W8/W9 - Creative accounting and Corporate governance

Question 1

What is fair presentation

What is creative accounting

Answer 1

Fair presentation
Using the flexibility within accounting to give a true and fair picture of the accounts so that they serve the interests of users.

Creative accounting
Using the flexibility within accounting to manage the measurement and presentation of the accounts so that they serve the interests of preparers.
Creative accounting is the transformation of financial accounting figures from what they actually are to what preparers desire by taking advantage of the existing rules and/or ignoring some or all of them (Naser, 1993).

Question 2

What is corporate governance

Answer 2

The system by which companies are directed and controlled
It is about what the board of directors does and how it sets the values of the company
It’s about a company’s culture … not just about systems and processes

Question 3

What is the Agency Theory

Answer 3

Shareholders (principal) appoint Board of Directors (agent) to manage and control company.
Directors must act in best interests of investors.
Conflicts of interests arise due to Director’s self interest.
Directors need to be monitored and controlled.
The need for control of directors is foundation of corporate governance.

Question 4

What is corporate governance Code of best practice approach?

Answer 4

this approach to corporate governance uses a set of principles as a framework with which directors are expected to comply. If the reasons for any non-compliance are fully disclosed and explained, the directors are not in breach of the Code.

Question 5

What is corporate governance Legislative approach?

Question 6

What are the rules for reportable segments?

Answer 6

10% rule

either 10% of : Income, P/L, Assets

total is 75% of external income