This essay is to critically evaluate the usefulness of the accounting theory to practicing accountants today. It will provide a general assessment of information asymmetry and the fundamental problem of accounting‚ and it will also briefly discuss the normative and positive accounting theories and their usefulness to practicing accountants. After those discussions‚ it will specifically discuss the strength and limitation of positive accounting theory and assess its usefulness to practicing accountants
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Introduction This memorandum addresses our recommendation for Product Data Management and Visionary Design System employees. First‚ it states the principal and agent relationships. Second‚ it addresses the sources of problems with PDM. Third‚ it discusses solutions and recommendations for PDM and VDS employees. Finally‚ it discusses other organizational changes and concludes with a summary of our recommendations. Principal-Agent Relationships The PDM software provides organizational efficiency
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Perspective 1.3 The 2007-2008 Market Meltdowns 1.4 Efficient Contracting 1.5 A Note on Ethical Behaviour 1.6 Rules-Based v. Principles-Based Accounting Standards 1.7 The Complexity of Information in Financial Accounting and Reporting 1.8 The Role of Accounting Research 1.9 The Importance of Information Asymmetry 1.10 The Fundamental Problem of Financial Accounting Theory 1.11 Regulation as a Reaction to the Fundamental Problem 1.12 The Organization of This Book 1.12.1 Ideal Conditions 1
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Moral hazard is a type of information asymmetry whereby one or more parties to a business transaction‚ or potential transaction‚ can observe their actions in fulfillment of the transaction but other parties cannot. An information system is a table giving‚ conditional on each state of nature‚ the objective probability of each possible financial statement evidence item. Information is evidence that has the potential to affect an individual’s decision. An efficient securities market is one where
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TOWN OF BELLINGTON Exhibit 1. Performance Budget – Snow Removal Department October-December Static Budget Flexible Budget Actual Performance Difference between static budget and actual performance Difference between flexible budget and actual performance Snow days 10 12 12 (2) -- Cubic miles of snow 1‚250 1‚500 1‚500 (250) -- Costs Drivers $18‚000 $21‚600 $24‚675 $(6‚675) $(3‚075) Supplies 1‚125 1‚350 1‚875 (750) (525) Fuel 1‚750 2‚100 2‚500 (750) (400) Maintenance 1‚375 1‚650 2‚200
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Then‚ by applying this theory to the market of accounting information‚ the users will demand for accounting information and companies tend to supply such information‚ that’s why the market is always instantaneously getting relevant information. Plus‚ the free-market forces can determine the right accounting data to be supplied and suitable accounting practice to be used. However‚ this theory is rather unrealistic‚ when the accounting information is treated as public product and it is available to everyone
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Often the people or firms on one side of an economic transaction know more than those on the other side.This information asymmetry leads to adverse selection: among the informed parties‚ those who are most eager to make a deal are the least desirable to parties on the other side.Adverse selec- tion is a big idea in economic theory‚ because the problem arises in many types of markets. The Lemons Problem In 1970‚ George Akerlof of the University of California‚ Berkeley‚ published the classic paper
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of: Business and Law Programme: MSc Accounting & Finance Module: ACFI5006 Level: 5 Subject/Module Title: An Evaluation of Management Accounting Date: Thursday‚ 27 January 2011 Time Allowed: 3 hrs Start: 12:00 Finish: 15:00 Instructions to‚ and information for‚ candidates Students are required to attempt ONE question from each Section. Plus ONE other question from either Section THREE questions in total. All questions carry equal marks. Time allowed – 3 hours. Seen CLOSED book exam. Students may
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appears that issuing guidance can alter a market’s expectations o future earnings‚ although‚ the reaction to bad news is generally higher than the reaction to good news. Most companies who have stopped issuing guidance have experienced more information asymmetry and an increase in forecast dispersion. Even though guidance reports and meeting guidance reports can develop an image of transparency firms really have no control over the benefits of guidance. Opponents of guidance state that it has bad
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regulation is necessary to govern the preparation of accounting standards. Firstly‚ without proper regulations‚ the degree of credibility and completeness of information is unclear. This would be due to information asymmetry which might lead to businesses not disclosing relevant information to users or maybe withholding some information unless disclosure
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