PASS YEAR 2013.

2014 2NDSEM
MOHD FAUZI BIN
125667
MOHD MUKHTAR
NUR NASRIAH
NADIRAH BINTI
ABDULLAH

214061

NURUL SABIHAH
MOHAMMAD

221604

CHAN LEE HONG

221769

CHAN LAY YONG

224027

GROUP 1

QUESTION 1

A.
Descriptive theory aims to illustrate
what actually occurs ("may") in
practice. It will consist of coding
and explain financial practice. An
example would be research in
positive accounting theory or capital
market research. While prescriptive
theory in accounting is theory which
dictates what "should " occur in
accounting practice. An example
would be the accounting standards.

Systematic and coherent information can be deliver to

user when the IASB advocates a theoretical and nonarbitrary framework. Although it is true that the
profession has survived so far without the formality
constructed theory, and could probably continue to do
so, numerous problems has arisen because of lack in
general theory. For example, without a coherent
framework,, it permits accounting practice to be applied
to similar circumstances. The inconsistency of practice
also has seen as a problem. That is why the number of
cases of conflict between the framework and IASs is
arise until today due to the inconsistency that still exist.
However, it will be reduced through the developed and
guided by Framework.

i)
Provide legitimacy to standard-setting board.
According to Ruth D. Hines (F. Accounting knowledge,
conceptual framework projects and the social construction
of the accounting profession), the conceptual framework
project are important to provide the legitimacy to standard
setting board and the accounting profession during
periods of competition or threatened government
intervention. That is why CF projects continue to be
undertaken even there is an apparent technical failure.
ii) To providing more complete Framework.
The IASBs current consideration for restarting the project
with the intention to extend the Framework for example
with additional chapters for presentation and disclosures,
and on the reporting entity. It also indicates the approach
of the IASB to broaden the conceptual basis, thus
providing a more complete Framework.

iii)
To reduce the conflicts and the
inconsistency of IASB and Framework.
The Framework should enhance and ensure the
consistency of requirements in IFRS and the
continuity of agreed objectives, assumptions, and
concepts for financial reporting, despite changes in
IASB members and staff.
iv)
Improve financial reporting.
In 2006, IASB & FASB joint work on CF Project.
The objective of thisproject is to improve financial
reporting by
providing the IASB with a complete
and updated set of concepts to use when it develops
or revises standards. From 2012, IASB had taken
over the project, because
FASB had decided it
would concentrate on priority areas other than CF.

1(B) According to the Accounting Standards

setting in
Malaysia, Susela (1999).
Elaborate on the four issues
of interest
and how this can be overcome in proposing
the accounting standards in Malaysia. (8 Marks)

1. Concerns about technical and professional rivalry.

The issues arise due to the lack of understanding
about accounting. An MIA Council member believed
the Goodwill Standard was objected to because it
was perceived that MIA
was trying to lead the
world.
2. Socio-economic and political issues
Opponents of Malaysian Accounting Standard
(MAS) 6, which
required the amortization of
goodwill over 25 years attacked the
MIA's technical
arguments. Those concerned with the socioeconomic consequences argued that the accountant's
concept
of goodwill is merely a meaningless
balancing figure, the result
of an accounting

3. Consideration of the specific nature of the economy.

Some respondents appealed for a consideration of the
specific nature of the Malaysian economy, pointing out
that Malaysia was a developing economy with particular
state policies in place. The result was a unique socioeconomic context that required consideration before any
standard on goodwill was imposed.
4. The rivalry between the two bodies (MIA and MACPA)
In 1994, the two bodies were subtly forced to sign a
memorandum of understanding to work towards a merger.
At the time of the field study, the negotiations between the
two bodies were in earnest. However, by the end of 1995,
the talks were called off. There was the existence of
friction and professional jealousy between MIA and
MACPA. This contributed to the struggle over standard
setting.

 In order to overcome the issues, the Malaysian

Accounting Standards Board (MASB) was
formed to issue legally binding accounting
standards and adopting new rules for goodwill.
Then standard setting activity was taken out of
the hands of the profession. Subsequently, the
Companies Act 1965 was amended to require
compliance
with
approved
accounting
standards.

QUESTION 2

2(A)
What is the difference
between accuracy
and
reliability in measurement
theory?
The reliability of a measure rests on the faithfulness

with which it represents what it purports to represent,

coupled with an assurance for the user, which comes
through verification, that it has that representational
quality. Thus, the principal components of reliability are
representational faithfulness and verifiability. Reliable
measurement also refers to the proven consistency,
repeatable which is produce the same thing in other
time, accuracy and certainty of measurement.
While, accurate measurement refers to how close the
measurement to the true value of the attribute measure
and consistency of results.

2(B) Current Value Accounting System is

normally being used
to value Accounts
Receivable (amount owing less allowance
for uncollectible accounts). Explain
whether or not this will
violate the
historical cost basis of accounting.
Under current accounting system accounts
receivable are generally recorded as the amount

owed to the firm based on the billing at the time of

the credit sale. The only major valuation and
accounting issue is when the firm has to recognize
accounts receivable that are not collectible.
Current value accounting system will violate the
historical cost basis of accounting. This is because
under historical cost accounting will stated the
original nominal monetary value of an economic
item.

2(C)Why is splitting costs for

recognition of expenses
and
assets, very important to the costs
attached
principle which
underlines the historical cost
system?
The historical cost
principle would be of
limited usefulness if eventual liquidation
were assumed.
At initial acquisition, historical cost and fair
value are the same.
In subsequent periods, as market and
economic conditions change, historical cost
and fair value often diverge.

2(D) Briefly define what

measurement is and
explain
the 3 essential components in
the measurement process?

Measurement is the process of determining the

o
o
o

monetary amounts at which the elements of

the financial statements are to be recognised
and carried in the balance sheet and income
statement.
The three essential components in the
measurement process
the objective of financial reporting,
the qualitative characteristics of useful
financial information and
the definition, recognition and measurement
of the elements from which financial

QUESTION 3

3a) Based on the article above,

justify why
earnings are
essential in determining the
Brahim Holdings strategic
planning.
Needs to provide more employees and
facilities due to increase in space when
opening of the KLIA2
To provide bonus plan for employees
Crucial for current stakeholders to get
return dividend
As a information for investor to investor
to invest in company

3(b) Establish an instance of

creative accounting in
this case
and state at lease 4 eco.
consequences of Alan activities of
Enhance
the probability
of future
creative
accounting
in profits.
the case?
The firm is currently reporting a loss. By doing
earning management such as Taking a bath, the CEO
believes that it is beneficial to report a large loss,
which will enhance the probability of future profit.
For example, write off of assets .
Managerial bonus plan.
Managers have incentives to maximize their bonus,
consistent with the bonus plan hypothesis of the
positive accounting theory. They may adopt
accounting policies to increase the reported net
income if the net income is between the bogey and

Cont.
Aid to grant short-term credit
Since the business operating at loss, smooth
earning sequence may increase the willingness
of the lenders and suppliers to grant short-term
credit.
Avoid covenant violation in debt contracts
This agreement is between a company and its
creditors that the company should operate
within certain limits. For instance avoiding
excessive dividends, additional borrowings, or
letting working capital or shareholders equity
fall below a certain level. Therefore managers
may adopt policies to increase reported net
income, or other financial variables , to avoid

3(c) Do you agree with the

concluding statement made by
Alans lawyer, he had a
responsibility even if it means
losing his job? justify.
No , because when net income is manipulated for
the CEOs self-interest, it shows that the net income
cannot fully reliable.
CEO whose income are lower than the bogey or
above the cap level will tend to adopt incomedecreasing accruals and only CEO with net income
between the two will tend to adopt incomeincreasing accruals. While it is easy to change the
account balance, the reasons for the change are
typically unknown to the investor.

3(d) If you are Alan Tone, how you

react when you are asked to cook the
books?
Company can use earnings-increasing accounting
methods to avoid the default of contract. They can
apply proper earnings management techniques in
order to come out with favourable figures in their
financial analysis for the funding purposes since this
will benefits both parties whereby the creditors are
protected and the company can avoid the real default
of loss that associated with bankruptcy through the
funding.

QUESTION 4

4(A) How do you link the issues

in the case, to the relevant
accounting theory
Has brought a serious social and environmental disaster
for local communities, biodiversity, and climate change.
The positive theory of accounting is based on the
propositions that managers, shareholders and
regulators/politicians are rational and attempt to
maximize their utility.
It is on Stakeholders theory:
Which the sustainable palm oil producers we believed
have accountability towards various stakeholders. For
palm oil producers, they should have taken account the
view and needs of all stakeholders upon whom their
operation might potentially impact.

4(B) How could government overcome the

sustainability issues in the palm oil industry,
to ensure that the deliberation process and
clear guidelines have been undertaken by
the corporation in protecting the
position
Purpose ofenvironmental
CSR is to show to the
society about the
social activity of the corporation and its impact. The
impact is to what extent the environment,
employees, consumer, local communities, and others
are affected from this business activity
Physical Resources and Environmental Contribution:
General environmental consideration and statement.
Environmental policy statement.
Environmental education program, awards and studies.

4(C) Financial accounting is often criticized for

ignoring many of the social and environmental
externalities caused by the reporting entity.
Explain 4 reasons why traditional financial
accounting may not be able to reflect the social
and environmental impact of organizations,
effectively.

i. Financial accounting focus on the information needs of

those parties involved in resource allocation decisions.
ii. Difficult to quantify social and environmental costs.
Materiality has precluded the reporting of social and
environment information.
iii. Entity assumption where an organization is treated as
an entity distinct from its owners. If transactions or
events do not impact directly on an entity, it will be
ignored for accounting purposes.
iv. Measurability For an item to be included for financial
accounting purpose, it must be measurable with
reasonable accuracy.

THE END