Question 1

"Earnings management occurs when managers use judgment in financial reporting and in structuring transactions to alter financial reports to either mislead some stakeholders about the underlying economic performance of the company or to influence contractual outcomes thatdepend on reported accounting numbers.

Required:

Outline the argument as to why earning management by complex firm can provide useful and credible information to investors. Discuss any three motivations for earning management.

Question 2

'Creative accounting is a financial numbers game used to describe practice of applying inappropriateaccountingpoliciesorentering intocomplexor"specialpurpose" transactions with the objective of making a company's financial statements appear to more favorable position'.

Required:

Critically evaluate the main motives for creative accounting used by the management and why they wish todoso.

Question 3

'External and internal sources of information may indicate that an impairment loss recognised for an asset, other than goodwill, may no longer exist or may have decreased. The external indicators may include significant favourable changes in the asset's value and market conditions. The internal indicators may include significant favourable changes in the asset's use and performance. If, as a result, the estimates used to determine an asset's or a CGU's recoverable amounts have improved since the last impairment loss was recognised, the impairment loss that was previously recognised for the asset, other than goodwill,is reversed. That is, an impairment reversal cannot be recognised merely from the passage of time or improvement in the general market condition' (ImpairmentaccountingthebasicsofIAS36ImpairmentofAssets

Required:

Describe the procedures involved in the reversing an impairment loss identified as per the International AccountingStandard 36.