Financial Reporting and Analysis Assignment -
Question 1 - The accounting profession, the public, as well as regulatory bodies recognise the importance of high quality corporate reporting. However, the recommendations to improve it are sometimes questioned on the basis that the marketplace for capital can determine the nature and quality of corporate reporting. Additional accounting and disclosure standards would only distort a market mechanism that already works well and would add costs to the reporting mechanism, with no apparent benefit. Additional requirements of the accounting standards create costly, inefficient, and unnecessary regulation. On the other hand, increased disclosure reduces risks and offers a degree of protection to users. This increased disclosure comes at the expense of additional costs to the preparer of financial statements.
Required:
(a) Examine and comment on the usage of the accounting standards to help the market mechanism work effectively for the benefit of preparers and users of corporate reports.
(b) Discuss and explain the relative costs to the preparer and benefits to the users of financial statements of increased disclosure of information in financial statements.
Question 2 - Falcon Semiconductor Ltd. is a leading provider of advanced semiconductor packaging and test services. Falcon's full turnkey semiconductor solutions include package design, probe, assembly, test and distribution services. The test services operation has been experiencing substantial losses for two years. The company's year-end is 31 December. At a meeting on 22 September 20X2 the directors decided to close down the test services operation on 31 March 20X3 and then dispose of its non-current assets on a piecemeal basis. Affected employees and customers were informed of the decision and a press announcement was made immediately after the meeting. The directors have obtained the following information in relation to the closure of the operation:
(a) On 1 Nov 20X2, the factory had a carrying amount of $2.5 million and is expected to be sold for net proceeds of $4 million. On the same date the plant had a carrying amount of $1.3million, but it is anticipated that it will only realise net proceeds of $300,000.
(b) Of the employees affected by the closure, the majority will be made redundant at cost of $640,000, the remainder will be retrained at a cost of $150,000 and given work in one of the company's other operations.
(c) Trading losses from 22 September to 31 December 20X2 are expected to be $400,000 and from this date to the closure on 31 March 20X3 a further $200,000 of trading losses are expected.
Required: Assess the points above and illustrate how the decision to close the furniture making operation should be treated in Manco's financial statements for the years ending 30 September 2010 and 2011. Your answer should quantify the amounts involved.
Question 3 - The Conceptual Framework established the concepts that underlie the estimates, judgements and models on which IFRS financial statements are based.
Required: Based on the company you are currently working in or any suitable one you are able to gain insight to.
(a) Briefly outline the characteristics of the business you have chosen and the accounting system of the company
(b) Discuss what is good judgment and why is it increasing in focus?
(c) Show with examples how the management of the company you have selected apply judgment in the preparation of the financial information provided to users.
(d) What are the challenges in removing bias from judgment? Will the adoption of a judgment framework helps?