Exam 3: Theories of Financial Accounting

The adoption of IFRS standards requires the use of fair value in recognition and measurement of numerous items in the financial report,stimulating a debate that IFRS standards increases volatility in earnings.Using the opportunistic view,discuss the concerns of reporting entities with the IFRS standards.

According to CoCoA current cash equivalents are represented by:

A firm is close to violating the current ratio debt covenant in one of its loan agreements.Which accounting action would you recommend to reduce the likelihood of a technical violation?

Information asymmetry is the situation in which the agent has access to information not available to the principal.

A company has a debt covenant in place that limits the amount it can borrow to 50% of its tangible assets.If the company's actual value for that ratio is approaching violation of this debt covenant,consistent with PAT,management would try to relax the constraint by:

Using the PAT perspective of managers' behaviour,the effect of paying managers a fixed income salary is that:

Stakeholders are:

'A company can be creative in preparing its accounts and yet still be within bounds of acceptable accounting policies.' Explain.

A company has a debt contract in place which requires that the company's working capital (ratio of current asset to current liabilities)must never fall below 2.As balance date approaches,the company estimates that the working capital ratio will be 1.9 and the company may default on its debt contract unless remedial action is taken.Which of the following action(s)will increase the company's working capital at balance day?

Examples of behaviours that create agency costs of debt include situations where the borrowing entity:

The efficiency perspective in PAT research considers:

The general aim of the current-cost accounting theory is:

Market-based bonus schemes may be considered more appropriate from a PAT perspective in industries in which:

A new accounting standard requires ABC Plc to recognise as expense all share-based payments,specifically the issue of options to its employees.Prior to this standard,the company need not do anything until the options are exercised.The manager of ABC Plc is worried about this new standard as the company is close to a technical violation of its borrowing agreements that the debt-to-equity ratio be less than 40%.Most of the options on issue are cash-settled and will require an increase in liabilities.Which of the following accounting policies if adopted by the company could reduce the likelihood of a debt covenant violation?

Criticisms of PAT include:

Discuss some of the incentives that may encourage managers to manipulate accounting numbers.

In the situation where a contractual arrangement has been negotiated that provides managers with a bonus based on the profits generated by the entity:

With most economies moving toward a carbon constrained economy using Institutional Theory discuss how corporate social responsibility reporting could gain legitimacy.

PAT has been described as:

PAT outlines the best (or most positive)way of preparing accounting reports.