Economic Consequences

Question 1

Regulation definition

Answer 1

Deegan and Umerman, 2011

‘Rules developed by an independent body, given the power to govern how financial statements are prepared’

Question 2

Link to positive accounting theory

Answer 2

Watts and Zimmerman,1978
‘Positive accounting theory assumes accountants are self interested and use accounting policies to enhance their own benefits’

Question 3

Example of manipulation/blame

Answer 3

Kerr,2011

‘The blame lies with the IFRs that allows banks to recognise their expectations of future income as current profits’

Question 4

Essay intro

Answer 4

I will evaluate who accounting and reporting are good for the economy with reference to the positive accounting theory

Question 5

Why accounting is economically important

Answer 5

Legal requirement- regulation def Deegan unerman, 2011
Stewardship- for investors to compare companies like for like- not mislead
Decision making for stakeholders
Fraud prevention- Hines, 1989 clean audit reports

Question 6

Without accounting/ producing statements externally

Answer 6

Agency problem- self interested managers- fr and auditing minimises agency costs- contracts

Question 7

Positive accounting theory- link to agency problem

Answer 7

Watts and Zimmerman, 1978- managers self integrated use policy to enhance benefits
Link- positive theory- describing/predicting bass on observing past behaviour
- policies chosen to meet self interested nature
Example- Gordon and Kerr 2011, ifrs allow banks to recognise future income

Question 8

Contract positive to normative

Answer 8

Normative limits agency problem by prescribing what companies should do