ACCT2542 CORPORATE FINANCIAL REPORTING AND ANALYSIS
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AIMS OF THE SUBJECT
This
subject is concerned with external accounting and reporting practices and, in particular,
the accounting and financial reporting practices of listed public companies. It
is intended for students who will be involved in the preparation or use of
company financial statements whether as accountants, financial executives,
taxation officers, auditors, financial analysts, actuaries or legal advisors.
The
subject builds on the foundations laid in ACCT1501 and ACCT1511 Accounting and
Financial Management 1A and 1B. More complicated business transactions are
considered, including accounting for complex groups of companies such as,
consolidation accounting. Regulatory requirements for the preparation of
financial statements for individual companies and groups will be covered. Also
covered are accounting problems in certain specific areas, including tax effect
accounting and accounting for insurance companies and superannuation plans.
An
important aim of the subject is to provide opportunities for practising the
communication of accounting knowledge. In addition, the subject attempts to
challenge the student to think critically about corporate financial reporting
by fostering an appreciation of:
(a)
alternative
accounting practices and issues relating to their application;
(b)
accounting standards and similar pronouncements
pertaining to various accounting issues;
(c)
the
frequency of use of particular accounting techniques by Australian companies;
(d)
the
role of the Conceptual Framework in evaluating accounting issues
(e)
the
role of the harmonization programme in shaping accounting standards; and
(f)
relevant research on the effects of accounting
policy choices on financial statements, capital markets and decision-making
behaviour.
Technical
accounting knowledge must be accompanied by skills in problem identification,
analysis and solution as well as the ability to communicate clearly orally and
in writing. Such skills are developed through training and practice. This
objective is achieved in the course by requiring students to submit written
assignments and providing them case studies in tutorials that will give them an
opportunity to participate in class discussions.
TEXTS AND ABBREVIATIONS
USED
Deegan Deegan, C. Australian
Financial Accounting, 3rd ed. Irwin McGraw Hill, 2002. See McGraw-Hill
website for student resources
(http://www.mcgraw-hill.com.au/mhhe/acc/deegan3e).
Eddey Eddey, P; N. Arthur and J. Knapp Accounting
for Corporate Combinations and Associations 5th ed.
Prentice-Hall, 2001.
Sup Materials Supplementary
Materials for ACCT2542 Corporate Financial Reporting Analysis
and ACCT 2552 Corporate Financial Reporting Analysis (Honours), School
of Accounting, University of NSW, 2002.
Handbook Parker,
C. (ed.) Accounting Handbook 2002, Volume 1 of the Accounting
and Auditing Handbook 2002, Prentice-Hall. The contents of the Handbook
are generally available for viewing or downloading from the AASB’s homepage,
hence,
we are not compelling students to
purchase the handbook. However, since we are going to use the contents of the
handbook quite frequently for this course and also for ACCT3563 next year, the
costs of printing the standards and other policy statements may exceed actual
cost of the text. We leave it up to the student to decide whether they would
wish to buy the text or download the material as we use them.
(http://www.aasb.com.au/pronouncements/standards_index.htm)
Note: The Deegan and Eddey
textbooks will also be used as in ACCT 3563 in Session 1, 2003.
REFERENCE
BOOKS (Students should not purchase these books as all are held on Open
Reserve, Main Library)
Deloitte
Touche Tohmatsu, Summary of Accounting Requirements, 14th Edition
2002. (This publication is not available in Open Reserve but can be accessed
through http://www.deloitte.com.au/downloads/sumacc02.pdf)
Henderson,
S., and G. Peirson, Issues in Financial Accounting, 9th ed., Longman,
1999.
Jubb, P., Langfield-Smith,
I. And Haswell, S., Company Accounting, 3rd ed., Nelson 2002.
Leo, K.J.,
and J.R. Hoggett, Company Accounting in Australia, 4th ed., Wiley, 1998,
and 5th Wiley 2001
Leo, K.J., C.J. Lambert,
and J.W. Sweeting (eds), Financial Accounting Issues, Wiley 1996
Leo, K.J. and J. Radford
(eds) Financial Accounting Issues, 2nd ed. Wiley 1999.
Nobes, C.,
and R. Parker (eds) Comparative International Accounting, 5th ed.,
Prentice Hall, 1998.
Parker, C.
and B. Porter CPA Summary Of Australian GAAP 2002 6th ed.,
Accountnet Pty Ltd, 2002.
PricewaterhouseCoopers,
Value Accounts Investment Management: Annual and Interim Financial Reporting
2002. (This publication is not available in the open reserve but available at http://www.pwcglobal.com/au/eng/ins-sol/publications/index.html)
Scott, W.R. Financial
Accounting Theory, Prentice Hall 1997
Shanahan,
J.B., and M.A. Shanahan, Guide to Accounting Standards, 7th ed., John
and Margaret Shanahan, 1997.
Trotman,
K. and M. Gibbins, Financial Accounting: An Integrated Approach, ITP
Nelson 1998.
Whittred,
G., I. Zimmer, and S. Taylor, Financial Accounting: Incentive Effects and
Economic Consequences, 5th ed, Harcourt Brace, 1999.
ASSESSMENT
The weighting of the final
(composite) mark will be as follows:
(a)
Mid-session
test ( Friday, 13th September 2002
1:30 to 3:15 pm or 3:30
to 5:15 pm at the Square House)
|
30%
|
|
(b)
|
Tutorial hand-in assignments
|
15%
|
(c)
|
Group assignment (Due, 5pm 18 October 2002)
|
15%
|
(d)
|
Final examination
|
40%
|
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|
||
100%
|
||
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|
The
coverage of the mid-session test will be Lecture Weeks 1-6 and Tutorial Weeks
2-7. The mid-session test will comprise of multiple choice questions worth 30
marks. The final examination will cover the whole course but with emphasis on
lecture topics from Weeks 7-14. More information on the structure of the
mid-session test and the final examination will be provided closer to
examination date. A selection of past mid-session and final examination paper
questions will be posted on the Course website (see below). Students should
note that the course content has changed substantially from previous semesters,
hence past exams may not be a reliable guide to examinable
material.
CLASS ARRANGEMENTS
Students
are expected to attend two one-hour lectures weekly. They are also expected to
attend one 11/2 hour tutorial weekly, beginning
Week 2. Attendance at lectures and tutorials is compulsory. An attendance
record will be taken in each tutorial and used in considering marginal cases at
the end of session. IF STUDENTS ATTEND LESS THAN 80 PER
CENT OF
THEIR POSSIBLE CLASSES THEY MAY BE REFUSED TO SIT FOR THE FINAL ASSESSMENT.
Tutorials
Tutorials
will emphasise the application of problem-solving skills to specific questions,
and also review and discuss assigned readings and case studies. The tutorials
should assist students
(a) to
master technical aspects of the topics assigned, (b) to appreciate the
patterning and directions of change within the discipline and (c) to understand
some of the important disputes in the discipline, and the processes by which
these are addressed and/or resolved.
Students
are expected to read all tutorial questions and attempt to answer them before
the tutorial. Students must prepare a submittable form of the
answers to all questions on a weekly basis. The tutor is expected to collect
and mark at least 4 weeks during the semester but only the best 3 marks will
form part of the final assessment. Refer to tutorial handout for the assessment
criteria. Preliminary assistance materials may be provided on the WebCT for
complex problems as deemed appropriate. For example, a worksheet may be
provided for some of the consolidation problems. Students are also expected to
bring the prescribed text to tutorials as questions are mostly taken from the
prescribed text.
Whilst
class participation is not formally part of the assessment, constructive
participation in tutorials can have a positive impact on your final grade.
Group Assignment
In the
first tutorial (Week 2), your tutor will assign students to syndicates of four.
Each syndicate will work on the class assignment that is worth 15 marks and due
on 18 October 2002 at 5pm (Week 11). Details of the class assignment will be
discussed in Week 4. EACH
SYNDICATE
MEMBER MUST BE INVOLVED IN THE PREPARATION AND FINALISATION OF THE GROUP
ASSIGNMENT. Problems encountered by students concerning the group
assignment must be discussed with their tutor no later than Week 9.
ACCT 2552 CFRA HONOURS
Students
enrolled in the honours stream, ACCT 2552, must enrol in one of the honours
tutorials. Honours students must still attend all the lectures in ACCT 2542.
Inquiries about CFRA Honours should be directed to Dr Gerry Gallery.
STAFF CONSULTATION
Members
of staff teaching the course will be available for consultation at specified
hours or by appointment. Problems should be directed in the first instance to
your tutorial instructor. Staff members assigned to the course are listed
below:
Room
|
Contact
Information
|
|
Dr Maria Balatbat (CFRA
Course Coordinator)
|
Quad 3103
|
9385 5808
|
Dr Gerry Gallery (CFRA
Honours)
|
Quad 3096
|
9385 5813
|
Mr Andrew Bowman
|
Quad 3089
|
9385 6283
|
Ms Michelle Chang
|
Quad 3089
|
9385 6283
|
Mr Robert Czernkowski
|
Quad 3081
|
9385 5807
|
Mr Max Hewitt
|
Quad 3118
|
9385 6081
|
Mr Martin Lee
|
Quad 3089
|
9385 6283
|
Dr Richard Morris
|
Quad 3066
|
9385 5818
|
Queries
about the TAS system and changing tutorials during weeks 1-2 of session should
be addressed to Chris McNamara or Jen Horan during their office hours, both of
whom are in Quad 3113 (phone 9385 5907). Special difficulties may be referred
to Dr. Maria Balatbat, the staff member in charge of the subject.
Initially,
the website will contain the Course Outline and Tutorial Programme. During
session, lecture notes, lecture handouts, tutorial solutions, preliminary assistance
materials, and various announcements will be posted progressively on this
website, together with a selection of past examination papers. Lecture notes
and most handouts will be posted at the end of the week the relevant lecture
was given. Please consult this website weekly at the very least.
ACADEMIC MISCONDUCT (from
University Calendar)
Students
are reminded that the University regards academic misconduct as a very serious
matter. Students found guilty of academic misconduct are usually excluded from
the University for 2 years. Because of the circumstances in individual cases
the period of exclusion can range from one session to permanent exclusion from
the University.
The
following are some of the actions that have resulted in students being found
guilty of academic misconduct in recent years:
1.
taking
unauthorised materials into an examination;
2.
submitting
work for assessment knowing it to be the work of another person;
3.
improperly obtaining prior knowledge of an
examination paper and using that knowledge in the examination
4.
failing
to acknowledge the source of material in an assignment.
SUPPLEMENTARY EXAMINATION
AND SPECIAL CONSIDERATION
Students
who believe that their performance in this subject, either during session or in
an examination, has been adversely affected by sickness, misadventure or other
circumstances beyond their control may apply for special consideration for
affected assessments.
Such
applications should be submitted to the Registrar and Deputy Principal (at the
student centre) as soon as practicable after the occurrence and in any event
not later than seven days after the final examination in this subject.
Dates of
Supplementary Examinations. Students
may be required to sit for an oral or written supplementary examination.
The supplementary final examination will be held on Thursday, 19
December 2002 from 9.15 am to 12.30 p.m. The supplementary Mid-Session
Test will be held on Thursday 19 December, 2002 from 2 pm to 3.30 pm.
In general, supplementary examinations will only be offered to students who
have been prevented from taking the Mid-session test or Final Examination (as
the case may be), or who has been placed at a serious disadvantage during the
examination, and whose circumstances have improved considerably in the period
since the relevant examination was held. Failure to attend a supplementary
examination, if you have been granted one, will result in forfeiture of any
additional assessment granted to you.
check theirs e-mails on this address or contact the course
coordinator prior to scheduled supplementary exams. Notification by post will
no longer occur.
RECOMMENDATIONS TO
STUDENTS
How to
study this subject. The subject covers many topics and there is
a lot of reading, including technical material from accounting
standards. To assist your studies, the following advice is offered. Do the
following steps in the order shown:
(a)
Read all required readings prior to lectures and tutorials.
(b)
Attend all lectures and take notes. Lecture
notes and handouts will be posted on the Course website at the end of each
week, but they will not convey everything the lecturer says. Handouts not
available on WebCT are obtainable from the lecturer for the relevant
week. In preparing for exams, note which aspects of each topic the lectures
cover and/or the lecturer has emphasised.
(c)
Attend all tutorial classes. You must
attempt all questions each week prior to your scheduled tutorial. Make
use of Preliminary Assistance Materials (PAM) provided for complex exercises.
Since classes are only 90 minutes, your tutor may not have time to cover all
questions every week, but we expect you to know the answers to all the set
questions, whether covered in class or not.
(d)
The details you need to know from the accounting
standards and similar documents will become apparent from lectures and
tutorials. You must learn the skill of identifying and then learning the most
important parts of accounting standards. Such as coverage of the standard,
basic prescriptions and disclosure requirements.
(e)
The five weeks on consolidation accounting are
sequential, that is, each week builds on what has gone the previous week. It is
important that students stay up to date with this work and not leave studying
it until the last minute
Students
will benefit if they obtain recent annual reports of several listed public
companies and observe the manner in which the legal requirements and the
various accounting standards discussed in the subject are complied with in
practice. Perusing articles in the financial press pertaining to company
earnings and related announcements (which may refer to accounting techniques
used by the firms) will also prove useful.
Since
ACCT 1511 (Accounting and Financial Management IB) is a prerequisite for this
subject, it is assumed that students know the basic accounting process. Those
students who do not feel confident should re-study the relevant parts of the
first year text, Trotman and Gibbins, Financial Accounting: An Integrated
Approach.
This
subject is only offered in second session each year. It can be very
inconvenient in terms of pre-requisites for other subjects if you fail this
subject. Avoid the difficulties that can arise in completing your degree by
passing the subject the first time round. Resolve to stay up-to-date and work
in advance all assignments for tutorials especially on complex topics in the
course such as: tax-effect accounting and consolidation. You may have trouble
coping if you leave too much work to the end of the session. Create a strong
foundation for the later material by starting work on the subject early this
session and maintaining a consistent work schedule in each week of the course.
SUMMARY OF TOPICS
WEEK 1 (29 July – 2
August) Dr Maria Balatbat
A. Institutional
arrangements for financial reporting in Australia
1.
Objectives
of external financial reporting (SAC 2)
2.
Regulation
of Australian external financial reporting
3.
Standard
setting process
4.
Role
of conceptual framework
5.
Harmonisation of accounting standards
6.
Critique
of existing regulation
Reading:
Deegan:
Chapter
1
Sup Materials: Section A, Reading 1
Reference:
Handbook: Policy Statement 5 “The Nature and Purpose of
Statements of
Accounting Concepts”
SAC 2 “Objectives of General-purpose
Financial Reporting”
B. Revaluation of
non-current assets
1.
Contrast
between cost and fair value of non-current assets
2.
Upward
and downward revaluations of non-current assets
3.
Recoverable
amount test
Note: Tax-effect accounting on revaluation will be
covered in Weeks 2 and 3.
Reading:
Deegan: Chapter 5
Sup Materials: Section A, Reading 2 & 3
Reference:
Handbook: SAC 4, paras 14, 38
AASB 1010 "Recoverable Amount of
Non-Current Assets"
AASB1041 "Revaluation of Non-Current
Assets"
WEEKS 2 and 3 (5-16 August) Mr Robert Czernkowski
Tax-effect Accounting
1.
Differences between accounting profit and taxable
income - permanent & temporary differences
2.
Alternative methods of accounting for income tax –
liability method vs balance sheet approach - impact on assets, liabilities and
income tax expense
3.
Requirements of new AASB 1020 - balance sheet
approach
4.
Changes
in company tax rate
5.
Tax
losses
6.
Economic
consequences and business reaction to tax effect accounting
Reading:
Deegan: Chapter 17
Sup Materials: Section B
(Note that the paper by Goodwin refers to the exposure drafts (Eds)
that preceded SAC 4. There are no significant differences between those EDs and
SAC4 on the points raised by Goodwin.)
Reference:
Eddey: Pages 98-104
Handbook: AASB 1020 "Income
Taxes"
SAC4 "Definition and Recognition of
Element in the Financial Statements"
WEEK 4 (19-23 August) Dr Gerry Gallery
[Note: In
Weeks 4 - 6, evening lectures (Stream C) will be held on Thursdays only from
6pm to 7:30pm at the Dwyer Theatre. Consequently, tutorial group 19 will start
at 7:30pm instead of 7pm during these weeks.]
Financial Statement
Reporting and Disclosure
1.
Statements
for financial position and performance
2.
Statement
format and supplementary disclosures
3.
Other
major disclosure requirements
Reading:
Deegan, Chapter 16
Jubb, Smith & Haswell, Chapter
15: Reporting on Financial Position (Lecture Handout)
ASIC Media & Information
Release 02/22 (Lecture Handout) Reference:
Handbook:
AASB 1018
" Statement of Financial Peformance" AASB 1040 " Statement of
Financial Position"
AASB 1034 " Financial Report
Presentation and Disclosure"
further in coming chapters it is important to read out other chapters too:
WEEK 5 (26-30 August) Dr Gerry Gallery
Liabilities - Nature,
recognition and measurement
1.
What
is a liability in accounting? Definition
and recognition tests in SAC 4.
2.
(i) Contingencies and (ii) executory contracts
(also called agreements equally proportionately unperformed [AEPUs])
3.
Liability
measurement - net present value, face value or market value
4.
Accounting
for debentures and notes
(a)
Issue
at a discount or premium;
(b)
Zero
coupon debentures
(c)
Choice
of discount rate for NPV - current market rate vs implicit rate (AAG 10)
5.
Debt
vs equity - preference shares and convertible notes
Reading:
Deegan: Chapter 9
Chapter 13 pp 401-403 on preference shares
Chapter 14 pp 414-416, 432-436 (On pp
435-435 consider only disclosure
requirements for financial liabilities)
Sup Materials: Section C
Reference:
Handbook: AASB
1033, "Presentation and Disclosure of Financial Instruments" (paras
4.1-4.4.2; 5.6-5.6.9; Appendix paras 18-30 (use residual valuation
method only to value convertible notes);
Also the following items are all on floppy disk at
back of Handbook: Abstract 26 on cyclical maintenance, Abstract 35 on
disclosure of contingent liabilities ED 88 on provisions & contingencies,
AAG 10 on Measurement of monetary assets and liabilities
Note: Derivative financial instruments such an interest rate swaps,
options and futures contracts are covered in ACCT 3563 Issues in Financial
Reporting and Analysis. Those parts of Deegan that deal with derivatives are
outside the scope of ACCT2542.
WEEK 6 (2-6 September) Dr Gerry Gallery
Accounting for employee
entitlements and superannuation plans
1.
What
are employee entitlements?
2.
The controversy over the appropriate accounting by
employer companies for their superannuation obligations and other employee
entitlements, with an emphasis on liability recognition and measurement
3.
Requirements
of AASB 1028
4.
Defined
benefit and defined contribution superannuation plans (pension schemes)
5
Measurement of assets and accrued benefits by
superannuation plans. Are accrued benefits liabilities?
6
Financial
reporting options by superannuation plans to members and others (AAS 25)
Reading:
Deegan: Chapters 12, 21 Reference:
Handbook: AASB 1028 "Employee Benefits"
AAS 25 "Financial Reporting by
Superannuation Plans"
AAG 13 (Accounting Guidance
Release) "Determination of using discount rates for measuring certain
liabilities at present value" - available in floppy disk at the back of
the handbook)
Mid-session test cutoff
Coverage Lecture Weeks 1-6
WEEK 7
(9-13 September) Dr Maria Balatbat
Accounting for General
Insurance and Life Insurance Companies
1.
Revenue
recognition
2.
Insurance
claims – long-tail vs. short-tail business; discounting to NPV
3.
Valuation
of assets – investments versus other assets
4.
Recognition
of internally developed goodwill by life insurance companies
5
Disclosure
requirements
6.
Standards
AASB 1023 and 1038 vs. Standards AASB 1010/1041 and 1021
7.
Industry
reaction to AASB 1023
Reading:
Deegan:
Chapter
20
Sup Materials: Section D
Reference:
Handbook: AASB 1023 "Financial Reporting of General
Insurance Activities
AASB 1038 "Life Insurance Business"
WEEK 8 (16-20 September) Robert Czernkowski
Consolidation Accounting 1
1.
The
economic entity
2.
Subsidiaries
and the concept of “control” in AASB 1024
3.
Acquisition
of assets in business combinations
a)
Measurement
- acquisition cost
b)
Recognition
- control vs significant influence
4.
Goodwill
and discount on acquisition
5.
The
basic elimination entry (BEE)
6.
Consolidation
worksheets
Reading:
Eddey: Chapter 1, Chapter 2 (Sections 2.1 - 2.3)
Sup Materials: Section E
Reference:
Handbook: AASB 1024 "Consolidated Accounts"
AASB 1015 "Acquisition of Assets"
AASB 1013 "Accounting for
Goodwill"
WEEK 9 (23-27 September)
Dr Maria Balatbat
Consolidation Accounting 2
1.
Revaluation
of non-current assets
2.
Post-acquisition profits
3.
Dividends
a)
pre-acquisition
b)
post-acquisition
4.
Outside
equity interest - An introduction to partially owned subsidiaries
5.
Multi-year
consolidation worksheet
Reading:
Eddey: Chapters 2 (section 2.4
only), 3 and 4
Sup Materials: Section E
Reference:
Handbook: AASB 1024 "Consolidated Accounts"
Mid-session Recess
28 September - 7 October 2002
WEEK 10 (8 – 11 October) Dr Maria Balatbat
Consolidation accounting 3
1.
Intra-group
transactions
2.
Unrealised
profits on opening and closing stocks
3.
Consolidation
worksheet
Reading:
Eddey: Chapter 5 (Sections 5.1 -
5.2 only)
Sup Materials: Section E
Reference:
Handbook: AASB 1024 "Consolidated Accounts"
WEEK 11 (14-18 October) Dr Richard Morris
Consolidation Accounting 4
1.
Multiple
subsidiaries - An introduction to indirect ownership interest
2.
Calculation
and presentation of outside equity interest
Reading:
Eddey Chapter 6 (omitting
section 6.4)
Sup Materials: Section E
Reference:
Handbook: AASB 1024 "Consolidated Accounts"
WEEK 12 (21 - 25 October) Dr Richard Morris
Consolidation Accounting 5
- Contemporary issues
1.
Critique
of goodwill accounting
2.
Impairment
test - intangible assets
3.
Tax consolidation
4.
Segment
accounting
Reading:
Eddey, Chapter 12
Supp Materials: Section E
Reference:
Handbook: AASB 1024 "Consolidated Accounts"
AASB 1013 "Accounting for Goodwill"
AASB 1005 "Financial Reporting by Segments"
WEEK 13 (28 October - 1 November) Dr Richard Morris
Accounting for Investment
in Associates
1.
Revisit
the difference between an associate and a subsidiary?
2.
Ways
to account for investment in associates (cost or proportional one-line
consolidation)
3.
Implementation
of equity accounting
4.
Equity
accounting saga in Australia and AASB 1016
5.
Conceptual
issues about equity accounting
Reading:
Eddey, Chapter 9 (except section 9.3.3 and 9.7.5)
Sup Readings, Section F
Reference:
Handbook, AASB 1016 "Accounting
for investment in associates"
WEEK 14 ( 4 -8 November) Dr Maria Balatbat
A. Accounting for Joint
Ventures
1.
What
is a joint venture? How does it differ
from subsidiaries and associates?
2.
Joint
Venture Entities vs Joint Venture Operations
3.
Are
joint ventures part of the economic entity
4.
How to account for joint venture? Equity
accounting or line-by-line (proportional consolidation)
Reading:
Eddey: Chapter 11, sections 11.1-11.5
and 11.8 Reference:
Handbook: AASB 1016 "Accounting for
investment in associates" AASB 1006 "Accounting for joint
ventures"
B. Revision
1.
Summary
of ACCT 2542
2.
Revision
questions
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