ACC80005 Financial Accounting Theory


Treasury Wine Estates chief executive Michael Clarke will retire next year and be replaced by chief operating officer Tim Ford.

Mr Clarke, who has overseen a fivefold increase in Treasury Wine’s share price since taking charge in March 2014, will retire in the first quarter of the 2021 financial year and return to the UK.

The former Kraft Foods president has given the Penfolds and Wolf Blass owner, which in August reported a 16.4 per cent lift in full-year profit to $419.5 million, roughly one year’s notice of his intention to leave between July 1 and September 30, 2020.

Mr Clarke led an overhaul of the company’s distribution and the global push of its higher-margin premium and mass-market prestige, or “masstige”, offerings.

“Without question the extraordinary transformation and outstanding financial returns that TWE has achieved, have been driven by Michael’s leadership over the past five and a half years,” chairman Paul Rayner said on Monday.

“The structural changes and initiatives delivered by Michael and his team have established TWE as a significantly stronger business than when he first joined the company, and one that is very well placed to continue delivering sustainable, margin accretive growth well into the future.”

Treasury Wine shares dropped 9.0 per cent after the announcement and at 1105 AEDT were worth $16.92.

(Source: Condie, S (2019) ‘Treasury Wine Estates CEO Clarke to retire’, Australian Associated Press–spt.html


After reading the above extract, explain the fall in the Treasury Wines share price referring to capital markets research?  (Maximum word limit: 500 words)


Although [the Australian companies] Oil Search and Woodside Petroleum are leading their sector in climate risk disclosures, they don’t hide their intent to explore for and produce more fossil fuels.  That’s just what they do.  The same goes for many more companies whose business models depend on extracting, transporting and burning fossil fuels.

(Source: Vincent, J (2017) ‘Climate change risk is broad and companies must take it seriously’ The Sydney Morning Herald


After reading the above extract, answer the following question.  Using a normative theory, explain why the general purpose financial statements of entities whose business model depends on extracting, transporting and burning fossil fuels may not include climate risk disclosures? (Maximum word limit: 500 words)


Economic man is assumed to be rational and self-interested. He or she always carefully evaluates all the options before making any decision, and always with the object of maximising his or her personal ‘utility’ or satisfaction. But cognitive psychologists have demonstrated that humans simply lack the neural processing power to make the carefully calculated decisions economists assume. People are not rational, they are intuitive. And altruism is often an important consideration in their decision-making. People can’t choose correctly between three options where the best option is not immediately apparent. Rather than carefully thinking through the pros and cons of every decision, people tend to rely on mental shortcuts (‘heuristics’) which often serve them well enough, but also lead them into systematic biases. People are often slow to learn from their mistakes. They are frequently capable of reacting differently to choices that are essentially the same, just because the choices have been ‘framed’ (packaged) differently. This means that, rather than being coldly rational, people’s decisions are often influenced by emotional considerations.

(Source:  Gittins, R (2004) ‘An economics fit for humans’ Ronald Henderson Oration, Melbourne


Assume that you a behavioural accounting researcher.  How would you design an accounting study to investigate whether the claim made in the above extract that people’s decisions are often influenced by emotional considerations is relevant to retail investors?  (Maximum word limit: 500 words)


BHP has told investors its oddly controversial decision to invest $US400 million ($593 million) trying to mitigate the greenhouse emissions of its customers is all about preserving markets and creating long-term shareholder value.

“By making sure our own house is in order and by protecting demand for our products, we will preserve and create value for BHP,” the global extractor’s chief external affairs officer, Geoff Healy, told an investor briefing overnight in London.

This wasn’t any old investor discussion. In the wake of the climate clarion sounded in London in July by BHP boss Andrew Mackenzie, Healy hosted the company’s first full “social values” briefing. There was nothing coincidental about these events.

As well as confirming the creation of a climate investment fund, in July Mackenzie committed BHP to the creation of new goals for management of its so-called scope 3 emissions. His proposal did not sit well with some.

That is because scope 3 is the account of greenhouse gases emitted by BHP’s customers when they transform the raw materials it digs up into metal or fuel or power. And the wider customer companies and nations. So it is their business.

Mackenzie’s view, which was amplified by Healy overnight, is that BHP’s scope 3 investment is both rational and commercial.

In a past life Healy had a reputation as one of Australia’s leading commercial litigators and courtroom performers. His mission on Tuesday was to prosecute the case that investment against the ever evolving slate of challenges to social licence was, above all, “good business”.

[A social licence has frequently been described as representing an ‘unwritten social contract’ between companies and communities.]

(Source: Stevens, M (2019) ‘Social value is good business for BHP’ The AustralianFinancial Review


After reading the above extract would the managerial branch of stakeholder theory require that the presence of an ‘unwritten social contract’ entail recognition of the social and economic consequences of accounting choices in the annual reports of gas companies?  (Note:  When formulating your answer, discuss what is meant by ‘social contract’ and social and economic consequences as far as accounting is concerned.  Your answer should refer to research to support your argument)  (Maximum word limit: 500 words)

Question 5

Drill into the practical application of IFRS in emerging economies and the challenges posed by issues such as fair value measurement become clear.

“There are difficulties in measuring fair value in emerging economies that relate to aspects particular to those economies. Fair value aside, there are other challenges, too. For instance, nuances in the local language can throw up challenges in translation, particularly when you consider the use of terms involving judgement such as ‘highly certain’ and ‘highly probable’,” he [Ram Subramanian, Australia’s policy adviser – reporting, policy and corporate affairs] says.

In order to protect their vulnerable budding capital markets, emerging economies also tend to be more tightly regulated. This can produce an environment not completely driven by market forces, adds Subramanian.

(Source:  Gallaway, J (2018) ‘The journey to international accounting standards’ InTheBlack


Subramanian states the challenges to emerging economies when applying IFRS include challenges in translation.  What are some of the other challenges confronting emerging economies to applying IFRS? (Maximum word limit:  500 words)

Question 6

Troubled Brisbane hospitality equipment financing company Silver Chef has agreed to sell most of its business to Next Capital after the Sydney firm raised its price to $18.25 million, from $15 million.

Silver Chef has been in breach of its debt covenants in since mid-2018 and was at risk of insolvency.

It declared an $18.6 million loss for the 12 months to June 30 on $235.4 million of revenue.

(Source:  Rose, D (2019) ‘Silver Chef to sell off business for $18m’ Australian Associated Press


After reading the above extract explain using the Positive Accounting Theory (PAT) and one other relevant theory why Silver Chef would agree to include a debt covenant written to incorporate accounting numbers with its banker?  (Maximum word limit: 500 words)

Question 7

How can a conceptual framework help in the setting and modification of accounting standards in a political environment?


In answering the above question, your answer should include a discussion of the political environment/process.  (Maximum word limit: 500 words)

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