AC2101 Accounting Recognition and Measurement

Seminar 1 Introduction

Semester 2, AY2013/2014

Seminar 1 Agenda

Introduction to AC2101 Course Syllabus and Requirements

Introduction to Fundamental Concepts

2

AC2101: Course Instructor

Name: Choo Teck Min Office: S3-01B-44 Tel: 67905685

Email: atmchoo@ntu.edu.sg

Office hrs: By appointment. Email or call before stopping by.

Groups: 1 (Mon 8:30 am SR7, Wed 8:30 am SR20)

3 (Mon 10:30 am SR7, Wed 10:30 am SR20)

7 (Tues 10.30 am SR6, Thur 10.30 am SR7)

3

AC2101 Course Syllabus

Contents Seminar #

1 Fundamental concepts & issues 1, 2 & 3

2

Assets:

a. Leases

b. Financial assets

4, 5, 6 & 7

7, 8, 9 & 10

3

Liabilities:

a. Financial liabilities

b. Deferred tax liabilities

11, 12

13,14,15 & 16

4

AC2101 Course Syllabus

Contents Seminar #

4 Equity (e-Lecture) 17

5

Revenue

a. Revenue recognition principles & criteria

b. Customer loyalty programmes

c. Construction contracts

18

18

19,20 & 21

6

Expenses

a. Expense recognition principles

b. Share-based payments and employee stock

options

a. Employee benefits

22

22, 23 & 24

24

5

AC2101 Course Format

Seminars

24 x 2 hours (twice per week, with some exceptions)

Includes 1 e-Lecture (Seminar 17)

6

AC2101 Course Matters

A. Course materials

1. Textbook (NCKL)

2. Seminar readings (Course Main Site on Edventure)

3. Accounting standards

(http://www.asc.gov.sg/frs/frsEffective01012013.htm)

4. Interpretations of accounting standards

(http://www.asc.gov.sg/frs/ifrsEffective01012013.htm)

5. Exposure drafts (http://www.asc.gov.sg/draft.htm)

6. Seminar outlines (Course Main Site on Edventure)

7. Seminar slides (Seminar Groups Site on Edventure)

7

AC2101 Course Matters

B. Pre-Requisites

1. AB1102

2. Use of financial calculator to do present value-related

computations

3. Bring clickers to every class

8

AC2101 Course Assessment

Components Weights Basis

1 Seminar participation 15 Individual

2 Group project presentation 15 Group & individual

(50% each)

3 Term quiz 20 Individual

4 Final exam 50 Individual

Total 100

9

Seminar Participation: Expectations

A. Pre-seminar

1. Complete ALL assigned readings in seminar outline

2. Attempt ALL assigned questions in seminar outline

B. During seminar

1. Clicker questions

2. Voluntary participation

3. Cold calls

C. Post-seminar

1. Review seminar slides & discussions

2. Review/complete assigned questions

3. Clarify all outstanding questions & doubts

4. Post updated presentation slides if your group is in charge of the

formal presentation for that week.

(Project Discovery) Pedagogy

Students take active responsibility for their learning Instructor plays a facilitating role

10

Project Presentation: Expectations

A. Pre-seminar

1. Project questions available in seminar outline released 2 weeks beforehand

2. Email slides in powerpoint format to your respective instructors and upload on

course main site (Assignments folder) for the Turnitin anti-plagiarism check by

stipulated deadline as stated on the COURSE OUTLINE; clearly labeling

project number, seminar group number and members names in the 1st slide

3. Penalties are imposed for late submission and a high degree of similarity to

other submissions.

B. During seminar presentation

1. Based on submitted slides, no changes allowed

2. 20 to 25 minutes of presentation time, followed by Q&A by fellow students &

instructor. Penalties are imposed for poor time management.

3. Presentation skills (individual) and presentation content (group)

C. Post-seminar presentation

1. Amend slides based on class discussion

2. Upload revised slides in PDF format to Discussions folder in your respective

seminar groups site within a week from presentation

11

Term Quiz & Final Exam

A.Term Quiz

1. Feb 28, 2014 (Fri) 4:30 pm LKC LT

2. Open book; usually MCQ plus 2 short questions; 1.5

hours

3. Seminars 1 to 12

B.Final Exam

1. May 8, 2014 (Thurs) 1 pm

2. Open book; usually three questions with multiple parts;

2.5 hours

3. Seminars 1 to 24 (i.e., everything)

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Seminar 1 Fundamental Concepts

Objective of accounting (Review of AB1102)

Why do we need accounting? (Review of AB1102)

Characteristics of useful accounting information

(Review of AB1102)

What does the generation of accounting information

involve?

Recognition

Measurement

Disclosure

GAP in Statement of Financial Position

13

Use of Clickers

Please set your clicker channel to this SRs channel

number:

1. Press the Go button on your clicker

2. Enter the SRs channel number (XX)

3. Press the Go button on your clicker again. You

should see a flashing green light.

Per the new FRS Conceptual Framework (2011), the objective of financial reporting is to provide

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1 2

0%0%

1. Info about the fin position, performance and changes in

fin position of an enterprise that is useful to a wide

range of users in making economic decisions

2. Fin info about the reporting entity that is useful to

existing & potential investors, lenders and other

creditors in making decisions about providing resources

to the entity

Why do we need accounting?

Information asymmetry between stakeholders

Adverse Selection: information advantage

Moral Hazard: unobservability of managers effort

16

Per the new FRS Conceptual Framework (2011), the fundamental qualitative characteristics of useful financial info include

17

1 2 3 4 5 6 7

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1. Comparability

2. Faithful representation

3. Relevance

4. Reliability

5. Understandability

6. Timeliness

7. Verifiability

1. Relevance

Predictive value; Confirmatory value; Materiality (nature & size; entity-specific)

2. Faithful representation

Complete (within bounds of materiality & costs); Neutral; Free from error ( accurate in all respects)

3. Comparability

Over time; Across different entities; achieved via consistency; uniformity

4. Understandability

Clearly & concisely

5. Timeliness

6. Verifiability

Different knowledgeable & independent observers could reach consensus, not necessarily complete agreement

Review: Qualitative Characteristics

18

Items (1) & (2): fundamental QC

Items (3) to (6): enhancing QC

Recognition

- Process of incorporating an item in an entitys statement of financial position or comprehensive income

- General recognition criteria (conceptual framework):

1. Meet the definition of a financial statement element

2. Probable inflow/outflow of future economic benefit

3. Cost or value can be reliably measured

- Item-specific recognition criteria

Found in the accounting standards governing the specific item

Accounting Recognition, Measurement & Disclosure

19

Probable = More likely than not (in practice, > 50%)

Found in specific FRSs

Applicable only to the specific accounting items

covered in the FRSs

May not be fully consistent with the general

recognition principles

Specific recognition principles

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Measurement

- Process of determining the monetary amount of an

item to be recognized & carried in the F/S

- The focus of this and next seminar

Disclosure

- Accounting standards often require that certain

information be disclosed either in the main body of or

in the notes to the financial statements.

- Is it the same as presentation?

Relationship?

Accounting Recognition, Measurement & Disclosure

21

Concepts of Measurement

What is measurement?

How to go about measuring?

Problems of measurement in accounting?

23

What is measurement?

Measurement is the assignment of numerals to represent the magnitude of an attribute of a

phenomenon.

Phenomenon: object or event to be measured

Attribute: characteristic or quality of the phenomenon that is to be measured

24

How to go about measuring?

Identify relevant phenomenon

Identify relevant attribute of the phenomenon

Find a reliable way to assess the magnitude of the relevant attribute of the relevant phenomenon (i.e., measurement scale)

Estimation may often be needed substitute with a different phenomenon, a different attribute, or both.

25

Relevant

Phenomenon (P1)

Substitute

Phenomenon (P2)

Direct Observation Estimation

Relevant

Attribute

(A1)

A1P1

A1P2

Estimation Estimation

Substitute

Attribute

(A2)

A2P1

A2P2

Miller and Mosso (1983)

Relevant

Phenomenon

Substitute

Phenomenon

Direct Observation Estimation

Relevant

Attribute

1

3

Estimation Estimation

Substitute

Attribute

2

4

Miller and Mosso (1983)

Seminar Question 1:

Measurement in Accounting: Attribute

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Phenomenon (Object) Attribute

Property, plant & equipment

Inventory

Short-term equity investment

Seminar Question 2:

Measurement in Accounting: Unit

Seminar Question 3:

Unit of measure?

Nominal $

Purchasing power

29

Problems of Measurement in Accounting

Seminar Question 4: Is aggregation (e.g. total assets) meaningful?

Problems:

Mixed attributes, and

Mixed unit of measure

30

31

Year

P/B

Ratio

Average Price-to-Book Ratio of the S&P 500 Companies,

Dec 1977- Mar 2001 (Source: Lev 2001)

1980s 2000

Current

price to

book ratio

is about 7

Hence, GAP in the Statement of

Financial Position!

Problems of Measurement in Accounting

Seminar Question 5:

Webber (2000) article key issues or concerns?

33

When BBB Ltd uses the historical cost of a car that it owns, adjusted for the cars estimated accumulated depreciation, as a measure of fair market value of the car, BBB Ltd is using:

34 A. B. C. D. E.

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A. Relevant attribute of a substitute phenomenon

B. Relevant attribute of a relevant phenomenon

C. Substitute attribute of a relevant phenomenon

D. Substitute attribute of a substitute phenomenon

E. None of the above

Which one of the following statements below is FALSE?

35 A. B. C. D. E.

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A. Comparability and understandability are referred to as enhancing

qualitative characteristics in The Conceptual Framework for Financial Reporting (2011).

B. Based on Miller and Mosso (1983), direct observation of the relevant

attribute of the relevant phenomenon provides the first-order quality of

measurement.

C. Under The Conceptual Framework for Financial Reporting (2011), the objective of financial reporting is to provide information that is

useful to a wide range of users, including the suppliers, customers

and government, in making economic decisions.

D. The mixed attributes problem in accounting is one of the reasons causing a difference in the net book value of the firm and its market

price.

E. Financial information is capable of making a difference in decisions if

it has predictive value or confirmatory value or both.