Research topic: Accounting policy choice Word length: 2500 words Due Date: Week 9 (Wednesday 21stMay, 3pm) On 7 November 2014, the Australian Securities and Investment Commission (ASIC) announced...

Research topic: Accounting policy choice

Word length: 2500 words

Due Date: Week 9 (Wednesday 21stMay, 3pm)

On 7 November 2014, the Australian Securities and Investment Commission (ASIC) announced its areas of focus for 31 December 2014 financial reports of listed entities and other entities of public interest with many stakeholders. One of those areas of focus was accounting policy choices. According to ASIC preparers and auditors need to focus on the appropriateness of key accounting policy choices and that its surveillance will focus on material disclosures of key accounting policy choices:

Accounting policy choices

Preparers and auditors should focus on the appropriateness of key accounting policy choices that can significantly affect reported results. These include off-balance sheet arrangements, revenue recognition, expensing of costs that should not be included in asset values, and tax accounting.

Material disclosures

ASIC’s surveillance continues to focus on material disclosures of information useful to investors and others using financial reports, such as assumptions supporting accounting estimates, significant accounting policy choices, and the impact of new reporting requirements. ASIC does not pursue immaterial disclosures that may add unnecessary clutter to financial reports.

Source:
http://asic.gov.au/about-asic/media-centre/find-a-media-release/2014-releases/14-294mr-focus-for-31-december-2014-financial-reports/

In its commentary on this issue, CPA Australia observed the following:

Accounting policy choices made in respect of off-balance sheet arrangements is another focus area for ASIC. The requirements of AASB 10 Consolidated Financial Statements, AASB 11 Joint Arrangements and AASB 12 Disclosures of Interests in Other Entities should be considered by entities when determining the correct accounting treatment for off-balance sheet arrangements.

ASIC continues to remain sensitive to the accounting policy choices companies make when recognising revenue, as the appropriate application of the requirements including the timing of recognition and reflecting the substance of underlying transactions, are critical for a suitable revenue recognition policy.

Companies that state compliance with IFRS in their financial statements, and their auditors should pay attention to the potential impact of applying the new accounting standard IFRS 15 Revenue from Contracts with Customers and make appropriate disclosures if required. . IFRS 15 was issued by the International Accounting Standards Board in May 2014, with an application date set for accounting periods beginning on or after 1 January 2017 (a copy of IFRS 15 can be obtained from


CPA Library

). The Australian Accounting Standards Board’s work program indicates that the Australian version of IFRS 15 will be issued in quarter 4 of 2014.

Source:
https://www.cpaaustralia.com.au/media/familiar-look-to-asics-focus-areas

In addition to this information, ASIC released an attachment which provided more detail on its areas of focus with regards to accounting estimates, accounting policy choices and key disclosures, a copy of which is available here:

http://download.asic.gov.au/media/2249282/attachment-to-14-294mr.pdf

Required:

1. Explain, with reference to the research literature, how accounting policy choices can affect financial results?

2. Why did ASIC choose to focus its investigation on material disclosures of decision useful information such as assumptions supporting accounting estimates, significant accounting policy choices? Explain your answer with reference to the research literature.

3. Explain, with reference to the research literature, why CPA Australia, with reference to ASIC, believes that ‘a suitable revenue recognition policy’ requires the ‘appropriate application’ of ‘the timing of recognition’ therefore ‘reflecting the substance of underlying transactions’?

4. Explain and analyze the extent to which the revenue recognition criteria in AASB 118 / IAS 18
Revenue
and AASB 15
/
IFRS 15
Revenue from Contracts with Customers
meets the ASIC and CPA requirements of an ‘appropriate application’ of ‘the timing of recognition ‘of revenue and therefore represents the substance of underlying transaction.

5. Review the annual financial reports of a company of your choice for the reporting years 2014, 2015 and 2016. Analyze how revenue was recognized in each of the reporting years, and explain any variations in the firm’s reported revenue over this period by examining the accounting policies section in the notes to the accounts with regards to AASB 118 / IAS 18
Revenue
and AASB 15
/
IFRS 15
Revenue from Contracts with Customers.

6. Explain the choices of accounting policies with regards to AASB 118 / IAS 18
Revenue
and

AASB 15 / IFRS 15 Revenue from Contracts with Customers

by reference to the relevant accounting research literature on factors influencing firms’ accounting policy choice (e.g. Positive Accounting Theory).

References

Savage, A., Douglas, C., and Barra, R. (2013). Accounting for the Public Interest: A Revenue Recognition Dilemma.
Issues in Accounting Education, Vol. 28, No. 3, pp. 691-703.

APES 110 Code of Ethics for Professional Accountants, available at
http://www.apesb.org.au/uploads/standards/apesb_standards/standard1.pdf

EY. (2015). The new revenue standard affects more than just revenue, available at
http://www.ey.com

IAS 18 Revenue and IFRS 15, both are available at
www.ifrs.org
(alternatively, AASB118 Revenue and AASB 15 Revenue from contracts with customers, available for download at
www.aasb.gov.au)

IASB Framework, available at
www.ifrs.org

Submission requirement:

1.
Assignment submission

a. Each group consists of no more than
three members.

b. Submission of this assignment by due date is
compulsory
for the successful completion of the subject.

c. The submitted hardcopy of the assignment must be the identical version of the electronic copy submitted through the Dropbox (i.e. Turnitin) on VU Collaborate. Inconsistence in the hardcopy and the electronic copy may result in a
zero mark
of the assignment.

d. The Turnitin/Dropbox Similarity Report should be
no more than 25%.

e. Late submission without the extension approval from your local lecturer will be penalised at
two marks
(out of 20) per calendar day (including weekend).

f. Completed extension application form must be submitted to your tutor at least
three days
in advance of the due date.

g. Students are responsible to protect their work and save data by making necessary backup. Loss of data due to a computer or storage devices problems will
not
be considered a legitimate reason for an extension.

2.

Referencing and style

a. The presentation of the response to each question should be clear, concise and accompanied by expository text accessible to the reader

b. The presentation of the entire assignment should be written in English of an appropriate academic register and of a format and standard of presentation acceptable to business study

c. Assignment must be typed using Word document, with double alignment, and 1.5-lines space.

d. Assignment is required to use either an APA or Harvard referencing style (see VU library for Referencing Style guides
https://www.vu.edu.au/library/access-borrowing/search-browse-resources/library-guides)

e.
Assignment without proper referencing (in text and end of text) will be subject to substantial deduction of marks. This may result in the assignment being marked zero.

3.
Preventing plagiarism

3.1 Academic Honesty and Preventing Plagiarism Policy

Plagiarism is defined as ‘The practice that involves use of another person’s intellectual output and presenting it (without appropriate acknowledgement) as one’s own’.

Examples of plagiarism:

· Word-for-word copying of sentences/paragraphs in an assignment without acknowledgement or with insufficient or improper acknowledgement;

· Downloading essays or assignments from the web and presenting these for assessment;

· Presenting another student’s work or research data as the student’s work;

· Copying out parts of any text without acknowledging the source(s). This may be written text, structures within texts, diagrams, formulae, sound files, still photographs, audio-visual material (sound and image files), graphics/animations/multimedia objects, other computer based material, mathematical proofs, art objects, products and others. This can be done as verbatim copying or paraphrasing.

· The use of someone else’s concepts, experimental results, experimental conclusions or conclusions drawn from analysing evidence or arguments without acknowledging the originator of the idea(s) or conclusion(s).

3.2 Students are responsible for:

· Understanding and respecting the University’s policies and procedures regarding plagiarism, collusion, and other forms of academic misconduct, and as such should only submit work for correction or academic credit that is their own or that properly acknowledges the ideas, interpretations, words or creative works of others;

· Avoiding the lending or making accessible original work to others;

· Being clear about the appropriate referencing rules that are applicable to their field of study;

· Refusing to be a party to another student’s efforts to undermine the academic integrity of the University.

· Seeking assistance with their learning and assessment tasks if they are unsure of appropriate forms of acknowledgement.

Assignment Marking Sheet

Student Name:

Student ID Number: