Accounting Theory and Current Issues

Accounting Theory and Current Issues

This is a group assignment. Students are required to conduct a research and analysis of a theoretical financial reporting issue and present their findings in a written report.

Students will have to do research on relevant literature and demonstrate understanding and critical evaluation of key disclosure issues relating to application of specific accounting standards. Additionally, they will demonstrate understanding and critical evaluation of the Australian financial reporting environment and its current regulatory framework and recommend future directions to the Australian financial reporting

regulators. (ULO 1, 2, 4, 7).

Assignment Specifications

In 2006, the Australian Government incorporated research into corporate social responsibilities to determine if there is a need to include social and environmental responsibilities within the Corporation Act through amendment procedure. It was decided not to incorporate a particular regulation through legislation, instead rely upon the 'market forces' to encourage companies to do the 'right thing'. This viewpoint was expressed that if companies did not look after the environment or did not act in a socially responsible manner, people would not want to consume the organisations' products. From the equity market perspective, potential investors would not want to invest in the organisations, and further workers wouldn't want to work for them, and so forth. Because companies were aware of such market forces, they would do the 'right thing' even in the absence of legislation.

Requirement:

1) Using theories such as Public Interest Theory, Capture Theory and Economic Interest Group Theory to critically evaluate and discuss the Government's decision for not introducing a particular regulation.

"Maximum 1500 words."

Part B

In an official announcement to the stock market, ABC Ltd noted that the corporation expects its "underlying profit before tax" to fall below the range previously forecasted and announced to the equity market.

Please read below:

"ABC Ltd on Wednesday said the subdued trading conditions had coincided with a period of "significant disruption" for the company including introducing a new wage model for its front-end sales staff, an ongoing review of its shop network and putting in new sales systems. ABC Ltd managing director said the overall results would be disappointing. Although the company's corporate results were strong especially in the United States, United Kingdom and Asia, the sluggish regional result means ABC Ltd now expects its underlying profit before tax for the 12 months to June 30 to fall to between $535 million and $560 million, below the $590 million to

$620 million range it initially targeted. The mid-point in this new range, $547.5 million, represents a 10 per cent decrease on the record $584.7 million underlying profit before tax it recorded last year."

The underlying profit metrics are different from the profit to be reported in the financial statements.

Requirement:

1)    Utilising positive accounting theory (PAT) assumption, critically analyse the possible motivation for using an alternative measure of profit used by ABC Ltd in the announcement.

2)    Discuss whether the corporations are allowed to use and disclose this alternative measure even if it fails to comply with accounting standards? Why would the managers do this?

3)    As a user of the corporation's financial information (ABC Ltd), discuss the potential reaction toward such an announcement?

"Maximum 1500 words."