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Question 2 In the 2005 Journal of Business Ethics article (set as one of your readings this semester and available on UTSOnline ‘Course Documents’), “Creative Accounting: Some Ethical Issues of Marco and Micro Manipulation” Gowthorpe and Amat discuss the issue of earnings management. What is the meaning of ‘earnings management’? What is the stand of the authors on ‘earnings management’? Why do you think the authors take that stance against earnings management? In your discussion, explain what earnings management is and why managers are motivated to manage earnings? Also include in your discussion the impact of using financial reports that have been subject to earnings management. Question 3 The Statement of Cash flows reports a business’s activities under three categories. What are these categories and is it useful to present cash flows in these 3 categories? Do these categories apply to other financial statements? Why is there a need for the indirect method of preparing the cash flows? Is this done for the all activities or just one? Why is this the case? Discuss in detail with examples. Question 4 Please explain why management would in some cases have incentives to produce financial statements which show a better, and in other cases, worse financial performance and position than may be that shown by an independent objective accountant? Would a ‘better’ or ‘worse’ financial result always be because of fraud or financial misstatement, if not explain the concept of ‘earnings management’? What is the role of auditors in the financial reporting process? Question 5 In accounting for inventory why must the accountant follow the inventory system the business has in place (the perpetual system or the periodic system)? How is the accounting for the perpetual system different to accounting for the periodic system? In contrast the accountant can choose the costing systems (First-In-First-Out (FIFO), Last-In-First-Out (LIFO), or Weighted Average) if the organisation is selling goods that it is difficult to determine the purchase time and price of the goods. How can this be the case, especially if the product is milk and the business attempts to have customers buy the oldest (closest to use by date) first? Comment on the ethics of choosing an inventory costing system because it allows management to report a higher or lower profit as they desire. Question 6 In the 2001 Accounting Review journal article (set as one of your readings this semester and available on UTSOnline ‘Course Documents’), "Accruals and the prediction of future cash flows" Barth, Cram & Nelson examine the role of accruals in ‘smoothing income’ and how future cash flows might be predicted. What are accruals? Why would a user of financial statements want to predict cash flows? Comment on the main finding/s of the article. 2 PART B - PRACTICAL Question 7 |
