FINANCIAL ACCOUNTING RESEARCH ASSIGNMENT

Do ALL Parts.

Part A - approx. 1200 words

1. Financial statements should

a. Contain only information that represents phenomena that have existed or occurred external to the reports and their underlying documentation' and external to the thoughts of the issuers about the future.

b. Reflect nothing that didn't happen or that's fictitious by definition.

c. Reflect the use of only those formulas that track the financial effects of events that have occurred.

d. Reflect the existence of the reporting entity apart from all other entities with which it's associated.

e. Not incorporate false assumptions.

f. Emphasize the needs of the users of the statements if the needs or desires of other parties to financial reporting conflict with the needs of the users.

g. Obey the rules of arithmetic.

2. Nothing about the future need be considered in order to determine and report history.

3. Financial reporters shouldn't represent as assets things that aren't assets, especially if they're losses.

4. The equity of a reporting entity is only a helpful concept that exists only in the mind.

5. Costs aren't assets.

6. Financial reporting shouldn't be designed merely as a ritual.

7. Users shouldn't be forced to tolerate the intolerable.

8. We financial reporters shouldn't be required to do anything we can't.

Write a short essay considering the aforementioned points.

Part B - approx. 600 words

"recently the buzz words 'disclosure overload' have become very popular-talk about an oxymoron. How can anyone who is an investor be overloaded with information about his or her investment or prospective investment?"

"we cannot in our wildest imaginations come up with a scenario where specialized analysts would cry out to a management, "Stop! Stop! We already know too much! We don't want to know anything else. Just take our money and leave us alone!"

(Foster, 2003, quoted in Miller and Bahnson, 2002b, 135 & 172)

Discuss the above in terms of the following "A major challenge to the profession is to move issuers of financial reports to make disclosures confirm more to the advice of Warren Buffet."

Part C -

a) What is a financial instrument?

b) What is a financial asset?

c) What is a financial liability?

d) What is a derivative?

e) How are financial assets classified and measured?

f) On 3 March 20X3, CBA entered into a fixed-price forward contract to purchase 3 tons of aluminum in 6 months. According to terms of the contract, CBA can either take physical delivery at the end of 6 months, or to pay or receive a net settlement in cash based on the change in market price of aluminum. Is this a financial instrument?

g) Briefly explain the definitions of hedging instrument and a hedged item.