BACHELOR OF ARTS (Staffordshire University) SUBJECT CODE:

BACHELOR OF ARTS (Staffordshire University) SUBJECT CODE:

BACHELOROF ARTS(Staffordshire University)
SUBJECTCODE: BSB00034-6
SUBJECTNAME: ACCOUNTING THEORY& Practice
SEMESTER: SEPTEMBER2012
ASSESSMENT: ASSIGNMENT
DUE DATE: 3 DECEMBER 2012 4:30pm
WORD LIMIT: 2500WORDS(excluding diagrams, data, appendicesand references)
ASSIGNMENTDETAILS
Please readthe following information VERY CAREFULLY.If you are in doubt about anything, please consult your lecturer before yousubmit your work.
(a)The nature of the assignment.Thisassignment consists of 4 questions. You should attempt all three questions.Youshould word process your work. You should include your word count at the end ofthe assignment
(b)Learning outcomes and criteria for assessment.Thefollowing learning outcomes will be assessed in this assignment:
1. Analysis, Communication, Knowledge& understanding: Understand and critically appraised the financialreporting systems adopted by UK companies in accordance with UK GAAP andInternational Standards.2.Analysis: Demonstratea critical understanding of conflicting, contradictory concepts embedded withinthe current regulatory financial reporting framework.
The highestgrades will be awarded to students who demonstrate the development of depth ofanalysis and provides critical evaluation.Subtle and thoughtful observations will score well, as will theprovision of suitable references and relevant examples in the essay answer.
A pass gradewill be awarded to students who demonstrate some knowledge of the main conceptsand principles covered in the module, but who tend to offer cryptic or shallowresponses, where it is difficult to follow their reasoning and thoughtprocesses.
Students whoignore or misunderstand basic financial reporting concepts and terminology arelikely to fail this assessment, as are students who do not follow theassessment instructions.
(c)Assignment submission.TheExamination Section must receive your work by 4:30 pm on Monday 3rd DECEMBER 2012. It will, of course, beaccepted at an earlier date, but late submissions will not be awarded a markunless you successfully make a claim under the extenuating circumstancesprocedure (see SU Student Handbook).
(d)Submission arrangements.You musthand in one copy of your assignment, stapled to a completed AssignmentAttachment form which is available at the Academic Support Unit. Submission isat the counter of the Examination Section.During normal office hours, staff will be available to receive theseassignments. You are strongly advised tokeep at least a photocopy or a copy of this assignment on disk.
(e)Penalties.Plagiarismwill be severely penalised. The University publishes a fully detaileddescription of what the term plagiarism means on the University website. Unlessyour claim of extenuating circumstances is upheld, late submission will not bemarked and zero mark will be awarded.
(f) Maximumword length:Statethe number of words used at the end of the assignment. You may includediagrams, figures, appendices etc. without word penalty. A sliding scale ofpenalties for excess length will be imposed. The penalties will be as follows:
Up to 10% excess words – nopenalty11-20% excess words – 5%penalty21-30% excess words – 10%penalty31%plus excess words cannot achieve more than a pass grade (40%).
You arerequired to produce written answers to ALL questions in this assignment.
Question1
John Wang is a juniorpartner and training manager at Miller Dundas, a medium sized firm of auditors.He oversees the progress of the firmâ€s student accountants. One of those underJohnâ€s supervision, Lisa Xu, recently wrote in her progress and achievement logabout a situation in an audit that had disturbed her.
On the recent audit of MbaboCompany, a medium sized, family-run business and longstanding client of MillerDundas, Lisa was checking non-current asset purchases when she noticed what shethought might be an irregularity. There was an entry of $100,000 for a securitysystem for an address in a well-known holiday resort with no obvious link tothe company. On questioning this with Ellen Tan, the financial controller, Lisawas told that the system was for Mr Martin Mbaboâ€s holiday cottage (MartinMbabo is managing director and a minority shareholder in the Mbabo Company).She was told that Martin Mbabo often took confidential company documents withhim to his holiday home and so needed the security system on the property toprotect them. It was because of this, Ellen said, that it was reasonable tocharge the security system to the company.
Ellen Tan expressed surpriseat Lisaâ€s concerns and said that auditors had not previously been concernedabout the company being charged for non-current assets and operational expensesfor Mr Mbaboâ€s personal properties. Lisa told the engagement partner, PottoSinter, what she had found and Potto simply said that the charge could probablybe ignored. He did agree, however, to ask for a formal explanation from MartinMbabo before he signed off the audit. Lisa wasnâ€t at the final clearancemeeting but later read the following in the notes from the clearance meeting:‘discussed other matter with client, happy with explanationâ€. When Lisadiscussed the matter with Potto afterwards she was told that the matter was nowclosed and that she should concentrate on her next audit and her importantaccounting studies.
When John Wang read aboutLisaâ€s concerns and spoke to her directly, he realised he was in an ethicaldilemma. Not only should there be a disclosure requirement of Mr Mbaboâ€stransaction, but the situation was made more complicated by the fact that PottoSinter was senior to John Wang in Miller Dundas and also by the fact that thetwo men were good friends.
Required:(a)Explain the meaning of ‘integrity†and its importance in professionalrelationships such as those described in the case. (5marks)– Key words forintegrity– Why integrity isimportant as accountant (3 marks)– Why accountantneed to be integrity compare to others? (5 reasons)(b)Criticise Potto Sinterâ€s ethical and professional behaviour in the case. (10marks)– 5threats– looking whatkind of threats (quote from case situation)(c) Critically evaluate the alternatives that JohnWang has in his ethical dilemma.(10 marks)
(Total = 25 marks)
Question2
MegaMartplc is a medium sized retailer of fashion goods with some 200 outlets spreadthroughout the UK. A publicly quoted company on the London Stock Market, it haspursued a growth strategy based on the aggressive acquisition of a number ofsmaller retail group. This growth has gone down well with shareholders, but asignificant slowdown in retail sales has resulted in falling profits, as aconsequence, its share price. MegaMart had been the creation of Rex Lord, ahigh profile entrepreneur. His dominance of the company was secured through hisrole as both Chairman and Chief Executive of the company. His control of hisboard of directors was almost total and his style of management such that hisdecision were rarely challenged at board level. He felt no need for anynon-executive directors drawn from outside the company to be on the board.Shareholders were already asking questions on his exuberant lifestyle andlavish entertainment, at company expenses, which regularly made the headlinesin the popular press. Rexâ€s high profile personal life also was regularlyexposed to public scrutiny and media attention.Asa result of the downturn in the companyâ€s fortunes some of his acquisition havebeen looked at more closely and there are, as yet, unsubstantiated claims thatMegaMartâ€s share price had been maintained through premature disclosure ofproposed acquisition and evidence of insider trading. Rex had amassed apersonal fortune through the acquisitions, share options and above averageperformance related bonuses, which had on occasion been questioned at theShareholderâ€s Annual General Meeting. His idiosyncratic and arrogant style ofmanagement had been associated with a reluctance to accept criticism from anyquarter and to pay little attention to communicating with shareholders.Recently,there has been concern expressed in the financial press that the auditorsappointed by MegaMart, some twenty years ago, were also providing consultancyservices on his acquisition strategy and on methods used to finance the deals.Required(a) Explain the nature of the agencyproblem 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 MegaMartâ€scorporate governance arrangements and situation fail to constitute governancebest practice. (12 marks)–Take the problem first then what it should be?–Quote case study (report)
(Total = 15 marks)
Question3
The International AccountingStandards Board (IASB) has begun a joint project to revisit its conceptualframework for financial accounting and reporting. The goals of the project areto 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 conceptualframework and the extent to which an agreed international conceptual frameworkcan be used to resolve practical accounting issues. (20 marks)– 5 reasonsgood to have good international conceptual framework– 5 reasons bad
(b)Discuss the key issues which will need to be addressed in determining the basiccomponents of an internationally agreed conceptual framework. (14 marks)– 7 issues
(Total = 34marks)
Question 4
Ireka is a propertydevelopment company. Although it has achieved 13.5% rise in underlying profitin 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 isnow $12.91 only, which is due to lack of excitement, compared with its historyas a glamour stock.
At $12.91, Ireka sharesyield 4.4%, based on the 2009-2010 dividend of 57 cent. The payment is due topartly franked and the outlook is for more of the same. Chief financial officerMr. David says that the about one third of the earnings come locally, the frankingcredits should be enough to provide 40-50% dividend franking on a 60-80% profitpayout. This means investors need a higher yield than would be required from acomparable company paying fully franked dividends. The present price reflectsthis. As a result, the return looks reasonable, certainly if double digitearnings and dividend growth can be sustained.
(a) In trying to explain shareholders†subduedreaction to Ireka reported earnings, explain whether and/or how you could usethe following approaches to accounting theory construction:– Define the meaning
– Come out with respond
(i)pragmatic
(ii) positiveaccounting theory
(iii) normativetheory
(iv) scientificapproach
(v) naturalisticapproach (10marks)
(b) Which of the approaches described inanswer to question (a) do you believe is most useful? Why? (4 marks)(c)Arethe approaches you described in answer to question (2) mutually exclusive, orcan they be used to complement each other? Explain? (12marks)
(Total= 26 marks)
End of assignment

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