N1609 Advanced Financial Accounting

Problem Set, November 2024 (A1)

This problem set is worth 25% of your overall assessment in this module.  It is to be submitted on Canvas > Assignments > Problem Set T1 Week 7

Submission Deadline: London Time 16:00 on 8th November 2024

Guiding Word Count: 1,000 words +/- 10% (excluding references and appendices) in length

Question 1 – Qualitative characteristics of financial information (40 marks, around 400 words)

Go to the London Stock Exchange website and navigate to the ‘Prices and Markets’ page: https://www.londonstockexchange.com/live-markets/market-data-dashboard/price-explorer.  Click on the ‘Index’ in the ‘Filter by:’ section, and select ‘FTSE 100’ to view a list of larger, well-established companies.  Then, repeat the process by selecting ‘FTSE AIM All-Share’ to view a list of smaller, emerging companies.  (1) Select one company from the FTSE 100 (a larger company with significant market capitalisation) and (2) select one company from the FTSE AIM All-Share (a smaller company with lower market capitalisation). Use the table below as a guided structure to analyse the financial reporting quality of both companies based on the four enhancing qualitative characteristics of financial reporting. You are required to (1) find relevant statements in their annual reports, (2) paraphrase or summarise them to evidence the quality of reporting from the four perspectives, and (3) provide suggestions for the smaller company to improve its financial reporting quality. You may write in four paragraphs instead of using a table, ensuring one concise statement for each criterion.

This question is to assess the module Learning Outcome 4 (LO4, mapping with Course LO1 and LO5): apply critical thinking skills to various financial accounting and analysis scenarios.

Marking Guidance (40 Marks Total)

This question assesses the ability to analyse financial reporting quality using the four qualitative characteristics: comparability, verifiability, timeliness, and understandability. Marks are allocated as follows:

1. Company Selection (4 marks)

o FTSE 100 company (2 marks) and FTSE AIM All-Share company (2 marks).

2. Analysis of Financial Reporting (24 marks)

o Comparability (6 marks)

o Verifiability (6 marks)

o Timeliness (6 marks)

o Understandability (6 marks)
Each criterion requires summarising relevant statements and demonstrating insight into reporting quality.

3. Suggestions for Improvement (10 marks)

o Practical, relevant recommendations for improving the smaller company’s reporting quality.

4. Structure and Clarity (2 marks)

o Well-organised, concise paragraphs addressing each criterion.

Total: 40 Marks

Required:

(1) Review its most recent annual report and identify an accounting policy or practice that could potentially be seen as "creative" based on the Criteria below. (10 marks)

(2) Explain how this practice affects the presentation of the financial statements. (15 marks)

(3) Discuss whether this practice appears to align with or challenge ethical accounting standards, as outlined by IFRS or UK GAAP. (10 marks)

(4) Finally, suggest a recommendation to enhance transparency or ethical compliance based on your findings. (15 marks)

You are encouraged to use the information and disclosures available in the annual report, such as all the general-purpose financial statements and management’s commentary, to identify and analyse these practices.  While the annual report may not provide all details, it is sufficient to make an informed assessment based on what is disclosed. This question is to assess the module Learning Outcome 2 (LO2, mapping with Course LO3 and LO4): evaluate the ethical implications of financial accounting disclosure practices for various external user groups.

Criteria:

When analysing the annual report, focus on these areas:

1. Revenue Recognition Policies: Look at how the company records revenue. Does it mention recognising revenue for sales that are not yet fully completed or delivered? This may indicate aggressive revenue recognition.

2. Depreciation and Asset Valuation: Review the notes on assets and depreciation methods. If the company uses methods that extend asset life significantly or revalues assets frequently without clear market justification, this could be an indication of overvaluation.

3. Presentation of Key Ratios and Figures: Look at how the company highlights its financial performance in management’s discussion and analysis.  Are they emphasising profit margins, but not discussing debt levels or other risks? This could be an example of selective presentation to make the company appear stronger.

4. Changes in Accounting Policies: If the company has made recent changes to its accounting policies (e.g., switching the method for calculating depreciation), investigate why.  Changes without strong justification may indicate attempts to manage earnings.

Marking Guidance (50 Marks Total)

This question assesses your ability to critically evaluate creative accounting practices, their impact, and ethical considerations, using a company from the FTSE 250 index.  Marks are allocated as follows:

1. Identification of Creative Accounting Practice (12 marks)

o High Marks (10-12): Accurately identifies a creative accounting policy or practice with detailed evidence from the annual report.  Shows a clear understanding of one or more criteria (e.g., revenue recognition, asset valuation, etc.).

o Moderate Marks (6-9): Generally accurate identification but may lack detail or depth in supporting evidence.

o Low Marks (1-5): Vague or incorrect identification with insufficient evidence.

2. Impact on Financial Statement Presentation (18 marks)

o High Marks (15-18): Provides a thorough explanation of how the identified practice affects financial statements, supported with specific examples (e.g., influence on profitability, asset values, or ratios).

o Moderate Marks (9-14): Reasonable explanation but lacks depth or clarity in illustrating the impact.

o Low Marks (1-8): Limited or vague explanation with little connection to the financial statement presentation.

3. Ethical Analysis Based on Accounting Standards (10 marks)

o High Marks (8-10): Clear evaluation of whether the practice aligns with IFRS or UK GAAP, citing specific standards.  Demonstrates a strong understanding of ethical implications.

o Moderate Marks (5-7): Adequate analysis with some reference to standards but lacking depth or sufficient evidence.

o Low Marks (1-4):  Limited analysis with minimal reference to ethical standards.

4. Recommendations for Improvement (10 marks)

o High Marks (8-10): Provides practical and actionable recommendations to improve transparency or compliance, directly addressing the identified practice.

o Moderate Marks (5-7): Suggestions are relevant but may be too general or lack depth.

o Low Marks (1-4): Vague or impractical recommendations that do not fully address the issues identified.

Total: 50 Marks

Ensure clarity, evidence-based analysis, and structured presentation throughout the response.

Guidance on the Use of Generative AI for Question 1 and Question 2 (10 marks):

You are required to use Generative AI (e.g., ChatGPT) as a research assistant where appropriate to help contextualise the question and draft possible answers. However, any text generated by the AI during your research and analysis must be included in an Appendix attached to your answers for the two questions.  This appendix will not be included in the word count and will not be marked.  Your task is to demonstrate the refinement and development of your final answers by showing how you improved upon the AI-generated text. Specifically, you must:

1. Include References: Provide the page numbers from the annual reports and any other references you used to support your analysis. (2 marks)

2. Summarise or Paraphrase: Condense or rephrase the AI-generated text to demonstrate your understanding and learning. (2 marks)

3. Correct and Update Information: Cross-check the AI-generated content against academic sources or the most up-to-date information, especially where the AI may have outdated or missing data and make necessary corrections. (3 marks)

4. Enhance Relevance and Application: Improve the clarity and relevance of the response by tailoring it to the specific question context. Incorporate specific examples and ensure the application of accounting principles is accurate and relevant. (3 marks)

This approach will help you engage critically with the AI tool, refine your research and analytical skills, and produce answers that reflect your own understanding and academic rigor. Failure to follow these guidelines, such as not including the AI-generated text in an appendix or not demonstrating sufficient improvement and understanding, may result in a deduction of marks.

General Requirements to Question 1 and 2:

Your answers are to be your own work.  You are to use Harvard referencing style. to reference any material you have directly or indirectly taken from other sources.  Accounting standards may be cited by simply giving the abbreviation for the standard (IAS, IFRS, etc.), its number and the paragraph to which you refer.  There is no lower- or upper-word count limits for each of your answers to the questions.  The overall word count is suggested to be 1,000 words +/- 10%. You will not get penalised if you write longer than 1,000 words, up to 2,000 words.

Marks will be awarded according to the University of Sussex Business School Generic Assessment Criteria 2020. Please make sure you watch the video under Marking Scheme(s) on N1609 Module Canvas Page under Assessment Information and read the ‘Expected at level 6’ carefully before writing up your answers.  Marks will be given based on the quality of your writing from 5 perspectives including: (1) Knowledge & Understanding, (2) Application, (3) Critical Thinking, (4) Reading & Research, and (5) Presentation & Style.  (Teamwork criterion is irrelevant to this assessment.)  Your submission will be checked for plagiarism automatically using the Turn-it-in.