If you developed a theory to explain how a person’s



3101AFE Accounting Theory and Practice
Workshop Questions for Workshops 1- 6: Semester 1 2016
WORKSHOP 1 – Semester 1 2016
Deegan Topic 1: Introduction to financial accounting theory

QUESTION 1 – Question 1.2:
If you developed a theory to explain how a person’s cultural background influences how they
prepare financial statements, would you have developed a positive theory or a normative
QUESTION 2 – Question 1.3:
What is a conceptual framework, and would it be considered to be a positive or a normative
theory of accounting?
QUESTION 3 – Question 1.5:
Why would it not be appropriate to reject a normative theory of accounting because its
prescriptions could not be confirmed through empirical observation?
QUESTION 4 – Question 1.8:
What is the difference between developing a theory by induction and developing a theory by
QUESTION 5 – Question 1.23:
Can we ever claim to have finally ‘proved’ a theory?


WORKSHOP 2 – Semester 1 2016
Deegan Topics 2 and 3:
The financial reporting environment and Regulation of financial accounting
QUESTION 1 – Question 2.3:
Do you believe that the media portray accounting numbers, such as profits, as some sort of
‘hard’ and objective performance indicator? Why do you think they might do this, and, if they
do, what are some of the implications that might arise as a result of this approach?
QUESTION 2 – Question 2.6:
Briefly outline some arguments in favour of regulating the practice of financial accounting.
QUESTION 3 – Question 2.25:
Why might accountants be construed as powerful individuals?
QUESTION 4 – Question 3.22:
Identify and evaluate the key negative economic and social consequences that might
potentially arise following the introduction of AASB 138 Intangible Assets from 1 January
QUESTION 5 – Question 3.30:
Accounting headline 3.9 (SEE END OF WORKSHOP 2 QUESTIONS) discusses how European
banks were able to lobby the European Union (EU) so as to be regulated by a ‘watered down’
version of the accounting standard IAS 39. Explain whether the decision of the EU to embrace
a ‘watered down’ version of the standard is consistent with a ‘public interest theory of
regulation perspective’, or whether it can be explained by an alternative theoretical
perspective (which you should attempt to identify).



WORKSHOP 3 – Semester 1 2016
Deegan Topics 4 and 5:
International accounting and The conceptual framework project
QUESTION 1 – Question 4.4:
Does the adoption of IFR by different countries necessarily mean that the accounting
procedures and practices they adopt will be consistent and comparable internationally?
QUESTION 2 – Question 4.19:
It is often argued that the accounting standards of the FASB are rule-based, whereas the
accounting standards issued by the IASB are principles-based. Rules-based standards by their
nature can be quite complex, particularly if they seek to cover as many situations as possible.
Do you think it would be easier to circumvent the requirements of rules-based or principlesbased accounting standards?
QUESTION 3 – Question 4.22:
Does the standardisation of accounting standards on a global basis necessarily equate with a
standardisation in accounting practice?
QUESTION 4 – Question 4.32:
Ball (2006, p. 17) states:
Under its constitution, the IASB is a standard setter and does not have an enforcement
mechanism for its standards: it can cajole countries and companies to adopt IFRS in
name, but it cannot require their enforcement in practice. It cannot penalise individual
companies or countries that adopt its standards, but in which financial reporting practice
is of low quality because managers, auditors and local regulators fail to fully implement
the standards. Nor has it shown any interest in disallowing or even dissuading lowquality companies or countries from using its ‘brand name’. Individual countries remain
primarily regulators of their own financial markets. EU member countries included. That
exposes IFRS to the risk of adoption in name only.
(a) Why does the IASB not have any direct enforcement powers in relation to IFRS?
(b) Evaluate Ball’s comments and provide an argument as to whether you agree or
disagree with his view.
Australia and China are two countries from different cultural areas. Identify and compare each
country’s environmental, cultural and accounting values.
QUESTION 6 – Topic 5: Question 6.10:
The two main qualitative characteristics that financial information should possess have been
identified as relevance and representational faithfulness. Is one more important than the
other, or are they equally important?


WORKSHOP 4 – Semester 1 2016
Deegan Topic 6:
Chapter 10: Reactions of capital markets to financial reporting
QUESTION 1 – Question 10.3:
If some research is undertaken that provides evidence that capital markets do not always
behave in accordance with the Efficient Market Hypothesis, does this invalidate research that
adopts an assumption that capital markets are efficient?
QUESTION 2 – Question 10.16:
Evidence shows that share prices might not fully react to financial accounting information
immediately and that abnormal returns might persist for a period of time following the release
of information (a case of ‘post-announcement drift’). Does this indicate that securities
markets are not efficient and that assumptions about market efficiency should be rejected?
QUESTION 3 – Question 10.17:
If an organisation’s operations rely heavily on the specialised expertise of its management
team, would you expect there to be a higher or a lower correspondence between the net
assets recognised in the statement of financial position (balance sheet), and the total market
value of the organisation’s securities, relative to an organisation that relies more on tangible
assets (for example, commonly used plant and machinery) to generate its income?
QUESTION 4 – Question 10.18:
Would you expect an earning announcement by one firm within an industry to impact on the
share prices of other firms in the industry? Why or why not?
QUESTION 5 – Question 10.21:
Researchers such as Chambers and Sterling have made numerous claims that historical cost
information is meaningless and useless. Are the results of capital markets research consistent
with this perspective?
QUESTION 6 – Question 10.23:
Some recent capital markets research investigates whether accounting information reflects the
valuations that have already been made by the market (as reflected in share prices). In a
sense, it assumes that the market has it ‘right’ and that a ‘good’ accounting approach is one
that provides accounting numbers that relate to, or confirm, the market prices/returns. If we
assume that the market has it ‘right’, what exactly is the role of financial accounting?



WORKSHOP 5 – Semester 1 2016
Deegan Topics 8 and 9: Accounting for Corporate Social Responsibilities
Explain the meaning of sustainability and outline why corporations might consider it in their
business operations.
What is a social contract and how does it relate to organisational legitimacy?
Under the managerial perspective of Stakeholder Theory, when would we expect an
organisation to meet the information demands of a particular stakeholder group?
What is international integrated reporting and how does it differ from the current financial
reporting system we have?

QUESTION 5 – Question 9.9:
What is an externality and why do accounting practices typically ignore externalities?
QUESTION 6 – Question 9.37:
If a major Australian mining company reports record profits, is this profit figure misleading if
the same company has polluted various river systems and has emitted toxic substances into
the air, and has not placed a cost on these externalities?


WORKSHOP 6 – Semester 1 2016
Topic 7: Positive accounting theory
QUESTION 1 – Question 7.2:
Early positive research investigated evidence of share price changes as a result of the
disclosure of accounting information. However, such research did not explain why particular
accounting methods were selected in the first place. How did Positive Accounting Theory fill
this void?
QUESTION 2 – Question 7.4:
Explain the management bonus hypothesis and the debt hypothesis of Positive Accounting
QUESTION 3 – Question 7.13:
Organisations typically have a number of contractual arrangements with debtholders, with
many covenants written to incorporate accounting numbers.
(a) Why would an organisation agree to enter into such agreements with debtholders?
(b) On average, do debtholders gain from the existence of such agreements?
QUESTION 4 – Question 7.17:
If senior managers within a company were rewarded by way of accounting-based bonus plans
then would they, or the owners/shareholders (or both), prefer the use of conservative
accounting methods? Explain the reasoning for your answer.
QUESTION 5 – Question 7.19:
Assume that Kahuna Company Ltd decides to undertake an upward revaluation of its noncurrent assets just prior to the end of the financial year, the effect being that the total assets
of the company increases, as does the total shareholders’ equity.

Explain the decision of management to undertake an asset revaluation in terms of the
debt hypothesis of Positive Accounting Theory.
Explain the decision of management to undertake an asset revaluation in terms of the
management compensation hypothesis of Positive Accounting Theory.

QUESTION 6 – Question 7.27:
Zhang (2008) argues that if a borrower adopts conservative accounting methods this will
reduce the risk exposure of the lender and will lead to a reduced interest cost for the
borrower. What is the basis of this argument?



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