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Financial Accounting Theory Question Paper

Financial Accounting Theory

Course:Bachelor Of Commerce

Institution: Kca University question papers

Exam Year:2010

UNIVERSITY EXAMINATIONS: 2009/2010
THIRD YEAR EXAMINATION FOR THE DEGREE OF BACHELOR OF
COMMERCE
CAA 301-A : FINANCIAL ACCOUNTING THEORY
DATE: AUGUST 2010
TIME: 2 HOURS
INSTRUCTIONS: Answer ALL questions
QUESTION ONE
a) The international Accounting Standard 1 encourages the preparers of accounts to present in the
financial statement a financial review by management. In UK this review is called “the
operating and financial review (OFR); in US it is referred to as “management discussion and
analysis of financial condition and results of operation” (MDA). What does IAS 1 suggest to
be contained in the report?
(10 Marks)
b) IAS 1 goes on to suggest that enterprises should present additional statement such as
environmental reports and value added statement. What are the minimum disclosures of Value
added statements?
(10 Marks)

QUESTION TWO
a) Many corporate boards are now agreed on the need to take responsibility for any potential or
actual social impacts caused by their companies’ activities. This is done through a social
responsibility report:
Required
i.)
What are the five issues/stakeholders that may be addressed by a company’s social
responsibility report?
(5 Marks)

ii.)
Explain five benefits that would accrue to a company from the reporting of the
company’s social responsibility activities?
iii.)
(5 marks)
Comparing conventional financial accounting reporting with social responsibility
reporting, list and explain five challenges peculiar to social responsibility reporting.
(5 Marks)

QUESTION THREE
a) Contrast the descriptive and normative approaches to theory construction.
(5 Marks)
b) The effect of inflation on financial accounting and reporting as well as the rationale for
providing supplementary information disclosing these effects have been discussed by
government and by accounting profession in selected countries. Current purchasing power
(CPP) accounting is one of the recommended methods of computing that supplementary
information.
Required:
Explain the meaning of current purchasing power (CPP) accounting and give the justification
of its use as a method of accounting for inflation.
(10 Marks)

QUESTION FOUR
Whilst acknowledging the importance of high quality corporate reporting, the recommendations to
improve it are sometimes questioned on the basis that the marketplace for capital can determine the
nature and quality of corporate reporting. It could be argued that additional accounting and disclosure
standards would only distort a market mechanism that already works well and would add costs to the
reporting mechanism, with no apparent benefit. It could be said that accounting standards create costly,
inefficient, and unnecessary regulation. It could be argued that increased disclosure reduces risks and
offers a degree of protection to users. However, increased disclosure has several costs to the preparer
of financial statements.
Required:
a) Explain why accounting standards are needed to help the market mechanism work
effectively for the benefit of preparers and users of corporate reports.
(10 Marks)
b) Discuss the relative costs to the preparer and benefits to the users of financial statements
of increased disclosure of information in financial statements.
(10 Marks)

Financial Accounting Theory Question Paper

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