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ACCOUNTING POLICY

ACCOUNTING POLICY. LEARNING OUTCOMES: CAN EXPLAIN HOW CORPORATE GOVERNANCE MAY ENHANCE QUALITY OF ACCOUNTING INFORMATION CAPITAL MARKET MASTER PLAN AND DISCLOSURE BASED REGIME WORLD CLASS ACCOUNTING STANDARDS AND ITS DUE PROCESS. ACCOUNTING POLICY.

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ACCOUNTING POLICY

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  1. ACCOUNTING POLICY • LEARNING OUTCOMES: • CAN EXPLAIN HOW CORPORATE GOVERNANCE MAY ENHANCE QUALITY OF ACCOUNTING INFORMATION • CAPITAL MARKET MASTER PLAN AND DISCLOSURE BASED REGIME • WORLD CLASS ACCOUNTING STANDARDS AND ITS DUE PROCESS

  2. ACCOUNTING POLICY • CAN IDENTIFY ISSUES RELATING TO CHOICE OF ACCOUNTING POLICY AND WHETHER CHOICE DESCRIBES SUBSTANCE OF TRANSACTIONS

  3. ACCOUNTING POLICY • CAN EXPLAIN AND EVALUATE FINDINGS ON USE OF ACCOUNTING POLICY CHANGE TO BENEFIT MANAGERS VIA CREATIVE ACCOUNTING

  4. ACCOUNTING POLICY SELECTION • APPROPRIATE TO BUSINESS • CONSISTENT • SUBSTANCE OVER FORM • WATCHDOG REPORTS ON WRONGFUL ACCOUNTING POLICIES BY LION CORP AND GBH – CONFUSING THE INVESTORS AND CREDIBILITY OF CAPITAL MARKET

  5. ACCOUNTING POLICY • WHO SELECTS? CODE OF CORPORATE GOVERNANCE PUTS ONUS ON AUDIT COMMITTEES • AUDITORS EXAMINE APPROPRIATENESS TO BUSINESS AND GOING CONCERN • WHO MONITORS? FOR PLC’S

  6. GAAP • GIVES ROOM FOR DISCRETION • EXERCISE OF JUDGEMENT BY ACCOUNTANTS • ACCOUNTANTS DECIDE HOW BEST TO POTRAY A TRUE AND FAIR VIEW • PERFORMANCE ENHANCING TECHNIQUES TO AVOID ATTENTION OF AUTHORITIES,TO SMOOTHEN VOLATILITIES, TO MAINTAIN DEBT COVENANTS

  7. CREATIVE ACCOUNTING • CAN BE MISLEADING TO INVESTORS • MEANT TO MAXIMISE PERFORMANCE BASED COMPENSATION • MANY TECHNIQUES SUCH AS REVENUE RECOGNITION, SMOOTHING EXPENSES,

  8. CREATIVE ACCOUNTING WHAT IS IT • USING KNOWLEDGE OF ACCOUNTING RULES TO MANIPULATE NUMBERS REPORTED • UK- CREATIVE ACCOUNTING • US – EARNINGS MANAGEMENT, INCOME SMOOTHING DISCRETIONARY ACCRUALS

  9. ISSUES • DOES CREATIVE ACCOUNTING AFFECT DECISION MAKERS BY USING THE REPORTED FIGURES? • IS THE CHOICE OF ACCOUNTING POLICY APPROPRIATE? • IS THERE SUCH A THING AS ACCOUNTING TRUTH?

  10. PERSPECTIVES • GRIFFITHS (1986): A BUSINESS JOURNALIST: DECEPTION IN GOOD TASTE. PERFECTLY LEGITIMATE (TAX AVOIDANCE) • JAMESON (1988): ACCOUNTANT:ACCOUNTING PROCESS DEALS WITH JUDGEMENT IN RESOLVING CONFLICTS. FLEXIBILITY GIVES OPPORTUNITIES

  11. PERSPECTIVES • SMITH 1992 • INVESTMENT ANALYST SAID PROFIT GROWTH NOT GENUINE • NASER 1993:ACADEMIC:TRANSFORMING ACCOUNTING FIGURES FROM WHAT THEY ARE TO WHAT PREPARERS DESIRE

  12. 4 WAYS • EXERCISING CHOICE IN ALTERNATIVE ACCOUNTING POLICIES • BIAS IN ACCOUNTING ESTIMATES • TIMING • STRUCTURING TRANSACTIONS E.G. SALE AND LEASEBACK ARRANGEMENTS

  13. IRREGULARITIES • TAX EVASION VS TAX AVOIDANCE • HO HUP CONSTRUCTION:INVESTIGATIVE ACCOUNTANTS BROUGHT IN • SUSPECTED OFFENCES UNDER PENAL CODE AND COMPANIES ACT • CBT,MISAPPROPRIATION OF PROPERTY,CHEATING

  14. HO HUP • BREACHES OF DIRECTORS’ DUTIES • PUNCAK NIAGA BETTER THAN EXPECTED RESULTS:REVENUE IS BASED ON HOPE,EXPECTING WATER TARIFF HIKE TO GO UP BY 37% • SELANGOR GOVERNMENT HAS NOT YET APPROVED

  15. NAIM HOLDINGS 2010 • UNDER DECLARED PROFITS BECAUSE OF COMPLEX ACCOUNTING PRACTICE • NOT TRANSPARENT

  16. IMPLICATIONS • CREDIBILITY OF PROFESSION AT STAKE • NEED FOR TRANSPARENT, TIMELY AND RELIABLE FINANCIAL STATEMENTS • REASONS/INCENTIVES FOR DISCRETIONARY CHANGE (SHARMA AND STEVENSON (1997)

  17. VOLUNTARY DISCLOSURES • OVER AND ABOVE WHAT IS MANDATORY • MANY FORMS – PRESS RELEASE,LETTERS TO SHAREHOLDERS.ANNUAL REPORTS • TO REDUCE COST OF CAPITAL • CORPORATE SOCIAL REPORTING • ENVIRONMENTAL REPORTING

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