Question

Question 3 Accountants have the ability to choose different ways to report accounting information, and this choice can have an impact on the reported financial performance and position of an entity. 1. Identify and describe in detail the different methods and/or approaches available when making reporting decisions for: a. Revenue recognition b. Accounting for uncollectible receivables (bad debts, e.g. Direct write-off method, Allowance method, % of sales approach, % of receivables approach, ageing of accounts receivable approach) 2. Explain the advantages and disadvantages of each method you have just described in part one of this question. 3. Explain why accountants are able to choose different ways to report accounting information. In your answer you may like to discuss the advantages and disadvantages of being able to make different accounting choices with brief reference to the article Gowthorpe and Amat (2005), Creative Accounting: Some Ethical Issues of Macro- and Micro-Manipulation. 4. Explain how the choice of these accounting methods and/or approaches can be used by managers for earnings management. In your answer you may like to refer to how the assumptions and qualitative characteristics of accounting reduce earnings management.

Answer 1

P. No.1 Answer :- > Sergio marchionne's leadership style Cantocratic, participative, free- rein) * Sergio marchionne's leadership style is participative leadership style. Marchionne invites inputs from employees for Company decisions. A classic example is that marchionne preferred to take a Cabin among the employees workplace Sather than use his Office Cabin as a chairman. Sergio marchionne was initially best known for leading the turnaround of the Italian automotive group fiat. Marchionnels leadership style is particularly relevant. He has developed a Strong reputation for challenging the traditionally bureaucratic nature of management in Cart manufacturing in the us and Italy. please, vote positively.

P.. Cid Completed Contract method :- above method revenue Devenue is This method is Similar to (ii). metioned but the revenue should be recognized only when the whole project is completed. The advantage lies in if the (ii). (i) Cost recoverability method :- In this is recognized untill all the expenses are known completely and then the recognized. This is the most Conservative approach which is the advantage and disadvantage is that might be understated earlier and overstated laten in future years. ). Anstallment method :- In this method revenue is recognized once the payment of the installment is received. the advantages lies with the Customa mainly and indirectly for the busines to retain Customer gevenue

Db P.3 (i) Direct write off method The bad debts are immediately charged in the same period which it is known to be oncollectible. It is deducted from the sales revenue of that specific account Allowance method - The doubtful debts are recognized when they are known to be doubtful. It is adjusted in the accounts receivable account (ii) percentage of sales method The historical figurer are calculated to the percentage of the sales and this will be used for forecalling sales in the budgeted period: (i) percentage of receivables approach This is used to predict the amount of uncollectible that might arise due to the bad receivables account. This is set as a percentage not
  
to the sales and receivables. P.y (₂) Aging of accounts receivable approach :- This method is useful for knowsing the Credit balance in the doubtful debts allowance account. This is done on the basis of length time an account is not yet paid to the busines. 3) ► Macro manipulation involves lobbying of regulanges to persuade them for theor decision, making whereas micro manipulation involves lobbying of decision makers at the entity tevel. * Micro manipulation is ethical as ot's internal influence based but macro manipulation is some what takes its Curve towodi unethical means as it influences the decisions of outsiders who doen't Know the internal activities of the entity. This is what is described in the article Gowthorpe and Amat (2005) in brief manner.

P.5 4) * The approach followed here will definitely be beneficial in the earnings management to the firm as every approach selected by the management makes carnings mole stable and less volatile. * Every approach followed will make the hierarchy of earnings note long term than the Short term selection of the earnings Crisis. in every aspect they make sure that the earnings are positive and if takes its Curve to the negative side the form/company take its Collapse in the marted and completely fall into chapos. please vote positively..