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ACCT3563: Issues in Financial Reporting and Analysis
All references through this document to Loftus 3e refer to the textbook Financial Reporting 3rd edition by Loftus, Leo, Daniliuc, Boys, Luke, Ang & Byrnes
Topic Weekly readings Questions to be covered in class Self study questions
1 Application of
Accounting Theory and
Ethics
Chapter 2 Loftus 3e
(excl section 2.3.2)
Readings per Lecture
PPTs
Chapter 2 Loftus 3e:
Case Study: 2.2, 2.3
Application and analysis exercises: 2.2
Ethics Case: Space Fuels Ltd
Chapter 2 Loftus 3e:
Comprehension questions: 2, 8, 10, 11, 14
Application and analysis exercises: 2.3, 2.7
2a Provisions and Contingent
Liabilities
Chapter 8 Loftus 3e
(sections 8.1 - 8.6
only)
Chapter 8 Loftus 3e:
Application and analysis exercises: 8.1,
8.11,
8.14 A, B, C (parts 1,2,3 and 5 only),
8.15 Ethics Case: Ship Ahoy Ltd
Chapter 8 Loftus 3e:
Application and analysis exercises: 8.3, 8.5,
2b Accounting for
Employee Benefits
Chapter 9 Loftus 3e
(sections 9.1, 9.2 and
9.6 only)
Chapter 9 Loftus 3e:
Application and analysis exercises: 9.9,
9.11, 9.20
Chapter 9 Loftus 3e:
Application and analysis exercises: 9.2, 9.4, 9.10,
9.18
3 Revenue Chapter 15 Loftus 3e Chapter 15 Loftus 3e:
Case Study: 15.2
Application and analysis exercises:
15.5, 15.6, 15.8
Ethics case: Moonbeam Appliances Ltd
Chapter 15 Loftus 3e:
Comprehension questions: 1
Application and analysis exercises: 15.7, 15.9,
15.12
4 Leases Chapter 10 Loftus 3e
(excluding section
10.3.1)
Chapter 10 Loftus 3e:
Case Study: 10.2
Application and analysis exercises:
10.3, 10.5, 10.7 (part 2 only)
Ethics case: Qantas Ltd
Chapter 10 Loftus 3e:
Comprehension questions: 2, 4, 5, 6, 7
Case study: 10.1
Application and analysis exercises: 10.2, 10.4,
10.6, 10.9D
5 Sustainability and
corporate social
responsibility reporting
Chapter 22 Loftus 3e
Chapter 22 Loftus 3e:
Case study 22.3
Application and analysis exercises:22.1,
22.5, 22.7
Chapter 22 Loftus 3e:
Comprehension questions: 5, 6, 8, 12
Application and analysis exercises:22.4, 22.8
3
Topic Weekly readings Questions to be covered in class Self study questions
6 Financial Instruments Chapter 11 Loftus 3e
(excluding sections
11.4.1, 11.6.2, 11.6.3,
11.9, 11.10, 11.11,
11.16)
Chapter 11 Loftus 3e:
Application and analysis exercises: 11.4
(parts 1 and 2 only), 11.6, 11.9 parts (a),
(b) and (c) only
Ethics case: Bondy Ltd
Additional question:
Refer additional question at end of this
document
Chapter 11 Loftus 3e:
Comprehension questions: 5, 6
Application and analysis exercises: 11.1, 11.5,
11.12
7 Foreign currency
transactions and forward
exchange contracts
Chapter 23 Loftus 3e
excluding fair value
hedge of an
unrecognised firm
commitment (pp 819-
820)
Chapter 23 Loftus 3e:
Application and analysis exercises:
23.7, 23.13, 23.15
Ethics Case: Momentum Ltd
Chapter 23 Loftus 3e:
Comprehension questions: 7, 8, 12, 15, 16 (drop
part of the answer of firm commitment in 16)
Case study: 23.1
Application and analysis exercises: 23.2, 23.4,
23.12 (part 1 only), 23.18
8 Accounting for Mineral
Resources
Chapter 34 Loftus 3e
(excluding section
34.8)
Chapter 34 Loftus 3e:
Application and analysis exercises:
34.4, 34.5,34.6, 34.7
Ethics case: High Hopes Mining Ltd
Additional question:
Refer additional question at end of this
document
Chapter 34 Loftus 3e:
Comprehension questions: 1
Case study: 34.1, 34.2
Application and analysis exercises: 34.6
9 Earnings per Share Chapter 19 Loftus 3e Chapter 19 Loftus 3e:
Application and analysis exercises: 19.7,
19.9, 19.10, 19.11
Chapter 19 Loftus 3e:
Comprehension questions: 2,
4, 6, 7, 8, 9, 10, 11
Application and analysis exercises: 19.3, 19.4, 19.5
4
Notes:
A There is an error in the financial statements provided in the question. The correct balances of the provisions are: Current $630,000; Non-current
$240,300.
B The opening balance of the provision in part (a) should read $870,300.
C Assume that the opening balance in the provision account at 1 July 2022 was zero.
D The interest rate implicit in the lease is 5%
5
Ethical Cases
Topic 1 (Week 1). Market manipulation and ethics
Space Fuels Ltd is the world’s largest producer of GO, an exotic fuel that powers the Earth’s
spaceships which trade with inhabitants of the recently discovered planet Zork. Trade with the
Zorkians is so profitable that all GO is sold to spaceship operators as soon as it is produced.
Therefore, the company recognises revenue on production and not at the point of sale. As the current
financial year-end approaches, Space Fuel’s CEO is worried that reported profits will not be as high
as analysts’ forecasts. Therefore, he orders that sales of GO by the company be stopped for the last
month of the financial year, although the company’s GO production is allowed to continue at the
normal pace. Therefore, on balance day, the company has a very large inventory of GO awaiting
delivery. The CEO’s decision creates a sudden world-wide shortage of GO and the spot price on the
GO market skyrockets (pardon the pun). The company revalues its inventory of GO upwards to the
new spot price at balance date and takes the revaluation to its income statement, thereby easily
beating the analysts’ profit forecasts. However, trade with the Zorkians is disrupted because of the
unexpected fuel shortage and an inter-planetary diplomatic crisis arises which takes several months
of high-level negotiations to resolve peacefully.
What ethical issues arise here? Critically evaluate the accounting treatment for GO used
by the company. Adopt the ethical perspective of (a) a self-interest maximiser; (b) a
Utilitarian, (c) an Aristotelian; (d) the APES 110 principles
Topic 2 (Week 2) Provisions
You are the newly appointed deputy chief-accountant at Ship Ahoy Shipping Co Ltd. You
review of the company’s accounts for the past 10 years, and you observe the following data:
Year Profits
(losses)
from
shipping
($’000s)
Investment
income
($’000s)
Shipping +
Investment
Income($’000s)
Annual debit
or (credit) to
Provision for
Ship
Modernisation
($’000s)
Reported
Net Profit
($’000s)
A B A + B C A + B + C
2012 900 500 1400 (565) 837
2013 (780) 452 (328) 995 668
2014 (450) 435 (15) 740 725
2015 (380) 422 42 736 779
2016 (425) 404 (21) 794 773
2017 (538) 261 (277) 1008 731
2018 (540) 267 (273) 901 629
2019 (334) 559 225 513 737
2020 (95) 452 357 372 729
2021 (427) 385 (42) 194 152
Each year, the reported Net Profit equals the sum of shipping profit (or loss), investment
6
income and the debit or credit to Provision for Ship Modernisation.
You are concerned that the shipping operations (the company’s core business) have been
unprofitable for all but one of the past 10 years, and that these losses have been made up
each year by investment income (the company has a large investment portfolio). The sum of
shipping and investment income varies a lot, being negative in six and positive in four of the
past 10 years. Reported Net Profit on the other hand, is always positive, although it is not a
smoothly increasing series of numbers, and indeed in 2021 has declined sharply.
Puzzled by the account Provision for Ship Modernisation, you make enquiries and find that
this account had been created and built up in the late 1990s and 2000s when the company
had several lucrative shipping contracts with the Australian government and profits on those
contracts were very high. Those contracts have now ceased. In order to counter accusations
that the company was earning excessive profits, each year in the 2000s, an accrual debit to a
Ship Modernisation expense account was created with the corresponding credit to Provision
for Ship Modernisation account. The latter has appeared in the balance sheet as a noncurrent
liability for many years. In 2011, the account had a credit balance built up of $5,400,000.
Ship modernisations are a major activity involving large outlays but are not essential if ships
are well maintained. Ship Ahoy’s vessels are very well maintained. Up to 2021, none of the
company’s fleet has ever actually been modernised and the company has no immediate plans
to modernise any ship.
The company’s key executives are paid annual bonuses if the company reports a net
profit, but no bonus is paid if a loss is reported.
Required:
(a) Comment on the legitimacy of the Provision for Ship Modernisation Account from the
viewpoint of AASB 137 Provisions.
(b) Has the company been engaged in earnings management?
(c) Comment on the use made of the Provision for Ship Modernisation Account from a Positive
Accounting Theory perspective
(d) Comment from an Aristotelian ethical perspective on the legitimacy of the Provision for
Ship Modernisation Account and the use made of it over the past 10 years.
(e) Comment from a utilitarian ethical perspective on the legitimacy of the Provision for
Ship Modernisation Account and the use made of it over the past 10 years.
(f) Comment from the perspective of APES 110 of the Provision for Ship Modernisation
Account and the use made of it over the past 10 years.