QUESTION

HA3051 Accounting Theory T1 2012
___________________________________________________________________________________________________

HOLMES INSTITUTE

FACULTY OF
HIGHER EDUCATION

HOLMES INSTITUTE
FACULTY OF HIGHER EDUCATION

UNDERGRADUATE PROGRAM

Case Study Group Assessment

HA3051: Accounting Theory

Sydney Campus

TRIMESTER 1 / 2012

Assignment Instructions
In groups of Three, prepare answers to these two case studies from the set text:
3.33
4.28

Required:
Critically analyse and evaluate the arguments for, and against, for each of the case studies.
Which arguments do you consider to be more compelling? (In other words, what is your
opinion?) (1000 words each).

Due Date: Week 9 on Friday.
SOLUTION

Contents

Chief Scientist’s Dual roles damaging to office. 1

For 1

Against 2

Foster’s: Less goodwill, higher earnings. 3

For 3

Against 4

References: 5

Chief Scientist’s Dual roles damaging to office

For

The statement that the chief scientist dual role is damaging the office is true to a certain extent. This is because the dual role is subjected to  the scrutiny that the dual role may be giving advantage to the two organizations where the dual positions are held and thus the benefit is actually not transferred to the public. When in service of public two things are very important firstly the benefit of the public should be the utmost priority. Secondly there should not be the condition where the working of the office is questioned. This is because once the working is questioned the position that is being held . Thus to protect the position as well as the interest and the confidence of the public the dual position has to be handled carefully.

As stated in the article committee has also said that the interest of pubic is being eroded and is damaging the image of chief scientist (Salleh, 2005). This is because there is certain point that the unwanted advantage is being given and undue favor is being provided.  Thus it becomes very important to provide the only option and that of full time employment. This way the uncertainty that arises of the advantage being taken as a result of occupying two part time positions. This report will be essential in support of the full time employment and if implemented will raise the question why it wasn’t done earlier.

Another important point to consider is that this has been crucial because the position is of high importance and thus requires substantiality and solidity. That can be provided only with the full time employment of Chief Scientist. It will also add the sense of responsibility to the holder of the position. It may be argued that currently it is still held with responsibility and sincerely but once the full time employment is there but the full time employment will certainly make the difference.

Thus the articles such as favoring of the coal mining organizations and compromising with the green house emissions could be there. This may be challenged and may not be proved but has certainly been agreed that such situations may lead to the spoiling of the position. Thus it becomes important that obligatory actions are taken up by scientists also that such situation doesn’t occur and in case if it does appear the argument can be countered. Thus it has been clearly understood that the position that is held by chief scientist is very important and any decision which is impacting the public directly or indirectly will have to be considered seriously and any questioning if it is there should countered in order that the part time holding of position is justified else the full time employment should be made compulsory.

Against

This argument is unnecessary and unreasonable. This is because by holding the part time position at such a high level certainly is beneficial for the country as a whole as the person of high standards and quality holding the top positions makes it able to provide the services to the country and thus make useful contributions. The argument that added beneficial is being given to the coal mining company is completely based on the facts and without any analysis. This is because there might be added advantage is being taken up by the mining companies. But it cannot be said that it will have environmental impact.  This is because the chief scientist position is very important (Burton, 2004). Thus any decision that is being taken will certainly have to be after giving due consideration to all the aspects. Thus if the coal mining companies are having any added advantage it will be for the benefit of the country and the public. There has never been an incident that the position has been questioned. Thus any decision taken will be having positive impact on the public.

Making the position full time is no solution if there is any issue with the working of the chief scientist as full time. This is because there is no certainty that undue advantage will not be given.  Thus the making the position will not solve the problem that is being highlighted here. More important is that the authenticity of the decision is considered rather than the holder of the position or the type of employment. Such a situation might have occurred had the position holding being made full time. Thus the correct problem has not been targeted.

Lastly the report has mentioned that there is possibility of misuse of the position and nothing can be said of the misuse in this case. Thus the report has not mentioned anything wrong in the current situation. Thus it is not prudent or wise decision to make changes to the systems if the based on the facts that cannot be proved. The unrest in the public will have to be settled down by providing the proof that the decision is not harming but beneficial rather than questioning the system and thus making changes to it. Thus it becomes very important to understand the core issue and make amendments and have solutions for them rather than making unnecessary changes to the system which would not solve the issue that has been raised rather will make the working complex and unpredictable and will also raise the uncertainty in the working of the officials. It is very important that the confidence of the official is maintained so that the decision that is being taken by them is reliable and prudent. Such raising of issues will not help the system as the report has mentioned that there is possibility of misuse of the position and nothing can be said of the misuse in this case. Thus the report has not mentioned anything wrong in the current situation.

Foster’s: Less goodwill, higher earnings

For

As per the shift to the IFRS based accounting has raised many questions and this is one of them. As per the IFRS standards The Goodwill and intangible assets allows the amortization of goodwill over the expected useful life. This is restricted to the umber of years of useful life restricted to twenty years. In the case goodwill is deemed to be longer, the directors of the company have to undertake impairment review in the first financial year and the carrying value may not be fully recoverable in the coming years. In the IFRS the amortization is not allowed at all. The director on annual basis has to do impairment review. This may be the issue as the company in shifting from the current situation to IFRS may be able to take advantage and thus shifting the costs from actual to that of goodwill and thus will be resulting in reduced costs for the company.

It will be very difficult to handle such cases. This may lead to the adjustments being made and may result in the advantage in the wake of change of accounting system.  It has also been mentioned in the case that company’s profit may increase as the goodwill amortization charges will be removed. This should not be done as it will make it difficult for the authorities to establish a relation and thus to acertain that the information provided about the profit is correct.  Thus it will add to ambiguity in the system.

It has been clearly mentioned that another potential issue will be that the company’s will become reluctant in showing the future projections. This will not lead to the mistrust in the market but also will lead to the uncertainty amongst the investors. This because the interest of the investors will depend on the future aspirations of the market and the mood in the market. But if the profits are not highlighted and the future plans of the company in the market is not known the investors disinterest will lead to the decrease in the wealth and the reduction in investment will not develop the economy positively.

Thus the two main and critical issues that have to handle so that the interest of the investors in the market is maintained and thus it helps in the development of the economy as a whole. The issues are very important and will have huge impact. This has been the major issue and will only result in further issues that may not have been anticipated. The shift to the IFRS standards may have benefits but there are certain issues that probably will take away the benefits arising out of it. This needs a certain solution to all these problems. If these problems are not addressed this will lead to further problems in the markets that have been highlighted.

Against

The headline has certainly triggered the issue of accounting and the inflated profits by the organizations. But it has to be understood that this is the transition phase for the market in shifting from the current accounting system to the IFRS system. Thus the market needs some time for the transition and thus the stability will come in the market as and when the acceptance comes in the market. This might take some time but the system as whole will become not only stable but also investor friendly. This has been discussed below.

The market will become stable as the IFRS accounting system has been developed by the internationally known person and includes not only the big organizations but also the small and state owned organizations. This will lead to the position wherein the stability in the market will increase and thus will lead to better synchronization and thus more productivity. Such is the benefit of the system. Thu the issues of the amplified profit and the absence of goodwill will be accessed as per the requirement. It is true that the issues are there but these are not the inherent shortcomings of the system and thus can be handled and thus the interest in the market can be maintained.

Secondly the investment in the system has been dependent on the profitability in the market and the clarity (Jim, 2009). True in the current situation it is not there. But this will not be the condition forever as the understanding of the system will improve the market will become stable. It is not that the investors are impacted by just one factor and there are certain other factors that govern the interest of the investor and thus the markets will not failure for this reason and the interest of the investors will be maintained.

The linking of Australian Accounting Standards with that with International Accounting Standards have been done and the valuating and recognizing the revenue generated from sales of goods or rendering of services have been synchronized (IASB, 2009). Thus the standard have been maintained in accordance to the International Accounting Standards thereby the system is in place wherein some who is preparing reports based on Australian Accounting Standards has the reports which are in compliance with international accounting standards.

Lastly the shifting to the IFRS system will be a huge benefit for the market as there will be uniformity in the market with the global markets and thus the investors across the globe will be attracted and investments in the market will increase (AASB, 2009).. Thus the IFRS method will be a huge boost for the economy and will result in the development of markets as it will show that the as the investment in the markets will increase.

Thus it can be said that the market is in the transition phase of shifting to the IFRS system and thus will need some time for the stability. Till then the investors will not be affected as the shifting to the global standards will boost the interest of investors in the market.

References:

IASB. (2009). International Accounting Standard 18. Available: http://ec.europa.eu/internal_market/accounting/docs/consolidated/ias18_en.pdf. Last accessed 20th May 2012.

AASB. (2009). Definition and Recognition of the Elements of Financial Statements. Available: http://www.aasb.gov.au/admin/file/content102/c3/SAC4_3-95.pdf. Last accessed 20th May 2012.

Cashin, Jim. (2009), “Why you need to be thinking about IFRS today.” Mass High Tech: The Journal of New England Technology

Burton B. (2004). “Government Chief Scientist Also Top Mining Executive”. Available: http://www.minesandcommunities.org/article.php?a=643. Last accessed 20th May 2012.

Salleh A. (2005).” Top scientist ‘should look beyond widgets”. Available: http://www.abc.net.au/science/articles/2005/05/19/1372485.htm. Last accessed 20th May 2012.

LE28

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