the names and numbers of the newspaper articles chosen.
Analysis [see part C(4)on page 2]
This section should contain normal academic referencing and reference sources.AT LEASTTWO academic journal references per articleMUST be included.Failure to do so will result in marks being deducted.
You MUST NOT refer to EITHER the Deegan textbook OR your SEMINAR Notes/PowerPoint slidesIN YOUR REPORTS. Failure to follow this instruction will result in marks being deducted.
A comprehensive reference list (see GBS Resource Bank – link available on L@G)
Ensure that this complies with the required format of a reference list
https://app.secure.griffith.edu.au/reference_tool/index-core.php
In addition to the GBS Referencing Tool, you can also access an interactive Referencing Tool that looks at referencing styles, including:
AGPS Harvard
APA (American Psychological Association)
Marks will be deducted for presentation if you do not adhere to these requirements.
SUBMISSION OF THE ASSIGNMENT
OTHER POINTS TO NOTE
EXEMPLARS
Exemplars will be posted on Learning@Griffith by the beginning of Week 4.
MARKING
The criteria sheet indicates how you will be marked. In addition to this, a detailed mark sheet is attached for your reference (page 9). Please note, there are 7.5 marks for written communication and 2.5 marks for presentation – this includes the correct recording of names and student numbers.
**Youshould refer to the Learning@Griffith website for penalties for late submission**
ACCOUNTING THEORIES
LECTURETWO + SEMINAR TWO
Public Interest Theory
Capture Theory
Private Interest Theory (Economic Interest Group Theory.
ARTICLE 1
New Rules to Alter How Companies Book Revenue – Change Will Affect Firms Ranging From Software Makers to Auto Companies
The Wall Street Journal, Michael Rapoport , Updated May 28, 2014www.wsj.com/…/u-s-global-accounting-rule–makers-issue-long-awaited-r…
New rules released Wednesday will overhaul the way businesses record revenue on their books, capping a 12-year project that will affect companies ranging from software firms to auto makers to wireless providers.
The new standards, issued jointly by U.S. and global rule makers, will take effect in 2017, prompting a broad array of companies—from software giants like Microsoft Corp. MSFT +0.36% and Oracle Corp. ORCL +0.23% to major appliance makers—either to speed up or slow down the rate at which they book at least some of their revenue.
The rules aim to simplify and inject more uniformity into one of the most basic yardsticks of a company’s performance—how well its products or services are selling.
“It’s one of the most important metrics for investors in the capital markets,” said Russell Golden, chairman of the Financial Accounting Standards Board, which sets accounting rules for U.S. companies and collaborated on the new rules with the global International Accounting Standards Board.
Companies were cautious in assessing the potential impact of the overhaul, but some were optimistic. “We’ve been waiting for it for a long time,” said Ken Goldman, chief financial officer of Black Duck Software Inc., a provider of software and consulting services. “This levels the playing field and takes a lot of the ambiguity out of what are overly restrictive rules.”
The rules are designed to replace fragmented and inconsistent standards under which companies in different industries often record their revenue differently and sometimes book a portion of it well before or after the sales that generate it.
“We wanted to make sure there was a consistent method for companies to identify revenue,” said the FASB’s Mr. Golden. But the new rules could make corporate earnings more volatile, accounting experts said, by changing the timing of when revenue is recorded. They also could lead to increased costs for companies as they seek to track their performance while providing the additional disclosure the new standards require.
“This has at least the potential to affect every company,” said Joel Osnoss, a partner at accounting firm Deloitte &Touche LLP. They “really should look at the standard” and ask how the revenue-rule changes will affect them, he said.
Accounting rule makers have long focused on the question of when businesses should book revenue, because it touches every company and can be an area ripe for fraud. Allegations of improperly speeding up or deferring revenue have been at the heart of many accounting-fraud scandals.
In 2002, for example, Xerox Corp. XRX +1.33% paid a big settlement to the Securities and Exchange Commission to resolve allegations that it had improperly accelerated revenue. Xerox didn’t admit or deny the SEC’s allegations.
The new rule’s impact will be most felt in a handful of industries in which goods and services are “bundled” together and parts of that package are provided long before or after customers pay for them. These include such benefits as maintenance that comes with the purchase of a new car, or software upgrades given to customers who bought the original program.
In such cases, the time at which companies recognize revenue is often out of sync by months or years with when customers get the goods and services associated with it. For instance, when auto and appliance makers sell their products, they typically book the purchase price immediately, but the transactions can also include free maintenance or repairs under warranty that the company might not provide for months or years.
Under the new rules, the manufacturer would book less revenue up front and more revenue later, because some of the revenue from the car or appliance would be assigned to cover future service costs. As a result, some of a company’s revenue might be stretched over a longer period.
Conversely, software makers such as Microsoft and Oracle might be able to recognize some revenue more quickly. Software companies now often have to recognize their revenue over time, because they have to wait until all of the software upgrades and other pieces of a sale are delivered to the customer. The new rules will make it easier for companies to value upgrades separately and so recognize more of the software’s overall revenue upfront, Mr. Golden said.
Similarly, wireless phone companies like Verizon Communications Inc. VZ +0.85% and AT&T Inc. T +0.39% might book some revenue faster under the new rules. Currently, a wireless company books revenue each month, as customers receive wireless services—but none of that revenue is allocated to any phone that customers get free or for a low price.
That will change under the new rules; some of the monthly revenue will be applied to those phones. And since customers get the phone when they first sign up, at the beginning of their contracts, that will have the effect of pulling the revenue forward in time, allowing the company to book it earlier.
Even companies that aren’t affected so much by the timing changes will have to disclose more about the nature and certainty of their revenue—something Deloitte &Touche’sMr.Osnoss said will help investors. “I think investors are going to have much more of a view into the company.”
But companies may find that providing that information complicates their lives and raises their costs. “For the majority of people, it’s going to be difficult,” said Peter Bible, chief risk officer for accounting firm EisnerAmper and a former chief accounting officer at General Motors Co. GM +0.84%
The FASB and the IASB have been working together on revamping the revenue-recognition rules since 2006, and the project has been on the FASB’s agenda since 2002.It took so long, said FASB’s Mr. Golden, because the subject is so broad and important. “The boards wanted to make sure we got it right.”
Corrections & Amplifications
Under current rules, wireless companies book revenue each month as customers receive wireless services. An earlier version of this article incorrectly reported that revenue can be booked as customers pay their wireless bills each month. A graphic that originally accompanied this article also contained the erroneous information.
3101AFE – ACCOUNTING THEORY AND PRACTICE – CRITERIA SHEET, RESEARCH ASSIGNMENT
Student Names & Numbers(* the group leader):
Tutor’s Name: Majella Percy; DaiFei (Troy) Yao; Xin (Tracy) Qu
Criteria
Unsatisfactory – Low Pass
1 2.0
Low Pass – Very fair
2.25 3.0
Very Fair – Good
3.25 4.0
Very Good – Excellent
4.25 5.0
Marks
Article 1
Analytical Thinking:Identification of an accounting theory issue from the newspaper article, choice of an accounting theory, and analysis of the relationship between the theory and the newspaper article. (5 marks)
The students have shown limited ability to present the issue in a logical manner and to analyse the specific issue including application to a theory. No references used to support arguments.
The students have shown some ability to present the issue in a logical manner and to analyse the specific issue including application to a theory. Some references used to support arguments but the majority are unsubstantiated.
The students have shown a good ability to present the issue in a logical manner and to analyse the specific issue including application to a theory. References used to support arguments in the majority of cases.
The students have shown a very high level of ability to present the issue in a logical manner and to analyse the specific issue including application to a theory. References are clearly articulated and expertly used to support arguments throughout.
/5.0
/2.5
/7.5
Article 2
Analytical Thinking: Identification of an accounting theory issue from the newspaper article, choice of an accounting theory, and analysis of the relationship between the theory and the newspaper article. (5 marks)
The students have shown limited ability to present the issue in a logical manner and to analyse the specific issue including application to a theory. No references used to support arguments.
The students have shown some ability to present the issue in a logical manner and to analyse the specific issue including application to a theory. Some references used to support arguments but the majority are unsubstantiated.
The students have shown a good ability to present the issue in a logical manner and to analyse the specific issue including application to a theory. References used to support arguments in the majority of cases.
The students have shown a very high level of ability to present the issue in a logical manner and to analyse the specific issue including application to a theory. References are clearly articulated and expertly used to support arguments throughout.
/5.0
/2.5
/7.5
Article 3
Analytical Thinking: Identification of an accounting theory issue from the newspaper article, choice of an accounting theory, and analysis of the relationship between the theory and the newspaper article. (5 marks)
The students have shown limited ability to present the issue in a logical manner and to analyse the specific issue including application to a theory. No references used to support arguments.
The students have shown some ability to present the issue in a logical manner and to analyse the specific issue including application to a theory. Some references used to support arguments but the majority are unsubstantiated.
The students have shown a good ability to present the issue in a logical manner and to analyse the specific issue including application to a theory. References used to support arguments in the majority of cases.
The students have shown a very high level of ability to present the issue in a logical manner and to analyse the specific issue including application to a theory. References are clearly articulated and expertly used to support arguments throughout.
/5.0
/2.5
/7.5
Written Communication, this includes: Clarity of Expression, Logical Exposition, Succinctness, Spelling and Grammar, Referencing.(7.5 marks)
(This mark is for an overall assessment of the written communication skills displayed for these three issues.)
The students’ work reflects poor English expression. Writing is unclear, not succinct, and frequently has spelling and grammatical errors. The students present their analysis in an unclear and disorganised manner. APA or HARVARD reference style is not used.
The students’ work reflects fair English expression. Writing is unclear, not succinct, and has some spelling and grammatical errors. The students present their analysis in an unclear and disorganised manner. APA or HARVARD reference style is not consistently used.
The students’ work reflects good English expression. Writing is clear and succinct with few spelling and grammatical errors. The students present their analysis in a clear and logical manner. APA or HARVARD reference style is used consistently with minor flaws.
The students’ work reflects excellent English expression. Writing is very clear and succinct, with very few, if any, spelling and grammatical errors. The students present their analysis in a very clear and logical manner. APA or HARVARD reference style is expertly used.
2.5 per article
Presentation of assignment (This includes correct format including names on criteria sheets) (2.5 marks)
/2.5
COMMENTS and TOTAL MARKS
/25
MARKING GUIDE FOR ACCOUNTING THEORY AND PRACTICE
TICKS AND COMMENTS
TOTAL
ARTICLE ONE:
1. Summary of article
√
/0.5 mark
2. Accounting theory (Identify and briefly describe the accounting theory chosen).
√√(accounting theory)
/1.0 mark
3. Application of theory to article and use of references to support argument.
√√ √ √√ (application)
√√ (Use of references to support argument)
/2.5 marks
/1.0 mark
4. Written communication for article 1
Spelling and grammar √√
Clarity of argument √√
Consistent referencing style √
/2.5
ARTICLE ONE – TOTAL
/7.5 marks
ARTICLE TWO:
1. Summary of article
√
/0.5 mark
2. Accounting theory (Identify and briefly describe the accounting theory chosen).
√√ (accounting theory)
/1 mark
3. Application of theory to article and use of references to support argument.
√√√√√ (application)
√√ (Use of references to support argument)
/2.5marks
/1.0 marks
4. Written communication for article 2
Spelling and grammar √√
Clarity of argument √√
Consistent referencing style √
/2.5
ARTICLE TWO – TOTAL
/7.5 marks
ARTICLE THREE:
1. Summary of article
√
/0.5 mark
2. Accounting theory (Identify and briefly describe the accounting theory chosen).
√√ (accounting theory)
/1 mark
3. Application of theory to articleand use of references to support argument
√√√√√ (application)
√√ (Use of references to support argument)
/2.5marks
/1.0 marks
4. Written communication for article 3
Spelling and grammar √√
Clarity of argument √√
Consistent referencing style √
/2.5
ARTICLE THREE – TOTAL
/7.5 marks
Article 1
Per criteria above
/7.5 marks
Article 2
Per criteria above
/7.5 marks
Article 3
Per criteria above
/7.5 marks
Presentation mark
Refer to criteria sheet
/2.5 marks
OVERALL TOTAL – 3101AFE
/25 marks
Student Names &Numbers:
This is an example how she wants the assignment to be done, i thought it would be helpful for you.
ANALYSTS DOWNGRADE CBA EARNINGS FORECAST
http://www.theaustralian.news.com.au/business/story/0,28124,25482623-20501,00.html
ADJUSTED ASSIGNMENT TO REFLECT THE NEW REQUIRED STRUCTURE (Marical Filio, Jing Hu and Hanjing Zhu)
SUMMARY OF ARTICLE
As earnings forecasts for Commonwealth were downgraded by analysts due to the slowly growing revenue and rising bad debts, shares in Commonwealth Bank were under pressure. The share price of Commonwealth suffered the largest loss and dropped by $1.27, or 3.5 percent, to $35.47. In addition, the stock price of Big Four banks reacted in the same way. National Australia Bank was down 54c to $21.18. The share price for Westpac decreased by 40c to $20.20 and ANZ Bank closed down 34c to $15.37.
ACCOUNTING THEORY:
As per the EFFICIENT MARKET HYPOTHESIS, the Australian equity market is generally consistent with its semi-strong efficient form (Watts and Zimmerman, 1986; p.19). All publicly available information, including all financial statements and other financial disclosures, will be rapidly and fully impounded into share price in an unbiased manner in the semi-strong efficient equity. In particular, an increase in share price indicates a good news and vice versa. If there is no price movement after the release of information, it is evidenced that the information fails to provide something new or all the information has already been anticipated. Simply put, it does not have information content. Ball and Brown (1968), for instance, specifically concluded that unexpected earnings announcement has an impact on share prices. Investors generally respond to new information that significantly revises their valuation as to the potential future cash flows attributable to the company, and this is reflected in the share price.
ANALYSIS:
The accounting issue encapsulated in this article is the responsiveness of the share price as opposed to earnings forecasts, a kind of publicly available information. More importantly, such impact was not limited to the company to which the forecast was directed, specifically Commonwealth, but diffuses onto the other banks in the industry in general as well. According to the news article, the share price of Commonwealth went down by 3.5 percent due to the analysts downgrading its earnings forecasts. In relation to this, two points should be noted. Firstly, the information contained in the earnings forecast had not been anticipated by the public before its release. This unexpected information, causing the decrease in Commonwealth share price, was generated by differentiation between shrinking expected earnings and acceptable March-quarter cash profit, as well as the relatively low bad debt expenses of Commonwealth. Secondly, the earnings forecasts, considered to be a kind of financial disclosure available to the public, are likely to have effective impact on share price (Imhoff and Lobo, 1984; Penman, 1980). Sound earnings forecasting deems to stimulate the increase of share price, while unfavorable forecasting contributes to the decrease of share price. As analysts downgraded earnings forecasts, investors relying on this information became reluctant to invest in Commonwealth yielding a drop in the stock price. Additionally, the Big Four banks in Australian all suffered a loss in stock price. Commonwealth’s share price decreased most significantly by $1.27 to $35.47. The share prices for National Australia Bank, Westpac and ANZ went down by $ 54c, 40c and 34c respectively. This phenomenon is known as the information transfer (Forster, 1981) in which, provided the equity market is efficient, the earnings forecast for a particular organization tends to cause the positively correlated movement of share price for other organizations in the same industry. In the article in focus, the adverse earnings forecast for Commonwealth resulted in the decrease in its share price. In addition to that, such impact was magnified into the banking sector in general, manifested by the corresponding decrease in the share
Followed by the conclusion
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