Posted: March 7th, 2016

Discuss the following: Some argue that certain businesses may compromise the level of quality of service to stay within budget and to meet company’s performance standards. In that regard, General Motors (GM), and other automobile manufacturers, have been investigated by U.S.

3. One reason accounting earnings may not be a realistic measure of economic income is the incentive and ability of business managers to manipulate reported profits for their own benefit. This may be particularly true when their company has an incentive compensation plan that is linked to reported net income. The manipulation of earnings known as earnings management frequently involves income smoothing. Income smoothing has been defined as the dampening of fluctuations about some level of earnings that is considered normal for the company. Research has indicated that income smoothing occurs because investors prefer a stable rather than a volatile earnings trend.

Discuss why investors prefer stable and consistent earnings trends. Identify ways and methods that business managers might use to smooth earnings.

4. Regarding the components of working capital: In the following debate, take a position of an investor who wants to evaluate the liquidity of a company. As the investor, identify one of the two positions you are taking and defend and support it with at least two peer-reviewed sources:

Position #1: Argue for including inventory, prepaids, and deferrals in working capital.

Position #2: Argue against including inventory, prepaids, and deferrals in working capital.

5. After reading Ruhl, J. M. & Smith, O.M. (2013), required for this module, discuss your opinion of using the concepts of relevance and faithful representation in terms of the difference in treatment between U.S. GAAP and IFRS on the revaluation of impaired assets. Which do you think it is better for the stakeholders of a company and why?

Under U.S. GAAP, property, plant, and equipment are reported at historicalcost net of accumulated depreciation. These assets are written down to fair value when it is determined that they have been permanently impaired. A number of other countries, including Australia, the European Union, Brazil, Mexico, and Singapore, which use IFRS , permit revaluation after an initial impairment of property, plant, and equipment to their current cost as of the balance sheet date. The primary argument favoring revaluation is that the historical cost of assets purchased 10, 20, or more years ago is not meaningful. A primary argument against revaluation is the lack of objectivity in arriving at a current cost estimate, particularly for old assets that either will or cannot be replaced with similar assets or for which no comparable or similar assets are currently available for purchase.

Reading:
Ruhl, J. M., & Smith, O. M. (2013). The Accounting Entity, Relevance, and Faithful Representation: Linking Financial Statement Notes to the FASB and IASB Conceptual Frameworks. Issues In Accounting Education, 28(4), 1009-1029. doi:10.2308/iace-50522

6. A strong desire continues in the business community for a tax system that is simpler, more competitive, and conducive to economic growth. Discuss at least two suggestions to simplify the tax law. Do you think these suggestions will be effective? Why or why not?

7/8. Discuss the following: Some argue that certain businesses may compromise the level of quality of service to stay within budget and to meet company’s performance standards. In that regard, General Motors (GM), and other automobile manufacturers, have been investigated by U.S. Congressionalcommittees regarding defects possibly produced by quality cutbacks in their manufacturing methods and commitment to safety. These cutbacks have led to deaths and product recalls. Argue for or against the idea of meeting financial goals even at the risk of minor reductions in service or safety by the auto industry.