Instructions to students:

Answer ALL questions from Assignment

Materials:

Only the Casio calculators FX-83 (MS, ES or GT+) or FX-85 (MS, ES or GT+) are permitted for use

Assignment: AF1100 Financial Institutions  based on Accounting and Finance

Question 1

The main purpose of publishing a company’s Annual Report and Accounts is to:

1. Provide a formal record of its transactions for regulatory authorities
2. Keep its staff motivated and well informed about the company’s progress
3. Report on its financial performance and position to shareholders
4. Meet the terms and conditions of its bank loans

(3 marks)

Question 2

The advantage of accrual accounting is that:

1. It limits the scope for managers to manipulate the company’s financial statements
2. It matches expenses to revenue to capture the economic value generated by transactions undertaken during the accounting period
3. It does not require assurance from an auditing accountant that the financial statements represents a true and fair view
4. It helps start-up companies to accelerate their expansion

(3 marks)

Question 3

Busby Babes (BB) plc and Toytown (TT) plc are direct competitors in the design and supply of games for young children. For the year to December 2016, BB reports a rise in its Days Sales Outstanding (DSO) from 53 to 75; a rise in its Days Inventory on Hand (DOH) from 56 to 76; and a rise in its Trade Payables Days from 45 to 98. For the same period, TT reports DSO falling from 65 to 35, DOH falling from 54 to 34 and Trade Payables Days falling from 65 to 57. Which statement might explain the reasons for these movements?

1. BB is operating more efficiently than TT
2. TT may be risking its supplier relationships through slow payments
3. Slower sales and credit payments are causing financial stress for BB, which it is seeking to resolve by deferring payments
4. TT has been recognizing revenue prematurely in a bid to increase its reported net income

(3 marks)

Question 4

Which of the following might be a warning signal of accounting manipulation to exaggerate revenue recognition?

1. An extension of average depreciation periods for tangible fixed assets from 4 to 8 years
2. Intangible asset values rising consistently over several years at three times the rate of annual revenue growth
3. Two consecutive years in which receivables rise very sharply
4. Inventory rising consistently over several years at three times the rate of annual revenue growth

(3 marks)

Question 5

Sam Muswell works as an auditor for the accountancy practice of Pond White Carter. He leads PWC’s team on the audit of GST plc, a fast expanding UK software provider. Sam takes a close interest in digital technology and social media, and he himself uses a phone, tablet and laptop which are powered by GST software. He is excited by a new App being developed by GST which, he believes, could transform device usage across the world. GST will require significant investment and financial leverage in order to develop this App to commercial application. Sam has always supported this approach whenever it has arisen in conversation. Which of the following best describes Sam’s professional position?

1. His principle of Integrity is under threat from Self-Interest
2. His principle of Objectivity is under threat from Advocacy
3. There is no threat to any of his professional principles
4. His principle of Professional Behavior is under threat from Familiarity

(3 marks)

Question 6

The Financial Reporting Council is responsible for:

1. Investigating complaints about the professional competence of auditing accountants
2. Setting and encouraging compliance with the UK Corporate Governance Code
3. Setting international accounting standards
4. Referring failures in corporate reporting standards to the Financial Conduct Authority

You do NOT need to explain the reasons for your answer.                                  (3 marks)