Question I
Marvello Berhad's share price rose 45% on July 15, after the company announced its first quarter 2021 financial results. The company net income was slightly decreased to RM818 million, compared to RM839 million in the same quarter of 2020.
Mr. John, Marvello Berhad's CEO commented that, "I am quite surprised at the large volume of shares traded and the subsequent increase in share price on Thursday, 15 July 2021. We are unaware of any specific reason why such a sudden and significant increase in the share price or volume should occur at this time. However, our research team is conducting a research to explain and predict this phenomenon. The empirical evidence will be disclosed soon."
Also, Marvello Berhad has notified Bursa Malaysia with respect to the company's recent dividend and dividend policy. At the end of June 2021, the company paid a dividend of RM3.50 per share to its shareholders. Mr. John said that, "our policy is to evaluate on an annual basis whether to declare and pay a dividend. In addition, we have consistently declared good dividends for the last 3 years."
Task
The above scenario shows the capital market reaction towards earnings announcements. Discuss three accounting theory approaches that are relevant to explain the reaction. Support your answers with suitable examples.
Question II
The International Accounting Standards Board (Board) issued the revised Conceptual Framework for Financial Reporting (Conceptual Framework), a comprehensive set of concepts for financial reporting, in March 2018. In revising the Conceptual Framework, the Board sought a balance between providing high-level concepts and providing enough detail for the Conceptual Framework to be useful to the Board and others. The Board views the Conceptual Framework as a practical tool to help it develop Standards. Hence, the Conceptual Framework includes concepts that help the Board develop Standards and discusses the factors the Board needs to consider in making judgements.
(Source: IFRS Conceptual Framework Project Summary, March 2018)
Task
Discuss four importance of the conceptual framework in creating a consistent set of accounting rules and standards.