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BACHELOR
OF ARTS

(Staffordshire University)

SUBJECT
CODE: BSB00034-6

SUBJECT
NAME: ACCOUNTING THEORY
& Practice

SEMESTER: SEPTEMBER
2012

ASSESSMENT: ASSIGNMENT

DUE DATE: 3 DECEMBER 2012 4:30pm

WORD LIMIT: 2500
WORDS

(excluding diagrams, data, appendices
and references)

ASSIGNMENT
DETAILS

Please read
the following information VERY CAREFULLY.
If you are in doubt about anything, please consult your lecturer before you
submit your work.

(a)
The nature of the assignment.

This
assignment consists of 4 questions. You should attempt all three questions.You
should word process your work. You should include your word count at the end of
the assignment

(b)
Learning outcomes and criteria for assessment.

The
following learning outcomes will be assessed in this assignment:

1. Analysis, Communication, Knowledge
& understanding:
Understand and critically appraised the financial
reporting systems adopted by UK companies in accordance with UK GAAP and
International Standards.

2.
Analysis: Demonstrate
a critical understanding of conflicting, contradictory concepts embedded within
the current regulatory financial reporting framework.

The highest
grades will be awarded to students who demonstrate the development of depth of
analysis and provides critical evaluation.
Subtle and thoughtful observations will score well, as will the
provision of suitable references and relevant examples in the essay answer.

A pass grade
will be awarded to students who demonstrate some knowledge of the main concepts
and principles covered in the module, but who tend to offer cryptic or shallow
responses, where it is difficult to follow their reasoning and thought
processes.

Students who
ignore or misunderstand basic financial reporting concepts and terminology are
likely to fail this assessment, as are students who do not follow the
assessment instructions.

(c)
Assignment submission.

The
Examination Section must receive your work by 4:30 pm on Monday 3rd DECEMBER 2012. It will, of course, be
accepted at an earlier date, but late submissions will not be awarded a mark
unless you successfully make a claim under the extenuating circumstances
procedure (see SU Student Handbook).

(d)
Submission arrangements.

You must
hand in one copy of your assignment, stapled to a completed Assignment
Attachment form which is available at the Academic Support Unit. Submission is
at the counter of the Examination Section.
During normal office hours, staff will be available to receive these
assignments. You are strongly advised to
keep at least a photocopy or a copy of this assignment on disk.

(e)
Penalties.

Plagiarism
will be severely penalised. The University publishes a fully detailed
description of what the term plagiarism means on the University website. Unless
your claim of extenuating circumstances is upheld, late submission will not be
marked and zero mark will be awarded.

(f) Maximum
word length:

State
the number of words used at the end of the assignment. You may include
diagrams, figures, appendices etc. without word penalty. A sliding scale of
penalties for excess length will be imposed. The penalties will be as follows:

Up to 10% excess words – no
penalty

11-20% excess words – 5%
penalty

21-30% excess words – 10%
penalty

31%
plus excess words cannot achieve more than a pass grade (40%).

You are
required to produce written answers to ALL questions in this assignment.

Question
1

John Wang is a junior
partner and training manager at Miller Dundas, a medium sized firm of auditors.
He oversees the progress of the firm’s student accountants. One of those under
John’s supervision, Lisa Xu, recently wrote in her progress and achievement log
about a situation in an audit that had disturbed her.

On the recent audit of Mbabo
Company, a medium sized, family-run business and longstanding client of Miller
Dundas, Lisa was checking non-current asset purchases when she noticed what she
thought might be an irregularity. There was an entry of $100,000 for a security
system for an address in a well-known holiday resort with no obvious link to
the company. On questioning this with Ellen Tan, the financial controller, Lisa
was told that the system was for Mr Martin Mbabo’s holiday cottage (Martin
Mbabo is managing director and a minority shareholder in the Mbabo Company).
She was told that Martin Mbabo often took confidential company documents with
him to his holiday home and so needed the security system on the property to
protect them. It was because of this, Ellen said, that it was reasonable to
charge the security system to the company.

Ellen Tan expressed surprise
at Lisa’s concerns and said that auditors had not previously been concerned
about the company being charged for non-current assets and operational expenses
for Mr Mbabo’s personal properties. Lisa told the engagement partner, Potto
Sinter, what she had found and Potto simply said that the charge could probably
be ignored. He did agree, however, to ask for a formal explanation from Martin
Mbabo before he signed off the audit. Lisa wasn’t at the final clearance
meeting but later read the following in the notes from the clearance meeting:
‘discussed other matter with client, happy with explanation’. When Lisa
discussed the matter with Potto afterwards she was told that the matter was now
closed and that she should concentrate on her next audit and her important
accounting studies.

When John Wang read about
Lisa’s concerns and spoke to her directly, he realised he was in an ethical
dilemma. Not only should there be a disclosure requirement of Mr Mbabo’s
transaction, but the situation was made more complicated by the fact that Potto
Sinter was senior to John Wang in Miller Dundas and also by the fact that the
two men were good friends.

Required:

(a)
Explain the meaning of ‘integrity’ and its importance in professional
relationships such as those described in the case. (5
marks)

– Key words for
integrity

– Why integrity is
important as accountant (3 marks)

– Why accountant
need to be integrity compare to others? (5 reasons)

(b)
Criticise Potto Sinter’s ethical and professional behaviour in the case. (10
marks)

– 5
threats

– looking what
kind of threats (quote from case situation)

(c) Critically evaluate the alternatives that John
Wang has in his ethical dilemma.

(10 marks)

(Total = 25 marks)

Question
2

MegaMart
plc is a medium sized retailer of fashion goods with some 200 outlets spread
throughout the UK. A publicly quoted company on the London Stock Market, it has
pursued a growth strategy based on the aggressive acquisition of a number of
smaller retail group. This growth has gone down well with shareholders, but a
significant slowdown in retail sales has resulted in falling profits, as a
consequence, its share price. MegaMart had been the creation of Rex Lord, a
high profile entrepreneur. His dominance of the company was secured through his
role as both Chairman and Chief Executive of the company. His control of his
board of directors was almost total and his style of management such that his
decision were rarely challenged at board level. He felt no need for any
non-executive directors drawn from outside the company to be on the board.
Shareholders were already asking questions on his exuberant lifestyle and
lavish entertainment, at company expenses, which regularly made the headlines
in the popular press. Rex’s high profile personal life also was regularly
exposed to public scrutiny and media attention.

As
a result of the downturn in the company’s fortunes some of his acquisition have
been looked at more closely and there are, as yet, unsubstantiated claims that
MegaMart’s share price had been maintained through premature disclosure of
proposed acquisition and evidence of insider trading. Rex had amassed a
personal fortune through the acquisitions, share options and above average
performance related bonuses, which had on occasion been questioned at the
Shareholder’s Annual General Meeting. His idiosyncratic and arrogant style of
management had been associated with a reluctance to accept criticism from any
quarter and to pay little attention to communicating with shareholders.

Recently,
there has been concern expressed in the financial press that the auditors
appointed by MegaMart, some twenty years ago, were also providing consultancy
services on his acquisition strategy and on methods used to finance the deals.

Required

(a) Explain the nature of the agency
problem that exists in MegaMart, (3 marks)


What the agency is?


Who is agent? Who is principle?


What kind of duty agent own to principle?


What problem of agency in the case? ( 1 main problem)

(b) Assess the extent to which MegaMart’s
corporate governance arrangements and situation fail to constitute governance
best practice. (12 marks)


Take the problem first then what it should be?


Quote case study (report)

(Total = 15 marks)

Question
3

The International Accounting
Standards Board (IASB) has begun a joint project to revisit its conceptual
framework for financial accounting and reporting. The goals of the project are
to build on the existing frameworks and converge them into a common framework.

Required:

(a)
Discuss why there is a need to develop an agreed international conceptual
framework and the extent to which an agreed international conceptual framework
can be used to resolve practical accounting issues. (20 marks)

– 5 reasons
good to have good international conceptual framework

– 5 reasons bad

(b)
Discuss the key issues which will need to be addressed in determining the basic
components of an internationally agreed conceptual framework. (14 marks)

– 7 issues

(Total = 34
marks)

Question 4

Ireka is a property
development company. Although it has achieved 13.5% rise in underlying profit
in the years of 2009-2010, and a forecast of a double digit growth for 2011,
the market was not impressed. Against the 52 week high of $14.24, the price is
now $12.91 only, which is due to lack of excitement, compared with its history
as a glamour stock.

At $12.91, Ireka shares
yield 4.4%, based on the 2009-2010 dividend of 57 cent. The payment is due to
partly franked and the outlook is for more of the same. Chief financial officer
Mr. David says that the about one third of the earnings come locally, the franking
credits should be enough to provide 40-50% dividend franking on a 60-80% profit
payout. This means investors need a higher yield than would be required from a
comparable company paying fully franked dividends. The present price reflects
this. As a result, the return looks reasonable, certainly if double digit
earnings and dividend growth can be sustained.

(a) In trying to explain shareholders’ subdued
reaction to Ireka reported earnings, explain whether and/or how you could use
the following approaches to accounting theory construction:

– Define the meaning

– Come out with respond

(i)
pragmatic

(ii) positive
accounting theory

(iii) normative
theory

(iv) scientific
approach

(v) naturalistic
approach (10
marks)

(b) Which of the approaches described in
answer to question (a) do you believe is most useful? Why? (4 marks)

(c)
Are
the approaches you described in answer to question (2) mutually exclusive, or
can they be used to complement each other? Explain? (12
marks)

(Total
= 26 marks)

End of assignment

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