...Unit 5: Business Accounting Unit code: M/502/5415 QCF Level 3: BTEC National Credit value: 10 Guided learning hours: 60 Aim and purpose The aim of this unit is to enable learners to understand the purpose of accounting, and the associated processes and its role in the managing of a business. Learners will develop the skills and knowledge needed to understand financial information. Unit introduction Understanding how a business operates and what makes it successful, requires knowledge of the accounting process. Accounting involves recording business transactions and, this in turn, leads to the generation of financial information which can be used as the basis of good financial control and planning. Inadequate record keeping and a lack of effective planning ultimately lead to poor financial results. It is vital that owners and managers of businesses recognise the indications of potential difficulties. Remedial action can then be taken. The unit is divided into two parts. The first develops an understanding of the accounting processes necessary to provide accurate and relevant financial information. The second part covers the practical aspect of carrying out those accounting activities. Learners will be introduced to accounting terminology as they study the purpose and function of accounting and consider the various categories of business income and expenditure. It is important to know the sources of an organisation’s income and the nature...
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...Case Study: | Harnischfeger Corporation | | | Q1: Changes in accounting policy and accounting estimates. (i) Inclusion of full sales price of construction and mining equipment purchased from Kobe Steel, Ltd. (later resold by the Corporation) in net sales If the Corporation continued with the prior recognition, which was to recognize gross margin, a loss of $5.7 million would be reflected in net sales. However, under the new recognition method no loss would be recorded, instead, revenue increased by $28 million arising from such sales. No impact would be on pre-tax profits as the cost of purchase of the equipment would be recorded in Cost of Goods Sold (COGS), hence $5.7 million loss resulted from such sales was still accounted for in pre-tax profits. Consequently, operating cash flow would be unaffected. (ii) Inclusion of the financial statements of certain foreign subsidiaries This change had the effect of increasing the Corporation’s revenue and pre-tax profits by $5.4 million. As a result, operating cash flow faced the same amount of increment. (iii) Change in accounting for depreciation of plants, machinery and equipment (PPE) The Corporation made alteration to its accounting for depreciation of PPE from accelerated method to straight-line method. For this reason, net income for fiscal year 1984 was increased by $11,005,000, thus the same amount reflected in the operating cash flow. Correspondingly, $17,205,000 was deducted from the operating cash...
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...© 2000 American Accounting Association Accounting Horizons Vol. 14 No. 2 June 2000 pp. 235-250 Earnings Management: Reconciling the Views of Accounting Academics, Practitioners, and Regulators Patricia M. Dechow and Douglas J. Skinner Patricia M. Dechow is an Associate Professor and Douglas J. Skinner is a Professor, both at the University of Michigan. SYNOPSIS: We address the fact that accounting academics often have very different perceptions of earnings management than do practitioners and reguiators. Practitioners and reguiators often see earnings management as pervasive and probiematic—and in need of immediate remediai action. Academics are more sanguine, unwiiiing to beiieve that earnings management is activeiy practiced by most firms or that the earnings management that does exist should necessarily concern investors. We explore the reasons for these different perceptions, and argue that each of these groups may benefit from some rethinking of their views about earnings management. INTRODUCTION Despite significant attention on earnings management from regulators' and the financial press,^ academic research has shown limited evidence of earnings management. While practitioners and regulators seem to believe that earnings management is For example, SEC Chairman Levitt delivered a major speech on earnings management in the fall of 1998 in which he advocated a niunber of initiatives to improve the quahty of financial reporting (Levitt 1998). As part...
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...This section discussed the previous reviews of literatures related to the topic. The focus of this study is to test whether the market-perceived audit quality captures actual audit quality. It also investigates the relationships among actual audit quality measured by a post hoc identification of auditor failures and earnings management as well as financial analysts’ forecast errors. Prior literature in audit quality, earnings management and financial analysts’ forecast errors are reviewed in this section. AUDIT QUALITY AND ACTUAL AUDIT QUALITY Audit quality has been a topic of significant interest in accounting research. In order to improve the understanding of audit quality, numerous studies have tried to detect the association between audit...
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...Dynamics, and, more recently, Lockheed, have failed as a result of attempting such bet-the-company product development efforts. If, however, the launch effort does succeed, Airbus is expected to dislodge Boeing as the market leader in commercial aircraft after more than 50 years of market dominance by the latter. We can write a custom term paper on Airbus for you! This term paper presents an analysis of this new product commitment and, more generally, of competition in very large aircraft (VLA is defined as planes capable of seating more than 400 passengers). CASE BACKGROUND In the early 1990s, Airbus and Boeing independently began to study the feasibility of launching a super jumbo. Both agreed there was a growing need for a super jumbo because of increasing congestion at major hubs. Alternative solutions were seen as either infeasible, in the case of greater flight frequency, or ineffective, in the case of flights to secondary airports. Fairly quickly they realized that there was room in the market for only one competitor....
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...é The Effects of Mandatory IFRS Adoption in the EU: A Review of Empirical Research October 2014 Information for Better Markets An initiative from the ICAEW Financial Reporting Faculty The Effects of Mandatory IFRS Adoption in the EU: A Review of Empirical Research forms part of the Information for Better Markets thought leadership programme of ICAEW’s Financial Reporting Faculty. ICAEW operates under a Royal Charter, working in the public interest. As a world leading professional accountancy body, ICAEW provides leadership and practical support to over 142,000 members in more than 160 countries, working with governments, regulators and industry to ensure the highest standards are maintained. The ICAEW Financial Reporting Faculty provides its members with practical assistance and support with IFRS, UK GAAP and other aspects of business reporting. It also comments on business reporting issues on behalf of ICAEW to standard setters and regulators. Its Information for Better Markets thought leadership programme subjects key questions in business reporting to careful and impartial analysis so as to help achieve practical solutions to complex problems. The programme focuses on three key themes: disclosure, measurement and regulation. We welcome comments and enquiries on this report and on the other aspects of the Information for Better Markets programme. To contact us, please email bettermarkets@icaew.com. © ICAEW 2014 All rights reserved. If you want...
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...Analysis of Accounting Frauds and the Timing of Analyst Coverage Decisions and Recommendation Revisions: Evidence From the US Susan M. Young* Associate Professor Fordham University New York, NY 10019 syoung16@fordham.edu Emma Peng Assistant Professor Fordham University New York, NY 10019 ypeng@fordham.edu *Corresponding author We thank workshop participants at the AAA annual meeting, City University of New York, CUNY Baruch College Emory University, and the editor for their helpful comments. We are grateful for the data provided by an anonymous reviewer and research assistance of Aili Weng and Xiaolan Wang. We appreciate funding from Fordham University. Electronic copy available at: http://ssrn.com/abstract=2202393 An Analysis of Accounting Frauds and the Timing of Analyst Coverage Decisions and Recommendation Revisions: Evidence From the US Abstract: This paper provides a comprehensive exploration of the types of accounting fraud committed by firms over the period 1995 – 2009. Using detailed data from US SEC Accounting and Auditing Enforcement Releases (AAER), we examine the likelihood and timing of analyst coverage decisions and recommendation revisions related to fraud firms versus firms without accounting fraud. We find that analysts have a higher probability of taking the more severe action of dropping coverage rather than only revising down recommendations for firms with any type of accounting fraud and also for specific egregious types of accounting fraud...
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...PRESS Journal of Accounting and Economics 39 (2005) 509–533 www.elsevier.com/locate/jae To blame or not to blame: Analysts’ reactions to external explanations for poor financial performance$ Jan Barton, Molly Mercerà Goizueta Business School, Emory University, Atlanta, GA 30322, USA Received 3 March 2003; received in revised form 17 March 2005; accepted 4 April 2005 Abstract Managers often provide self-serving disclosures that blame poor financial performance on temporary external factors. Results of an experiment conducted with 124 financial analysts suggest that when analysts perceive such disclosures as plausible, they provide higher earnings forecasts and stock valuations than if the explanation had not been provided. However, we also show that these disclosures can backfire if analysts find them implausible. Specifically, implausible explanations that blame poor performance on temporary external factors lead We appreciate the helpful comments of Holly Ashbaugh, Charlie Bailey, Sudipta Basu, Robert Bloomfield (the referee), Jennifer Joe, Jay Koehler, Mark Kohlbeck, Lisa Koonce, Bob Lipe, Stan Markov, Ella Mae Matsumura, Brian Mayhew, Jeff Miller, Pam Murphy, Lisa Sedor, Siew Hong Teoh, Kristy Towry, Terry Warfield, Greg Waymire, Jerry Zimmerman (the editor), and seminar participants at University of Georgia, Harvard University, University of Notre Dame, Ohio State University, Rice University, University of Wisconsin—Madison, the 2003 AAA Financial Accounting and Reporting...
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...Journal of Accounting and Economics 50 (2010) 344–401 Contents lists available at ScienceDirect Journal of Accounting and Economics journal homepage: www.elsevier.com/locate/jae Understanding earnings quality: A review of the proxies, their determinants and their consequences$ Patricia Dechow a, Weili Ge b, Catherine Schrand c,n a b c University of California, Berkeley, CA 94720, United States University of Washington, Seattle, WA 98195, United States University of Pennsylvania, Philadelphia, PA 19104, United States a r t i c l e i n f o abstract Available online 4 November 2010 Researchers have used various measures as indications of ‘‘earnings quality’’ including persistence, accruals, smoothness, timeliness, loss avoidance, investor responsiveness, and external indicators such as restatements and SEC enforcement releases. For each measure, we discuss causes of variation in the measure as well as consequences. We reach no single conclusion on what earnings quality is because ‘‘quality’’ is contingent on the decision context. We also point out that the ‘‘quality’’ of earnings is a function of the firm’s fundamental performance. The contribution of a firm’s fundamental performance to its earnings quality is suggested as one area for future work. & 2010 Elsevier B.V. All rights reserved. JEL classification: G31 M40 M41 Keywords: Earnings quality Earnings management Review Survey 1. Introduction Statement of Financial Accounting Concepts...
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...On Comparing Residual Income and Discounted Cash Flow Models of Equity Valuation: A Response to Penman 2001 (CAR, Winter 2001)* RUSSELL J. LUNDHOLM, University of Michigan TERRENCE B. O’KEEFE, University of Oregon and University of Queensland In the Summer 2001 issue of Contemporary Accounting Research we published a paper arguing that, given a full set of forecasted financial statements, the value estimates from a residual income model and a discounted cash flow model should yield identical results. The reason prior empirical studies (Penman and Sougiannis 1998 and Francis, Olsson, and Oswald 2000) found differences between the models is because of subtle errors in the implementation of the models. Penman (2001) understandably takes issue with our paper, claiming that we are wrong on three points. We feel quite confident in our original paper and will rebut each of Penman’s claims. Penman repeatedly states that he is interested in practical issues surrounding valuation. We share this interest; in fact, we were motivated to write our paper because of the common question raised by students and faculty: “Why do I get a different answer from my discounted cash flow valuation than from my residual income valuation?” We still maintain that, if carefully done, there will be no difference in the valuations from these theoretically equivalent models. Our paper shows exactly how to do this and illustrates commonly made mistakes. Further, any practical attempt to value a firm begins with forecasting...
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...Synthesis of “Cost Stickiness” Literature Abstract Traditional cost accounting holds the assumption that cost changes proportionately with activity. Anderson et al. (2003) show that cost increases more when activity rises than decreases less when activity falls by an equivalent amount, a behavior that they refer to as “cost stickiness”. By following Anderson et al. (2003) researchers investigate the determinants, consequences and different aspects of cost stickiness. However, some studies raise questions about the validity of the inference made by Anderson et al. (2003). Over the last few years many authors highlight some new aspects such as earnings forecasts error, agency problem and earnings management that relate to cost stickiness. The objective of this paper is to review and synthesize the growing body of research on cost stickiness. Lack of theoretical support, merely insights provided by the literature and some inconclusive findings suggest that there are ample research opportunities to improve the understanding in this area. Keywords: Cost stickiness; Asymmetric cost behavior 2 1.0 Introduction The significant role of cost accounting is to analyze the cost of inputs and the value of outputs provided by those inputs. Cost accounting system helps managers to make better decision that leads to cost efficiency and improved profitability. Conventional model of cost accounting assumes that costs are proportional to the cost drivers. Activity based...
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...Rocky Mountain Advanced Genome – Case Study Background:Rocky Mountain Advanced Genome (RMAG) is headquartered in Colorado Springs, Colorado and has recently been founded by seven research scientists who have taken a leave of absence from major universities and pharmaceutical companies to establish this firm. This company uses gene-sequencing techniques with a computer-driven search algorithm to identify genes in human DNA. In January 1996, negotiations were coming to the end for a private equity investment by Big Sur Capital Management to buy a 90 percent equity interest for $46 million in RMAG. The proceeds of the sale would be used to finance the growth of RMAG. Big Sur's saw a highly promising, but a highly risky investment opportunity. Kim McGraw, a managing director with Big Sur was put in the position to negotiate a price and terms of the investment. She based her negotiations on the assessment of RAMG's economic value. Big Sur Capital Management is located in San Francisco, California and has been organized as a hedge fund since 1968. Over the years it proved more successful in variety of "private equity" investments and had gradually shifted its activities to this area. The firm has $2 billion under management with 64 investments evenly split between venture capital investments and participations in leveraged buyouts. Importance of Terminal Value:Terminal value is the lump-sum of cash flows at the end of a stream of cash flows. It is important when trying to...
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...Case 9 Kota Fibers, Ltd. Kota Fibers, Ltd. was founded in Kota, India in 1962. Kota produced nylon to provide synthetic fiber yarns to local textile weavers. The synthetic fiber yarns were mainly used to make traditional women’s colorful dresses in India called the saris. One sari averaged eight yards of fabric. Indian women usually purchased three saris every year. India’s female population is around 500 million, with a demand for saris accounting for more than twelve billion yards of fabric and a stable business. The demand was being supplied by domestic textile mills that fulfilled their yarn requirements from suppliers like Kota Fibers. Kota used new technology and domestic raw materials to produce their quality product. Demand for synthetic textiles was characterized by a stable year to year growth with fluctuation based on special Indian festivals and celebrations. The most important festival was the Diwali celebration in mid-autumn, which made a seasonal peak in demand for new saris. Therefore, mid-summer was the seasonal peak demand for nylon yarn from Kota. Unit industry growth was expected to be 15% per year. Consumers purchased their saris from cloth merchants located all around the country. Cloth merchants were important local figures that were well known to the area residents who granted credit in order to support their sales. The suppliers were very competitive in order to keep the merchant’s business. The suppliers were aggressive in price, service, and credit...
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...Module outline Management Accounting & Applied Finance (MAAF) 12 September 2013 Chartered Accountants Program Overview Management accounting is about making better business decisions; the practical understanding of key drivers for adding value to a business; and how these are tied to the decision-making process. It’s about helping people run their businesses more efficiently and effectively in order to achieve the desired outcomes such as increasing returns or delivering improved services. MAAF includes two major integrated case studies and other practical examples and activities that will give you the skills and knowledge to identify, analyse, interpret and communicate information to help an organisation manage its resources and achieve strategic goals. The MAAF module is one of the five compulsory modules in the Chartered Accountants Program. It requires a good understanding of management accounting and applied finance from your previous tertiary studies. Units The MAAF module comprises the following units: Unit 1 2 3 4 Name of unit Introduction to management accounting (including ethics) Analysing business operations Activity-based costing and management Pricing decisions and models Online assessment 5 6 7 8 Management of revenues and costs Performance reporting Working capital management Business planning (including budgeting and forecasting) Online assessment 9 10 11 12 Performance analysis Performance measurement and management Investment decisions Short-term...
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