Referencing Styles : Harvard ASSIGNMENT: FINANCIAL ACCOUNTING THEORY This is a group assignment of maximum 3 students. Questions must me answered from the perspective of the theories discussed in the subject. Providing a summary of the case without any discussion of the theory will not fetch marks. The assignment must be provided with a cover paper mentioning the name and student numbers of the group members Assignment is to submitted on Moodle.Only one students submits the assignment in Moodle which must include the cover page Case Study Question 1 (20 marks) (500 words) Read headline “Health rates as top social issue”. Would you expect management to worry about attitudinal surveys, such as the one described in Headline below. Explain you answer, as well explaining how such surveys might impact on the disclosure policies of an organisation. CANBERRA: Health has taken over from crime as the most important social issue seen to be facing Australia, figures showed yesterday. The survey of people’s views of environmental issues found the environment rated fifth in importance-----even though three in four Australians had at least one environment concern. The Australian Bureau of Statistics (ABS) figures showed 29% of respondents believed health was the most important social issue. This was followed by crime (24%) education and unemployment (both 16%) and environmental problems (16 %). In 1996, crime was seen as the most important social issue, followed by health, education, unemployment, the environment. In the latest survey, dated March 1998, health was the most important issue to older people and least important to people aged 35-44. In general, younger people were more concerned about long-term environmental problems although 19-24 year olds, as well as 45-54 year olds were most concerned about unemployment. But the survey said 71% of Australians were concerned with at least one specific environmental problem. The figure was up from 68% in 1996 but down from 75% in 1992. People living in ACT were most concerned while Tasmanians were the least concerned about environmental problems. Air pollution continued to be the problem of greatest worry for Australians, with 32% reporting it as their major concern. Case Study Question 2 (20 marks) 500 words Read Accounting Headline “Tobacco industry deliberately misled smokers in health risks, court told” and consider the implications (externalities) associated with the promotion of tobacco use by cigarette companies. If the allegations made against the tobacco companies were true, what would be the implications for these companies’ reported results if: a) conventional accounting practices were employed and b) some form of ‘full cost’ accounting, which took account of externalities, was adopted. The tobacco industry engaged in a massive 50-year fraud to deceive consumers about the risk from smoking, the US Justice Department said yesterday at the start of a land mark trial. In opening arguments, government lawyers said that tobacco companies deliberately misled the public about the harmful effects of smoking while privately acknowledging the dangers. The wants to forfeit $280 billion of past profits. It claims the industry marketed cigarettes to young people, manipulated nicotine levels in cigarettes and funded studies that cast doubt on whether smoking caused lung cancer and other diseases. The industry denies fraud and says it has already changed many of the marketing practices the government criticises. Government lawyers’ produced internal company documents suggesting tobacco executives understood the risks of smoking but continued to say publicly that there was insufficient evidence to reach that conclusion. Frank Marine, the government lawyer, provided details of a 1953 meeting of top industry executives, which he argued, represented the first step in ‘one of the most elaborate public relations schemes in history.’ The companies argue the meeting was not secret because they had told the government it would take place. The government counters that the companies hid its true intention, which it alleges was to form an industry-wide alliance to obscure the issue of dangers of smoking. The suit is being bought under the 1970 Racketeer-Influenced and Corrupt Organisations (Rico) Act, which was designed to crack down on organised crime. The defendants__Philip Morris, Brown and Williamson, Lorillard, Liggett and British American Tobacco__ have challenged the government’s legal authority to seek $280 billion penalty. An appeals court is expected to decide that issue in November. The industry is also opposing restrictions on cigarette marketing sought by the government, saying they mirror those imposed by the 1998 Master Settlement Agreement. Under that deal, tobacco companies agreed to pay $264 billion to settle claims with 50 US states. The companies are expected to argue there was no concerted effort to mislead consumers. The industry cites for example, the requirement that packets of cigarettes carry health warnings since 1966_ two year after the US surgeon-general concluded that smoking caused cancer—as evidence that it could not have deceived consumers. CASE STUDY QUESTION 3 (20 MARKS) 500 words Read Accounting Headline, Corporate news: UAL to record up to $2.7 billion in charges” and then explain how a capital market researcher would differentiate between the component of the share price change at UAL that related to market- wide movements and the component that related to the write down of the organisation’s intangible assets. The shares of United Airlines parent UAL Corp. fell 13% on Friday to hit a 52 week low after the carrier said it plans to take second-quarter noncash charges of as much as $2.7 billion, mostly to reflect a write-down to zero of the value of its intangible assets, or goodwill. Its stock slump came as the larger market plummeted on oil and mortgage worries. Chicago-based UAL, the second-largest U.S. airline by traffic after AMR Corp’s American Airlines, said the write down is the result of record-high fuel prices hammering its financial results and it market capitalization. As of Friday, UAL, which generates about $20 billion in annual revenue, had an equity value of $433 million, less than the retail price of two jumbo jets. Its stock has plummeted 93% in the past year, more than most of its big U.S. rivals, although the entire sector has been rocked by the rapid run-up in fuel prices. UAL shares fell 54 cents to $3.63 in 4 pm composite trading on Nasdaq Stock Market, hitting a 52 week low of $3.47 in intraday trading.