Assignment for the Degree of MSc in Accounting, Finance and Management

Assignment for the Degree of MSc in Accounting, Finance and Management and MSc
In Economics, Accounting and Finance

EFIMM0124
ADVANCED FINANCIAL REPORTING
FINAL ASSIGNMENT

There are five questions in this assignment.
Answer ANY THREE questions.
All questions carry equal marks.
IMPORTANT INSTRUCTIONS FOR THE ASSIGNMENT
Each question should have a maximum word count of 800 words, excluding any references.
You must include a word count. Excessive length will be penalized.
This is an independent assignment and the work you submit should be yours and yours alone.
You should avoid using bullet points and should aim to answer each question through a
coherent discussion, with a brief introduction and conclusion. Your assignment should have
no appendices.
Answers must be typed and submitted in either Microsoft Word or PDF. There is a file size limit
of 100 MB and only one document can be submitted.
Cite relevant academic research and evidence where appropriate. Include a bibliography,
making sure you carefully attribute any quotes to the appropriate sources. The bibliography
does not contribute towards the word count.
All answers will be subjected to originality checks.
2
Question 1
(a) Citing appropriate academic research, discuss the extent to which equity investors use
valuation models based on dividends and/or cash flows, rather than on profits and
balance sheet figures. What is the academic case for using accounting data instead of
cash flows?
(16 marks)
(b) “Because tying managers’ compensation to earnings figures generates incentives to
inflate profits, companies should simply pay managers a flat salary or link their
compensation to share prices.”
Critically evaluate the above statement, citing appropriate academic evidence.
(171
/3 marks)
(Total 331
/3 marks)
Question 2
(a) Describe the logic underlying the main hedge accounting provisions of IFRS 9 Financial
Instruments and compare and contrast the ways of accounting for a cash flow hedge
and a fair value hedge.
(18 marks)
(b) Discuss how financial assets are measured under IFRS 9 Financial Instruments. In
your discussion, explain the approach to impairment for assets measured at amortised
cost and consider the logic underlying the mixed measurement model adopted in IFRS
standards.
(15
1
/3 marks)
(Total 331
/3 marks)
Question 3
(a) Explain what happens to deferred tax liabilities under IAS 12 Income Taxes when there
is an increase in the corporation tax rate and outline the rationale for this accounting.
(8 marks)
(b) Discuss why and how IAS 12 Income Taxes requires a company to account for deferred
taxation when it revalues an asset upwards.
(8 marks)
(c) Compare and contrast the flow-through method of accounting for deferred tax with the
approach taken by IAS 12 Income Taxes, providing an example of how the different
approaches may give rise to different economic outcomes.
(17
1
/3 marks)
(Total 331
/3 marks)
3
Question 4
(a) “Pension liabilities as calculated under IAS 19 Employee Benefits do not meet the
definition of liability according to the IASB Conceptual Framework for Financial
Reporting and neither do pension assets. For the former, true liabilities are meant to
arise from past events, whereas pension liabilities relate to obligations in the future. For
the latter, entitles are meant to have control of the resources, whereas for pension
assets, control resides with the pension trustees.”
Critically evaluate this statement.
(16 marks)
(b) Critically discuss the nature and usefulness of the information required by IFRS 8
Operating Segments, referring to relevant academic research where appropriate.
(171
/3 marks)
(Total 331
/3 marks)
Question 5
(a) Describe accounting for cash-settled share-based payment transactions and equitysettled share-based payment transactions and discuss how the accounting treatment
for each varies under IFRS 2 Share-based Payments.
(8 marks)
(b) Explain what vesting conditions are and discuss why and how IFRS 2 Share-based
Payments requires the recognition of services and increases in equity across the
vesting period as services are rendered.
(8 marks)
(c) Discuss some examples of the managerial abuses of executive share options that took
place before the current accounting treatment of expensing was introduced. How does
IFRS 2 tackle these problems?
(7 marks)
(d) Why is it important that IAS 32 Financial Instruments: Presentation draws a distinction
between equity and liabilities? Provide examples of the differences between the two
and explain why preparers may sometimes have incentives to distort the classification.
(101
/3 marks)
(Total 331
/3 marks)