QUESTION

ACC29083: THEORY OF ACCOUNTING
Assessment details for ALL students
Assessment item 1 — Individual Case Study
Due date:
Tuesday of Week 7
ASSESSMENT
Weighting:
Length:
Objectives
30%
2500 – 3000 words
The objectives of your assignment are:
To develop your critical analytical skills and written communication to a point that you have
demonstrated you can communicate and argue a case from an accounting theory perspective.
This assignment requires a substantial search of the accounting theory literature and contemporary
developments on global accounting regulation. You will need to use the resources of the various
databases and your text to successfully undertake this work. Extensive reading is highly desirable.
Case Study
International View 2.1 on pages 26-27 in Chapter 2 of your Textbook: Godfrey,
Hodgson, Tarca, Hamilton and Holmes, 7
th
edition, 2010.
Case Title: “IFRS is a Big Four gravy train.” – By Richard Murphy

Required:
The case is about the global controversy around the adoption and application of International
Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board
(IASB). The specific debate in this case is about forcing the UK local authorities to adopt IFRSs for
their financial reporting. Australia has been one of the early adopters of IFRS. This case may have
major implications and ramifications for local authorities in Australia. Read the above case, examine
the arguments and counter-arguments, and research other relevant materials to answer the following
questions in your own words:

1. Murphy argues that “UK GAAP was accruals accounting and sought to match transactions in a
period to provide a measure of what had happened in that time scale. Balance sheets are a residual
measure in that process. So, this GAAP was about stewardship, financial performance, delivery of
value for money, and action over time. IFRS on the other hand is about measuring value at a point
of time and comparing that with values at another point in time. The difference is the result for the
period. So the balance sheet is predominant and the profit and loss account secondary . . .”

1
– If Murphy is correct, then the introduction of IFRS implies a major paradigm shift in
accounting. Critically examine the nature of IFRSs through your own research and comment
on Murphy‟s statement. Is Murphy correct in his claims?

2. Murphy suggests: “IFRS will not require accounting for stewardship of public funds entrusted, or
for the supply of services, both of which are core to the management of local authorities. And we
know that a failure to measure almost always means a failure to deliver in management terms. This
means we have a potential disaster on our hands.”

– Do you agree with Murphy‟s view? Why, or why not? Justify your answer with suitable
explanations.

3. Stewardship, financial performance, delivery of value for money and action over time – all seem to
be quite relevant and desired accounting attributes for local authorities. If IFRSs are “wholly
uninterested” in these attributes, then why are IFRSs being imposed on UK local authorities? Who
are the major beneficiaries of this move? How are they likely to be benefitted?

4. Murphy claims that the IASB does not act in the public interest. They are a private cartel designed
and promoted for the benefit of their biggest sponsors – who are the Big 4 firms of accountants.
– Critically examine the validity of the above statement. What are the implications for accounting
in different countries if the above allegation is true?

5. Do you think IFRSs should be adopted by Australian local authorities? Why, or why not?

Important points:

You are required to demonstrate scholarly discussion, critical analytical skill, courage to take a

stand, and express your position on the issues. You should be able to understand the questions and
answer them with precision.

You may use the CQU library for the case study.
Academic as well as professional journal articles may be relevant for the case studies. Academic
journal articles are generally approximately 4500 words in length and always include references.
You may use your text to provide additional information not covered in your articles which you
believe is important. However, most of your material should come from other sources.
The best databases for finding relevant articles are: EBSCOHOST, Infotrac and Emerald.
The assignment should be prepared in a case analysis format. Answer the specific questions. Do
NOT write an essay. This is an individual case study. You are free to discuss the case with your
fellow students. But your answers and writing style must be different from those of others. Do not
share your submission with others. Otherwise you may be accused of plagiarism.
You may also wish to seek assistance from the Communications Learning Centre or Learning
Skills Unit for additional assistance on how to research and write your assignment.
Regular access to the course website is a requirement of this course. Additional information
regarding this course may be placed on the course website. This information may include, but
is not limited to, assignment guidance and exam preparation.
Referencing

You must use both in-text referencing (e.g., author surname, year of publication, page no. if
applicable) throughout this assignment and a reference list at the end of the paper. Refer to the
Guide for students for referencing style.
The assignment should be prepared using 12 point font and 1.5 line spacing.
Assessment criteria
Assessment of the case study will be based on the criteria listed below and your submission should
include the following:

A title page with the title of the case and your details.
A brief abstract or summary (maximum 200 words).
Preamble/introduction – how you see the case and how you have approached the case study.
Branching out to existing literature – other resources you have used to analyse the issues in the
case and collect empirical evidence in support of your answers/views. References to be provided in
the text and a reference list included at the end.
Identifying, analysing and arguing the core issues. Discuss all aspects.
Answering the case Questions. Be precise and answer to the point. Show evidence of good
critical thinking and research.
Logical arguments to establish your views.
Discussion on other peripheral issues.
Use of suitable examples in support of arguments.
Conclusion. A closing statement. What you have learnt from doing the case study.
Detailed Marking Guidelines

Assessment Criterion Requirements Marks
Question 1: Do IFRS represent a
different accounting theory
(paradigm) than that under a UK
GAAP? In what way does it shift
the emphasis of traditional
accounting from income
statement to balance sheet?
Question 2: What are the
normative requirements for a
good accounting system in local
authorities? Stewardship,
delivery of value for money,
accountability and forward
planning are some suggested
attributes. How does IFRS fail to
deliver those attributes?
Question 3: Why IFRSs are
imposed on local authorities
given the argument that they fail
to serve the purpose. Who, or
what forces are behind this push.
Question 4: The author suggests
that the IASB and the Big 4
accounting firms are in a cartel
behind the emergence of the
international financial accounting
standards. Is this so? If so, what
are the implications?
Question 5: Given the above
debate, do you think IFRSs
should be adopted in local
authorities in Australia?
Critically examine the traditional accounting GAAP
with the income statement as the focus of all
attention and balance sheet as a „garbage can‟ to
capture the residual values. Contrast with IFRSs‟
emphasis on valuation and income measurement.
Using valuation for measuring income and not vice
versa. Does it look like a major paradigm shift in
accounting?
Briefly discuss the nature of local authorities, their
goals, activities, key success factors, performance
indicators, non-profit objectives and match with the
accounting system required to achieve those
objectives. Examine why and how IFRS
fails/succeeds to help them in achieving those
objectives.
Explore the political realities surrounding the
formation of the IASB, promulgation of international
accounting standards on various countries and on to
local authorities. This question requires students to
go behind the scene and identify the vested interest
groups and their benefits if local authorities are
forced to adopt IFRSs.
This question requires students to logically and
empirically examine why IASB and the Big 4 should
be in some kind of alliance? Where is the common
mutual interest? What other authors say about this
issue? Do anecdotal/empirical evidences indicate
such a cartel? If so, what does it mean for all the
countries/ authorities who are led to believe that
IFRSs are in public interest?
This question requires the students to demonstrate
their synthesising skill. Examine the pros and cons of
adopting IFRs and then pass on your judgment in a
logical manner.
Good written presentation
A cover page, an abstract, a good preamble to the
case and a logical flow of reasoning
Evidence of good research correct
and
complete

referencing

On each question the students are to branch out to
available articles on the relevant issues and use their
findings/opinions to support answers/opinions.
Total

30
8
6
5
5
3
2
1

Assignment submission
This assignment should be submitted in printed form with a signed Assignment
Coversheet AND online via ‘Moodle’.
On and Off Campus students should access CQUcentral to print a personalised assessment
coversheet for each assignment submission. Instructions for generating your coversheet are at:
http://dtls.cqu.edu.au/FCWViewer/getFile.do?id=23407.
All off-campus distance learning students should submit hard copy, signed assignments to the
Student Contact Centre, Building 5, CQUniversity, Rockhampton, QLD 4702. An online submission
is of the assignment is also required.
All on-campus students should submit a printed and signed copy of the assignment with personalised
coversheet to assignment drop-off boxes located on your particular campus – or submit to the
Administration Office if no box is available. An online submission of the assignment is also required.
All Australian International Campus (AIC) students should access the personalised coversheet
available at your Campus.
STUDENTS PLEASE NOTE:
Any material transcribed directly or paraphrased/sourced from the set textbook, other texts, journals,
on-line material or a colleague‟s assignment, and not properly referenced, will incur a penalty.
Material in the assignment that bears a strong resemblance to another source and not correctly
referenced will also be penalised.

SOLUTION

Abstract

The regulation theory in Australia is a point of discussion and comparison. Over so many years there have been several points or debate, discussion and arguments on the requirement of for regulation. There are many points included in this regulation that are markets do not function every time in the greatest interest of the societies and to optimize the allocation of resources. Although, these interests form some sort of intervention according to the requirement of the regulation.

Question 1: IFRS is International Financial Reporting Standards. This includes several departments of finance and accounting. All the departments of the government must have a rigid, declining, regulatory budget – measured both by quantum and pressure of regulation. Any organization (Majone, 1996), which goes over the budget of the government, is likely to be banned from launching new regulations until they find old regulations to remove. The yearly budget for each section would lead to a decline in the overall regulatory burden each year (R v London County Council).

This policy is not normally understood to be a part of the common law, and so a law continues in force, until canceled by parliament, although long the time may have been since it was known to have been actually imposed. There is though some model for the principle, and at times the Latin maxim “jus incognitum” or “unknown rule” has been used to change down unclear and outdated rules by the courts. Developing the principle of desuetude would give the prosecutors the methods to strike down old, the legislation that is not used as no longer law – of course, the regulations for this must be a bit restricted, so that objector moderators cannot use the approaches to hit down legislation only as they do not like it. There is complete awareness of the irony that with a motive of enabling this policy to be launched, a new rule of Parliament would have to be issued. Regulation Impact Statements must be a necessary procedure, which allows a real method of the expenses and advantages of regulation. Regulations that do not able to clear the test must be submitted back to Parliament or the related Minister.

The economic method to manage is constant with the theory of public choice that focuses on the limit to which the behavior of government is meant by imagining all performers as balanced entity maximizers of their own welfare. Analysis is led to the challenging methods (Peltzman, 1979) of the entities included– how they get across the regulatory that aims for adding their own aims. As a result, private interests are served in spite of the the common interest. Public selection theory settles the questions related to politics and economics. It depends on the neo-classical monetary expectations of rational selection, which is also known as self interest to guess the behavior of politicians, who are also called as the regulators. These politicians only pass those regulations that allow their scope of reelection which, as discussed in the section above, will head the politicians to those that have the methods to add this goal.

The current stage of the economic cycle surely mentions that country is going to see more companies in difficulty, many other issues from clients regarding investments, and more criticisms basically about revelation, suggestions and tricks. Actually, the standards of corporate governance basically have been set as a standard by many of the trading partners of country. Regardless of the fact that the nation does not believe that these subsides show a systemic failure of governance, also not a return to some of the endemic features of 1980s. There has been public discussion latest surrounding the correctness of the “unitary board” corporate governance model.

Question 2: Accounting Systems are very important for different individual and different countries. There are many factors that are included in accounting systems:

(i) Participants: The word “participants” is defined as people, who participates, discusses or takes parts in something. The taking part in something is called as participation. Here the term participation is defined as a mechanism for the public expression opinions related to politics, economics, management, corporations and public decisions. This is the type of method that also aims at computing profits or losses for any year of accounting, as well as the position of assets and liability, by keeping a record of several transactions in an organized form.

(ii). Inputs: This is the approach retreats a cross-section of regular asset returns on asset betas approximation. Under his test, the model presumes that the pause in these regressions is the risk-free interest rate and the coefficient of beta is the assumed market return in overload of the risk-free interest rate.

(iii). Outputs: In this scenario, the test is to find that the over descriptive variables in a regression of cross-section define the forms in the returns on the assets of left-hand-side, which are not given in details by the market betas of assets.

Inefficiencies Present the Current system

In the existing system orders are generated by and originate from the retail stores and can come at an ad hoc and irregular basis. Retail stores, while all being long-standing and regular customers, have typically ordered at the last minute, resulting in irregular demand levels across the year. Two copies of the order form are made, with one being sent to the warehouse assistant, who checks that all goods are available for dispatch to the retail store.

A courier collects goods and a goods release form every morning and afternoon and delivers these to the retail store. Once delivery details are confirmed, an invoice is prepared by accounts receivable, based on the details in the customer order and the goods release form. Paper invoices are sent out at the end of each week. Retail stores currently have standard payment terms of 2/15, n/35. Payment is made in the form of a cheque, which is sent back to the customer service representative who forwards it on to the accounts receivable office. Strides for Strides has recently noticed that it is having inventory management problems due to the spasmodic and irregular nature of orders. This has impacted on its own ability to meet customer demands. It is also concerned that incorrect quantities of goods may be packed and shipped, and not detected until the goods reach the retail stores. This introduces extra costs of handling returns and allowances. Strides for Strides has also noticed that its accounts receivable turnover has dropped from 11.7 times per year to 9.5 times per year over the last twelve months. An independent consultant has suggested that by re-engineering the process these problems could be addressed. The goods are packed, manually recorded on the goods release form (two copies are prepared) and sent to the shipping department for dispatch. A courier collects goods and a goods release form every morning and afternoon and delivers these to the retail store. Once delivery details are confirmed, an invoice is prepared by accounts receivable, based on the details in the customer order and the goods release form. Paper invoices are sent out at the end of each week. Retail stores currently have standard payment terms of 2/15, n/35. Payment is made in the form of a cheque, which is sent back to the customer service representative who forwards it on to the accounts receivable office. Strides for Strides has recently noticed that it is having inventory management problems due to the spasmodic and irregular nature of orders. This has impacted on its own ability to meet customer demands.

Question 3: when we are talking about approach, it is clearly indicate that the accounting approach is the most necessary part in accounting systems. This policy is not normally understood to be a part of the common law, and so a law continues in force, until canceled by parliament, although long the time may have been since it was known to have been actually imposed. There is though some model for the principle, and at times the Latin maxim “jus incognitum” or “unknown rule” has been used to change down unclear and outdated rules by the courts. Developing the principle of desuetude would give the prosecutors the methods to strike down old, the legislation that is not used as no longer law – of course, the regulations for this must be a bit restricted, so that objector moderators cannot use the approaches to hit down legislation only as they do not like it. There is complete awareness of the irony that with a motive of enabling this policy to be launched, a new rule of Parliament would have to be issued. Regulation Impact Statements must be a necessary procedure, which allows a real method of the expenses and advantages of regulation. Regulations that do not able to clear the test must be submitted back to Parliament or the related Minister.

Moreover, structures including a “corporate senate” have been recommended by some to veto declarations of the directors in situations of self-interest. However, corporate governance is not a static thing and even if basic structures continue to be the same, policies and procedures around those structures should regularly be evaluated to make sure that the structure, and mainly the role of the nonexecutive director, is working properly, basically given the raise in retail participation in the equities markets and their different assumptions.

Therefore, it can be clearly be said that accounting regulation in Australia is over-rated, and the the government play an important and vital role in this. The over-rating of accounting regulation means that the Australian people have to be dependent on the the government, whosoever has the hold on the country at any point of time. The research on this point of discussion cannot be completed with the allowance from the government and the the topic of discussion should be in the interest of the government. The country should take some steps to improve this method.

Question 4: The term Financial Planning (Kaplan, 1992) is defined as a process of preparing the reports related to management and creating accounts that give exact statistical and financial information that are required by the managers to make timely and short-term decisions.

This type of management, which shows weekly or monthly reports, particularly for the internal audience of the organization, such as department managers and the Chief Executive Officer. These reports normally reflect the amount of cash available with the company, revenue of sales generated by that firm, total amount of order in hand, and might also involve variance analysis, trend charts and other statistical results. In, Management Accounting, which is also known as Managerial Accounting, the fixed and variable costs are classified on the basis of knowledge that comprise several expectations.

Following are the processes that are available for Stay Healthy Medical Practices Pty Ltd that can be adopted by the company to make the current scenario effective:

Complete Outsourcing: The one method that is attracting the general manger the most is to get the manufacturing outsourced. If we see the annual expenses for the container’s department, the company spends a total $424,500, which is $37,000 more than the offer made by its competitors, which also include the annual cost of repairing old containers. In this method, if the company closes the unit, it has to ask a number of workers to leave the company, which will affect the goodwill of the company and the job rate of the state.
Partial Outsourcing: This method includes the outsourcing partial services for the container department and taking care of the remaining part itself. In this approach, the company can either outsource the manufacturing new containers or the repairing of old ones. With this the cost of the company reduced to some extent. In this approach as well, the company has to decrease the number of workers, which again will not give a good message in the market.
No Outsourcing: This is the third option available to the general Manager of Stay Health Medial Practices. In this approach the company can keep both the jobs to itself but can reduce its cost by various ways. In this method, the decisions of the company will remain internal, not reflect the employment of the state, and will also not let the world know that how Stay Health Medial Practices is taking an action on any of its internal problem, which will not reflect its goodwill.

Question 5: The method of IFRS should definitely be adopted by Australian authorities. The regulation theory in Australia is a point of discussion and comparison. Over so many years there have been several points or debate, discussion and arguments on the requirement of for regulation. There are many points included in this regulation that are markets do not function every time in the greatest interest of the societies and to optimize the allocation of resources. Although, these interests form some sort of intervention according to the requirement of the regulation.

The issues of regulation of accounting became an issue of concern and discussion, specifically following the economic crisis and crash of the year 1920-30s that headed to for the accounting theory and principles defined. The main aim of accounting is to offer details and detail to the involved parties, who might not have contact to full or partial, but required economic decision. Due to their information disadvantage, they are irregularity in the working and use of information. However, the regulation of accounting is seen as relating to “sustained and focused control exercised by a public agency over activities valued by a community” (Baldwin, Cave, 1999), there are other outlooks. Accounting policy in Australia a requirement, but it is over-rated and the main reason of this over-rate is that government is the ultimate monopoly (Baker, 2005. The impact of this governmental monopoly on the law-making procedure is to manage that what is produced and the ways of distribution of consequential production within the societies. The governments driven environments that are not checked properly are ever an expanding perpetual-motion machine. Any administration is rapidly confined by special-interest units such as the receivers of the regulation, the minister and their staff who are keen to keep that portfolio and make it influential; the departmental employees, who run the regulation and wish to make it “better” and non beneficiaries who do not want to be excluded.

All the departments of the government must have a rigid, declining, regulatory budget – measured both by quantum and pressure of regulation. Any organization (Majone, 1996), which goes over the budget of the government, is likely to be banned from launching new regulations until they find old regulations to remove. The yearly budget for each section would lead to a decline in the overall regulatory burden each year (R v London County Council).

Conclusion

REFERENCES

Baldwin, R & M Cave, 1999, “Understanding Regulation, Theory, Strategy and Practice, Oxford”, Oxford University Press

Baker, C .R., 2005, “What is the meaning of ‘the public interest’ Examining the ideology of the American accounting profession”, Accounting, Auditing and Accountability Journal, v 18, pp 690-703

Majone, G., 1996, “Regulating Europe, London, Routledge”

Peltzman, S., 1979, “Toward a More General Theory of Regulation”, Journal of Law and Economics, v 19, pp 211-240

Majone, G., 1996, “Regulating Europe, London, Routledge”

Dorfman, S. Mark, 2007, “Introduction to Risk Management and Insurance”, Englewood Cliffs, N.J: Prentice Hall, ISBN 0-13-224227-3

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ACCOUNTING THEORY OF IFRS

Abstract

Inefficiencies Present the Current system

Conclusion

REFERENCES

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Abstract

Inefficiencies Present the Current system

Conclusion

REFERENCES

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