* Financial statement disclosure has been expanding * Mandated information disclosure justified b/c it minimizes or reduces a “market failure” to provide information voluntarily. W&Z suggest regulation is a response to market failures associated w/ private production of information. They conclude that market failure arguments are fallacious and disclosure regulation may not achieve a social optimum. In general, they’re arguments are against accounting regulation. Purpose: To review critically anti-regulation arguments and their link to positive accounting theory.
From an accounting prospective, the major problem with the calculations mentioned in the article is determining the rate of return and length of the marketing investment. While the initial value of the “investment”, i.e. marketing expense, can be easily determined, determining the real value after the investment has been made has the potential to be biased without a commonly used measurement. The value of the investment could also fluctuate from year to year based on the companies’ profitability even though marketing had not direct
This is because according to Elliot (1986), it stated that historical cost assumes money holds a constant purchasing power. The specific price-level changes (shifts in customer preference and advances in technology), inflation, and fluctuation in exchange rates for currencies that happen in the modern economy cause this assumption less valid. Furthermore, historical cost does not consider the changes in price. In times of rising prices, the companies tend to overstate the profits and distribution of the profits to the shareholders will cause trouble to the company. This is because the historical cost does not
Baker Hughes: Foreign Corrupt Practices Act Study Questions 1. Describe the economic and social impact of bribes and other similar payments in emerging economics. In emerging economies, bribes and other similar payments have a negative impact. Such corruption, although appearing to provide short term growth, will not turn into long term growth. Corruption reduces the efficiencies of the operations of the market economy and a loss of direct foreign investment in countries where participation in corruption is how business is done.
The fed has to set a lower reserve requirement, which allows banks to loan out more money, which generates more interest, which could lead to periods of inflation and could have worse consequences if the government does not react quickly enough. Inflation would decrease the purchasing power of an individual's money, which would lead to more saving and less spending. (Fried) Less spending would mean less money being injected into the circular flow of our economy and would lead to economic crisis. However, many critics also use this to determine how national debt does not have a huge impact on the economy. A huge national debt has no effect on the money market.
Accounting fraud can be described as some sort of earnings management but not all earnings management can be considered fraudulent. The distinguishing criteria of ethical accounting practices from unethical ones are use of accounting standards, transparency, and intent. If the intention is to misrepresent and mislead users of financial reports, it is most likely that accounting practices employed do not conform to accounting standards and unfavorable information vital to investors are withheld. On the other hand, ethical earnings management is done in a transparent manner and vital information are disclosed accordingly. 3.
5. Assume all amounts are material unless directed otherwise. Question 1 (30 marks): Select the best answer for each of the following unrelated items. Answer each of these items in your examination booklet by giving the number of your choice. For example, if (1) is the best answer for item (a), write (a)(1) in your examination booklet.
Therefore, value is transferred from the bondholders to the shareholders by undertaking risky projects, even if the projects have negative NPVs. This incentive is even stronger when the probability and costs of bankruptcy are high. 4. Stockholders can undertake the following measures in order to minimize the costs of debt: 1) Use protective covenants. Firms can enter into agreements with the bondholders that are designed to decrease the cost of debt.
I conclude that although the abuse of the profession by investment institutions aggravated the financial crisis, accounting cannot be said to be a root cause. Second, I look at the potential of accounting to help with the resolution of the financial crisis. I argue that by enhancing the accounting standards and acting to eliminate weaknesses therein, accounting can play a significant role in aiding the global economy to recover. Several allegations have been made against the accounting profession, accusing it of precipitating the financial crisis. Of these, I believe two in particular depict the role of accounting in the financial crisis, these being the effects of fair values and the overly complex (and thus allegedly detrimental) nature of financial reporting.