#2935 - Ac330 Stream I Syllabus - Financial Accounting, Analysis and Valuation

Articulation of financial statements

1. What affects equity?

   1. Other comprehensive income

   2. Other changes in equity

   3. Transactions with owners

2. Statement of changes in equity

3. Clean surplus accounting

4. Dirty surplus accounting

5. Advantages of 2 income statements

Revision of historical cost accounting

1. Basic accounting equation

   1. Shareholders’ funds equation

2. Accruals and matching

3. Prudence

4. IAS1 terminology

   1. Alpha headings

5. Taxation calculation

6. Sales calculation

7. Purchases calculation

8. Expenses calculation

9. Recognised dividends

10. Share premium account

11. Statement of comprehensive income format

12. Statement of changes in equity format

13. Revaluation of non-current assets

    1. IAS16

    2. Cost model

    3. Revaluation model

    4. Disposal of revalued assets

14. IAS8 (Accounting policies)

15. IAS2 (Inventory)

16. IAS37 (Provisions)

17. IAS39 (Financial instruments)

Business combinations

1. Group accounts

   1. Purchase (‘Acquisition’) accounting

      1. IAS27

      2. IFRS3

      3. Determining control

         1. Dominant influence

         2. Significant influence

            1. Associate (IAS28, IFRS3)

            2. Equity method

         3. Joint venture (IAS31)

            1. JV as an entity

               1. Proportional consolidation (IAS31)

               2. Equity method

               3. Disclosure

            2. JV as a non-entity

         4. Portfolio investment

         5. Effect of group accounting choice on H’s shareholders

      4. Issues with purchase accounting

      5. Date of acquisition

      6. Consolidated balance sheet

         1. Goodwill calculation

         2. Pre vs. post-acquisition profits

         3. Non-controlling interest

         4. Inter-company balances

         5. Unrealised inter-company profits

            1. Provision for unrealised profit

         6. Revaluations to FV on acquisition

         7. Balance sheet checks

      7. Consolidated income statement

         1. Time-apportioning

         2. Partly owned subsidiary

         3. Inter-company transactions

      8. Inter-company dividends

         1. Dividends from pre-acquisition profits

   2. Merger accounting

      1. Pooling of interests

         1. IFRS6

      2. Merger reserve

      3. Merger relief

      4. Why do managers favour merger accounting?

   3. ‘Fresh-start’ accounting

2. IASB and FASB convergence project

   1. Entity theory of the firm

   2. Revised IFRS3

      1. Option to value NCI at FV

         1. Limitations

   3. Revised IFRS3/IAS27

      1. Partial disposals of subsidiaries

   4. Revised IFRS3

      1. Invisible goodwill

   5. Unresolved issues

      1. In-process research and development (IPRD)

         1. US FASB SFAS141(R)

            1. Recognise IPRD

            2. Expense subsequent R&D

         2. IASB IFRS3 & IAS38

            1. Recognise IPRD

            2. Capitalise subsequent development

      2. No progress on ‘fresh start’ accounting

      3. Defining control

         1. Special purpose entities

            1. US FASB FIN46

               1. Consolidation of SPEs

            2. ASB FRS5

               1. ‘Risks and rewards’ approach

         2. IAS27 (and SIC-12)

            1. Emphasis on power to govern activities

3. IASB’s response to financial crisis

   1. Redefines control

      1. IFRS10 (Consolidated Financial Statements)

      2. IFRS11 (Joint Arrangements)

      3. IFRS12 (Disclosure of interests in other entities)

Empirical research in financial accounting

1. Balls & Brown, 1968; Beaver, 1968

2. Capital markets based research

   1. Relationships between share prices and earnings

3. Positive accounting theory

   1. Assumptions

   2. Agency theory

      1. Jensen and Meckling, 1976

      2. Information asymmetry

      3. Moral hazard

      4. Agency costs

         1. Monitoring costs

         2. Bonding costs

         3. Demand for contracts

            1. Role of accounting information

   3. Propositions

      1. Bonus plan hypothesis

         1. Management compensation contracts

            1. Share options

            2. Asymmetric contracts

            3. ‘Big bath’

         2. Debt covenants hypothesis

            1. Debt contracts

            2. Typical financial convenants

               1. Incentives

      2. Political cost hypothesis

         1. Political visibility and accounting policy choice

            1. Incentives for managers

   4. Accounting policy choices

      1. Inventory valuation

      2. Finance vs. operating leases

      3. Merger vs. purchase accounting

      4. Capitalization of intangible assets

      5. Provision for doubtful debt

      6. Impairments

      7. Deferring revenues

   5. Criticisms of PAT

4. Information content studies

   1. Earnings as predictors of prices

      1. Market model

   2. Price changes and earnings changes

      1. Keung, Lin and Shih, 2010

   3. Prices and accounting choices

   4. Earnings, cashflows and accruals as predictors of prices

   5. Timeliness of earnings

   6. Prices as predictors of earnings

      1. Delayed recognition

      2. Conservatism

   7. Prices and book values

      1. Usefulness of book values

      2. Market cap to BV ratio

   8. Footnote disclosures

   9. Forward looking disclosures

   10. Voluntary adoption of accounting standards

5. Market efficiency research

   1. What happens if a market is efficient?

   2. Market efficiency forms

      1. Strong form efficiency

         1. ‘fair’ game

      2. Semi-strong form efficiency

         1. Insider trading

      3. Weak-form efficiency

         1. Random walk

   3. Testing market efficiency

      1. Event studies

         1. Residual price changes

         2. Post earnings-announcement drift

            1. Why?

         3. Functional fixation on reported earnings

            1. Anomalies literature

         4. Accruals management

            1. Analyst optimism

      2. Tests of return predictability

         1. Evidence?

      3. Implications of market efficiency research

         1. Is market efficiency desirable