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A G U N G N O P R A N T O
A I N H A J A W I Y A H
L I N C T A R J I W O M A T H R I U L
M A S I T A H
CHAPTER 1THE DEVELOPMENT
OF ACCOUNTING THEORY
Schroeder
WEBSTER DEFINE :“Systematically organized knowledge, applicable in a relatively wide variety of circumstances, a system of assumptions, accepted principles and rules of procedure to analyze, predict or otherwise explain the nature of behavior of a specified set of phenomena.”
THE EARLY HISTORY OF ACCOUNTINGThe Zenon Papyri
The evolution of joint ventures into ongoing businesses
The concept of capital maintenance
The impact of the Renaissance
Fra Luca Pacioli
The impact of the industrial revolution and the progressive movement
The accountant as a protector of business interests
ACCOUNTING IN THE UNITED STATES SINCE 1930
Meetings between NYSE and AIA
Securities Act of 1933Securities Exchange Act of 1934
AAA
Committee on Accounting Procedure
Accounting Principles
Board
Financial Accounting Standards Board
THE ACCOUNTING PRINCIPLES BOARD
The flap over accounting for the investment tax Credit
Rule 203
Criticism of the APB
Formation and structureTypes of pronouncements
APB Opinions
THE FINANCIAL ACCOUNTING STANDARDS BOARD
• The Wheat Committee• The True blood Committee• The FASB was established
FASB• Mission• Types of pronouncements• Emerging Issues• Standards Overload• Standard setting as a political process • Economic Consequences
GAAP
• Evolution of phrase:• Changed wording of auditor’s certificate brought about by
meetings between NYSE and AIA• The APB’s definition• The Auditing Standards Executive Committee’s definition
THE ROLE OF ETHICS IN ACCOUNTING
• The public accountant as a watchdog• Statement from Warren Burger
Accounting in Crisis – The Events of the Early 2000s• Two major changes in the accounting
profession have taken place in the wake of the accounting scandals:
1. Arthur Andersen2. Sarbanes-Oxley Act
International Accounting Standards• The concept of harmonization• The IASB• The IASB’s objectives:• 41 Statements of Accounting Standards and 5 Statements of
Financial Reporting Standards to date
PEMBAHASAN JURNAL
ACCOUNTING ETHICS AND ITS IMPORTANT ROLE FOR REDUCTION OF ACCOUNTING FRAUD : AN EMPIRICAL STUDY IN HANOY
By: VU HAI YEN (June 2010)
Department of Business Studies, HELP University College
Research Background
>> The boundary between “ethical” and “unethical” is very ambiguous.
>> Vietnam’s economy is increasingly integrated with worldwide.
Research
Research Backgrou
nd
Problem Statemen
ts
Objectives of
Research
Sphere of Research
Research Method
Source of Data and Sample
Selection
Problem Statements
>> For an organization, Ethics plays an important role in curbing accounting fraud
>> How to balance between private interests and public interests? How to avoid accounting fraud?
>> Vietnam’s goal by 2020 is comprehensive and equitable integration with countries in the field of accounting and auditing, including import and export accounting and auditing services of an organization.
Research
Research Backgroun
d
Problem Statement
s
Objectives of
Research
Sphere of Research
Research Method
Source of Data and Sample
Selection
Objectives of Research
>> To determine applying the code of ethics for professional accountant in Vietnam.
>> To define the factors that contribute to accounting fraud related to the state of Vietnam
>> To reflect reality from theoretical model to practical theory
>> To recommend some suggestions to investors, companies for the importance of ethics within an organization to curb accounting fraud
Research
Research Backgroun
d
Problem Statement
s
Objectives of
Research
Sphere of Research
Research Method
Source of Data and Sample
Selection
Sphere of Research
>> Place of conducting research: National Economics University, Hanoi capital, Vietnam
>> Object of research: accountants, students who are major accountants
>> Companies in research : public companies and private companies
>> Time period of conducting research: from 31 may 2010 to 15 June 2010
Research
Research Backgroun
d
Problem Statement
s
Objectives of
Research
Sphere of Research
Research Method
Source of Data and Sample
Selection
Research Method
>> The researcher conducts a survey among accountants who are working in public companies and private companies, as well as students studying master degree in accounting in Hanoi city, Vietnam.
>> These questions mainly focus on the situations that reflect the character of accountant and the factors that contribute to accounting fraud.
>> Total of correspondent : 200
Research
Research Backgroun
d
Problem Statement
s
Objectives of
Research
Sphere of Research
Research Method
Source of Data and Sample
Selection
Source of Data and Sample Selection>> In this study, the researcher bases mostly on primary data. A ten-simple questionnaire survey was conducted with 200 accountants from both public companies and private companies.
>> Besides, the researcher also referred to secondary data which was collected from journals, books, sources from internet.
Research
Research Backgroun
d
Problem Statement
s
Objectives of
Research
Sphere of Research
Research Method
Source of Data and Sample
Selection
HYPOTHESIS RESULTS
>> Through the result of 102 questionnaire collected
H1>> accountants who have less experiences work more objectively than the one who have more experiences. (H0)
H2>> accountants who have more experiences apply the code of professional competence and due care better than the one who have less experience. (H0)
H3>> accountants who have more experiences have more possibility to break the money culture than the one who have less experience. (H0)
H4>> accountants who have less experience have more possibility to break legalistic culture than the one who have more experiences. (Ha)
GENERAL DISCUSSION
• Ethical conflicts commonly arise in the organization's relationship with customers, employees, suppliers, and other individuals, and also as a result of these acts as courtesy gifts, kickbacks and discriminatory pricing.
• ethical issues arise due to conflicts between moral philosophy and ethical standards of personal ethical standards.
CONCLUSION
• Accountants today are facing pressures such as competition, advertising, and introverted environment.
• Although the researcher has described a number of relationships and situations that create ethical problems, but it's hard to recognize the specific ethical issues in practice.
RECOMMENDATION
• To the government • To universities and training institutions, • To the organizations, • To accountants
LIMITATION OF STUDY
• still a student • the small sample size • language problem
SUGGESTION FOR FUTURE RESEARCH
• that the sphere of future research should be bigger which can be conducted in more cities, even over Vietnam. • that it should be conducted more extensively
THE PURSUIT OF THE CONCEPTUAL FRAMEWORK
CHAPTER 2
What is the conceptual framework?
Paton Cannng Scott
A Tentative Statement of Accounting Principles Affecting Corporate
Report
A Statement of Accounting Principles
An Introduction to Corporate Accounting
Standards
ARSs No. 1 and No. 3
Early Authoritative and Semi-authoritative
Organizational Attempts to Develop the Conceptual
Framework of Accounting
The Trueblood Committee
Committee report specified the following four information needs of users:
1. Making decisions concerning the use of limited resources
2. Effectively directing and controlling organizations3. Maintaining and reporting on the custodianship of
resources4. Facilitating social functions and controls
Objectives of financial reporting
Statement on Accounting Theory and Theory Acceptance
Rationale for the committee’s approach
The approaches to accounting theory were condensed into
1. Classical2. Decision Usefulness3. Information Economics.
Criticisms of the approaches to theory
The FASB’s Conceptual Framework Project
The objectives identify the goals and purposes of financial accounting; whereas, the fundamentals are the underlying concepts that help achieve those objectives.
These concepts are designed to provide guidance in:
1. Selecting the transactions, events and circumstances to be accounted for
2. Determining how the selected transactions, events, and transactions should be measured
3. Determining how to summarize and report the results of events, transactions and circumstances.
SFAC
SFAC
No. 1
SFAC
No. 2
SFAC
No. 5
SFAC
No. 6
SFAC
No. 7
SFAC No. 1 “Objectives of Financial Reporting By Business Enterprises”
1. Assess cash flow prospects2. Report on enterprise resources,
claims against resources and changes in them3. Report economic resources, obligations and
owners equity4. Report enterprise performance and earnings 5. Evaluate liquidity, solvency, and flow of funds6. Evaluate management stewardship and
performance7. Explain and interpret financial information
No. 2 “Qualitative Characteristics of Accounting Information
Addresses the question: What makes accounting information useful?
Develops a Hierarchy of Accounting Qualities
Decision makers and their characteristics(for example, understanding of prior knowledge)
A Hierarchy of Accounting Qualities
Users of Accounting Information
Pervasive Constraint
User-specific qualities
Primary Decision-specificqualities
Ingredients of primary qualities
Threshold for recognition
Understandability
Decision Usefulness
Feedback value
Benefits > Costs
Relevance Reliability
RepresentationalFaithfulness
VerifiabilityTimeliness
Neutrality
Comparability and Consistency
Materiality
Predictive value
No. 5 “Recognition and Measurement in Financial Statements of Business Enterprises”
Sets forth recognition criteria and guidance on what information should be incorporated into financial statements and when this information should be reported
Defined comprehensive income as:
Revenues EarningsLess: Expenses Plus or minus cumulative
accounting adjustmentsPlus: Gains Plus or minus other
non-owner changes in equityLess: Losses= Earnings = Comprehensive Income
No. 5 “Recognition and Measurement in Financial Statements of Business Enterprises”
Measurement Issues1. Definitions.
The item meets the definition of an element contained in SFAC No. 6.
2. Measurability. It has a relevant attribute measurable with sufficient
reliability.
3. Relevance. The information about the item is capable of making a
difference in user decisions.
4. Reliability. The information is representationally faithful, verifiable,
and neutral.
No. 6 “The Elements of Financial Statements”
Defines the ten elements of financial statements that are used to measure the performance and position of economic entities
These elements are discussed in more depth in Chapters 6 and 7.
How should present value amortizations be used when the estimates of cash flows change?
How should the estimates of cash flows and interest rates be developed?
Does the measurement of liabilities at present value differ from the measurement of assets?
SFAC No. 7 “Using Cash Flow Information and Present Value in Accounting Measurements”
Accounting measurement is a very broad topic. Consequently, the FASB focused on a series of questions relevant to
measurement and amortization conventions that employ present value techniques. Among these questions are:
What are the objectives of using present value in the initial recognition of assets and liabilities? And, do these objectives differ in subsequent fresh-start measurements of assets and liabilities?
What are the objectives of present value when used in conjunction with the amortization of assets and liabilities?
Present value measurements that fully captures the economic differences between assets should include the following elements:
SFAC No. 7 “Using Cash Flow Information and Present Value in Accounting Measurements”
1. An estimate of the future cash flows
2. Expectations about variations in the timing of those cash flows3. The time value of money represented by the risk-free rate of interest
4. The price for bearing the uncertainty
5. Other, sometimes unidentifiable, factors including illiquidity and market imperfections
SFAC No. 7 “Using Cash Flow Information and Present Value in Accounting Measurements”
Approaches to present value1. Traditional2. Expected cash flow
Incorporating probabilities The objective is to estimate the value of
the assets required currently to settle the liability with the holder or transfer the liability to an entity with a comparable credit standing
Use of the interest method
PEMBAHASAN JURNAL
Rules Based and Principles Based Accounting Standards and Earnings Management.
Ferdy van Beest2009
Netherland: Nijmegen Center for Economics (NiCE) Institute for Management Research.
Rules Based and Principles Based Accounting Standards and Earnings Management
• IFRS more principles based than GAAP (rule based)
• Reporting standards affect earnings management
• How this IFRS principle based affect earnings management?
Problems Phenome
non
• Limited evidence in answering ‘how’ and ‘to what extent’ standards affect earnings management. (prior study remain inconclusive)
Research Motivati
on
• Whether manager, in rule based setting, engage in earnings management through transaction decision rather than accounting decision
• Whether in Principle based area managers take accounting decisions more often for the purpose of earnings management than transaction decision.
• Whether the discretionary room in accountings standards has an effect on the level and nature of earnings management.
Problems
• Examine the effects of discretionary room in accounting standard on level and nature of earnings management decision
Objectives
Rules Based and Principles Based Accounting Standards and Earnings Management
Rules Based and Principles Based Accounting Standards and Earnings Management
• Earnings Management: purposeful intervention in financial reporting process to obtain private gain
• Accounting decision: choices among equally acceptable rules and/or judgment and estimates required to implement GAAP
• Transaction decision: choices of structuring transaction and contracts or adjust real production and investment activities that are aimed at engaging in earnings management
Theoretical Review
• H1a: Principle based setting induces earnings management through accounting decisions.
• H1b: Rule based setting induces managers to engage in earnings management through transaction decisions,
• H2: the degree of earnings management does not differ between a rules-based and principles-based setting
Hypothesis
Rules Based and Principles Based Accounting Standards and Earnings Management
• Population: Financial Manager• Samples: 175 financial managers
Population and
Sampling
• Experiment • 175 financial manager decided on both
available-for-sale security to sell and an impairment loss decision to consider, an opportunity to take an accounting decision and transaction decision to engage in earnings management. IAS 32 and IAS 36 were manipulated for representing the rules-based and principles-based setting, and manipulated analysts’ expectation creating 2x2 between subject design.
Data Sources& Data
Collection
Method
Rules Based and Principles Based Accounting Standards and Earnings Management
• Compare the number of accounting decision taken between rule based and principle based.
• ANOVA test to confirm whether this hypothesis is statistically confirmed.
Analysis Method
• Transaction decision in rule based setting
• Accounting decision in principle based setting
• Do not differ significantly in level of earnings management.
Analysis
Outcome
Rules Based and Principles Based Accounting Standards and Earnings Management
• Neither rule based nor principle based accounting standard are able to eliminate earnings management decision.
• managers tend to adjust their decisions based on the latitude given in the accounting standards. When standards are precisely specified, managers tend to search for transaction opportunities to meet the pre-specified expectations. On the other hand, when standards are imprecisely specified, managers use accounting decisions, such as an impairment loss decision, to meet their incentives given.
• the extent of discretion in the standards is found to have a small, statistically insignificant impact on the average amount of earnings management managers include in their financial report.
Conclusions