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Questions to think about fr FAT

1. Manager will work or shirk

2. Manager may shirk n still use earning management to report higher level of net income , what
factors may encourage managers to report truthfully ?

3. Why use more than one measures in manager compensation. Contract ?

4. Why managers want to use discretionary accruals to smooth reported net income ? Is income
smoothing consistent with efficiency or opportunistic behaviour ?

5. Reasons n importance of adopting a measurement perspective in financial accounting standards

6. Information perspective on decision usefulness is ? Its Measurement perspective ? their differ?

7. Reasons why share price still decrease when reported increase in profit n dividend , how to
describe this with efficiency ?

8. If there is change in accounting policy, take an efficient market perspective. How market would
react or not react to the changes ? Why?

9. Trade off between relevance n reliability

10. How financial accounting Info reduce two types of info asymmetry

11. How fair values would help/ hinder/ make no diff to earnings management , relate to the case

12. If a company operates under ideal conditions of uncertainty, how would inventory be accounted
for under these conditions ? At what value would inventory appear on BS ? N when would revenue
from sale of this inventory be recognized in income statement
13. How fair value eliminate bias in financial report if use clean surplus model , would or would not ?

14. Why performancebased compensation contracts use acct earnings growth n shareholder returns ?

15. Why matching of cost n revenue not consistent with measurement approach ?how to solve ?
Matchingapproach means approach of writing liability off

The following got answers !

16. Why earnings management by big firms can provide useful n credible info to investors

17.costs of opportunistic smoothing of earning are ?

18. Use concepts of market efficiency n investors rationality toe collation why important for
managers to reach earning targets

19. hC or FV de give higher ERC

20. Rank events of their ERC, e.g. Firm sold land for gain Firm sold n signed new contracts for supply
of uranium to China for foreseeable future. Firm has low beta Firm cut costs of production due to
tech innovative, high beta Changed dep policy frm reducing bal to straight line , is a growth firm

21. Less noise enables more efficient compensation contract, why ? Provide net income does not
change , unbiased 22. How conservative accounting contribute to efficient contracting ?

23. Why important to control or reduce some risks imposed on managers if performance linked
compensation thru net income n share price ? N how to reduce ?

24. Why have cash or bonus element in compensation packages

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