Define earnings management

Reference no: EM132934369

Question 1
a) Define ‘earnings management'. Do you consider it to be good or bad? Why?

b) Explain and discuss what is meant by the positive accounting theory and its relationship to corporate governance.

Question 2
a) Explain the meaning of sustainability and outline why corporations might consider it in their business operations.

b) A company has a copper mine in South Africa. It purchased the mining rights ten years ago for $20 million and has been operating the mine for the past ten years. It is estimated that there are about 8 million tons of copper in the mine. Because of a fall in world copper prices, the company has closed the mine indefinitely. At current world copper prices, the mine is uneconomic because the costs involved in extracting the copper are greater than the selling price. As the mine is in a remote and unpopulated areas there is no alternate use and it would not be able to be sold. If copper prices rise by more than 25 per cent, the company has stated that the mine would be reopened. In the foreseeable future (next 10 years or so) it is estimated there is a 20% probability that copper prices will rise sufficiently for extraction to be profitable.

Explain whether this mine would meet the definition and recognition criteria of an asset, applying the principles in the Proposed Framework (2018 Conceptual Framework).

Question 3
a) Outline and discuss three cultural aspects that can differ across countries. How do these cultural differences relate to differences in accounting systems?

b) Regulatory and Political Influence on Accounting Practice.Those in favour of regulating the provision of financial accounting argue that accounting is a public good and that without regulation, there is a problem of ‘free-riders'. Explain what is meant by the notions of public goods and free-riders, and why proponents of regulation use them to support their views. Assess the merits of their argument.

Question 4.
a) When Kezza Ltd approached Steffs Banking Corporation Ltd for an unsecured loan of $100 million, Kezza Ltd had a good credit rating. However, the economy was depressed and Steffs Banking Corporation Ltd was concerned about lending such a large sum. You have been asked by Steffs Banking Corporation Ltd to provide a short report to the finance manager, Mike Hanshe, explaining how debt agreements and restrictive covenants can be used to safeguard debt in general. Mike wants the report to explain which agency costs of debt are controlled by specific covenants. Furthermore, he is interested to know how accounting numbers can be used in the debt covenants to help control any opportunistic behaviour on the part of Kezza Ltd.

b) What is the difference between normative and positive accounting theory? Give examples of each.

Reference no: EM132934369

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