group 1 2013.14 (2nd sem)
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1(B) According to the Accounting Standards setting in Malaysia, Susela (1999). Elaborate on the four issues of interest and how this can be overcome in proposing the accounting standards in Malaysia. (8 Marks)
PASS YEAR 2013.2014 2ND-SEMMOHD FAUZI BIN MOHD MUKHTAR125667NUR NASRIAH NADIRAH BINTI ABDULLAH214061NURUL SABIHAH MOHAMMAD221604CHAN LEE HONG221769CHAN LAY YONG224027GROUP 1QUESTION 1A.
Descriptive theory aims to illustrate what actually occurs ("may") in practice. It will consist of coding and explain financial practice. An example would be research in positive accounting theory or capital market research. While prescriptive theory in accounting is theory which dictates what "should " occur in accounting practice. An example would be the accounting standards.
Systematic and coherent information can be deliver to user when the IASB advocates a theoretical and non-arbitrary framework. Although it is true that the profession has survived so far without the formality constructed theory, and could probably continue to do so, numerous problems has arisen because of lack in general theory. For example, without a coherent framework,, it permits accounting practice to be applied to similar circumstances. The inconsistency of practice also has seen as a problem. That is why the number of cases of conflict between the framework and IASs is arise until today due to the inconsistency that still exist. However, it will be reduced through the developed and guided by Framework.
i) Provide legitimacy to standard-setting board.According to Ruth D. Hines (F. Accounting knowledge, conceptual framework projects and the social construction of the accounting profession), the conceptual framework project are important to provide the legitimacy to standard setting board and the accounting profession during periods of competition or threatened government intervention. That is why CF projects continue to be undertaken even there is an apparent technical failure. ii) To providing more complete Framework.The IASBs current consideration for restarting the project with the intention to extend the Framework for example with additional chapters for presentation and disclosures, and on the reporting entity. It also indicates the approach of the IASB to broaden the conceptual basis, thus providing a more complete Framework. iii) To reduce the conflicts and the inconsistency of IASB and Framework.The Framework should enhance and ensure the consistency of requirements in IFRS and the continuity of agreed objectives, assumptions, and concepts for financial reporting, despite changes in IASB members and staff.iv) Improve financial reporting.In 2006, IASB & FASB joint work on CF Project. The objective of thisproject is to improve financial reporting by providing the IASB with a complete and updated set of concepts to use when it develops or revises standards. From 2012, IASB had taken over the project, because FASB had decided it would concentrate on priority areas other than CF.1(B) According to the Accounting Standards setting in Malaysia, Susela (1999). Elaborate on the four issues of interest and how this can be overcome in proposing the accounting standards in Malaysia. (8 Marks)
1.Concerns about technical and professional rivalry.The issues arise due to the lack of understanding about accounting. An MIA Council member believed the Goodwill Standard was objected to because it was perceived that MIA was trying to lead the world.2. Socio-economic and political issuesOpponents of Malaysian Accounting Standard (MAS) 6, which required the amortization of goodwill over 25 years attacked the MIA's technical arguments. Those concerned with the socio-economic consequences argued that the accountant's concept of goodwill is merely a meaningless balancing figure, the result of an accounting treatment which produces meaningless information.
3. Consideration of the specific nature of the economy.Some respondents appealed for a consideration of the specific nature of the Malaysian economy, pointing out that Malaysia was a developing economy with particular state policies in place. The result was a unique socio-economic context that required consideration before any standard on goodwill was imposed.
4. The rivalry between the two bodies (MIA and MACPA)In 1994, the two bodies were subtly forced to sign a memorandum of understanding to work towards a merger. At the time of the field study, the negotiations between the two bodies were in earnest. However, by the end of 1995, the talks were called off. There was the existence of friction and professional jealousy between MIA and MACPA. This contributed to the struggle over standard setting.
In order to overcome the issues, the Malaysian Accounting Standards Board (MASB) was formed to issue legally binding accounting standards and adopting new rules for goodwill. Then standard setting activity was taken out of the hands of the profession. Subsequently, the Companies Act 1965 was amended to require compliance with approved accounting standards.
2(A) What is the difference between accuracy and reliability in measurement theory?
The reliability of a measure rests on the faithfulness with which it represents what it purports to represent, coupled with an assurance for the user, which comes through verification, that it has that representational quality. Thus, the principal components of reliability are representational faithfulness and verifiability. Reliable measurement also refers to the proven consistency, repeatable which is produce the same thing in other time, accuracy and certainty of measurement. While, accurate measurement refers to how close the measurement to the true value of the attribute measure and consistency of results.
2(B)Current Value Accounting System is normally being used to value Accounts Receivable (amount owing less allowance for uncollectible accounts). Explain whether or not this will violate the historical cost basis of accounting.
Under current accounting system accounts receivable are generally recorded as the amount owed to the firm based on the billing at the time of the credit sale. The only major valuation and accounting issue is when the firm has to recognize accounts receivable that are not collectible. Current value accounting system will violate the historical cost basis of accounting. This is because under historical cost accounting will stated the original nominal monetary value of an economic item. 2(C)Why is splitting costs for recognition of expenses and assets, very important to the costs attached principle which underlines the historical cost system?The historical cost principle would be of limited usefulness if eventual liquidation were assumed. At initial acquisition, historical cost and fair value are the same. In subsequent periods, as market and economic conditions change, historical cost and fair value often diverge. 2(D) Briefly define what measurement is and explain the 3 essential components in the measurement process?Measurement is the process of determining the monetary amounts at which the elements of the financial statements are to be recognised and carried in the balance sheet and income statement. The three essential components in the measurement process the objective of financial reporting, the qualitative characteristics of useful financial information and the definition, recognition and measurement of the elements from which financial statements are constructed. QUESTION 33a)Based on the article above, justify why earnings are essential in determining the Brahim Holdings strategic planning.Needs to provide more employees and facilities due to increase in space when opening of the KLIA2 To provide bonus plan for employeesCrucial for current stakeholders to get return dividendAs a information for investor to investor to invest in company3(b)Establish an instance of creative accounting in this case and state at lease 4 eco. consequences of Alan activities of creative accounting in the case?Enhance the probability of future profits.The firm is currently reporting a loss. By doing earning management such as Taking a bath, the CEO believes that it is beneficial to report a large loss, which will enhance the probability of future profit. For example, write off of assets .Managerial bonus plan.Managers have incentives to maximize their bonus, consistent with the bonus plan hypothesis of the positive accounting theory. They may adopt accounting policies to increase the reported net income if the net income is between the bogey and cap, and reduce the reported net income if the net income is above the cap.
Cont.Aid to grant short-term creditSince the business operating at loss, smooth earning sequence may increase the willingness of the lenders and suppliers to grant short-term credit. Avoid covenant violation in debt contractsThis agreement is between a company and its creditors that the company should operate within certain limits. For instance avoiding excessive dividends, additional borrowings, or letting working capital or shareholders equity fall below a certain level. Therefore managers may adopt policies to increase reported net income, or other financial variables , to avoid covenant violation or even to being too close to violation.
3(c) Do you agree with the concluding statement made by Alans lawyer, he had a responsibility even if it means losing his job? justify. No , because when net income is manipulated for the CEOs self-interest, it shows that the net income cannot fully reliable. CEO whose income are lower than the bogey or above the cap level will tend to adopt income-decreasing accruals and only CEO with net income between the two will tend to adopt income-increasing accruals. While it is easy to change the account balance, the reasons for the change are typically unknown to the investor.