...Microsoft’s Financial Reporting Strategy Objective • Understanding financial reporting strategy of selecting conservative accounting policies • Discuss controversial accounting issue in the software industry—software capitalization and revenue recognition • Discuss various incentives that motivate managers to select one accounting method over another • Learn how to use accounting analysis method to better reflect economic reality Microsoft’s Financial Reporting Strategy Introduction • Phenomenal financial success over the past years Founded in 1975 by Bill Gates and Paul Allen Went public in 1986 at $25.75 per share. Revenue and operating income grew an average of 43% and 49% per year. Stable growth in stock price ( Exhibit 5 ) Report higher than expected financial performance Asset totaling $37 billion,book value of equity equal to $28 billion and market value about $460 billion on June 30,1999. Microsoft’s Financial Reporting Strategy Introduction • Conservative accounting policies GAAP allow managerial discretion in accounting policies In two key areas, Microsoft choose a rather conservative method of reporting (1) Software development costs (2) Revenue recognition Microsoft’s Financial Reporting Strategy Software development costs • FASB’s guideline (SFAS NO.86) Require capitalization once technological feasibility has been established. • Microsoft’s policy Expensed as incurred FASB’s guideline does not materially affect the company • Note From 1986 to 1999...
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...16 The statement of comprehensive income and statement of changes in equity Review questions 16.2 There is a general requirement that unless a specific accounting standard requires an item of income or expense to be recorded directly in equity, the expense or income amount is to be included in profit or loss. Specifically, paragraph 88 of AASB 101 states: An entity shall recognise all items of income and expense in a period in profit or loss unless an Australian Accounting Standard requires or permits otherwise. As an example of one class of items that does not go to profit or loss we can consider the situation where an error from a prior period is discovered (perhaps the assets recorded last year were valued in excess of their recoverable value). In such a case the error is to be corrected retrospectively, as required by AASB 108 Accounting Policies, Changes in Accounting Estimates, and Errors. This would require a reduction in assets and a reduction in retained earnings to recognise the asset write-down expense. Although this is an expense that is recognised, it is a case of an expense being recognised directly in equity (retained earnings is an equity account). A number of other accounting standards also require certain income and expense items to be recorded directly in particular equity accounts rather than including them in a period’s profit or loss. These items form part of what is now referred to as ‘other comprehensive income for the year’—which when added to ‘profit...
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...Syllabus School of Business XACC/290 Version 1 Principles of Accounting I Copyright © 2013 by University of Phoenix. All rights reserved. Course Description This course covers the fundamentals of financial accounting as well as the identification, measurement, and reporting of the financial effects of economic events on an enterprise. Students will learn to examine financial information from the perspective of management. Other topics include decision-making, planning, and controlling from the perspective of a practicing manager. Policies Faculty and students will be held responsible for understanding and adhering to all policies contained within the following two documents: • University policies: You must be logged into the student website to view this document. • Instructor policies: This document is posted in the Course Materials forum. University policies are subject to change. Be sure to read the policies at the beginning of each class. Policies may be slightly different depending on the modality in which you attend class. If you have recently changed modalities, read the policies governing your current class modality. Course Materials Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2011). Financial accounting: Tools for business decision making (6th ed.). Hoboken, NJ: John Wiley & Sons. All electronic materials are available on the student website. Week One: Basic Accounting Principles and Concepts Details Due Points Objectives 1.1 Identify...
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...management……………………………………........8 The good and bad side of earnings management……………………………..............9 Conclusions…………………………………………………………..........................10 Reference………………………………......................................................................12 1. Concept of earnings management Since the 80s of 20th century, earnings management became a hot research subject in the international economics and accounting educational circles, the financial reporting and a contracting perspective can be viewed related to this hot subject. An accurate understanding of earnings management is very important to accountants, because it related to the understanding the usefulness of net income which will be reported to the investors. American accounting scholars Scott believe that “earnings management is the choice by a manager of accounting policies so as to achieve specific objectives”. Based on the different discussion, a definition of literature described from Healy and Wahlen is that “Earnings management occurs when managers use judgment in financial reporting and in structuring...
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...Chapter 4 The economics of Financial Reporting Regulation The case for unregulated markets for accounting information * Support for unregulated marketing all relate to the incentives for a firm to report information about itself to owners and to the capital market. * Agency theory explains why incentives exist for voluntary reporting to owners. * Wider voluntary reporting to the capital market is explained by signaling theory * The arguments supporting unregulated markets for accounting information are largely deductive in nature. Agency Theory * Predicts and explains the behavior of parties involved with the firm. * It conceives of the firm itself as a nexus of agency relationship and seeks to understand organizational behavior by examining how parties to agency relationships within the firm maximize their own utility. * One major relationship is between the management group and the owners of the firm. * Managers are hired to administer the firms’ activities. * Owners and Managers may have different goals and may not be in perfect agreement. While owners are interested to maximize return of investment and security prices, managers have a wider range of economic interests and psychological needs. Because of this conflict, owners communicate with managers in such a way as to minimize conflict between the goals of two groups. * Costs relating to monitoring management reduce managers’ compensation. Therefore managers have an...
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...Codification Research Paper Acc 303 11/15/2011 Introduction This paper is an analysis of the FASB Accounting Standards Codification and the Research System available through the AAA/FASB website. It will walk the reader through a select few topics focusing on how the codification literature addresses each topic. The first topic analyzed will be the definition of accounting policies. The paper will go on to discuss information available on comprehensive income, as well as net income. Comprehensive income and net income will also be compared and contrasted, with an example to illustrate each. Accounting Policies, as defined in the Codification literature Topic 235, Section 10 of the codification states, “The accounting policies of an entity are the specific accounting principles and the methods of applying those principles that are judged by the management of the entity to be the most appropriate in the circumstances to present fairly financial position, cash flows, and results of operations in accordance with generally accepted accounting principles (GAAP) and that, accordingly, have been adopted for preparing the financial statements.” The FASB codification, when put in place in 2009, redefined many of the internal accounting policies already in place within business entities. Fortunately for many companies, the codification offers a research system to search these new policies. There is also an extensive cross-reference feature which allows users to search topics and find...
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...ACCOUNTING THEORY AND PRACTICE (FAR 600) Teaching and Learning Arrangements (SEMESTER: JAN 2007 – APRIL 2007) COURSE CODE : FAR 600 PROGRAM : BACHELOR OF ACCOUNTING (HONS) CREDIT HOURS : 4 CONTACT HOURS : 4 STATUS : CORE SYNOPSIS This financial accounting course exposes students to accounting theory, corporate accounting policies and financial reporting practices. The importance of history is introduced through a brief discussion on accounting history from both experiences of both western and Muslim Civilization. In understanding the theoretical framework of accounting, the various perspectives on financial accounting theory are examined with particular emphasis on their rationale and implications on accounting practice. General concepts of theory formulation are discussed and types of accounting perspectives and research are also introduced in this course. Corporate Accounting Policies are explained by the development of the Conceptual Framework and the Importance of a Regulatory Environment. The Standard Setting process in Malaysia is discussed. An analytical approach of the accounting standards is adopted by examining the recognition, measurement, disclosure and presentation of accounting information is discussed. Significant emphasis is placed on Asset Measurement, Nature of Liabilities, Types of Equity, Recognition of Revenue and Income Finally contemporary accounting practices and...
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... | | |Principles of Accounting I | Copyright © 2011 by University of Phoenix. All rights reserved. Course Description This course covers the fundamentals of financial accounting as well as the identification, measurement, and reporting of the financial effects of economic events on an enterprise. Students will learn to examine financial information from the perspective of management. Other topics include decision making, planning, and controlling from the perspective of a practicing manager. Policies Faculty and students/learners will be held responsible for understanding and adhering to all policies contained within the following two documents: • University policies: You must be logged into the student website to view this document. • Instructor policies: This document is posted in the Course Materials forum. University policies are subject to change. Be sure to read the policies at the beginning of each class. Policies may be slightly different depending on the modality in which you attend class. If you have recently changed modalities, read the policies governing your current class modality. Course Materials Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2009). Financial accounting: Tools for business decision making (5th ed.). Hoboken, NJ: John Wiley & Sons. All...
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... | | |Principles of Accounting I | Copyright © 2011 by University of Phoenix. All rights reserved. Course Description This course covers the fundamentals of financial accounting as well as the identification, measurement, and reporting of the financial effects of economic events on an enterprise. Students will learn to examine financial information from the perspective of management. Other topics include decision making, planning, and controlling from the perspective of a practicing manager. Policies Faculty and students/learners will be held responsible for understanding and adhering to all policies contained within the following two documents: • University policies: You must be logged into the student website to view this document. • Instructor policies: This document is posted in the Course Materials forum. University policies are subject to change. Be sure to read the policies at the beginning of each class. Policies may be slightly different depending on the modality in which you attend class. If you have recently changed modalities, read the policies governing your current class modality. Course Materials Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2009). Financial accounting: Tools for business decision making (5th ed.). Hoboken, NJ: John Wiley & Sons. All...
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...Within the accounting profession, there have been challenges to develop a set of standards that are generally accepted and universally practiced. Thus far, the main debate in setting accounting standards is “Whose rules should we play by, and what should they be?” While the answer is unclear, users of financial statements and reporting must find methods that has an universal objective, that allows “Grapes for Grapes” comparisons that clearly, fairly, and completely prepares a company financial statements. For years GAAP has been the common set of standards and procedures for the U.S, the core for establishing a principle of reporting but now IFRS an international friendly financial reporting system has become popular for its use globally. In the text Intermediate Accounting by C.P.A Kieso, GAAP also known as generally accepted accounting principles are standardized guidelines and procedures to financial accounting and reporting. There are three major parties that are involved in the standard setting where U.S companies must abide by. Securities and Exchange (SEC), established by the federal government to help create and regulate financial information presented to stockholders. American Institute of Certified Public Accountants (AICPA), an organization of practicing Certified Public Accountants (CPA’s) established to contribute to the effort. And the major operator Financial Accounting Standards Board (FASB), objective is to establish and improve standards of financial...
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...Accounting policy changes: Kobe steels impact on the accounting changes: -Owned 8.4% of the Corporations outstanding common stocks. -Owns 25% of the capital stock of Harnishfeger of Australia Pty. (the owner ship appers as the minority interest in the balance sheet.) -Net fee income received from Kobe was 4.3min in 84, an increase of 1.2 mill from previous year. -ten year agreement with Kobe supplying the corporation requirement for construction cranes for sale in US. -Join R&D program for construction equipment over 3 years -Sales to kobe 5.2mill in 84 and 10.5mill in 83 -Purchases from Kobe 33.7 mill in 84 and 15.5mill in 83 - Corporation owns 19% of ASEA Industrial systems inc. -Purchases from AIS 11.2mill in 84 and 6.1 in 83 -Sales to AIS 2.6mill in 84 and 3.8 in 83 -Due to an Inventory reduction resulted in a liquidation of LIFO inventory. The effect of the liquidation increased the net income by 2.4million in 84. And reduced the net loss by approximately 15.6 million compared with only 6.7 mill in 83 There was a change in the recognition of some types of sales. This resulted in a change in sales calculation. Harnischfeger incorporated products purchased from Kobe Steel, which were re-sold by the company, into its net sales. This increased aggregate sales and cost of sales by $28 million. • There was a change in the fiscal year for some foreign subsidiaries. • There was a change in the depreciation methods on assets. The depreciation policy...
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...Accounting Policies for Reporting Income Strayer University Intermediate Accounting 1 – ACC 303 February 6, 2012 Professor Elizabeth Hewitt Accounting Policies for Reporting Income Examining accounting standards and policies information from various sources such as FASB Accounting Standards Codification (Financial Accounting Standards Board), AICPA (American Institute of CPA’s) and FASAB (Federal Accounting Standards Advisory Board) I can give a overview of how these items are defined in various resources. The FASB Accounting Standards Codification is the single source of authoritative nongovernmental U.S. generally accepted accounting principles. Looking at the online FASB site it offers the most GAAP generally accepted accounting principles. The site is set up so that you can access the topics you’re looking for in a sort of drill down menu type of search. The site is somewhat user friendly in that it offers a tutorial on how to use the site. It also offers several useful functions such as cross-referencing and join-sections. The AICPA sets ethical standards for the accounting profession and U.S. auditing standards for audits of private companies, non-profit organizations and federal, state and local governments. This resource offers tabs with drop down menus; one of which is marked Research under this tab you can find Standards that will take you to the Standard page offering a list of topics on Professional Accountant Standards such as ‘Audit and Attest Standards’...
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...Question 1. Identifying all the changes in accounting policy and accounting estimates that Harnischfeger made during financial year ending October 31, 1984. Also include in your discussion, what you believe may be real earnings management activities to affect profit. Estimate as accurately as possible, the effect of these changes on the company’s revenue, pre-tax profits and cash flows in 1984. Harnischfeger made the following changes in accounting policy and estimates: Harnischfeger made changes regarding the recognition of some types of sales. They decided to include products bought from Kobe Steel Ltd. and sold by them to be in its net sales, effective November 1983. Before that, only gross margin from products bought from Kobe was included. The company claimed that they wanted to present more fairly the nature of the business transactions with Kobe. Therefore, this increased the aggregate sales by $28 million during the fiscal year 1984. In my opinion, this may be real earnings management activity to affect profit because there is no solid reason for the company to make such changes. It was purely to increase the company’s revenue. In addition, effective fiscal 1984, Harnischfeger changed some of its foreign subsidiaries financial year-end to September 30 instead of July 31. This would affect the consolidated income statement of the company and it increased the net sales in 1984 by $5.4 million since this lengthened the reporting period to 14 months of operations of those...
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... | | |Principles of Accounting | Copyright © 2011, 2010, 2009, 2008 by University of Phoenix. All rights reserved. Course Description This course covers the fundamentals of financial accounting as well as the identification, measurement, and reporting of the financial effects of economic events on the enterprise. Financial information is examined from the perspective of effective management decision making with special emphasis on the planning and controlling responsibilities of practicing managers. Policies Faculty and students/learners will be held responsible for understanding and adhering to all policies contained within the following two documents: • University policies: You must be logged into the student website to view this document. • Instructor policies: This document is posted in the Course Materials forum. University policies are subject to change. Be sure to read the policies at the beginning of each class. Policies may be slightly different depending on the modality in which you attend class. If you have recently changed modalities, read the policies governing your current class modality. Course Materials Weygandt, J. J. (2008). Financial accounting (6th ed.). Hoboken, NJ: John Wiley & Sons. All electronic materials are available on your student website....
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...Business Research Report Financial Reporting According to International Accounting Standards Presented to: XYZ Corporation Assessment Code: RWT1 Student Name: Linda Kaye Craghead Student ID: 000225676 Date: March 13, 2013 Mentor Name: Caroline Juedes Table of Contents Executive Summary.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Introduction.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Research Findings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Annual Report and Auditing.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Financial Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Income Statements.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Recommendations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...
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