Identify the four financial statements, the structure and the information they contain. What is the...

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Identify the four financial statements, the structure and the information they contain. What is the relation between the four financial statements? What guidance does the Generally Accepted Accounting Principles, ethics, reputation and legal liability provide in the preparation of financial statements for external users? Question 2 Gowthorpe and Amat XXXXXXXXXXargue earnings management is morally reprehensible. If earnings management is regarded as morally reprehensible, explain why very strict accounting standards are not applied and enforced by the regulators. If you are a manager of a superannuation fund investing in shares in the retail and property sectors, discuss the issues you may face when using financial reports subject to earnings management. Given earnings management is regarded as morally reprehensible explain why managers are still motivated to manage earnings? Question 3 JB Hi-Fi has just implemented a new inventory ordering system at a cost of $52 million. The system vastly simplifies and speeds up the ordering process with suppliers and provides real time information concerning inventory distribution and delivery. The management of JB Hi-Fi expects the new system will provide the retailer with a competitive advantage in the market place by facilitating quick product delivery to customers. As the senior accountant at JB Hi-Fi the management has requested you to depreciate the system over 10 years with a $4 million residual value using the straight line method. You have found that Costal Trading Corporation is constructing a new shipping port and will be using the new Super Freight T1000 ship to deliver electronic products ordered online direct from China to Australia in record time. The new port and ship will be in operation in 3 years time. Based on this information explain in detail whether you consider the use of the straight line depreciation method to be appropriate for the new inventory ordering system. Identify and justify alternative depreciation method(s) that may be appropriate in this case.

Robert · Accepted Answer

SOLUTION 2: 
Earnings management is also called as creative accounting. Earnings Management refers to the 
application of certain accounting techniques so as to produce the financial reports that present a 
rosy picture of company’s results. It is generally one type of distortion made by the acts of 
financial statement preparers who want to modify the content of the financial information which 
is used by interested parties to evaluate the performance of managers and to take economics 
decisions, since they consider that the information provided by the company is reliable and fit for 
its purpose.
Earning management is considered as morally reprehensible. It misleads users and tends to 
weaken the authority of accounting regulators. The action, intentionally misstating (increasing or 
decreasing) the figures on financial reports, is called “earnings management”, which allow them 
to achieve their desired aim or to satisfy the stockholders or anyone who use the reports. The 
manipulation is divided into two heads namely, macro-manipulation and micro-manipulation.  
However, in both cases, the manager’s motivation of doing it is to fulfill their own objectives, 
because the earning is relevant to all the companies. For example, if the performance of the 
manager is directly related to his/her bonus/pay, there is a high probability that he/she may be 
motivated to distort the picture to meet his/her own needs out of personal incentives and job 
securities.
Using financial reports that have been subject to earnings management results in biased views of 
economic reality. It can lead to various consequences. Consequently the users will lose their trust 
once for all if it is exposed and it will never be regained. The strict accounting standards are not 
enforced by the regulators because it makes the accounting very rigid, which restricts the 
practicability of accounting information. The financial reports of retail and property sectors may 
be subject to over statement of profits, fixed asset and inventory (being the house, offices, plots 
etc.)
SOLUTION 4: 
The management of the company shall be held responsible for the misstatement of company’s 
financial statement. The incentives or the compensation plan for some of the managers is directly 
linked with the performance of their division or profitability.

Identify the four financial statements, the structure and the information they contain. What is the relation between the four financial statements? What guidance does the Generally Accepted Accounting...

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