Assume ABC Company has asked you to not only prepare their 2013 year-end Balance

Assume ABC Company has asked you to not only prepare their 2013 year-end Balance Sheet but to also provide pro-forma financial statements for the first quarter of 2014 (that is, January – March 2014). They also want you to evaluate 3 projects they are considering. Their information is as follows:End of the year information:Account12/31/13Ending BalanceCash160,000Accounts Receivable126,000Inventory75,200Equipment745,000Accumulated Depreciation292,460Accounts Payable36,900Short-term Notes Payable18,300Long-term Notes Payable157,225Common Stock450,000Retained EarningsSolve for thisAdditional Information:Sales for December total 12,000 units. Each months unit sales are expected to exceed the prior months results by 5%. The products selling price is $15 per unit.Company policy calls for a given months ending inventory to equal 80% of the next months expected unit sales. The December 31, 2013 inventory is 9,400 units, which complies with the policy. The purchase price is $8 per unit.Sales representatives commissions are 10.0% of sales and are paid in the month of the sales. The sales managers monthly salary will be $3,500 in January and $4,000 per month thereafter.Monthly general and administrative expenses include $8,000 administrative salaries, $5,000 depreciation, and 0.9% monthly interest on the long-termnote payable.The company expects 30% of sales to be for cash and the remaining 70% on credit. Receivables are collected in full in the month following the sale (none is collected in the month of sale).All merchandise purchases are on credit, and no payables arise from any other transactions. One months purchases are fully paid in the next month.The minimum ending cash balance for all months is $160,000. If necessary, the company borrows enough cash using a short-term note to reach the minimum. Short-term notes require an interest payment of 1% at each month-end (before any repayment). If the ending cash balance exceeds the minimum, the excess will be applied to repaying the short-term notes payable balance.Dividends of $100,000 are to be declared and paid in February.No cash payments for income taxes are to be made during the first calendar quarter. Income taxes will be assessed at 35% in the quarter.Equipment purchases of $55,000 are scheduled for March.ABC Companys management is also considering 3 new projects consisting of the purchase of new equipment. The company has limited resources, and may not be able to complete all 3 purchases. The information for the purchases is as follows:Project 1Project 2Project 3Purchase Price$50,000$75,000$32,500Required Rate of Return12%8%10%Time Period3 years5 years2 yearsCash Flows Year 1$18,000$25,000$20,000Cash Flows Year 2$22,000$20,000$18,000Cash Flows Year 3$22,000$18,000N/ACash Flows Year 4N/A$16,500N/ACash Flows Year 5N/A$15,000N/ARequired Action:Part A:Prepare the year-end balance sheet for 2013. Be sure to use proper headings.Prepare budgets such that the pro-forma financial statements may be prepared.Sales budget, including budgeted sales for April.Purchases budget, the budgeted cost of goods sold for each month and quarter, and the cost of the March 31 budgeted inventory.Selling expense budget.General and administrative expense budget.Expected cash receipts from customers and the expected March 31 balance of accounts receivable.Expected cash payments for purchases and the expected March 31 balance of accounts payable.Cash budget.Budgeted income statement.Budgeted statement of retained earnings.Budgeted balance sheet.[Hint: The End-of-Chapter Challenge for Chapter 4 of the Textbook provides a template to guide you in the preparation of all the necessary budgets and financial statements.]Part B:Calculate using Excel formulas, the NPV of each of the 3 projects.It is possible that ABC Company may not be able to complete all 3 projects. Therefore, advise ABC Company as to the order in which they should pursue the projects (i.e., which project should ABC Company attempt to do first, second, and last).Provide justification and analysis as to why you chose the order you did. The analysis must also be done in Excel, not in a separate document.Assume ABC Company has asked you to not only prepare their 2013 year-end Balance Sheet but to also provide pro-forma financial statements for the first quarter of 2014 (that is, January – March 2014). They also want you to evaluate 3 projects they are considering. Their information is as follows:End of the year information:Account12/31/13Ending BalanceCash160,000Accounts Receivable126,000Inventory75,200Equipment745,000Accumulated Depreciation292,460Accounts Payable36,900Short-term Notes Payable18,300Long-term Notes Payable157,225Common Stock450,000Retained EarningsSolve for thisAdditional Information:Sales for December total 12,000 units. Each months unit sales are expected to exceed the prior months results by 5%. The products selling price is $15 per unit.Company policy calls for a given months ending inventory to equal 80% of the next months expected unit sales. The December 31, 2013 inventory is 9,400 units, which complies with the policy. The purchase price is $8 per unit.Sales representatives commissions are 10.0% of sales and are paid in the month of the sales. The sales managers monthly salary will be $3,500 in January and $4,000 per month thereafter.Monthly general and administrative expenses include $8,000 administrative salaries, $5,000 depreciation, and 0.9% monthly interest on the long-termnote payable.The company expects 30% of sales to be for cash and the remaining 70% on credit. Receivables are collected in full in the month following the sale (none is collected in the month of sale).All merchandise purchases are on credit, and no payables arise from any other transactions. One months purchases are fully paid in the next month.The minimum ending cash balance for all months is $160,000. If necessary, the company borrows enough cash using a short-term note to reach the minimum. Short-term notes require an interest payment of 1% at each month-end (before any repayment). If the ending cash balance exceeds the minimum, the excess will be applied to repaying the short-term notes payable balance.Dividends of $100,000 are to be declared and paid in February.No cash payments for income taxes are to be made during the first calendar quarter. Income taxes will be assessed at 35% in the quarter.Equipment purchases of $55,000 are scheduled for March.ABC Companys management is also considering 3 new projects consisting of the purchase of new equipment. The company has limited resources, and may not be able to complete all 3 purchases. The information for the purchases is as follows:Project 1Project 2Project 3Purchase Price$50,000$75,000$32,500Required Rate of Return12%8%10%Time Period3 years5 years2 yearsCash Flows Year 1$18,000$25,000$20,000Cash Flows Year 2$22,000$20,000$18,000Cash Flows Year 3$22,000$18,000N/ACash Flows Year 4N/A$16,500N/ACash Flows Year 5N/A$15,000N/ARequired Action:Part A:[Hint: The End-of-Chapter Challenge for Chapter 4 of the Textbook provides a template to guide you in the preparation of all the necessary budgets and financial statements.]Part B:

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Atlas Co. allows select customers to make purchases on credit. It’s other custom

Atlas Co. allows select customers to make purchases on credit. It’s other customers can use either of two credit cards: Zisa or Access. Zisa deducts a 3% service charge for sales on its credit card and credits the bank account of Atlas immediately when credit card receipts are deposited. Atlas deposits the Zisa credit card receipts each business day. When customers use Access credit cards. Atlas accumulates the receipts for several days before submitting them to Access for payment. Access deducts a 2% service charge and usually pays within one week of being billed. Atlas completes the following transactions in June. (the terms of all credit sales are 2/15, n/30, and all sales are recorded at the gross price.)June 4. Sold $750 of merchandise (that had cost $500) on credit to Anne Cianci.June 5 Sold $5,900 of merchandise (that had cost $3,200) to customers who used their Zisa cards.June 6 Sold $4,800 of merchandise (that had cost $2,800) to customers who used their Access cards.June 8 Sold $3,200 of merchandise (that had cost $1,900) to customers who used their Access cards.June 10 Submitted Access card receipts accumulated since June 6 to credit card company for payment.June 13 Wrote off the account of Nakia Well against the allowance for Doubtful Accounts. The $329 balance in Well’s account stemmed from a credit sale in October of last year.June 17 Received the amount due from Access.June 18 Received Cianci’s check in full payment for the purchase of June 4.Required:Prepare journal entries to record the preceding transactions and events. (the company uses the perpetual inventory system. round amounts to the nearest dollar).Atlas Co. allows select customers to make purchases on credit. It’s other customers can use either of two credit cards: Zisa or Access. Zisa deducts a 3% service charge for sales on its credit card and credits the bank account of Atlas immediately when credit card receipts are deposited. Atlas deposits the Zisa credit card receipts each business day. When customers use Access credit cards. Atlas accumulates the receipts for several days before submitting them to Access for payment. Access deducts a 2% service charge and usually pays within one week of being billed. Atlas completes the following transactions in June. (the terms of all credit sales are 2/15, n/30, and all sales are recorded at the gross price.)June 4. Sold $750 of merchandise (that had cost $500) on credit to Anne Cianci.June 5 Sold $5,900 of merchandise (that had cost $3,200) to customers who used their Zisa cards.June 6 Sold $4,800 of merchandise (that had cost $2,800) to customers who used their Access cards.June 8 Sold $3,200 of merchandise (that had cost $1,900) to customers who used their Access cards.June 10 Submitted Access card receipts accumulated since June 6 to credit card company for payment.June 13 Wrote off the account of Nakia Well against the allowance for Doubtful Accounts. The $329 balance in Well’s account stemmed from a credit sale in October of last year.June 17 Received the amount due from Access.June 18 Received Cianci’s check in full payment for the purchase of June 4.Required:Prepare journal entries to record the preceding transactions and events. (the company uses the perpetual inventory system. round amounts to the nearest dollar).

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The ledger of Custer Company has the following work in process account.Work in P

The ledger of Custer Company has the following work in process account.Work in ProcessPainting5/1Balance4,8005/31Transferred out?5/31Materials5,6205/31Labor3,3805/31Overhead2,4305/31Balance?Production records show that there were 490 units in the beginning inventory, 30% complete, 1,460 units started, and 1,600 units transferred out. The beginning work in process had materials cost of $3,070 and conversion costs of $1,730. The units in ending inventory were 40% complete. Materials are entered at the beginning of the painting process.(a)How many units are in process at May 31?(b)What is the unit materials cost for May?(Round unit costs to 2 decimal places, e.g. 2.25.)(c)What is the unit conversion cost for May?(Round unit costs to 2 decimal places, e.g. 2.25.)Production records show that there were 490 units in the beginning inventory, 30% complete, 1,460 units started, and 1,600 units transferred out. The beginning work in process had materials cost of $3,070 and conversion costs of $1,730. The units in ending inventory were 40% complete. Materials are entered at the beginning of the painting process.(a)How many units are in process at May 31?(b)What is the unit materials cost for May?(Round unit costs to 2 decimal places, e.g. 2.25.)

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.jpg” alt=”new_logo”> The Business School BULAW 3731 INCOME TAXATION

.jpg” alt=”new_logo”>

The Business
School

BULAW 3731 INCOME
TAXATION Law & Practice
Assignment
Semester 1 – 2013

INSTRUCTIONS

See the Instructions and Assessment Criteria in theCourse
Description and make sure you follow them!

Please answer all parts of the question

Attached to this document
is a Checklist to be filled in by you and attached to your
essay/assignment. Read this now before you start
your research. If you have followed
this checklist, there is a good chance you will do well.

All work presented for assessment in
this course must comply with the

format
outlined in the University’s Presentation of Academic Work
publication,
available from the bookshop or on-line at
.ballarat.edu.au/generalguide”>www.ballarat.edu.au/generalguide.

All essays must be accompanied by a signed official
cover sheet (‘Plagiarism Declaration Form’), available at
www.ballarat.edu.au/ard/business/student_info_webct.shtml and lodged as
appropriate for your campus.

You MUST reference in the body of the essay every time you use
information from other people. This requires you
to keep a track of where you are taking information from and then writing
the reference up. You should use
the Harvard/APA style; and use the Universitys new Presentation of
Academic Work. The Librarys
website also has a citation style guide site. If you plagiarise (intentionally OR
unintentionally) you will be given zero:
see Regulation 6.1.1 for more details.

DUE DATE: Thursday, 16 May 2013. Please check with the Course Description
for details of where and when to submit your assignment. If you need an extension you must ask for
one BEFORE the due date (unless this is impossible).

The assignment should not
exceed approximately 2000 words.

The assignment is worth
25%.

Assignment

Part
1
Schubert,
Mahler and Tull are resident Australian seamen employed on the fishing trawler
MV St Cecilia.Whilst on a
routine fishing operation the captain of
St Ceciliaheard a radio message thatSS
Titan, an abandoned oil tankerabout 20 nautical miles to the south was
drifting towards the Australian coast. The vessel was badly holed, leaking oil
and with present currents and tidal situations it was drifting towards a coral
reef a short distance from a stretch of environmentally sensitive coastline. If
the tanker wrecked on the reef the environmental and economic consequences
would be enormous.

The
captain sailed to the reported position of the stricken tanker. In the rough
sea, the crew were unsuccessful in their attempt to attach a tow line. The
captain then called for volunteers prepared to risk their lives in boarding the
vessel and securing a tow line manually. Schubert and Mahler had previously
worked on a salvage vessel and had some experience in operations of this type
and they volunteered immediately. They displayed considerable bravery in
swimming through rough seas, boarded the tanker and fixed a line. The heroic
feat was recorded on video by Tull.

Once
the line was secure, St Ceciliatowed
the tankeraway from the coastline and it was subsequently salvaged by the tug, Resurrection.

Both
Schubert and Mahler were awarded an Order of Australia medal by the Australian
Government and $100,000 each from Lloyds of London, the insurer of Titan,who had been saved a billion
dollar payout.

In
addition, Mahler entered into a contract to write an article for a magazine. He
was paid $20,000 and an additional $10,000 for signing an agreement not to give
interviews on television or to journalists.

Schubert
was offered $10,000 for his OA medal. He was in poor health at the time and
required medical treatment so accepted the payment.

Tull
sold the video to Channel 9 for $8,000 and it was shown exclusively on that
station throughout Australia. Later that year he was paid $50,000 to travel to
the USA to provide technical advice on a proposed telemovie of the event
tentatively entitled Aqualung. He plans to stay in the US indefinitely and
pursue other filmmaking opportunities.

Required
1. [Approximately 40% of marks]
(a) Explain what is meant by income by ordinary concepts.
(b) Advise what tax consequences arise in respect of the payments to
Mahler, Schubert and Tull.
You
must refer to appropriate case law and applicable sections of the Income Tax
Acts.

Part
2
Ruby
Engineering Pty Ltd [Ruby] was incorporated in 1990 and produced engine
components used in the Australian car industry. In 2008 the business and
company assets were sold to Diamond Ltd. Under the terms of the agreement, Ruby
remained liable for any claims arising before 2008. The company used the funds
to invest in real estate and shares.

During
the year ended 30 June 2013 Ruby incurred the following expenses:

(a)
Ruby has owned and rented a
residential property since 2008. Rental income for the current year is $15,000.
During the year the company replaced the old kitchen fittings, including
cupboards that had deteriorated through water damage and wear and tear. The new
cupboards were of the same type as the old ones and the kitchen layout was not
altered substantially. The cost was $6,500.

(b)
In another of the rental
properties a visitor to the tenants slipped on the steps and sustained injuries
requiring medical attention. She claims one of the steps was loose and
commenced legal proceedings against Ruby alleging her injuries were caused by
the poor condition of the building. Ruby incurred legal expenses of $4,000 and
the action has not been settled at 30 June.

(c)
In 2006 Ruby sold a batch of
parts that were subsequently found to be defective. The purchaser, an
Australian car manufacturer lodged a claim for damages in the Federal Court.
The claim was settled in November 2012 and Ruby paid $750,000 to the
manufacturer.

(d)
The directors of Ruby were
concerned about the claim in (c) and the effect it had on the years reported
profit. They resolved to set aside a small amount of funds annually to meet any
future claims. Accordingly, an amount of $100,000 was set aside in a provision
in the accounts for the year ended 30 June.

(e)
In August 2012 Ruby decided to
investigate the possibility of re-entering the car parts manufacturing industry
using a new type of alloy. An amount of $120,000 was paid to consultants
investigating the proposal but the directors decided not to proceed at this
time.

Required
2. [Approximately 60% of marks]
Advise
the directors of Ruby Pty Ltd of the tax deductibility of the above amounts.
You must make reference to appropriate authorities and legislation.

University of Ballarat The Business School

CHECKLIST
TO BE ATTACHED TO ASSIGNMENT IN BULAW 3731

Name:
..
Student No. ..

Please check that you have done the
following. Tick the boxes to show you
have!

q Submitted an assignment
that is your own work. (You may discuss the essay topics with others
but you cannot copy anothers work, give your work to someone else to
copy, or work closely with another student on how to structure or write the
essay.)

q The assignment is no more than 2000 words long (excluding abstract,
references, bibliography).

q Read and tried to address the criteria in the Course Description.

q Read and addressed the issues raised in the Universitys Presentation of
Academic Work

q Read Regulation 6.1.1, Plagiarism and asked questions if you are unsure
about what it means.

q Referenced direct quotes (use quotation marks or indent) AND summarising
from another persons work in the body of the essay. (This includes internet sources).

q Indicated what referencing style you have chosen Harvard/APA and USED IT.

q Answered all parts to the question.

q Used headings (even though this is not a report, headings are encouraged
to assist structure and flow).

q Proof read the assignment for spelling, punctuation and grammar
errors.

q Where required, used relevant sections of legislation, legal
rules/principles

q Where required, used cases to support your points or arguments. These cases can be obtained from textbooks,
or the CCH online libraries, articles found via AGIS PLUS TEXT database etc.

q Put case citations in the body of the work as well as listing the case
in the List of References.

q Discussed the issues as required and put arguments and gave your view.

q Used a range of resources.

q Included a title page with your name, student number, course code and
name and lecturers name.

q Have a margin so comments can be added; put page numbers and your name
and student number on each page.

Signed by student: ____________________________________________

.jpg” alt=”new_logo”>The Business
SchoolBULAW 3731 INCOME
TAXATION Law & Practice AssignmentSemester 1 – 2013 format
outlined in the University’s Presentation of Academic Workpublication,
available from the bookshop or on-line at .ballarat.edu.au/generalguide”>www.ballarat.edu.au/generalguide.AssignmentPart
1Schubert,
Mahler and Tull are resident Australian seamen employed on the fishing trawler MV St Cecilia.Whilst on a
routine fishing operation the captain of
St Ceciliaheard a radio message thatSS
Titan, an abandoned oil tankerabout 20 nautical miles to the south was
drifting towards the Australian coast. The vessel was badly holed, leaking oil
and with present currents and tidal situations it was drifting towards a coral
reef a short distance from a stretch of environmentally sensitive coastline. If
the tanker wrecked on the reef the environmental and economic consequences
would be enormous.The
captain sailed to the reported position of the stricken tanker. In the rough
sea, the crew were unsuccessful in their attempt to attach a tow line. The
captain then called for volunteers prepared to risk their lives in boarding the
vessel and securing a tow line manually. Schubert and Mahler had previously
worked on a salvage vessel and had some experience in operations of this type
and they volunteered immediately. They displayed considerable bravery in
swimming through rough seas, boarded the tanker and fixed a line. The heroic
feat was recorded on video by Tull.Once
the line was secure, St Ceciliatowed
the tankeraway from the coastline and it was subsequently salvaged by the tug, Resurrection. Both
Schubert and Mahler were awarded an Order of Australia medal by the Australian
Government and $100,000 each from Lloyds of London, the insurer of Titan,who had been saved a billion
dollar payout.In
addition, Mahler entered into a contract to write an article for a magazine. He
was paid $20,000 and an additional $10,000 for signing an agreement not to give
interviews on television or to journalists.Schubert
was offered $10,000 for his OA medal. He was in poor health at the time and
required medical treatment so accepted the payment.Tull
sold the video to Channel 9 for $8,000 and it was shown exclusively on that
station throughout Australia. Later that year he was paid $50,000 to travel to
the USA to provide technical advice on a proposed telemovie of the event
tentatively entitled Aqualung. He plans to stay in the US indefinitely and
pursue other filmmaking opportunities.Required
1. [Approximately 40% of marks](a) Explain what is meant by income by ordinary concepts.(b) Advise what tax consequences arise in respect of the payments to
Mahler, Schubert and Tull.You
must refer to appropriate case law and applicable sections of the Income Tax
Acts.Part
2Ruby
Engineering Pty Ltd [Ruby] was incorporated in 1990 and produced engine
components used in the Australian car industry. In 2008 the business and
company assets were sold to Diamond Ltd. Under the terms of the agreement, Ruby
remained liable for any claims arising before 2008. The company used the funds
to invest in real estate and shares.During
the year ended 30 June 2013 Ruby incurred the following expenses:(a)
Ruby has owned and rented a
residential property since 2008. Rental income for the current year is $15,000.
During the year the company replaced the old kitchen fittings, including
cupboards that had deteriorated through water damage and wear and tear. The new
cupboards were of the same type as the old ones and the kitchen layout was not
altered substantially. The cost was $6,500.(b)
In another of the rental
properties a visitor to the tenants slipped on the steps and sustained injuries
requiring medical attention. She claims one of the steps was loose and
commenced legal proceedings against Ruby alleging her injuries were caused by
the poor condition of the building. Ruby incurred legal expenses of $4,000 and
the action has not been settled at 30 June.(c)
In 2006 Ruby sold a batch of
parts that were subsequently found to be defective. The purchaser, an
Australian car manufacturer lodged a claim for damages in the Federal Court.
The claim was settled in November 2012 and Ruby paid $750,000 to the
manufacturer.(d)
The directors of Ruby were
concerned about the claim in (c) and the effect it had on the years reported
profit. They resolved to set aside a small amount of funds annually to meet any
future claims. Accordingly, an amount of $100,000 was set aside in a provision
in the accounts for the year ended 30 June.(e)
In August 2012 Ruby decided to
investigate the possibility of re-entering the car parts manufacturing industry
using a new type of alloy. An amount of $120,000 was paid to consultants
investigating the proposal but the directors decided not to proceed at this
time.Required
2. [Approximately 60% of marks]Advise
the directors of Ruby Pty Ltd of the tax deductibility of the above amounts.
You must make reference to appropriate authorities and legislation.University of Ballarat The Business SchoolCHECKLIST
TO BE ATTACHED TO ASSIGNMENT IN BULAW 3731Name:
..Student No. ..Please check that you have done the
following. Tick the boxes to show you
have!q Submitted an assignment
that is your own work. (You may discuss the essay topics with others
but you cannot copy anothers work, give your work to someone else to
copy, or work closely with another student on how to structure or write the
essay.)q The assignment is no more than 2000 words long (excluding abstract,
references, bibliography).q Read and tried to address the criteria in the Course Description.q Read and addressed the issues raised in the Universitys Presentation of
Academic Work q Read Regulation 6.1.1, Plagiarism and asked questions if you are unsure
about what it means.q Referenced direct quotes (use quotation marks or indent) AND summarising
from another persons work in the body of the essay. (This includes internet sources).q Indicated what referencing style you have chosen Harvard/APA and USED IT. q Answered all parts to the question.
q Used headings (even though this is not a report, headings are encouraged
to assist structure and flow).q Proof read the assignment for spelling, punctuation and grammar
errors. q Where required, used relevant sections of legislation, legal
rules/principles q Where required, used cases to support your points or arguments. These cases can be obtained from textbooks,
or the CCH online libraries, articles found via AGIS PLUS TEXT database etc. q Put case citations in the body of the work as well as listing the case
in the List of References.q Discussed the issues as required and put arguments and gave your view.q Used a range of resources.q Included a title page with your name, student number, course code and
name and lecturers name. q Have a margin so comments can be added; put page numbers and your name
and student number on each page.Signed by student: ____________________________________________

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Carrie A. Morgan, age 45, is single and lives with her dependent mother at 426

Carrie A. Morgan, age 45, is single and lives with her dependent
mother at 426 Grouse Avenue, Allentown, PA 18105. Her social security number is
111-11-1111.

1. Carrie is a licensed hairstylist and operates her own business.
Located at 480 Laurel Street, Allentown, PA 18105, the business is conducted
under the name of Carrie’s Coiffures. Carrie’s business activity code is
812112. In addition to 10 workstations (i.e., stylist chairs) and a small
reception area, the shop has display and storage areas for the
products Carrie sells (see item 2 below). During the year, Carrie
leased nine of the stations to other hairstylists. As is common practice in
similar businesses in the area, the other stylists are considered to be
self-employed. In fact, the IRS sanctioned the self-employment classification
for the stylists in an audit of one of Carrie’s prior tax returns. Each stylist
pays Carrie a fixed rent for the use of a workstation, resulting in
$68,000 of rents received during 2012. From her own station,
Carrie earned $44,000
(including tips of $12,000) for the styling services she provided
to her own clients.

2. Carrie’s Coiffures is the local distributor for several beauty
products (e.g., conditioners,
shampoos) that cannot be purchased anywhere else. Carrie buys
these items from the
manufacturers and sells them to regular patrons, walk-in
customers, and other
beauticians (including those who lease chairs from her). Carrie’s
Coiffures is also
known for the selection and quality of its hairpieces (i.e., wigs,
toupees). Through the
shop, Carrie made the following sales during the year:

Hairpieces and wigs $69,000
Beauty products 48,000

3. Although Carrie operates her business on a cash basis, she
maintains inventory
accounts for the items she sells as required by law. Relevant
information about the
inventories (based on lower of cost or market) is summarized
below.
4.
12/31/11 12/31/12
Hairpieces and wigs $10,700 $12,600
Beauty products 11,400 9,900

5. Carrie’s purchases for 2012 were $30,500 of hairpieces and wigs
and $26,100 of beauty
products.

6. Carrie’s Coiffures had the following operating expenses for
2012:

Utilities (i.e., gas, electric, telephone) $12,900
Ad valorem property taxes:
On realty (e.g., shop building and land) $4,200
On personalty (e.g., equipment, inventory) 1,800 6,000
Styling supplies (e.g., rinses, dyes, gels, hair spray) 5,700
Fire and casualty insurance 4,100
Liability insurance 4,000
Accounting services 3,800
Janitorial services 2,400
Sewer service, garbage pickup $ 2,300
Water 2,200
Occupation licenses (city and state) 1,500
Waiting room supplies (e.g., magazines, coffee) 1,300
7. As Carrie prefers to avoid employer-employee arrangements and
the payroll tax
complexities, she retains outside agencies to handle her
accounting and janitorial
needs.

8. In early 2012, Carrie decided to renovate the waiting room. On
May 10, she spent
$10,400 for new chairs, a sofa, various lamps, coffee bar, and
other furnishings. Carrie
follows a policy of claiming as much depreciation as soon as
possible. The old
furnishings were thrown away or given to customers. For tax
purposes, the old
furnishings had a zero basis.

9. Carrie’s Coiffures is located in a building Carrie had
constructed at 480 Laurel Street in
March 1998. The shop was built for a cost of $300,000 on a lot she
purchased earlier
for $35,000. Except for a down payment from savings, the cost was
financed by a 20-
year mortgage. For tax purposes, MACRS depreciation is claimed on
the building.
During 2012, the following expenses were attributable to the
property:

Repainting (both exterior and interior) $8,000
Repairs (plumbing and electrical) 1,900

10. In May (after her accident settlement discussed in item 11
below), Carrie paid the
balance due on the business mortgage. To do so, she incurred a
prepayment penalty of
$4,400. Prior to paying it off, she paid regular interest on the
mortgage in 2012 of
$6,000.

11. In February 2012, Carrie’s Coiffures was cited by the city for
improper disposal of
certain waste chemicals. Carrie questioned the propriety of the
proposed fine of $2,000
and retained an attorney to represent her at the hearing. By
pleading nolo contendere,
the attorney was able to get the fine reduced to $500. Carrie paid
both the fine of $500
and the attorney’s fee of $600 in 2012.

12. In August 2012, Carrie saw an ad in a trade publication that
attracted her attention.
The owner of a well-respected styling salon in Reading (PA) had
died, and his estate
was offering the business for sale. Carrie traveled to Reading,
spent several days
looking over the business (including books and financial results),
and met with the
executor. Carried treated the executor to dinner and a music
concert. Immediately after
the concert, Carrie made an offer for the business, but the
executor rejected it. Her
expenses in connection with this trip were as follows:

Car rental $140
Entertainment of executor 280
Motel (August 6-7) 220
Meals 110

13. In March 2011, Joan Myers, one of Carrie’s best stylists, left
town to get away from a
troublesome ex-husband. In order to help Joan establish a business
elsewhere, Carrie
loaned her $7,000. Joan signed a note dated March 3, 2011, that
was payable in one
year with 6% interest. On December 30, 2012, Carrie learned that
Joan had declared
bankruptcy and was awaiting trial on felony theft charges. Carrie
never received
payment from Joan, nor did she receive any interest on the loan.

14. At Christmas, Carrie gave each of her 35 best customers a
large bottle of body lotion.
Each bottle had a wholesale cost to Carrie of $12 but a retail
price of $24. Carrie also
spent $3 to have each bottle gift wrapped. (Note: The lotion was
special order
merchandise and was not part of the business’s inventory or
purchases for the yearsee item 2 above.) She also gave each of the nine
stylists who leased chairs from her a
basket of fruit that cost $30 (not including $5 delivery cost).

15. In March 2012, the Pennsylvania Department of Revenue audited
Carrie’s state income
tax returns for 2009 and 2010. She was assessed additional state
income tax of $340
for these years. Surprisingly, no interest was included in the
assessment. Carrie paid
the back taxes promptly.

16. On a morning walk in November 2011, Carrie was injured when
she was sideswiped by
a delivery truck. Carrie was hospitalized for several days, and
the driver of the truck
was ticketed and charged with DUI. The owner of the truck, a
national parcel delivery
service, was concerned that further adverse publicity might result
if the matter went to
court. Consequently, the owner offered Carrie a settlement if she
would sign a release.
Under the settlement, her medical expenses were paid and she would
receive a cash
award of $200,000. The award specified that the entire amount was
for physical pain
and suffering. Because she suffered no permanent injury as a
result of the mishap, she
signed the release in April 2012 and received the $200,000
settlement.

17. In January 2012, Carrie was contacted by the state of
Pennsylvania regarding a tract of
land she owned in York County. The state intended to convert the
property into a
district headquarters, barracks, and training center for its
highway patrol. Carrie had
inherited the property from her father when he died on August 11,
2011. The property
had a value of $140,000 on that date and had been purchased by her
father on March
3, 1980, for $30,000. On July 25, 2012, after considerable
negotiation and after the
state threatened to initiate condemnation proceedings, she sold
the tract to the state
for $158,000. Since Carrie is not comfortable with real estate
investments, she does not
plan to reinvest any of the proceeds received in another piece of
realty.

18. When her father died in 2011, Carrie did not know that he had
an insurance policy on
his life (maturity value of $50,000) in which she was named as the
beneficiary. When
her mother told her about the policy in July 2012, Carrie filed a
claim with the carrier,
Falcon Life Insurance Company. In August 2012, she received a
check from Falcon for
$51,500 (including $1,500 interest).

19. Upon the advice of a client who is a respected broker, Carrie
purchased 1,000 shares of
common stock in Grosbeak Exploration for $40,000 on March 4, 2012.
In the months
following her purchase, the share value of Grosbeak plummeted.
Disgusted with the
unexpected erosion in the value of her investment, Carrie sold the
stock for $28,000 on
December 23, 2012.

20. While on her way to work in 2011, Carrie was rear-ended by a
hit-and-run driver. The
damage to her Lexus was covered by her insurance company, General
Casualty, except
for the $1,000 deductible she was required to pay. In 2012, the
insurance company
located the driver who caused the accident and was reimbursed by
his insurer.
Consequently, Carrie received a $1,000 refund check from General
Casualty in May
2012 to reimburse her for her $1,000 deductible.

21. After her father’s death, Carrie’s mother (Mildred Morgan,
Social Security number
12345-6789) moved in with her. Mildred’s persistent back trouble
made it difficult for
her to climb the stairs to the second-floor bedrooms in Carrie’s
house. So Carrie had an
elevator installed in her personal residence at a cost of $12,000
in January 2012. A
qualified appraiser determined that the elevator increased the
value of the personal
residence by $7,000. The appraisal cost $400. The operation of the
elevator during
2012 increased Carrie’s electric bill by $300.

22. As a favor to a long-time client who is a drama professor at a
local state university,
Carrie spent a weekend as a stylist preparing hairdos for the key
actresses in the annual Theater Department fund-raising event. The drama
professor supplied all of the
resources that Carrie needed to provide her services. Carrie
estimates that she would
have charged $800 for the services she donated to this charitable
event.

23. In addition to the items already mentioned, Carrie had the
following receipts during
2012:

Interest income
CD at Scranton First National Bank $900
City of Lancaster general purpose bonds 490
Money market account at Allentown State Bank 340 $1,730
Qualified dividends on stock investments
General Motors $470
AT&T common 380 850
Federal income tax refund (for tax year 2011) 791
Pennsylvania state income tax refund (for tax year 2011) 205

24. Expenditures for 2012, not previously noted, are summarized
below.
Contribution to pension plan $10,000
Medical
Premiums on medical insurance $4,800
Dental bills 1,400 6,200
Property taxes on personal residence 3,800
Interest on home mortgage 3,200
Professional expenses
Subscriptions to trade journals $ 180
Dues to beautician groups 140 320
25. The $10,000 contribution to the pension plan is to a 401(k)
type of plan she
established in 2011. Previously, she had contributed to an H.R. 10
(Keogh) plan but
found that the 401(k) retirement arrangement provides more
flexibility and is less
complex. The medical insurance policy covers Carrie and her
dependents and was
issued in the name of the business (i.e., Carrie’s Coiffures).
It does not cover dental
work or capital modifications to a residence (see item 16 above).

26. During 2012, Carrie made the following total estimated tax
payments with respect to
her 2012 tax returns:

Federal estimated income tax payments $20,800
Pennsylvania estimated income tax payments 2,400
Allentown City estimated income tax payments 800

Requirements

Prepare an income tax return (with appropriate schedules) for
Carrie for 2012. In doing this, use the
following guidelines:

1) Make necessary assumptions for information not given in the
problem.

2) Carrie has itemized deductions ever since she became a
homeowner many years ago.

3) The sales tax option was not chosen in 2011, and Carrie had no
major purchases that
qualify for the sales tax deduction in 2012.

4) Carrie has substantiation (e.g., records, receipts) to support
the transactions involved.

5) If a refund results, Carrie wants it sent to her.

6) Carrie is preparing her own return (i.e., no preparer is
involved).

7) Carrie does not wish to contribute to the Presidential Election
Campaign Fund.
Carrie A. Morgan, age 45, is single and lives with her dependent
mother at 426 Grouse Avenue, Allentown, PA 18105. Her social security number is
111-11-1111. 1. Carrie is a licensed hairstylist and operates her own business.
Located at 480 Laurel Street, Allentown, PA 18105, the business is conducted
under the name of Carrie’s Coiffures. Carrie’s business activity code is
812112. In addition to 10 workstations (i.e., stylist chairs) and a small
reception area, the shop has display and storage areas for the products Carrie sells (see item 2 below). During the year, Carrie
leased nine of the stations to other hairstylists. As is common practice in
similar businesses in the area, the other stylists are considered to be
self-employed. In fact, the IRS sanctioned the self-employment classification
for the stylists in an audit of one of Carrie’s prior tax returns. Each stylist
pays Carrie a fixed rent for the use of a workstation, resulting in $68,000 of rents received during 2012. From her own station,
Carrie earned $44,000 (including tips of $12,000) for the styling services she provided
to her own clients. 2. Carrie’s Coiffures is the local distributor for several beauty
products (e.g., conditioners, shampoos) that cannot be purchased anywhere else. Carrie buys
these items from the manufacturers and sells them to regular patrons, walk-in
customers, and other beauticians (including those who lease chairs from her). Carrie’s
Coiffures is also known for the selection and quality of its hairpieces (i.e., wigs,
toupees). Through the shop, Carrie made the following sales during the year: Hairpieces and wigs $69,000 Beauty products 48,000 3. Although Carrie operates her business on a cash basis, she
maintains inventory accounts for the items she sells as required by law. Relevant
information about the inventories (based on lower of cost or market) is summarized
below. 4. 12/31/11 12/31/12 Hairpieces and wigs $10,700 $12,600 Beauty products 11,400 9,900 5. Carrie’s purchases for 2012 were $30,500 of hairpieces and wigs
and $26,100 of beauty products. 6. Carrie’s Coiffures had the following operating expenses for
2012: Utilities (i.e., gas, electric, telephone) $12,900 Ad valorem property taxes: On realty (e.g., shop building and land) $4,200 On personalty (e.g., equipment, inventory) 1,800 6,000 Styling supplies (e.g., rinses, dyes, gels, hair spray) 5,700 Fire and casualty insurance 4,100 Liability insurance 4,000 Accounting services 3,800 Janitorial services 2,400 Sewer service, garbage pickup $ 2,300 Water 2,200 Occupation licenses (city and state) 1,500 Waiting room supplies (e.g., magazines, coffee) 1,300 7. As Carrie prefers to avoid employer-employee arrangements and
the payroll taxcomplexities, she retains outside agencies to handle her
accounting and janitorial needs. 8. In early 2012, Carrie decided to renovate the waiting room. On
May 10, she spent $10,400 for new chairs, a sofa, various lamps, coffee bar, and
other furnishings. Carrie follows a policy of claiming as much depreciation as soon as
possible. The old furnishings were thrown away or given to customers. For tax
purposes, the old furnishings had a zero basis. 9. Carrie’s Coiffures is located in a building Carrie had
constructed at 480 Laurel Street in March 1998. The shop was built for a cost of $300,000 on a lot she
purchased earlier for $35,000. Except for a down payment from savings, the cost was
financed by a 20-year mortgage. For tax purposes, MACRS depreciation is claimed on
the building. During 2012, the following expenses were attributable to the
property: Repainting (both exterior and interior) $8,000 Repairs (plumbing and electrical) 1,900 10. In May (after her accident settlement discussed in item 11
below), Carrie paid the balance due on the business mortgage. To do so, she incurred a
prepayment penalty of $4,400. Prior to paying it off, she paid regular interest on the
mortgage in 2012 of $6,000. 11. In February 2012, Carrie’s Coiffures was cited by the city for
improper disposal of certain waste chemicals. Carrie questioned the propriety of the
proposed fine of $2,000 and retained an attorney to represent her at the hearing. By
pleading nolo contendere, the attorney was able to get the fine reduced to $500. Carrie paid
both the fine of $500 and the attorney’s fee of $600 in 2012. 12. In August 2012, Carrie saw an ad in a trade publication that
attracted her attention. The owner of a well-respected styling salon in Reading (PA) had
died, and his estate was offering the business for sale. Carrie traveled to Reading,
spent several days looking over the business (including books and financial results),
and met with the executor. Carried treated the executor to dinner and a music
concert. Immediately after the concert, Carrie made an offer for the business, but the
executor rejected it. Her expenses in connection with this trip were as follows: Car rental $140 Entertainment of executor 280 Motel (August 6-7) 220 Meals 110 13. In March 2011, Joan Myers, one of Carrie’s best stylists, left
town to get away from a troublesome ex-husband. In order to help Joan establish a business
elsewhere, Carrie loaned her $7,000. Joan signed a note dated March 3, 2011, that
was payable in one year with 6% interest. On December 30, 2012, Carrie learned that
Joan had declared bankruptcy and was awaiting trial on felony theft charges. Carrie
never received payment from Joan, nor did she receive any interest on the loan. 14. At Christmas, Carrie gave each of her 35 best customers a
large bottle of body lotion. Each bottle had a wholesale cost to Carrie of $12 but a retail
price of $24. Carrie also spent $3 to have each bottle gift wrapped. (Note: The lotion was
special order merchandise and was not part of the business’s inventory or
purchases for the yearsee item 2 above.) She also gave each of the nine
stylists who leased chairs from her a basket of fruit that cost $30 (not including $5 delivery cost). 15. In March 2012, the Pennsylvania Department of Revenue audited
Carrie’s state income tax returns for 2009 and 2010. She was assessed additional state
income tax of $340 for these years. Surprisingly, no interest was included in the
assessment. Carrie paid the back taxes promptly. 16. On a morning walk in November 2011, Carrie was injured when
she was sideswiped by a delivery truck. Carrie was hospitalized for several days, and
the driver of the truck was ticketed and charged with DUI. The owner of the truck, a
national parcel delivery service, was concerned that further adverse publicity might result
if the matter went to court. Consequently, the owner offered Carrie a settlement if she
would sign a release. Under the settlement, her medical expenses were paid and she would
receive a cash award of $200,000. The award specified that the entire amount was
for physical pain and suffering. Because she suffered no permanent injury as a
result of the mishap, she signed the release in April 2012 and received the $200,000
settlement. 17. In January 2012, Carrie was contacted by the state of
Pennsylvania regarding a tract of land she owned in York County. The state intended to convert the
property into a district headquarters, barracks, and training center for its
highway patrol. Carrie had inherited the property from her father when he died on August 11,
2011. The property had a value of $140,000 on that date and had been purchased by her
father on March 3, 1980, for $30,000. On July 25, 2012, after considerable
negotiation and after the state threatened to initiate condemnation proceedings, she sold
the tract to the state for $158,000. Since Carrie is not comfortable with real estate
investments, she does not plan to reinvest any of the proceeds received in another piece of
realty. 18. When her father died in 2011, Carrie did not know that he had
an insurance policy on his life (maturity value of $50,000) in which she was named as the
beneficiary. When her mother told her about the policy in July 2012, Carrie filed a
claim with the carrier, Falcon Life Insurance Company. In August 2012, she received a
check from Falcon for $51,500 (including $1,500 interest). 19. Upon the advice of a client who is a respected broker, Carrie
purchased 1,000 shares of common stock in Grosbeak Exploration for $40,000 on March 4, 2012.
In the months following her purchase, the share value of Grosbeak plummeted.
Disgusted with the unexpected erosion in the value of her investment, Carrie sold the
stock for $28,000 on December 23, 2012. 20. While on her way to work in 2011, Carrie was rear-ended by a
hit-and-run driver. The damage to her Lexus was covered by her insurance company, General
Casualty, except for the $1,000 deductible she was required to pay. In 2012, the
insurance company located the driver who caused the accident and was reimbursed by
his insurer. Consequently, Carrie received a $1,000 refund check from General
Casualty in May 2012 to reimburse her for her $1,000 deductible. 21. After her father’s death, Carrie’s mother (Mildred Morgan,
Social Security number 12345-6789) moved in with her. Mildred’s persistent back trouble
made it difficult for her to climb the stairs to the second-floor bedrooms in Carrie’s
house. So Carrie had an elevator installed in her personal residence at a cost of $12,000
in January 2012. A qualified appraiser determined that the elevator increased the
value of the personal residence by $7,000. The appraisal cost $400. The operation of the
elevator during 2012 increased Carrie’s electric bill by $300. 22. As a favor to a long-time client who is a drama professor at a
local state university, Carrie spent a weekend as a stylist preparing hairdos for the key
actresses in the annual Theater Department fund-raising event. The drama
professor supplied all of the resources that Carrie needed to provide her services. Carrie
estimates that she would have charged $800 for the services she donated to this charitable
event. 23. In addition to the items already mentioned, Carrie had the
following receipts during 2012: Interest income CD at Scranton First National Bank $900 City of Lancaster general purpose bonds 490 Money market account at Allentown State Bank 340 $1,730 Qualified dividends on stock investments General Motors $470 AT&T common 380 850 Federal income tax refund (for tax year 2011) 791 Pennsylvania state income tax refund (for tax year 2011) 205 24. Expenditures for 2012, not previously noted, are summarized
below. Contribution to pension plan $10,000 Medical Premiums on medical insurance $4,800 Dental bills 1,400 6,200 Property taxes on personal residence 3,800 Interest on home mortgage 3,200 Professional expenses Subscriptions to trade journals $ 180 Dues to beautician groups 140 320 25. The $10,000 contribution to the pension plan is to a 401(k)
type of plan she established in 2011. Previously, she had contributed to an H.R. 10
(Keogh) plan but found that the 401(k) retirement arrangement provides more
flexibility and is less complex. The medical insurance policy covers Carrie and her
dependents and was issued in the name of the business (i.e., Carrie’s Coiffures).
It does not cover dental work or capital modifications to a residence (see item 16 above). 26. During 2012, Carrie made the following total estimated tax
payments with respect to her 2012 tax returns: Federal estimated income tax payments $20,800 Pennsylvania estimated income tax payments 2,400 Allentown City estimated income tax payments 800 RequirementsPrepare an income tax return (with appropriate schedules) for
Carrie for 2012. In doing this, use the following guidelines:1) Make necessary assumptions for information not given in the
problem. 2) Carrie has itemized deductions ever since she became a
homeowner many years ago. 3) The sales tax option was not chosen in 2011, and Carrie had no
major purchases that qualify for the sales tax deduction in 2012.4) Carrie has substantiation (e.g., records, receipts) to support
the transactions involved.5) If a refund results, Carrie wants it sent to her.6) Carrie is preparing her own return (i.e., no preparer is
involved).7) Carrie does not wish to contribute to the Presidential Election
Campaign Fund.

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AFW/AFG/AFP 2851 Semester 1 2013 Examination Format and Sample Questions 3

AFW/AFG/AFP 2851
Semester 1 2013

Examination Format and Sample Questions

3 hr closed book
exam with 10 minutes reading time.

All twelve weeks
of the semester are examinable and there are ten compulsory questions on the
exam with an split of approximately 45 marks on financial
modelling/spreadsheet-based modelling (FM) topics and 55 marks on
accounting information systems (AIS) topics. (Note on mark split in unit
assessments:

FM
& S/S design weeks 1 -4 approx. 40%, comprising 31 marks from exam (45% of
70 marks), plus 5 marks from first class test and 4 marks from tutorial
participation; AIS weeks 5-12 approx. 60%, comprising 39 marks from exam (55%
of 70 marks), plus 5 marks from second test, 10 marks from assignment, and 6
marks from tutorial participation).

The
financial modelling component (weeks 1 – 4) will include (but is not limited
to) both theory and practical questions on spreadsheet-based financial model
development as well as the practical spreadsheet modelling exercises you were
asked to complete for the related tutorials.

Five hints for
this semesters exam:

You will be given a problem
description and a spreadsheet model (complete with data and report
sections) and have to write formulas for nominated cells (assuming some of
these formulas could be copied.) This, along with other practical-type
spreadsheet modelling questions will represent at least 25 marks out of
100 on the final exam.

You will be examined on theory
material from spreadsheet model design from weeks 1 & 2 (Krueger
& Beaman available as Topic 13 in your textbook and also on the
library electronic reading list). You dont need to worry about details
from the protection or range names sections.

You will be required to describe
the theory behind at least one of the financial modelling techniques
covered in week 3 of semester. In addition, you will typically be asked
how to perform this modelling procedure in Excel: this would be limited
to: running a Data Table or a Goal Seek, the general description of how
to set up a sensitivity table in Excel, how to use the Solver add-in,
how to construct a vlookup table (and be able to describe the logical
process/s used by Excels vlookup function)! You wont need to describe
how to build a graph, save a file, format a range, or other such mundane
tasks etc.

4.
The AIS content (weeks 5 – 12) will
include (but is not limited to) at least one question on internal control

You will also have an AIS question
where you will need to be able to interpret one or more of the following
systems/project documentation (DFD, flowchart, ER-model, decision table,
control matrix, or PERT chart). Note: you are not expected to be able to
draw an entire diagram during the exam, only be able to identify the
symbols to be used for a given situation, or to be able to read a given
diagram.

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Accounting
Information Systems

All eight weeks are assessable. As a
starting point, you may find it useful to carefully review the lecture slides
and any notes you made during lectures. The lecture slides and notes from the
lectures provide you with a summary of the most important AIS material and can
be used as a guide to determine the reading that you should undertake (of the
textbook and electronic reading list in the library, as suggested in the
lecture and/or unit outline). In addition, I suggest that you review the weekly
tutorial questions as some of these are similar to the format of some of the
AIS examination questions.

I will now give you my responses to some
frequently asked questions (FAQs) regarding the possible AFW/AFG/AFP2851 AIS
theory questions. These include:

Q.Will I need to
draw a data flow diagram (DFD), either context, physical orlogical? A.
No, but you may need to be able to interpret one, and write a narrative based
on one that has already been prepared for you.

Q.Will I need to
draw a system flowchart? A.No, but you may need to beable to
interpret one, and write a narrative based on one that has already been
prepared for you.

Q.Will I need to
construct a control matrix? A.No, but you may need toknow what
elements are shown on a control matrix, how to interpret a control matrix, and
why a control matrix may be useful.

Q.Will I need to
be able to construct an entity relationship (ER) diagram?

A.
No, but you are expected to be able
to interpret an ER diagram, and may be asked to explain the business rules
that are being documented on that ER diagram.

Q.Will I need to
be able to explain the process of normalisation (to the 3rdnormal form) and
be able to recognise potential problems in relational database tables? A.
Yes, you may be required to do this, but it would only be a simple example (of
similar difficulty to that covered in the lecture and related tutorial
exercise). You will not, however, be expected to perform a complete
normalisation process on a set of data.

Q.What is the
best way to study for the AIS component of the exam?

A.
Every student is different, but as
I mentioned previously, the lecture slides will assist you to have a summary of
the material and it is then a matter of summarising the prescribed readings.
Rather than trying to rote learn the exact wording of definitions etc., you
should ensure that you understand the main concepts covered in each lecture.
Dont forget to review the tutorial materials, as these discussion questions
were chosen to make you think about the concepts. Some of the AIS theory
questions, or parts thereof, may be similar in nature to the tutorial
materials.

Q.Will I be
expected to have a detailed technical knowledge of EDI and othere-commerce
concepts? A. No, as accountants we may be part of a team of staff
involved in systems developments that utilise e-business principles, but
information technology (IT) staff will provide much of the technical input to
these projects. You will, however, be expected to be able to understand the
basic principles (and jargon used) so that you can communicate with other
members of the project team. For this reason, you are expected to have a basic

Last updated for Sem. 1/2013 Page 2
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understanding of the
major components of an enterprise system, and business processing concepts such
as batch processing, real time processing, EDI, and Internet commerce.

Q.The previous FAQ
mentioned the accountants possible involvement insystems development.
Does this mean that the SDLC lecture is examinable? A.Yes, to the
extent that week 12 provided you with an overview of theframework for
one possible SDLC. This week also links in with enterprise systems, which you
looked at in week 9, and also with internal controls (week 10 and 11).

Q.Are internal
controls likely to be examined? A.Yes, given that wedevoted two
weeks to internal control the likelihood of one or more questions on internal
control in the final examination is high. Internal control examination
questions can also be related quite easily to other documentation questions
covering control matrixes, system flowcharts, ER models, and DFDs etc. Hint:
rather than stressing about being able to memorise the names of the control
processes and control domains in COBIT, I suggest that you concentrate on
developing a reasonable understanding of the possible controls that would be
appropriate in various situations. I also suggest that you use the headings on
the columns of a control matrix as a framework to help you remember the control
goals when assessing the internal controls of a business process.

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Last updated for Sem. 1/2013 Page 3
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Sa mple Accounting Information Syste ms
Questions

Qu estion 1

a)
Once t he core of an ERP sys tem
has be en implemented, any of the mod ules may th en be implemented sep
arately. What are the benefits an d disadvantages of bein g able to im plement
an ERP system on a piece-by-piece basis?

b)

(4
m rks)

What

are the

dvantages

and disadvantages

of

conducting business

electro nically (ecommerce or
internet)? Explain yo

r
answers.

Qu estion 2

(6
m rks)

a)

What

p roblems

a e solved

y transfor ming a set of

relatio
nal tables from

second normal for m to third
normal form ?

(5
m rks)

b)
Figure 1 below shows six flowchart segments -A t
rough F. The labels have
been removed fro the flowchart segme nts.
.jpg”>

Fig ure 1: Six Flowchart Segments

For each of the five numbered
descriptions that follows, m tch up a se gment lette r (A
F ) for a flowchart segm ent that best
matches that flowcha rt description. Since there

are five descri tions, one
flowchart s egment wil

not be used.

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updated for Sem. 1/2013

Page 4

.gif”>.gif”>

FLOWCHART
DESCRIPTION
.gif”>.gif”>.gif”>.gif”>.gif”>.gif”>.gif”>.gif”>.gif”>
1.
The computer edits/validates input by
reference to data residing in a master data, records event data and prints a
single error and summary report.
2.
The computer records events in event
data, updates the master data, and a screen message confirms that the input has
been accepted.

3.
An employee in a user department
assembles source documents into batches and prepares batch totals.
4.
A data entry clerk enters data contained
on a source document. The computer processes the input and a screen message is
displayed for any input errors.

5.
A user compares output totals shown on
an error and summary report with input totals shown on a batch control.
.gif”>.gif”>
(5 marks)

Question 3

a)
If it werent for the potential of computer abuse,
the emphasis on controlling computer systems would decline significantly in
importance. Do you agree? Discuss fully.
(2 marks)

b)
No matter how sophisticated a system of internal control
might be, its success ultimately requires that you place your trust in certain
key personnel. Do you agree? Discuss.
(1 mark)

c)
A control plan that helps to attain operational
effectiveness by ‘providing assurance of credit worthiness of customers’ also
helps to achieve the information process control goal of sales order input
validity.” Do you agree? Discuss fully.
(2 marks)

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LEFT BLANK

Last updated for Sem. 1/2013 Page 5
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d)
The following is a list of 6 control plans.

A.
Enter
data close to where customer order is received
B.
Online
check of inventory levels
C.
Independent
shipping authorisation
D.
Credit
check
E.
One-for-one
checking of goods, picking ticket, sales order
F.
Populate
inputs with master data

Required:

Listed below are five system failures
(numbered 1 5) that have control implications. In your answer booklet, list
the numbers 1 – 5 down the page and write the capital letter of the control
plan from the list above that best prevents the system failure from occurring.
A letter should be used only once, and one of the control plans above will not
be used.

System Failures
1.
.gif”>.gif”>.gif”>.gif”>.gif”>.gif”>The sales personnel can
approve all customer orders.

The finished goods warehouse delivers
goods to the shipping department, accompanied by the picking ticket. After
checking the goods against the picking ticket, the shipping employee signs the
picking ticket and gives it to the warehouse employee. Then the
2. shipping
department prepares a three-part shipping notice, one copy of which serves as
the packing slip. A recent audit discovered that a dishonest warehouse employee
had been forging picking ticket documents, thereby having goods shipped to an
accomplice.
.gif”>.gif”>
Customer service representatives record
customer orders on pre-numbered order forms, and then forward the forms to the
corporate office in another city for processing. A customer service
3. representative
mailed 55 customer orders to the corporate office on Friday afternoon.
Unfortunately, the orders were misplaced in the mail and did not reach the
corporate office until three weeks later. Customers were dissatisfied with the
delay in receiving their goods.

It
is possible to make invalid entries into the system because the
4. customer
service representative can enter a customer code with no matching customer
master data and no authorised customer.

Proper
comparisons are not made to ensure that the shipping notice
5.
inputs are represented by an actual
shipment of goods.
.gif”>.gif”>.gif”>
(5 marks)

THE REST OF THIS PAGE HAS BEEN
LEFT BLANK

Last updated for Sem. 1/2013 Page 6
.gif”>.gif”>

Question 4

a)
Discuss how the control matrix is custom-tailored
for each business process.
(2 marks)

b)
A partially completed Control framework (Control
Matrix) is given below for an Order Entry Process. Some cells have
intentionally been left blank. Provide justification for P-1 to P-3 acting as
controls for the various goals indicated in the diagram as shaded cells. Ignore
blank cells and cells that have not been shaded.

(10 marks)

Control Goals of the
Order Entry Business Process

Control Goals of the
operations process

Control goals of the
information

process

Ensure

Ensure

Ensure

For the sales order

For the

effectivene

efficient

security of

inputs

sales order

ss of

employ-

resources

ensure:

master data

operations:

ment of

(inventory,

ensure:

resource

customer data)

Recommen

s

ded control

(people,

plans

compute

rs)

A

B

IV

IC

IA

UC

UA

P-1

Review

P-1

P-1

P-1

document

for

accuracy

P-2:

Preformatt

P-2

P-2

P-2

P-2

ed screens

P-3

Programm

P-3

P-3

P-3

P-3

P-3

ed edit

checks

P-4

Procedures

P-4

for rejected

input

P-5

Key

P-5

P-5

Corrections

P-6

Record

P-6

P-6

P-6

input

P-7

Interactive

P-7

P-7

feedback

checks

M-1

Enter data

M-1

M-1

M-1

M-1

M-1

close to the

location

where the

customer

order is

prepared

KEY:

IV = input validity

Possible
effectiveness goals

IC = input
completeness

include

IA = input accuracy

A Provide timely

UC = update
completeness

acknowledgement of customer

UA = update accuracy

orders.

B Provide timely shipment of

goods to customers.

Last updated for Sem. 1/2013

Page 7

.gif”>.gif”>

Financial
Modelling Theory Questions

Over
the first four weeks in AFW/AFG/AFP2851 you should have built up a body of
knowledge covering the following areas:

Basic principles
of decision support systems and financial modelling systems Students should
refer to Ch 10 of Moisiadis & Genrich – up to page 355 – that I have placed
on the Monash library electronic reading list.)

Spreadsheet-based
financial model design principles, and the implementation of these principles
in a range of financial modelling applications. This includes the construction
of useful, error-free models, using a range of desirable spreadsheet model
design practices, including implementing formula flexibility and formula
efficiency, model planning, testing, and documentation strategies, and the
recognition of the possible types of spreadsheet model errors that are to be
avoided. Your main reference is Krueger & Beaman (reprinted as Topic 13 of
your textbook), and also accessible on the Monash library electronic reading
list.

Basic financial
mathematical principles (given the emphasis on financial modelling) and
how these can be implemented using formulas and some of Excels financial
functions. I have placed some additional material for this lecture on
Blackboard look for Lecture 2 Financial Maths Notes

Implementing
conditional logic into spreadsheet formulas using Excels If and Vlookup
functions. I have placed some notes on Excels Vlookup function onBlackboard
look in Question 3 for the Lecture 2 Practical Questions, which provides an
explanation of the vlookup and links to the (completed) Vlookup_Tax_Example.xls
file that is in the student resource file section on Blackboard. Topic 14 in
your textbook also contains materials on using Excels If and Vlookup
functions.

Exploring data
variations using a range of modelling techniques (such as scenario analysis,
sensitivity analysis and goal seeking analysis). You need to be able to explain
the theory behind these techniques and how they can be implemented in
spreadsheet-based financial models. In addition, consideration needs to be
given to how risk can be incorporated into spreadsheet models; that is, the use
of probabilistic models. I have placed some additional materials for this
lecture on Blackboard look for Lecture 3 Modelling Notes

Optimisation
models. You need to be able to explain how these models differ from the other
(satisficing) models you have dealt with this semester and be able to explain
how to implement these using the Solver add-in for Excel.

There are both theory and practical
financial modelling questions on the final examination. The practical modelling
questions account for at least 25-30% of the final exam marks. However, as the
practical and theoretical spreadsheet design material is so closely related, it
is difficult to differentiate theory and practice in relation to the
development of your spreadsheet-based financial models this semester. For example,
the principle of formula flexibility could be examined in theory by asking
you to explain it. Alternatively, you could be asked to demonstrate your

Last updated for Sem. 1/2013 Page 8
.gif”>.gif”>

understanding by
writing-out formulas for calculations on a model specified on the examination
paper. Given this overlap, lets consider some possible theory questions
first.

The
lecture slides, along with the notes you made during the lectures, provide you
with an overview of the theory material for the financial modelling
component. In addition you are expected to have read the material from the
prescribed reading for the lectures, which includes chapters from your
textbook, as well as the chapters that I placed on the library electronic
reading list for AFW/AFP2851. So amongst the financial modelling theory
questions that could be on the final exam, I could ask questions on decision
support systems, financial modelling systems, effective spreadsheet design
principles, spreadsheet errors, financial modelling techniques (scenario
analysis, sensitivity analysis, goal seek analysis) and the types of models you
have encountered this semester (satisficing, optimisation, and probabilistic
models) etc. In addition, you could be asked about the theory behind any of the
financial modelling applications (i.e. the financial models) you were asked to
construct this semester (for example, to explain the financial mathematics
concepts you encountered, or an overview of the process involved in constructing
a sensitivity table etc.).

A sample of
financial modelling theory questions you could receive include:

1.
Explain, giving examples, the following
spreadsheet design principles: formula flexibility and formula efficiency.

(10 marks)

2.
Discuss
the possible blocks (or sections / areas) of a spreadsheet model.
(10 marks)

3.
What information should typically be
documented in a large, complex model that is likely to be used on an ongoing
basis.

(10 marks)

4.
What possible methods are available for
the layout of blocks (or sections) within a spreadsheet model? What are the
advantages and disadvantages of these alternate approaches?
(8 marks)

5.
Briefly describe and compare the
techniques known as what-if (scenario) analysis, sensitivity analysis and
goal seeking.

(12 marks)

6.
Describe
the difference between deterministic and probabilistic data.
(2 marks)

7.
Explain the principle known as present
value. Why might this principle be important to accountants? What algorithm
may be used to calculate a present value?
(8 marks)

Lets
now consider the practical financial modelling questions that could be included
on the final examination. This tends to be the material that many students seem
to worry about so I will devote quite a lot of attention to possible questions
from this area.

Last updated for Sem. 1/2013 Page 9
.gif”>.gif”>

Financial
Modelling Practical Questions

The
practical spreadsheet modelling examination questions will often be similar
to, or based upon, concepts in one or more of the spreadsheet exercises you
were required to complete during this semester. At least one practical question
will provide you with a description of a problem or decision situation and then
require you to write Excel formulas. The level of additional information that
could be provided to you with this type of question may include:

no
additional information. You would need to rule up a page of your solution
booklet (with row numbers and column letters), design the layout for your
model (or a small part of a model) and list the formulas for your model
(to save time writing formulas, you may indicate where formulas can be
copied to other cells);

a
printout of part of the model layout. You would only need to rule up a
page with your design for the rest of the model (i.e. if report and logic
sections are provided, you would need to design a data section) and then
list the formulas for the cells indicated by the question; or

a
printout of the entire model. This is the easiest option, as you would
then only be required to list the formulas for particular cells nominated
in the question. You will have at least one question in this format
this semester, although, I am not willing to rule out options 1 and 2
for other questions this semester).

When answering these types of practical
questions, you should always write you answer in the solution booklet provided,
not on the question paper. In addition, unless otherwise stated at the top of
your answer, the examiner will assume that your formulas are for Microsoft
Excel (rather than for Lotus 1-2-3).

A second type of practical question may
require you to design a layout for a model and then provide a detailed
description of the process required to execute:

a Data Table (a
1-variable or 2-variable data table) a Goal Seek process

a Solver optimisation process.

This list of procedural type questions
has been limited to those processes supporting modelling techniques covered in
the financial modelling theory. You will not be required to describe in detail
other processes such as how to build graphs, print worksheets, format cells and
save files etc.

The
final type of practical modelling question you should be prepared for relate to
Excels built -in functions (i.e. those functions that were utilised in the
spreadsheet exercises or discussed in your prescribed reading). You should have
a detailed working knowledge of a subset of Excels functions, such as: Sum,
SumProduct, If (including nested conditions, or compound
conditions using AND or OR), Vlookup,
Min, Max,
Average, Stdev, Count, Countif, Rand,
Isblank, Iserror, Isnumber,
Istext, Npv,
Irr, Pmt, Pv, Fv, Roundand Int. (Note:
This is a fairly representativelist of the types of Excel functions,
which as an accountant, you may have to deal with on a regular basis. Even if
you did not use a few of these functions in the exercises, it would be
worthwhile to look at Excels Help facility, or an internet search, to find out
about these functions.)

Last updated for Sem. 1/2013 Page 10
.gif”>.gif”>

The following practical questions, along with their
indicative mark ranges, illustrate the style of practical question you can
expect on an AFW/AFP2851 examination. Often there may be more than one correct
answer for a required formula. You should always remember the keep your
formulas flexible and consider whether your formula is to be copied to other
cells in the model (if so, ensure you use appropriate cell references; that is,
you use efficient formulas). Finally, attempt to keep your formulas as simple
as possible, yet ensure that they perform the required task. The examiner will
always look at alternate answers provided by students to ensure that students
are not unfairly penalised for alternate formulas (often, more than one
solution may be valid).

Important Note
re: Solutions to practical work.

I
am not willing to email solutions for the practical questions to students (for
a significant number of students, the temptation to just look at solutions,
rather than attempt the questions themselves, becomes too much to resist!) As a
learning exercise, student should first attempt these practical questions on
paper, as you would have to do in an exam, and then actually implement your
solution in Excel (i.e. on a computer). Compare the numbers generated by your
model against those in the printout of the question.

Are the numbers the same?

Have you ensured
that you dont have any data values in your formulas? (i.e. that you have
flexible formulas)

Were you able to
copy the formulas, as indicated in the question? (i.e. that you have
efficient formulas)

Did you follow the
instructions, particularly regarding Excel functions, to be used in your
solution?

If
you are able to answer yes to these four questions, you can be confident that
your answer is fine. If you answered no to any of these questions, you should
review your work and the relevant lecture in the unit relating to practical
question. If, after checking through (testing) your work, you are still unsure
why your answer is incorrect, show/discuss your model solution with your tutor or
OCL-support staff member. They will often be able to help you to resolve your
issue relatively quickly, as there are some mistakes that students regularly
make with these exercises.

THE REST OF THIS PAGE HAS BEEN
LEFT BLANK

Last updated for Sem. 1/2013 Page 11
.gif”>.gif”>

Question
1

The following
print out is part of a hospital income worksheet prepared using Excel.

I

J

K

L

M

N

O

P

Q

R

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

———-

——

——-

——-

——-

——-

——-

——-

——-

——-

22

REPORT

23

No. of

Medical

Medical

No. Of

Surgical

Surgical

Total No.

Total
No.

Total

24

Medical

Patients

Income

Surgical

Patients

Income

Patients

Patients

Income

25

Patients

Days

Room Fees

Patients

Days

Room Fees

Days

Room
Fees

26

27

January

210

2,310

$803,880

240

5,520

$2,061,720

450

7,830

$2,865,600

28

February

105

1,155

$401,940

120

2,760

$1,030,860

225

3,915

$1,432,800

29

March

84

924

$321.552

96

2,208

$824,688

180

3,132

$1,146,240

30

April

252

2,772

$964,656

288

6,624

$2,474,064

540

9,396

$3,438,720

31

May

168

1,848

$643,104

192

4,416

$1,649,376

360

6,264

$2,292,480

32

June

126

1,386

$482,328

144

3,312

$1,237,032

270

4,698

$1,719,360

33

July

147

1,617

$562,716

168

3,864

$1,443,204

315

5,481

$2,005,920

34

August

168

1,848

$643,104

192

4,416

$1,649,376

360

6,264

$2,292,480

35

September

147

1,617

$562,716

168

3,864

$1,443,204

315

5,481

$2,005,920

36

October

168

1,848

$643,104

192

4,416

$1,649,376

360

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be xxxx to xxxxxxxxx one, and xxxxx a narrative xxxxx on xxx xxxx has xxxxxxx been prepared xxx you Q xxxx I xxxx xx draw x system flowchart? x No, but xxx may xxxx xx beable xx interpret one, xxx write a xxxxxxxxx based xx xxx that xxx already been xxxxxxxx for you x Will x xxxx to xxxxxxxxx a control xxxxxxx A No, xxx you xxx xxxx toknow xxxx elements are xxxxx on a xxxxxxx matrix, xxx xx interpret x control matrix, xxx why a xxxxxxx matrix xxx xx useful x Will I xxxx to be xxxx to xxxxxxxxx xx entity xxxxxxxxxxxx (ER) diagram? x No, but xxx are xxxxxxxx xx be xxxx to interpret xx ER diagram, xxx may xx xxxxx to xxxxxxx the business xxxxxxxx that are xxxxx documented xx xxxx ER xxxxxxx Q Will x need to xx able xx xxxxxxx the xxxxxxx of normalisation xxx the 3rdnormal xxxxx and xx xxxx to xxxxxxxxx potential problems xx relational database xxxxxxx A xxxx xxx may xx required to xx this, but xx would xxxx xx a xxxxxx example (of xxxxxxx difficulty to xxxx covered xx xxx lecture xxx related tutorial xxxxxxxxx You will xxxx however, xx xxxxxxxx to xxxxxxx a complete xxxxxxxxxxxxx process on x set xx xxxx Q xxxx is the xxxxxxxxxx way to xxxxx for xxx xxx component xx the exam? x Every student xx different, xxx xx I xxxxxxxxx previously, the xxxxxxx slides will xxxxxx you xx xxxx a xxxxxxx of the xxxxxxxx and it xx then x xxxxxx of xxxxxxxxxxx the prescribed xxxxxxxx Rather than xxxxxx to xxxxxxx xxxxxxxx the xxxxx wording of xxxxxxxxxxx etc , xxx should xxxxxx xxxx you xxxxxxxxxx the main xxxxxxxx covered in xxxx lecture xxxxxxx xxxxxx to xxxxxx the tutorial xxxxxxxxxx as these xxxxxxxxxx questions xxxx xxxxxx to xxxx you think xxxxx the concepts xxxx of xxx xxx theory xxxxxxxxxx or parts xxxxxxxx may be xxxxxxx in xxxxxx xx the xxxxxxxx materials Q xxxx I be xxxxxxxx to xxxx x detailed xxxxxxxxx knowledge of xxx and othere-commerce xxxxxxxxx A xxx xx accountants xx may be xxxx of a xxxx of xxxxx xxxxxxxx in xxxxxxx developments that xxxxxxx e-business principles, xxx information xxxxxxxxxx xxxx staff xxxx provide much xx the technical xxxxx to xxxxx xxxxxxxx You xxxxx however, be xxxxxxxx to be xxxx to xxxxxxxxxx xxx basic xxxxxxxxxx (and jargon xxxxx so that xxx can xxxxxxxxxxx xxxx other xxxxxxx of the xxxxxxx team For xxxx reason, xxx xxx expected xx have a xxxxx Last updated xxx Sem xxxxxx xxxx 2 xxxxxxxxxxxxx of the xxxxx components of xx enterprise xxxxxxx xxx business xxxxxxxxxx concepts such xx batch processing, xxxx time xxxxxxxxxxx xxxx and xxxxxxxx commerce Q xxx previous FAQ xxxxxxxxx the xxxxxxxxxxxxxx xxxxxxxx involvement xxxxxxxxx development Does xxxx mean that xxx SDLC xxxxxxx xx examinable? x Yes, to xxx extent that xxxx 12 xxxxxxxx xxx with xx overview of xxxxxxxxxxxx for one xxxxxxxx SDLC xxxx xxxx also xxxxx in with xxxxxxxxxx systems, which xxx looked xx xx week xx and also xxxx internal controls xxxxx 10 xxx xxx Q xxx internal controls xxxxxx to be xxxxxxxxx A xxxx xxxxx that xxxxxxxxx two weeks xx internal control xxx likelihood xx xxx or xxxx questions on xxxxxxxx control in xxx final xxxxxxxxxxx xx high xxxxxxxx control examination xxxxxxxxx can also xx related xxxxx xxxxxx to xxxxx documentation questions xxxxxxxx control matrixes, xxxxxx flowcharts, xx xxxxxxx and xxxx etc Hint: xxxxxx than stressing xxxxx being xxxx xx memorise xxx names of xxx control processes xxx control xxxxxxx xx COBIT, x suggest that xxx concentrate on xxxxxxxxxx a xxxxxxxxxx xxxxxxxxxxxxx of xxx possible controls xxxx would be xxxxxxxxxxx in xxxxxxx xxxxxxxxxx I xxxx suggest that xxx use the xxxxxxxx on xxx xxxxxxx of x control matrix xx a framework xx help xxx xxxxxxxx the xxxxxxx goals when xxxxxxxxx the internal xxxxxxxx of x xxxxxxxx process xxx REST OF xxxx PAGE HAS xxxx LEFT xxxxx xxxx updated xxx Sem 1/2013 xxxx 3 Sa xxxx Accounting xxxxxxxxxxx xxxxx ms xxxxxxxxx Qu estion x a) Once x he xxxx xx an xxx sys tem xxx be en xxxxxxxxxxxx any xx xxx mod xxxx may th xx be implemented xxx arately xxxx xxx the xxxxxxxx an d xxxxxxxxxxxxx of bein x able xx xx plement xx ERP system xx a piece-by-piece xxxxxx b) xx x rks) xxxx are the xxxxxxxxx and disadvantages xx conducting xxxxxxxx xxxxxxx nically xxxxxxxxxx or internet)? xxxxxxx yo r xxxxxxx Qu xxxxxx x (6 x rks) a) xxxx p roblems x e xxxxxx x transfor xxxx a set xx relatio nal xxxxxx from xxxxxx xxxxxx for x to third xxxxxx form ? xx m xxxx xx Figure x below shows xxx flowchart segments xx t xxxxx x The xxxxxx have been xxxxxxx fro the xxxxxxxxx segme xxx xxx ure xx Six Flowchart xxxxxxxx For each xx the xxxx xxxxxxxx descriptions xxxx follows, m xxx up a xx gment xxxxx x (A xxx F ) xxx a flowchart xxxx ent xxxx xxxx matches xxxx flowcha rt xxxxxxxxxxx Since there xxx five xxxxxx xxxxxx one xxxxxxxxx s egment xxx not be xxxx Last xxxxxxx xxx Sem xxxxxx Page 4 xxxxxxxxx DESCRIPTION 1 xxx computer xxxxxxxxxxxxxxx xxxxx by xxxxxxxxx to data xxxxxxxx in a xxxxxx data, xxxxxxx xxxxx data xxx prints a xxxxxx

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AFW/AFG/AFP 2851
Semester 1 2013Examination Format and Sample Questions3 hr closed book
exam with 10 minutes reading time.All twelve weeks
of the semester are examinable and there are ten compulsory questions on the
exam with an split of approximately 45 marks on financial
modelling/spreadsheet-based modelling (FM) topics and 55 marks on
accounting information systems (AIS) topics. (Note on mark split in unit
assessments:FM
& S/S design weeks 1 -4 approx. 40%, comprising 31 marks from exam (45% of
70 marks), plus 5 marks from first class test and 4 marks from tutorial
participation; AIS weeks 5-12 approx. 60%, comprising 39 marks from exam (55%
of 70 marks), plus 5 marks from second test, 10 marks from assignment, and 6
marks from tutorial participation).The
financial modelling component (weeks 1 – 4) will include (but is not limited
to) both theory and practical questions on spreadsheet-based financial model
development as well as the practical spreadsheet modelling exercises you were
asked to complete for the related tutorials.Five hints for
this semesters exam:4.
The AIS content (weeks 5 – 12) will
include (but is not limited to) at least one question on internal control Last updated for Sem. 1/2013 Page 1.gif”>.gif”>Accounting
Information SystemsAll eight weeks are assessable. As a
starting point, you may find it useful to carefully review the lecture slides
and any notes you made during lectures. The lecture slides and notes from the
lectures provide you with a summary of the most important AIS material and can
be used as a guide to determine the reading that you should undertake (of the
textbook and electronic reading list in the library, as suggested in the
lecture and/or unit outline). In addition, I suggest that you review the weekly
tutorial questions as some of these are similar to the format of some of the
AIS examination questions.I will now give you my responses to some
frequently asked questions (FAQs) regarding the possible AFW/AFG/AFP2851 AIS
theory questions. These include:Q.Will I need to
draw a data flow diagram (DFD), either context, physical orlogical? A.
No, but you may need to be able to interpret one, and write a narrative based
on one that has already been prepared for you. Q.Will I need to
draw a system flowchart? A.No, but you may need to beable to
interpret one, and write a narrative based on one that has already been
prepared for you. Q.Will I need to
construct a control matrix? A.No, but you may need toknow what
elements are shown on a control matrix, how to interpret a control matrix, and
why a control matrix may be useful. Q.Will I need to
be able to construct an entity relationship (ER) diagram?A.
No, but you are expected to be able
to interpret an ER diagram, and may be asked to explain the business rules
that are being documented on that ER diagram. Q.Will I need to
be able to explain the process of normalisation (to the 3rdnormal form) and
be able to recognise potential problems in relational database tables? A.
Yes, you may be required to do this, but it would only be a simple example (of
similar difficulty to that covered in the lecture and related tutorial
exercise). You will not, however, be expected to perform a complete
normalisation process on a set of data. Q.What is the
best way to study for the AIS component of the exam? A.
Every student is different, but as
I mentioned previously, the lecture slides will assist you to have a summary of
the material and it is then a matter of summarising the prescribed readings.
Rather than trying to rote learn the exact wording of definitions etc., you
should ensure that you understand the main concepts covered in each lecture.
Dont forget to review the tutorial materials, as these discussion questions
were chosen to make you think about the concepts. Some of the AIS theory
questions, or parts thereof, may be similar in nature to the tutorial
materials. Q.Will I be
expected to have a detailed technical knowledge of EDI and othere-commerce
concepts? A. No, as accountants we may be part of a team of staff
involved in systems developments that utilise e-business principles, but
information technology (IT) staff will provide much of the technical input to
these projects. You will, however, be expected to be able to understand the
basic principles (and jargon used) so that you can communicate with other
members of the project team. For this reason, you are expected to have a basic Last updated for Sem. 1/2013 Page 2.gif”>.gif”>understanding of the
major components of an enterprise system, and business processing concepts such
as batch processing, real time processing, EDI, and Internet commerce.Q.The previous FAQ
mentioned the accountants possible involvement insystems development.
Does this mean that the SDLC lecture is examinable? A.Yes, to the
extent that week 12 provided you with an overview of theframework for
one possible SDLC. This week also links in with enterprise systems, which you
looked at in week 9, and also with internal controls (week 10 and 11). Q.Are internal
controls likely to be examined? A.Yes, given that wedevoted two
weeks to internal control the likelihood of one or more questions on internal
control in the final examination is high. Internal control examination
questions can also be related quite easily to other documentation questions
covering control matrixes, system flowcharts, ER models, and DFDs etc. Hint:
rather than stressing about being able to memorise the names of the control
processes and control domains in COBIT, I suggest that you concentrate on
developing a reasonable understanding of the possible controls that would be
appropriate in various situations. I also suggest that you use the headings on
the columns of a control matrix as a framework to help you remember the control
goals when assessing the internal controls of a business process. THE REST OF THIS PAGE HAS BEEN
LEFT BLANKLast updated for Sem. 1/2013 Page 3.gif”>.gif”>Sa mple Accounting Information Syste ms
QuestionsQu estion 1a)
Once t he core of an ERP sys tem
has be en implemented, any of the mod ules may th en be implemented sep
arately. What are the benefits an d disadvantages of bein g able to im plement
an ERP system on a piece-by-piece basis? b)(4
m rks)Whatare thedvantagesand disadvantagesofconducting businesselectro nically (ecommerce or
internet)? Explain yor
answers.Qu estion 2(6
m rks)a)Whatp roblemsa e solvedy transfor ming a set ofrelatio
nal tables fromsecond normal for m to third
normal form ?(5
m rks)b)
Figure 1 below shows six flowchart segments -A t
rough F. The labels have been removed fro the flowchart segme nts..jpg”>Fig ure 1: Six Flowchart SegmentsFor each of the five numbered
descriptions that follows, m tch up a se gment lette r (A F ) for a flowchart segm ent that best
matches that flowcha rt description. Since thereare five descri tions, one
flowchart s egment wilnot be used.Last
updated for Sem. 1/2013Page 4.gif”>.gif”>FLOWCHART
DESCRIPTION.gif”>.gif”>.gif”>.gif”>.gif”>.gif”>.gif”>.gif”>.gif”>1.
The computer edits/validates input by
reference to data residing in a master data, records event data and prints a
single error and summary report. 2.
The computer records events in event
data, updates the master data, and a screen message confirms that the input has
been accepted. 3.
An employee in a user department
assembles source documents into batches and prepares batch totals. 4.
A data entry clerk enters data contained
on a source document. The computer processes the input and a screen message is
displayed for any input errors. 5.
A user compares output totals shown on
an error and summary report with input totals shown on a batch control. .gif”>.gif”>(5 marks)Question 3a)
If it werent for the potential of computer abuse,
the emphasis on controlling computer systems would decline significantly in
importance. Do you agree? Discuss fully. (2 marks)b)
No matter how sophisticated a system of internal control
might be, its success ultimately requires that you place your trust in certain
key personnel. Do you agree? Discuss. (1 mark)c)
A control plan that helps to attain operational
effectiveness by ‘providing assurance of credit worthiness of customers’ also
helps to achieve the information process control goal of sales order input
validity.” Do you agree? Discuss fully. (2 marks)THE REST OF THIS PAGE HAS BEEN
LEFT BLANKLast updated for Sem. 1/2013 Page 5.gif”>.gif”>d)
The following is a list of 6 control plans. A.
Enter
data close to where customer order is received B.
Online
check of inventory levels C.
Independent
shipping authorisation D.
Credit
check E.
One-for-one
checking of goods, picking ticket, sales order F.
Populate
inputs with master data Required:Listed below are five system failures
(numbered 1 5) that have control implications. In your answer booklet, list
the numbers 1 – 5 down the page and write the capital letter of the control
plan from the list above that best prevents the system failure from occurring.
A letter should be used only once, and one of the control plans above will not
be used.System Failures1.
.gif”>.gif”>.gif”>.gif”>.gif”>.gif”>The sales personnel can
approve all customer orders.The finished goods warehouse delivers
goods to the shipping department, accompanied by the picking ticket. After
checking the goods against the picking ticket, the shipping employee signs the
picking ticket and gives it to the warehouse employee. Then the2. shipping
department prepares a three-part shipping notice, one copy of which serves as
the packing slip. A recent audit discovered that a dishonest warehouse employee
had been forging picking ticket documents, thereby having goods shipped to an
accomplice..gif”>.gif”>Customer service representatives record
customer orders on pre-numbered order forms, and then forward the forms to the
corporate office in another city for processing. A customer service3. representative
mailed 55 customer orders to the corporate office on Friday afternoon.
Unfortunately, the orders were misplaced in the mail and did not reach the
corporate office until three weeks later. Customers were dissatisfied with the
delay in receiving their goods.It
is possible to make invalid entries into the system because the4. customer
service representative can enter a customer code with no matching customer
master data and no authorised customer.Proper
comparisons are not made to ensure that the shipping notice5.
inputs are represented by an actual
shipment of goods..gif”>.gif”>.gif”>(5 marks)THE REST OF THIS PAGE HAS BEEN
LEFT BLANKLast updated for Sem. 1/2013 Page 6.gif”>.gif”>Question 4a)
Discuss how the control matrix is custom-tailored
for each business process. (2 marks)b)
A partially completed Control framework (Control
Matrix) is given below for an Order Entry Process. Some cells have
intentionally been left blank. Provide justification for P-1 to P-3 acting as
controls for the various goals indicated in the diagram as shaded cells. Ignore
blank cells and cells that have not been shaded. (10 marks)Control Goals of the
Order Entry Business ProcessControl Goals of the
operations processControl goals of the
informationprocessEnsureEnsureEnsureFor the sales orderFor theeffectiveneefficientsecurity ofinputssales orderss ofemploy-resourcesensure:master dataoperations:ment of(inventory,ensure:resourcecustomer data)Recommensded control(people,planscomputers)ABIVICIAUCUAP-1ReviewP-1P-1P-1documentforaccuracyP-2:PreformattP-2P-2P-2P-2ed screensP-3ProgrammP-3P-3P-3P-3P-3ed editchecksP-4ProceduresP-4for rejectedinputP-5KeyP-5P-5CorrectionsP-6RecordP-6P-6P-6inputP-7InteractiveP-7P-7feedbackchecksM-1Enter dataM-1M-1M-1M-1M-1close to thelocationwhere thecustomerorder ispreparedKEY:IV = input validityPossible
effectiveness goalsIC = input
completenessincludeIA = input accuracyA Provide timelyUC = update
completenessacknowledgement of customerUA = update accuracyorders.B Provide timely shipment ofgoods to customers.Last updated for Sem. 1/2013Page 7.gif”>.gif”>Financial
Modelling Theory QuestionsOver
the first four weeks in AFW/AFG/AFP2851 you should have built up a body of
knowledge covering the following areas:Basic principles
of decision support systems and financial modelling systems Students should
refer to Ch 10 of Moisiadis & Genrich – up to page 355 – that I have placed
on the Monash library electronic reading list.) Spreadsheet-based
financial model design principles, and the implementation of these principles
in a range of financial modelling applications. This includes the construction
of useful, error-free models, using a range of desirable spreadsheet model
design practices, including implementing formula flexibility and formula
efficiency, model planning, testing, and documentation strategies, and the
recognition of the possible types of spreadsheet model errors that are to be
avoided. Your main reference is Krueger & Beaman (reprinted as Topic 13 of
your textbook), and also accessible on the Monash library electronic reading
list. Basic financial
mathematical principles (given the emphasis on financial modelling) and
how these can be implemented using formulas and some of Excels financial
functions. I have placed some additional material for this lecture on
Blackboard look for Lecture 2 Financial Maths Notes Implementing
conditional logic into spreadsheet formulas using Excels If and Vlookup
functions. I have placed some notes on Excels Vlookup function onBlackboard
look in Question 3 for the Lecture 2 Practical Questions, which provides an
explanation of the vlookup and links to the (completed) Vlookup_Tax_Example.xls
file that is in the student resource file section on Blackboard. Topic 14 in
your textbook also contains materials on using Excels If and Vlookup
functions. Exploring data
variations using a range of modelling techniques (such as scenario analysis,
sensitivity analysis and goal seeking analysis). You need to be able to explain
the theory behind these techniques and how they can be implemented in
spreadsheet-based financial models. In addition, consideration needs to be
given to how risk can be incorporated into spreadsheet models; that is, the use
of probabilistic models. I have placed some additional materials for this
lecture on Blackboard look for Lecture 3 Modelling Notes Optimisation
models. You need to be able to explain how these models differ from the other
(satisficing) models you have dealt with this semester and be able to explain
how to implement these using the Solver add-in for Excel. There are both theory and practical
financial modelling questions on the final examination. The practical modelling
questions account for at least 25-30% of the final exam marks. However, as the
practical and theoretical spreadsheet design material is so closely related, it
is difficult to differentiate theory and practice in relation to the
development of your spreadsheet-based financial models this semester. For example,
the principle of formula flexibility could be examined in theory by asking
you to explain it. Alternatively, you could be asked to demonstrate yourLast updated for Sem. 1/2013 Page 8.gif”>.gif”>understanding by
writing-out formulas for calculations on a model specified on the examination
paper. Given this overlap, lets consider some possible theory questions
first.The
lecture slides, along with the notes you made during the lectures, provide you
with an overview of the theory material for the financial modelling
component. In addition you are expected to have read the material from the
prescribed reading for the lectures, which includes chapters from your
textbook, as well as the chapters that I placed on the library electronic
reading list for AFW/AFP2851. So amongst the financial modelling theory
questions that could be on the final exam, I could ask questions on decision
support systems, financial modelling systems, effective spreadsheet design
principles, spreadsheet errors, financial modelling techniques (scenario
analysis, sensitivity analysis, goal seek analysis) and the types of models you
have encountered this semester (satisficing, optimisation, and probabilistic
models) etc. In addition, you could be asked about the theory behind any of the
financial modelling applications (i.e. the financial models) you were asked to
construct this semester (for example, to explain the financial mathematics
concepts you encountered, or an overview of the process involved in constructing
a sensitivity table etc.).A sample of
financial modelling theory questions you could receive include:1.
Explain, giving examples, the following
spreadsheet design principles: formula flexibility and formula efficiency. (10 marks)2.
Discuss
the possible blocks (or sections / areas) of a spreadsheet model. (10 marks)3.
What information should typically be
documented in a large, complex model that is likely to be used on an ongoing
basis. (10 marks)4.
What possible methods are available for
the layout of blocks (or sections) within a spreadsheet model? What are the
advantages and disadvantages of these alternate approaches? (8 marks)5.
Briefly describe and compare the
techniques known as what-if (scenario) analysis, sensitivity analysis and
goal seeking. (12 marks)6.
Describe
the difference between deterministic and probabilistic data. (2 marks)7.
Explain the principle known as present
value. Why might this principle be important to accountants? What algorithm
may be used to calculate a present value? (8 marks)Lets
now consider the practical financial modelling questions that could be included
on the final examination. This tends to be the material that many students seem
to worry about so I will devote quite a lot of attention to possible questions
from this area.Last updated for Sem. 1/2013 Page 9.gif”>.gif”>Financial
Modelling Practical QuestionsThe
practical spreadsheet modelling examination questions will often be similar
to, or based upon, concepts in one or more of the spreadsheet exercises you
were required to complete during this semester. At least one practical question
will provide you with a description of a problem or decision situation and then
require you to write Excel formulas. The level of additional information that
could be provided to you with this type of question may include:When answering these types of practical
questions, you should always write you answer in the solution booklet provided,
not on the question paper. In addition, unless otherwise stated at the top of
your answer, the examiner will assume that your formulas are for Microsoft
Excel (rather than for Lotus 1-2-3).A second type of practical question may
require you to design a layout for a model and then provide a detailed
description of the process required to execute:a Data Table (a
1-variable or 2-variable data table) a Goal Seek process a Solver optimisation process. This list of procedural type questions
has been limited to those processes supporting modelling techniques covered in
the financial modelling theory. You will not be required to describe in detail
other processes such as how to build graphs, print worksheets, format cells and
save files etc.The
final type of practical modelling question you should be prepared for relate to
Excels built -in functions (i.e. those functions that were utilised in the
spreadsheet exercises or discussed in your prescribed reading). You should have
a detailed working knowledge of a subset of Excels functions, such as: Sum,
SumProduct, If (including nested conditions, or compound
conditions using AND or OR), Vlookup,Min, Max,
Average, Stdev, Count, Countif, Rand,
Isblank, Iserror, Isnumber,Istext, Npv,
Irr, Pmt, Pv, Fv, Roundand Int. (Note:
This is a fairly representativelist of the types of Excel functions,
which as an accountant, you may have to deal with on a regular basis. Even if
you did not use a few of these functions in the exercises, it would be
worthwhile to look at Excels Help facility, or an internet search, to find out
about these functions.)Last updated for Sem. 1/2013 Page 10.gif”>.gif”>The following practical questions, along with their
indicative mark ranges, illustrate the style of practical question you can
expect on an AFW/AFP2851 examination. Often there may be more than one correct
answer for a required formula. You should always remember the keep your
formulas flexible and consider whether your formula is to be copied to other
cells in the model (if so, ensure you use appropriate cell references; that is,
you use efficient formulas). Finally, attempt to keep your formulas as simple
as possible, yet ensure that they perform the required task. The examiner will
always look at alternate answers provided by students to ensure that students
are not unfairly penalised for alternate formulas (often, more than one
solution may be valid).Important Note
re: Solutions to practical work.I
am not willing to email solutions for the practical questions to students (for
a significant number of students, the temptation to just look at solutions,
rather than attempt the questions themselves, becomes too much to resist!) As a
learning exercise, student should first attempt these practical questions on
paper, as you would have to do in an exam, and then actually implement your
solution in Excel (i.e. on a computer). Compare the numbers generated by your
model against those in the printout of the question.If
you are able to answer yes to these four questions, you can be confident that
your answer is fine. If you answered no to any of these questions, you should
review your work and the relevant lecture in the unit relating to practical
question. If, after checking through (testing) your work, you are still unsure
why your answer is incorrect, show/discuss your model solution with your tutor or
OCL-support staff member. They will often be able to help you to resolve your
issue relatively quickly, as there are some mistakes that students regularly
make with these exercises.THE REST OF THIS PAGE HAS BEEN
LEFT BLANKLast updated for Sem. 1/2013 Page 11.gif”>.gif”>Question
1The following
print out is part of a hospital income worksheet prepared using Excel.IJKLMNOPQR123456789101112131415161718192021————————————————————————22REPORT23No. ofMedicalMedicalNo. OfSurgicalSurgicalTotal No.Total
No.Total24MedicalPatientsIncomeSurgicalPatientsIncomePatientsPatientsIncome25PatientsDaysRoom FeesPatientsDaysRoom FeesDaysRoom
Fees2627January2102,310$803,8802405,520$2,061,7204507,830$2,865,60028February1051,155$401,9401202,760$1,030,8602253,915$1,432,80029March84924$321.552962,208$824,6881803,132$1,146,24030April2522,772$964,6562886,624$2,474,0645409,396$3,438,72031May1681,848$643,1041924,416$1,649,3763606,264$2,292,48032June1261,386$482,3281443,312$1,237,0322704,698$1,719,36033July1471,617$562,7161683,864$1,443,2043155,481$2,005,92034August1681,848$643,1041924,416$1,649,3763606,264$2,292,48035September1471,617$562,7161683,864$1,443,2043155,481$2,005,92036October1681,848$643,1041924,416$1,649,376360Uploading copyrighted material is strictly prohibited. Refer to our DMCA Policy for more information. This is an online marketplace for tutorials and homework help. All the content is provided by third parties and HomeworkMinutes.com is not liable for the same.

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1clip_image002.gif”> School of Business BUACC5937: Information Syst

1clip_image002.gif”>

School
of Business

BUACC5937:
Information Systems Design

and
Development for Accountants

Mudusu
Calling Cards System (MCCS)

Invoice

Learning
About Relational Database

By
using Microsoft Access 2010

Acknowledgements:

Microsoft
Windows, Microsoft Word, and Microsoft Access are registered trademarks of
Microsoft Corporation. Images on the front page are adapted from Microsoft Word
clipart gallery.

BUACC5937
Assignment 2: Term02 – 2014

This assessment addresses the
following criteria from the course profile:

Knowledge

Understand the principles of data
management and relational databases. Skills

Develop a time sheet entry/customer
account management software system using relational database software and
prepare an associated report detailing the technical and learning issues
encountered.

Work effectively as a team member.

Values

Appreciate the evolving nature of
Accounting Information Systems, and how these are reshaping the practice of
Accounting.

This assignment is designed to help
you to understand how data is stored and information is retrieved in
Information Systems. Working together in teams of two, you
will develop skills with Microsoft Access and Word. It contributes 20%
towards the overall assessment in the unit.

It is best if you:

Read through the entire assignment
before you commence work;

Prepare your report at the same time
as you create your software;

Learn how to capture screen shots,
trim the part you want, and then place these screen shots into a Word document
before you begin preparing your report;

Understand that this assignment is
not only about learning MS Access, it is also about the approach to developing
a new skill.

Relax and enjoy doing this
assignment. You can learn a lot. If you make mistakes, thats great! It is by
correcting mistakes, or deleting part of the work already done and re-doing it
that we learn. In IT attention to detail is most important. This
assignment demonstrates the importance of attention to detail, something you
can apply to your studies and to your work.

Before
you commence work on this assignment, it is strongly suggested you work through
one or more of the on-line tutorials at http://office.microsoft.com/en-us/access-help/download-office-2010-training-HA101901726.aspx?CTT=1to becomefamiliar
with Access 2010. This website has free on-line courses showing you (among many
other things) how to create tables (the basic components of a database) and
when to use Access and when to use Excel.
1clip_image004.jpg”>
BUACC5937
June 14 Page 1 of 31

Background information

OnlineBuys,
established is 2005, is primarily an e-business selling phone cards online.
They buy calling cards in bulk from several telecommunication companies such as
Telstra, Optus and Tel Pacific and sell them to individuals using their portal.
Recently they entered into the retail market by supplying calling cards to
several grocery stores in Sydneys greater western region. They have employed
four (4) sales personnel for this purpose. The retail shops are distributed
among the sales personnel, who every day visits the shops, refill stock and
collect the invoice amount. They have been using pre-printed invoice books to
invoice the customers.

Every
fortnight employees submit their time sheets to S.R. Mudusu, the owner of
OnlineBuys. Each employee gets paid $18.70 per hour for the services rendered.
Mr Mudusu calculates the payment for individual employees and transfers the
money online. The pre-printed invoices and manual tallying of work hours worked
well when the company had only a few retail customers. Now, due to the
increased number of customers, S.R.Mudusu has decided to invest in a system to
manage his retail sales. He decided to hire a team of consultants (you and your
project partner) to develop this

Mudusu
Calling Cards System (MCCS).

Following
are the business requirements of the proposed system (MCCS):

Add an employee (explained in the
write up)

Add a customer (Challenge Task)

Add a Card (Challenge Task)

Sales entry (Explained in the write
up)

Generate an Invoice (Explained in the
write up)

Timesheet entry (Challenge Task)

Generate a Payslip (Challenge Task)
1clip_image004.jpg”>

BUACC5937 June 14 Page 2 of 31

Database specification and requirements

The assignment to be undertaken
involves:

1.
Designing and creating three basic
(master) tables for the application:

An Employee table, to hold
the details of employees.

A Customer table, to hold
the details of customers.

A Card table, to hold the
details of the cards.

2.
Designing and creating a table TimeSheet
that holds employee timesheet information.

3.
Designing and creating two tables, SaleHeader
and LineItem to hold the sales records.

4.
Creating three
simple forms; UpdateCustomer, UpdateEmployee, and

UpdateProject,to
update data in respective tables.

5.
Creating a form Time Sheet,
from multiple tables. This will be used by employees to enter the details of
their working hours.

6.
Creating a form Sales with a
sub form that will be used by the sales personnel to enter the sales.

7.
Improving the form – Sales
when the basic system is working.

8.
Extracting information from the data
entered into the system using Access Queries.

9.
Creating a form Invoice
that will help the sales personnel to invoice and to receive payments from the
customers.

10.Creating
a form Pay Slip that will help Mr. Mudusu to review individual
employees roster and payment information.

11.Creating
a form Navigation Form that will guide the stakeholders (Mr. Mudusu
and his employees) in using this application.

In
addition to preparing Mudusu Calling Cards System (MCCS) Software, you
are required to prepare a write-up of around 1,500 2,000 words explaining:

The principles of database design,
as demonstrated by the database designfor this project. Research some
introductory database design material on the web (use the online tutorials link
in page 2) and refer to it in your report; in particular, show that you
understand the key concepts such as primary key, foreign key,
Datatypes, and field properties.

The process of normalisation,
as done in the database.
1clip_image004.jpg”>

BUACC5937 June 14 Page 3 of 31

Your approach to completing the Challenge
tasks. Include some screen shots of your final forms in your write-up.

The problems you experienced with
this assignment (you will experience plenty) and how you got around them.

Your report needs to look like a
business report with sections including executive summary,
table of contents, list of figures, and references. You can use this
document as an example.

Read the Assessment criteria and
Assessment submission details provided in Page 29. Moreover complete the
checklist provided in Page 30 to get maximum marks in this assignment.

Creating a database
1clip_image006.jpg”>
1. Open MS Access from the start
menu.

2.
Select a Blank database as shown in

Figure
1.

3. Enter the file name in the space
provided as shown inFigure
2.

Note: It is MCCS for
me. For you, It will be your student ID and
your partners student ID.

Figure
1: Select a blank database
1clip_image008.jpg”>
4. Select the file storage location by
clicking on the folder icon shown in

Figure
2.

5. Finally click on the Create
icon shown inFigure
2.

6. Close the database and verify whether
or not it is stored in the correct location.

Figure 2: Name the database

Creating tables

MCCSrequires
six (6) tables: anEmployeetable, Customertable,
CardTable,SaleHeadertable, Line Item
table and a TimeSheettable.

Note:
It is suggested that you use a consistent naming style for
naming all theAccess objects; using a prefix that represents the object
type. For example, Employee table is named as tblEmployee. Similarly, a
report will have a prefix – rpt, a query
1clip_image004.jpg”>
BUACC5937 June 14 Page 4 of 31

qry,and
a form will have a prefix – frmto their names. Good discipline
in thesematters makes it easier to find parts of the application
quickly as it increases in size.
1clip_image009.jpg”>
1.
To create tables in the database
launch MS Access and open the database MCCS.

2.
Select Create tab and
click Table on the ribbon as shown inFigure 3.
A table will be created, in the work area, in the datasheet view.

3.
Click on the View and
select Design view from the dropdown menu as shown inFigure 4.

Figure 3: Select Create –> Table

4.
MS Access will prompt you for a table
name as shown inFigure
5 before changing the view.
1clip_image011.jpg”>

5. Enter
the table name – tblEmployee and click OK to
save the table. The table view in the work area will be changed to the design
view, in which you can define table properties. We will do this in the next
section.

6. Close
the table by clicking the X at the right hand side of
the table. This is not the X at the very top of the screen which will
close the MS Access.

Figure
4: Select Design View

7.
Repeat steps 2 to 6
to create the remaining tables and name them as follows:

1.
tblCustomer
2.
tblCard
3.
tblSaleHeader

4.
tblLineItem
5.
tblTimeSheet

8.
Once all the tables are created your
database should look likeFigure 6.

9.
Make sure you close any open tables
in the working area.
1clip_image013.jpg”>

Figure
5: Save as tblEmployee

Figure
6: All tables created
1clip_image004.jpg”>
BUACC5937 June 14 Page 5 of 31

Defining fields and their data types

Relational
Database Management Systems (RDBMS), such as MS Access, store data and provide
information. A significant difference between an RDBMS and a Spreadsheet
application (such as Excel) is that with databases the design stage and the
data entry stage are more obviously separate. In MS Access it is
necessary to design the data structure (based on our understanding of
the user requirements) before entering the data. Designing the structure means
creating each field (or column) that is needed, giving it a name,
specifying its Data type, meaning -what type of data it will store (e.g.
a number, a date, text, a currency value), what size it is (e.g. this data item
will not exceed 25 characters in length; this number has two decimal places)
and defining relationships between the tables. Moreover, each record (row) in a
table requires a unique ID, called primary key, so that the system can
distinguish between the records.

There
are other reasons for defining a primary key. You must investigate and explain
them in your write-up.

The required data for each Employee
in tblEmployee includes; ID (a unique field to identify the record,
well use Auto number data type), Name, Address, and Phone number.

We
define these data items as fields of the table- tblEmployee. This
is a fairly straightforward process as follows:
1clip_image014.jpg”>

Figure
7: tblEmployee in Design view

5.
Set Field Properties for
individual fields.

o An example for setting field
properties for the field
employee
Name is shown in

Figure 8.
This will save you a lot
of storage space.

6.
Close the table.

7.
Update the table – tblCard as
shown
inFigure 9.

1.
Double click on tblEmployee to
open the table.

2.
Change its View to Design View.

3.
Enter the field Names and
their data typesas shown inFigure 7
(make sureyou have a primary key identified
as marked in the figure)

4.
Enter description for each
field. This helps in identifying foreign keys.
1clip_image015.jpg”>

Figure
8: employeeName -Field properties
1clip_image004.jpg”>
BUACC5937 June 14 Page 6 of 31

1clip_image017.gif”>
8. To test your knowledge Datasheet
View of tblCustomer is shown in

Figure
10. Create the table inDesign View. You need
customer ID, Name, Contact person, Phone number, and the address fields.

Speak with your tutor if you need
some help.

Figure 9: tblCard in design view
1clip_image019.jpg”>

Figure
10: tblCustomer in Datasheet view
1clip_image020.jpg”>

Figure
11: tblTimeSheet
1clip_image022.jpg”>

Figure 12: tblSaleHeader in design view

9.
Update the table tblTimeSheetas
shown in

Figure
11.Set default datefor
dateWorked to the system date.

Make sure you add descriptions. They
will help you in creating relationships between tables.
1clip_image024.jpg”>

Figure 13: tblLineItem in design view

10.Update
tables- tblSaleHeader and tblLineItem as shown in figures Figure 12 and Figure
13 respectively

11.Close
any open tables.

Dont enter
the data yet.
We shall enter
data only after
establishing

relationships
between the tables
1clip_image004.jpg”>

BUACC5937 June 14 Page 7 of 31

Creating
relationships

MS Access is a relational database
management system. It divides the database into several tables to reduce the
data redundancy. Some fields may appear in more than one table. For example,
the field employeeID in tblTimeSheet comes from the table tblEmployee.
Meaning- an employee of MCCS can only submit their timesheet.Similarly,
other relationships are described in the description field in tables-tblSaleHeader
and tblLineItem. These relationships will be established using

Lookup Wizard data type.

Creating
a relationship between tblTimeSheet and tblEmployee

1.
Open tblTimeSheet in Design
View.

2.
Select the data type of employeeID
as Look up wizardas shown inFigure 14.

3.
MS Access activates a wizard as shown
inFigure
15. It
starts by asking the table name. As thevalue of the lookup field comes from
an existing table (tblEmployee), choose the first option and click Next.

1clip_image026.jpg”>

Figure 14: Choose Lookup Wizard

Figure 15: Choose the first option
and click next

1clip_image027.jpg”>

4. As shown inFigure 16,
the Wizard wants to know the table name. Select the table- tblEmployee
and click

Next.

5. The Wizard wants to know the field
name.

Figure
16: Choose tblEmployee
1clip_image004.jpg”>

BUACC5937 June 14 Page 8 of 31

1clip_image029.gif”>

Figure 17: Select the field employee ID
1clip_image030.jpg”>

Figure 18: Choose the sort order
1clip_image031.jpg”>

Figure
19: Enable data integrity

6.
Select employeeID in the available
fieldsand click the Right arrow

(Greater than symbol) to move it to
the Selected Fields. If you have followed the process correctly, your screen
will look likeFigure
17. Click

Next.

7.
Lookup wizard wants to know the sort
order it needs to use, this really does not matter to us. Select employeeID
from the dropdown listas shown inFigure 18 and click

Next.

8.
Lookup wizard wants to know the width
of the column in the next screen (picture not shown). Just leave it as it is
and click Next.

9.
Before finalising the relationship,
the wizard wants to know the label for the lookup field. Give it a name and enable
the Data Integrity checkboxas shown inFigure 19. This will keep the data consistent.

10.Click
Finish to end the wizard.

11.Lookup
Wizard finishes its job and leaves you with the question whether to save the
table or not. Click Yes to save the table.

12.Close
any open tables.

Testing the relationship

MS Access provides us with several
database tools to check relationships between the tables. To test the
relationship we just have created:
1clip_image032.jpg”>
1.
Select the Database Tools
from the menu bar.

2.
Click on the Relationships
icon in the ribbon

as shown
inFigure 20.

3. The output should look likeFigure 21.

Figure
20: Click relationships
1clip_image004.jpg”>

BUACC5937 June 14 Page 9 of 31

As
you can see, the primary key of the table tblEmployee employeeID
is connected to a

foreign
key employeeID in table tblTimeSheet.

Note:
if you dont see the numbers:

1
and, on the connecting line youforgot
to enable the Referential Integrityas discussed inFigure 19.
You have to explain the meaning of 1 and
relationship in your write-up.

Figure 21: Relationship between tblProject and tblCustomer
1clip_image033.jpg”>

4.
Once you see the relationships, close
the relationships window by clicking X on the right side of the
window.

Creating
rest of the relationships

Open the table tblSaleHeader
in design view and create the following relationships;

1.
employeeIDto
employeeIDin tblEmployee

2.
customerIDto
customerIDin tblCustomer.

Open the table tblLineItem
in design view and create the following relationships;

1.
saleIDto
saleIDin tblSaleHeader

2.
cardIDto
cardIDin tblCard.

Testing
all of the relationships

Check the relationships as explained
in the Testing the relationship section above. If you have followed
the procedure correctly, your relationships window will look likeFigure 22.
Move the tables around for visual clarity.
1clip_image035.jpg”>

Figure
22: All relationships created
1clip_image004.jpg”>

BUACC5937 June 14 Page 10 of 31

1clip_image037.gif”>
Note:
if you cannot see all the tables in therelationships
window, select the Relationship

Tools
and click All Relationshipsicon asshown
inFigure 23.

Close
the relationships window once you are happy with it.

Figure 23: Show all relationships

Initial
data entry

Now is the time to enter data as the
database structure is complete. Let us first look at the employee table. We
know that S.R. Mudusu is an employee for taxation purpose. To enter his data
into tblEmployee:

1.
Open the table in Datasheet View
and enter data as shown inFigure
24.

2.
Once the data entry is complete close
the table.

3.
Enter data into tblCustomer
as shown inFigure
10.
1clip_image039.jpg”>

Figure
24: tblEmployee sample data

4.
Open tblCard and enter data as shown inFigure 25.
1clip_image040.jpg”>

Figure
25: tblCard with sample data

5.
Enter some data into tblTimeSheet as shown inFigure 26.

Notice
the dropdown box for the field employeeID as the data comes from another
table tblEmployee.
1clip_image041.jpg”>

Figure
26: tblProject in datasheet view

Similarly, if you enter some data
manually into tblSaleHeader and tblLineItem you may notice
dropdown boxes for the foreign keys. This is how MS Access creates
relationships between the data. However, let us not do it for time being. (Note:
you have to enter data into tblSaleHeader first.)
1clip_image004.jpg”>
BUACC5937 June 14 Page 11 of 31

Figure 33.

We
saw how to enter data manually into the tables in this section. However, data
is entered into the tables through a form. Let us create some simple
forms to enter data into several tables.

Update Employee form
1clip_image043.jpg”>

Figure 27: Update Employee form
1clip_image045.jpg”>

The
update employee form is shown inFigure27. The process ofcreating
this form is explained below. You must familiarise yourself with this process
as you will be creating several forms in this assignment.

1.
Select

Create

from the menu bar.

Click

the

Form

Wizard
icon on the

ribbon

to

activate

the wizard as shown

inFigure
28.

Figure
28: Activating the form wizard
1clip_image047.jpg”>
2. Form wizard starts working by asking
you for the table name. As this form updates employee data from tblEmployee,
select the table as shown inFigure
29.

3. You can see the Available Fields.
Select all the fields by clicking >> symbol to move them to selected
fields box.
4. After selection, your screen should
look
Figure 29: select -tblEmployee likeFigure 30. Click Next.

5. Choose Columnar option as
shown inFigure 31
and clickNext.
1clip_image048.jpg”>
6. The form wizard wants to know the
name of the form before creating it as shown inFigure 32.

7. Name the form-frmUpdateEmployee
and click Next.

8. An un-formatted form appears on the

screen,
which looks like

Figure 30: Field selection
1clip_image004.jpg”>

BUACC5937
June 14 Page 12 of 31

1clip_image050.gif”>

Figure 31: layout option

Figure 32: Name the form

9.
We have to format the form so that it
looks like the one shown inFigure
27. We can use either the Design View or the Layout View
for this purpose. Let us open the form in Layout View by clicking View
and then selecting the Layout View as

shown inFigure 34.

You will see two changes;

a. The
ribbon changes to Form Layout Tools and gives you several options as shown in
Figure 35,
and

b. A
Yellow box appears around the employee Name text box as shown inFigure
36. You can
move this box around the fields and edit them as you wish.
1clip_image052.jpg”>

Figure 33:Update Employee form Unformatted

Figure 34: Change View

1clip_image054.jpg”>
Figure
35: Form Layout Tools
1clip_image004.jpg”>

BUACC5937 June 14 Page 13 of 31

1clip_image056.gif”>
10.
Select individual fields and update them as required such that the output looks
likeFigure 27
orFigure

37.

You
may have to use different fonts, fill colour option etc.

Figure 36: Form in Layout view
1clip_image057.jpg”>

1clip_image059.jpg”> 12

Figure
37: Data entry using the form

Once
you have formatted the form. Enter several employee details into the system
using this form as described below;

11.Open
the form in Form View and enter employee details.

12.Click
on the New (Blank) record (>*) button to store existing record and
create a new blank record as shown inFigure 37.

13.Make
sure you enter at least 10 employees including your partner and yourself.

14.Close
the form, once data entry is complete.

15.Open
the table-tblEmployee in data sheet view. It should have all the 10
employee records you entered.

Now you know how to create a simple
form and use it to enter data into a table.
1clip_image004.jpg”>

BUACC5937 June 14 Page 14 of 31

Figure 40

Challenge Task – 01

Your first challenge task involves
creating two simple forms; frm Update Customer and frm Update Card,
as shown inFigure 38
andFigure 39
respectively.
1clip_image061.jpg”>

Figure 38: Update Customer form

Figure 39: Update Card form

Create
these two forms and make sure you enter 10 records in each table.

Sales form

Now that you learned how to create a simple form that can
update data in a single table, let us see how to create a form that can display
data from multiple tables or update multiple tables. A good example for this is
Sales Order Entry Form. This
form, as
shown in allows MCCS employees to view/update
sales orders from

their
customers.
1clip_image063.jpg”>

Figure
40: Completed Sales Order Entry Form
1clip_image004.jpg”>
BUACC5937 June 14 Page 15 of 31

The process of creating this form is
described below:

1. Create
a form – frmSalesOrder, from table tblSaleHeader and by
choosing all the fields. Use columnarlayout option.

2. Create
another form frmLineItem from table tblLineItem and by
choosing fields; cardID, and Quantity. Use tabular layout option.

Combining
both the forms
1clip_image065.jpg”>

Figure
41: frmSalesOrder in Design view

Figure
42: Sub Form Inserted

1.
Open frmSalesOrder in design
view as shown inFigure 41.

2.
Drag the Form Footer down
and make space for the sub-form.

3.
Drag and drop the frmLineItem
into the main form as shown inFigure
42.

4.
Save the form.

This
form can be used to enter data into both the tables. You can create a new order
or update an existing order using this form.

Data
entry using the form frmSalesOrder

Let us enter some sales orders using
the newly created form frmSalesOrder. The process is straight forward
as described below;

1.
Open the form in form View as shown
inFigure 43.

2.
Enter a sale, as you can see I have
created my first sale- saleID 1, as shown in

Figure
43.

3.
Close the form.

4. Open
the tables tblSaleHeader and tblLineItem and notice the
added records as shown inFigure
44 andFigure
45.
1clip_image004.jpg”>
BUACC5937 June 14 Page 16 of 31

5.
Similarly, you can enter several sale
orders and line items using this form. Try it and close any open tables after
your testing.
1clip_image067.jpg”>

Figure 44: Data entered into tblSaleHeader
1clip_image069.gif”>1clip_image071.gif”>

Figure 43: frmSalesOrder in Form
View

Figure 45: Data entered into
tblLineItem

Updating
the form to make sense

Now that the form is working fine, it
is time to improve its look and feel. First, we will improve the sub form – frmLineItem
by:

Removing the text frmLineItem
from the top of the sub form;

Removing the navigation buttons
from the bottom of the sub form;

Replacing the CardID with Card
Name combo box for more readability; and

Formatting the headings of the sub
form.

The
process is described below:

1.
Open the form – frmSalesOrder
in design mode. It looks likeFigure
42.

2.
Select the label frmLineItem
and delete it (you will find two so you have to repeat this process twice).

3.
To remove the navigation buttons from
the foot of the sub-form:
1clip_image073.jpg”>1clip_image074.jpg”>1clip_image075.jpg”>

Figure
48

Figure 46 Figure 47

a.
Click on the property Sheet icon as
shown inFigure 46
on the ribbon. This will enable the property sheet window.

b.
Select the sub-form. A yellow line
appears around the sub-form as shown

inFigure 47
1clip_image004.jpg”>
BUACC5937 June 14 Page 17 of 31

c.
Click the square shaped box on the
top left corner of the sub-form. The box looks likeFigure 48.

d. Check
the property sheet. It should look likeFigure 49, in which the Navigation Buttons
property is set to Yes.

e. Change
the navigation buttons property to No

f. Check
the form in Form View.

The navigation bar is not displayed
anymore.

g. Change
to Design View again.
1clip_image076.jpg”>

Figure 49: Sub-form Property sheet

Note:
If the navigation buttons are still visible, that means you missed step C.
Repeat steps B to Euntilyou get it right.

4.
Let us focus on replacing the CardID
with Card Name combo box. Make sure you are in the design view
of the form.

a.
Select the cardID combo box
as shown inFigure 50
and delete it.

b. Click
the Combo Box wizard in the design tab, highlighted inFigure 51
to activate it.
1clip_image078.jpg”>

Figure
51: click on the Combo box

Figure 50

c.The
mouse pointer will change its shape to a Combo Box.

1clip_image004.jpg”>

BUACC5937 June 14 Page 18 of 31

1clip_image080.gif”>

Figure 52: Combo Box wizard
1clip_image082.gif”>1clip_image084.gif”>

Figure
53: Choose tblCard
1clip_image085.jpg”>

d.
Click in the sub-form. An Unbound
combo Box will be inserted and the wizard takes over as shown inFigure 52.

e.
We have to link the combo box to
existing values. So choose the first option and click Next.

f.
We have to link the combo box to the
values in the table – tblCard, so select it as shown inFigure 53
and click Next.

g.
We have to choose the field CardName
from the table. Select it as shown inFigure 54 and click

Next.

h.
Choose
the sort order cardID as shown inFigure 55 and click Next.
1clip_image087.gif”>1clip_image089.gif”>

Figure
54: Choose title

Figure
55: Select the sort order
1clip_image090.jpg”>

Figure 56: Column width selection

i. The
column width of the combo box can be changed at any time so accept the values
inFigure 56
and click Next

j.
Store the value in the field cardID
as shown inFigure 57
and click

Next

k.
The combo box wizard asks you for the
name of the new combo box just been created. Name it as Card Nameas
shown inFigure
58andclick
Finish

l.
Change the Labels as needed and see
your form in Form View. It should look similar toFigure 59.
Note: I have formatted the sub form, you will not see it in your work.
1clip_image004.jpg”>

BUACC5937 June 14 Page 19 of 31

1clip_image092.gif”>

Figure 58

Figure 57: Storing the value
1clip_image093.jpg”>

Figure
59: Sales Order Entry form

Challenge
Task 02

Compare the figures -Figure 40 andFigure 59. The following differences are
evident;

1.
The CustomerID in the main
form is replaced by Customer Name.

2.
The employee ID in the main
form is replaced by Employee Name.

3.
The look and feel of the form.

Use
the knowledge gained so far to implement these changes in your form so that it
looks similar toFigure
40.

Enter some sales for all the
customers, check the tables and close the form.
1clip_image004.jpg”>
BUACC5937 June 14 Page 20 of 31

Creating an Invoice form

Now that we have a way to capture the
customers orders, we have to create an invoice that will be given to the
customer at the end of the transaction. A sample invoice shown inFigure 60.
Though you can use the MS Access reports for this purpose, we will use forms.
1clip_image095.jpg”>

Invoice

Header

Invoice

Body

Figure
60: Invoice issued to a customer

As an accounting student you may
already have the knowledge of creating an invoice. The invoice can be divided
into two parts; header and body. Data for the header generally comes from tblSaleHeader
and tblCustomer. Similarly, Data for the body comes from tblLineItem
and tblCard. We will combine the data required for this form from tables
using queries.

The process of creating an invoice
involves;

Creating individual queries (qryInvoiceHeader
and qryInvoiceBody) from the combined tables,

Creating individual forms from the
queries, and

Combining both the forms.

This process is explained in the
following sections.

Creating Invoice body query
1clip_image097.jpg”>
1.
Click Create tab on the menu
bar
2.
Click on the Query Design
icon on the ribbon as

shown inFigure 61.

3.
You will see a new window similar to
that ofFigure 62
which enables you to choose required tables.

Figure 61: Query Design
1clip_image004.jpg”>
BUACC5937 June 14 Page 21 of 31

1clip_image099.gif”>
4.
Select the tables; tblLineItem,
and tblCard, individually and click Add.

5.
Close the window by clicking Close.

6.
The query screen contains two tables
as shown inFigure 63.
Notice that it also shows theirrelationship, if any exists.

Figure 62: Table selection
1clip_image101.jpg”>

Figure
63: qryInvoiceBody in Design view

7.
Select the fields required by the
query as shown inFigure 63.

a. The
following fields from the selected tables are required: tblLineItem:saleID,
cardID, and quantity.

tblCard:card
name, and card sale price.

b. One
calculated fields: (You have to use Expression Builder in the Query Design
tools. Seek your tutors help in completing this part.)

LineTotal:
[cardSalePrice]*[quantity]
8.
Test the query with the help of your
tutor. The output should look likeFigure 64.
1clip_image103.jpg”>

Figure
64: Query output

9.
Save the query as qryInvoiceBody and close it.
1clip_image004.jpg”>

BUACC5937 June 14 Page 22 of 31

Creating Invoice Header Query

Create
a query qryInvoiceHeader

Hints:

The process is similar to creating
the qryInvoiceBody explained above.

Use tblSaleHeader, tblEmployee, and
tblCustomer.

tblSaleHeader: saleID, saleDate, and
CustomerID.

tblEmployee: employeeName.

tblCustomer: customer Name, address,
and phone number.

When you run the query the output
should look likeFigure
65
1clip_image105.jpg”>

Figure
65: qryInvoiceHeader output

Creating invoice body form based on the query

The body of the invoice uses the
query qryInvoiceBody to extract the data. Creating this form is very
similar to the forms created so far except the use of a query.

1.

Select Form
Wizard.

2.

Select qryInvoiceBody
and its fields

as
shown inFigure 66.

3.

Click Next

4.

Select Tabular
layout

5.

Name
the form as frmInvoiceBody

Figure 66: Selecting the fields

and
Click Finish to see your form.

1clip_image106.jpg”>
Change
the form view to Design View and adjust the width of the fields to
show the data, and make the headings meaningful. Place a textbox at the
top of the form to display the invoice total.

To
get the sub-form total in this text box you need to select it in Design view,
and type the formula =sum ([LineTotal]) into the textbox. Your completed
form in the form view will look likeFigure 67. Format the cells as needed and
close the form.
1clip_image004.jpg”>

BUACC5937 June 14 Page 23 of 31

1clip_image108.gif”>

Figure 67: partial view of the form- frmInvoiceBody

Creating invoice header form based on the query

Create
a form frmInvoice

Hints:

The process is similar to creating
the frmInvoiceBody explained above.

Use the query -qryInvo1clip_image002.gif”>School
of BusinessBUACC5937:
Information Systems Designand
Development for AccountantsMudusu
Calling Cards System (MCCS)InvoiceLearning
About Relational DatabaseBy
using Microsoft Access 2010Acknowledgements:Microsoft
Windows, Microsoft Word, and Microsoft Access are registered trademarks of
Microsoft Corporation. Images on the front page are adapted from Microsoft Word
clipart gallery.BUACC5937
Assignment 2: Term02 – 2014This assessment addresses the
following criteria from the course profile:Knowledge
Understand the principles of data
management and relational databases. Skills
Develop a time sheet entry/customer
account management software system using relational database software and
prepare an associated report detailing the technical and learning issues
encountered.
Work effectively as a team member.Values
Appreciate the evolving nature of
Accounting Information Systems, and how these are reshaping the practice of
Accounting.This assignment is designed to help
you to understand how data is stored and information is retrieved in
Information Systems. Working together in teams of two, you
will develop skills with Microsoft Access and Word. It contributes 20%
towards the overall assessment in the unit.It is best if you:
Read through the entire assignment
before you commence work;
Prepare your report at the same time
as you create your software;
Learn how to capture screen shots,
trim the part you want, and then place these screen shots into a Word document
before you begin preparing your report;
Understand that this assignment is
not only about learning MS Access, it is also about the approach to developing
a new skill.Relax and enjoy doing this
assignment. You can learn a lot. If you make mistakes, thats great! It is by
correcting mistakes, or deleting part of the work already done and re-doing it
that we learn. In IT attention to detail is most important. This
assignment demonstrates the importance of attention to detail, something you
can apply to your studies and to your work.Before
you commence work on this assignment, it is strongly suggested you work through
one or more of the on-line tutorials at http://office.microsoft.com/en-us/access-help/download-office-2010-training-HA101901726.aspx?CTT=1to becomefamiliar
with Access 2010. This website has free on-line courses showing you (among many
other things) how to create tables (the basic components of a database) and
when to use Access and when to use Excel.1clip_image004.jpg”>BUACC5937
June 14 Page 1 of 31Background informationOnlineBuys,
established is 2005, is primarily an e-business selling phone cards online.
They buy calling cards in bulk from several telecommunication companies such as
Telstra, Optus and Tel Pacific and sell them to individuals using their portal.
Recently they entered into the retail market by supplying calling cards to
several grocery stores in Sydneys greater western region. They have employed
four (4) sales personnel for this purpose. The retail shops are distributed
among the sales personnel, who every day visits the shops, refill stock and
collect the invoice amount. They have been using pre-printed invoice books to
invoice the customers.Every
fortnight employees submit their time sheets to S.R. Mudusu, the owner of
OnlineBuys. Each employee gets paid $18.70 per hour for the services rendered.
Mr Mudusu calculates the payment for individual employees and transfers the
money online. The pre-printed invoices and manual tallying of work hours worked
well when the company had only a few retail customers. Now, due to the
increased number of customers, S.R.Mudusu has decided to invest in a system to
manage his retail sales. He decided to hire a team of consultants (you and your
project partner) to develop thisMudusu
Calling Cards System (MCCS).Following
are the business requirements of the proposed system (MCCS):
Add an employee (explained in the
write up)
Add a customer (Challenge Task)
Add a Card (Challenge Task)
Sales entry (Explained in the write
up)
Generate an Invoice (Explained in the
write up)
Timesheet entry (Challenge Task)
Generate a Payslip (Challenge Task)1clip_image004.jpg”>BUACC5937 June 14 Page 2 of 31Database specification and requirementsThe assignment to be undertaken
involves:1.
Designing and creating three basic
(master) tables for the application:
An Employee table, to hold
the details of employees.
A Customer table, to hold
the details of customers.
A Card table, to hold the
details of the cards.2.
Designing and creating a table TimeSheet
that holds employee timesheet information. 3.
Designing and creating two tables, SaleHeader
and LineItem to hold the sales records. 4.
Creating three
simple forms; UpdateCustomer, UpdateEmployee, and UpdateProject,to
update data in respective tables.5.
Creating a form Time Sheet,
from multiple tables. This will be used by employees to enter the details of
their working hours. 6.
Creating a form Sales with a
sub form that will be used by the sales personnel to enter the sales. 7.
Improving the form – Sales
when the basic system is working. 8.
Extracting information from the data
entered into the system using Access Queries.9.
Creating a form Invoice
that will help the sales personnel to invoice and to receive payments from the
customers. 10.Creating
a form Pay Slip that will help Mr. Mudusu to review individual
employees roster and payment information. 11.Creating
a form Navigation Form that will guide the stakeholders (Mr. Mudusu
and his employees) in using this application. In
addition to preparing Mudusu Calling Cards System (MCCS) Software, you
are required to prepare a write-up of around 1,500 2,000 words explaining:
The principles of database design,
as demonstrated by the database designfor this project. Research some
introductory database design material on the web (use the online tutorials link
in page 2) and refer to it in your report; in particular, show that you
understand the key concepts such as primary key, foreign key,
Datatypes, and field properties.
The process of normalisation,
as done in the database.1clip_image004.jpg”>BUACC5937 June 14 Page 3 of 31
Your approach to completing the Challenge
tasks. Include some screen shots of your final forms in your write-up.
The problems you experienced with
this assignment (you will experience plenty) and how you got around them.Your report needs to look like a
business report with sections including executive summary,
table of contents, list of figures, and references. You can use this
document as an example.Read the Assessment criteria and
Assessment submission details provided in Page 29. Moreover complete the
checklist provided in Page 30 to get maximum marks in this assignment.Creating a database1clip_image006.jpg”>1. Open MS Access from the start
menu.2.
Select a Blank database as shown inFigure
1.3. Enter the file name in the space
provided as shown inFigure
2.Note: It is MCCS for
me. For you, It will be your student ID and
your partners student ID.Figure
1: Select a blank database1clip_image008.jpg”>4. Select the file storage location by
clicking on the folder icon shown inFigure
2.5. Finally click on the Create
icon shown inFigure
2.6. Close the database and verify whether
or not it is stored in the correct location.Figure 2: Name the databaseCreating tablesMCCSrequires
six (6) tables: anEmployeetable, Customertable,
CardTable,SaleHeadertable, Line Item
table and a TimeSheettable.Note:
It is suggested that you use a consistent naming style for
naming all theAccess objects; using a prefix that represents the object
type. For example, Employee table is named as tblEmployee. Similarly, a
report will have a prefix – rpt, a query 1clip_image004.jpg”>BUACC5937 June 14 Page 4 of 31qry,and
a form will have a prefix – frmto their names. Good discipline
in thesematters makes it easier to find parts of the application
quickly as it increases in size.1clip_image009.jpg”>1.
To create tables in the database
launch MS Access and open the database MCCS. 2.
Select Create tab and
click Table on the ribbon as shown inFigure 3.
A table will be created, in the work area, in the datasheet view. 3.
Click on the View and
select Design view from the dropdown menu as shown inFigure 4.
Figure 3: Select Create –> Table4.
MS Access will prompt you for a table
name as shown inFigure
5 before changing the view. 1clip_image011.jpg”>5. Enter
the table name – tblEmployee and click OK to
save the table. The table view in the work area will be changed to the design
view, in which you can define table properties. We will do this in the next
section. 6. Close
the table by clicking the X at the right hand side of
the table. This is not the X at the very top of the screen which will
close the MS Access. Figure
4: Select Design View7.
Repeat steps 2 to 6
to create the remaining tables and name them as follows: 1.
tblCustomer2.
tblCard3.
tblSaleHeader4.
tblLineItem5.
tblTimeSheet8.
Once all the tables are created your
database should look likeFigure 6.
9.
Make sure you close any open tables
in the working area. 1clip_image013.jpg”>Figure
5: Save as tblEmployeeFigure
6: All tables created1clip_image004.jpg”>BUACC5937 June 14 Page 5 of 31Defining fields and their data typesRelational
Database Management Systems (RDBMS), such as MS Access, store data and provide
information. A significant difference between an RDBMS and a Spreadsheet
application (such as Excel) is that with databases the design stage and the
data entry stage are more obviously separate. In MS Access it is
necessary to design the data structure (based on our understanding of
the user requirements) before entering the data. Designing the structure means
creating each field (or column) that is needed, giving it a name,
specifying its Data type, meaning -what type of data it will store (e.g.
a number, a date, text, a currency value), what size it is (e.g. this data item
will not exceed 25 characters in length; this number has two decimal places)
and defining relationships between the tables. Moreover, each record (row) in a
table requires a unique ID, called primary key, so that the system can
distinguish between the records.There
are other reasons for defining a primary key. You must investigate and explain
them in your write-up.The required data for each Employee
in tblEmployee includes; ID (a unique field to identify the record,
well use Auto number data type), Name, Address, and Phone number.We
define these data items as fields of the table- tblEmployee. This
is a fairly straightforward process as follows:1clip_image014.jpg”>Figure
7: tblEmployee in Design view5.
Set Field Properties for
individual fields. o An example for setting field
properties for the fieldemployee
Name is shown inFigure 8.
This will save you a lot
of storage space.6.
Close the table. 7.
Update the table – tblCard as
shown inFigure 9. 1.
Double click on tblEmployee to
open the table. 2.
Change its View to Design View.
3.
Enter the field Names and
their data typesas shown inFigure 7
(make sureyou have a primary key identified
as marked in the figure) 4.
Enter description for each
field. This helps in identifying foreign keys. 1clip_image015.jpg”>Figure
8: employeeName -Field properties1clip_image004.jpg”>BUACC5937 June 14 Page 6 of 311clip_image017.gif”>8. To test your knowledge Datasheet
View of tblCustomer is shown inFigure
10. Create the table inDesign View. You need
customer ID, Name, Contact person, Phone number, and the address fields.Speak with your tutor if you need
some help.Figure 9: tblCard in design view1clip_image019.jpg”>Figure
10: tblCustomer in Datasheet view1clip_image020.jpg”>Figure
11: tblTimeSheet1clip_image022.jpg”>Figure 12: tblSaleHeader in design view9.
Update the table tblTimeSheetas
shown inFigure
11.Set default datefor
dateWorked to the system date. Make sure you add descriptions. They
will help you in creating relationships between tables.1clip_image024.jpg”>Figure 13: tblLineItem in design view10.Update
tables- tblSaleHeader and tblLineItem as shown in figures Figure 12 and Figure
13 respectively11.Close
any open tables. Dont enter
the data yet.
We shall enter
data only after
establishingrelationships
between the tables1clip_image004.jpg”>BUACC5937 June 14 Page 7 of 31Creating
relationshipsMS Access is a relational database
management system. It divides the database into several tables to reduce the
data redundancy. Some fields may appear in more than one table. For example,
the field employeeID in tblTimeSheet comes from the table tblEmployee.
Meaning- an employee of MCCS can only submit their timesheet.Similarly,
other relationships are described in the description field in tables-tblSaleHeader
and tblLineItem. These relationships will be established usingLookup Wizard data type.Creating
a relationship between tblTimeSheet and tblEmployee1.
Open tblTimeSheet in Design
View. 2.
Select the data type of employeeID
as Look up wizardas shown inFigure 14.
3.
MS Access activates a wizard as shown
inFigure
15. It
starts by asking the table name. As thevalue of the lookup field comes from
an existing table (tblEmployee), choose the first option and click Next.
1clip_image026.jpg”>Figure 14: Choose Lookup WizardFigure 15: Choose the first option
and click next1clip_image027.jpg”>4. As shown inFigure 16,
the Wizard wants to know the table name. Select the table- tblEmployee
and clickNext.5. The Wizard wants to know the field
name.Figure
16: Choose tblEmployee1clip_image004.jpg”>BUACC5937 June 14 Page 8 of 311clip_image029.gif”>Figure 17: Select the field employee ID1clip_image030.jpg”>Figure 18: Choose the sort order1clip_image031.jpg”>Figure
19: Enable data integrity6.
Select employeeID in the available
fieldsand click the Right arrow(Greater than symbol) to move it to
the Selected Fields. If you have followed the process correctly, your screen
will look likeFigure
17. Click Next. 7.
Lookup wizard wants to know the sort
order it needs to use, this really does not matter to us. Select employeeID
from the dropdown listas shown inFigure 18 and click Next.8.
Lookup wizard wants to know the width
of the column in the next screen (picture not shown). Just leave it as it is
and click Next. 9.
Before finalising the relationship,
the wizard wants to know the label for the lookup field. Give it a name and enable
the Data Integrity checkboxas shown inFigure 19. This will keep the data consistent.
10.Click
Finish to end the wizard. 11.Lookup
Wizard finishes its job and leaves you with the question whether to save the
table or not. Click Yes to save the table. 12.Close
any open tables. Testing the relationshipMS Access provides us with several
database tools to check relationships between the tables. To test the
relationship we just have created:1clip_image032.jpg”>1.
Select the Database Tools
from the menu bar. 2.
Click on the Relationships
icon in the ribbon as shown
inFigure 20.3. The output should look likeFigure 21.Figure
20: Click relationships1clip_image004.jpg”>BUACC5937 June 14 Page 9 of 31As
you can see, the primary key of the table tblEmployee employeeID
is connected to aforeign
key employeeID in table tblTimeSheet.Note:
if you dont see the numbers:1
and, on the connecting line youforgot
to enable the Referential Integrityas discussed inFigure 19.
You have to explain the meaning of 1 and
relationship in your write-up.Figure 21: Relationship between tblProject and tblCustomer1clip_image033.jpg”>4.
Once you see the relationships, close
the relationships window by clicking X on the right side of the
window. Creating
rest of the relationships
Open the table tblSaleHeader
in design view and create the following relationships;1.
employeeIDto
employeeIDin tblEmployee 2.
customerIDto
customerIDin tblCustomer.
Open the table tblLineItem
in design view and create the following relationships;1.
saleIDto
saleIDin tblSaleHeader 2.
cardIDto
cardIDin tblCard. Testing
all of the relationshipsCheck the relationships as explained
in the Testing the relationship section above. If you have followed
the procedure correctly, your relationships window will look likeFigure 22.
Move the tables around for visual clarity.1clip_image035.jpg”>Figure
22: All relationships created1clip_image004.jpg”>BUACC5937 June 14 Page 10 of 311clip_image037.gif”>Note:
if you cannot see all the tables in therelationships
window, select the RelationshipTools
and click All Relationshipsicon asshown
inFigure 23.Close
the relationships window once you are happy with it.Figure 23: Show all relationshipsInitial
data entryNow is the time to enter data as the
database structure is complete. Let us first look at the employee table. We
know that S.R. Mudusu is an employee for taxation purpose. To enter his data
into tblEmployee:1.
Open the table in Datasheet View
and enter data as shown inFigure
24. 2.
Once the data entry is complete close
the table. 3.
Enter data into tblCustomer
as shown inFigure
10. 1clip_image039.jpg”>Figure
24: tblEmployee sample data4.
Open tblCard and enter data as shown inFigure 25.1clip_image040.jpg”>Figure
25: tblCard with sample data5.
Enter some data into tblTimeSheet as shown inFigure 26.Notice
the dropdown box for the field employeeID as the data comes from another
table tblEmployee.1clip_image041.jpg”>Figure
26: tblProject in datasheet viewSimilarly, if you enter some data
manually into tblSaleHeader and tblLineItem you may notice
dropdown boxes for the foreign keys. This is how MS Access creates
relationships between the data. However, let us not do it for time being. (Note:
you have to enter data into tblSaleHeader first.)1clip_image004.jpg”>BUACC5937 June 14 Page 11 of 31Figure 33.We
saw how to enter data manually into the tables in this section. However, data
is entered into the tables through a form. Let us create some simple
forms to enter data into several tables.Update Employee form1clip_image043.jpg”>Figure 27: Update Employee form1clip_image045.jpg”>
The
update employee form is shown inFigure27. The process ofcreating
this form is explained below. You must familiarise yourself with this process
as you will be creating several forms in this assignment.1.
SelectCreatefrom the menu bar.ClicktheFormWizard
icon on theribbontoactivatethe wizard as showninFigure
28.Figure
28: Activating the form wizard1clip_image047.jpg”>2. Form wizard starts working by asking
you for the table name. As this form updates employee data from tblEmployee,
select the table as shown inFigure
29.3. You can see the Available Fields.
Select all the fields by clicking >> symbol to move them to selected
fields box.4. After selection, your screen should
lookFigure 29: select -tblEmployee likeFigure 30. Click Next.5. Choose Columnar option as
shown inFigure 31
and clickNext.1clip_image048.jpg”>6. The form wizard wants to know the
name of the form before creating it as shown inFigure 32.7. Name the form-frmUpdateEmployee
and click Next.8. An un-formatted form appears on thescreen,
which looks likeFigure 30: Field selection1clip_image004.jpg”>BUACC5937
June 14 Page 12 of 311clip_image050.gif”>Figure 31: layout optionFigure 32: Name the form9.
We have to format the form so that it
looks like the one shown inFigure
27. We can use either the Design View or the Layout View
for this purpose. Let us open the form in Layout View by clicking View
and then selecting the Layout View as shown inFigure 34.
You will see two changes; a. The
ribbon changes to Form Layout Tools and gives you several options as shown in
Figure 35,
and b. A
Yellow box appears around the employee Name text box as shown inFigure
36. You can
move this box around the fields and edit them as you wish.1clip_image052.jpg”>Figure 33:Update Employee form UnformattedFigure 34: Change View1clip_image054.jpg”>Figure
35: Form Layout Tools1clip_image004.jpg”>BUACC5937 June 14 Page 13 of 311clip_image056.gif”>10.
Select individual fields and update them as required such that the output looks
likeFigure 27
orFigure37.You
may have to use different fonts, fill colour option etc.Figure 36: Form in Layout view1clip_image057.jpg”>1clip_image059.jpg”> 12Figure
37: Data entry using the formOnce
you have formatted the form. Enter several employee details into the system
using this form as described below;11.Open
the form in Form View and enter employee details. 12.Click
on the New (Blank) record (>*) button to store existing record and
create a new blank record as shown inFigure 37. 13.Make
sure you enter at least 10 employees including your partner and yourself.14.Close
the form, once data entry is complete. 15.Open
the table-tblEmployee in data sheet view. It should have all the 10
employee records you entered. Now you know how to create a simple
form and use it to enter data into a table.1clip_image004.jpg”>BUACC5937 June 14 Page 14 of 31Figure 40Challenge Task – 01Your first challenge task involves
creating two simple forms; frm Update Customer and frm Update Card,
as shown inFigure 38
andFigure 39
respectively.1clip_image061.jpg”>Figure 38: Update Customer formFigure 39: Update Card formCreate
these two forms and make sure you enter 10 records in each table.Sales formNow that you learned how to create a simple form that can
update data in a single table, let us see how to create a form that can display
data from multiple tables or update multiple tables. A good example for this is
Sales Order Entry Form. Thisform, as
shown in allows MCCS employees to view/update
sales orders fromtheir
customers.1clip_image063.jpg”>Figure
40: Completed Sales Order Entry Form1clip_image004.jpg”>BUACC5937 June 14 Page 15 of 31The process of creating this form is
described below:1. Create
a form – frmSalesOrder, from table tblSaleHeader and by
choosing all the fields. Use columnarlayout option.2. Create
another form frmLineItem from table tblLineItem and by
choosing fields; cardID, and Quantity. Use tabular layout option. Combining
both the forms1clip_image065.jpg”>Figure
41: frmSalesOrder in Design viewFigure
42: Sub Form Inserted1.
Open frmSalesOrder in design
view as shown inFigure 41.
2.
Drag the Form Footer down
and make space for the sub-form. 3.
Drag and drop the frmLineItem
into the main form as shown inFigure
42. 4.
Save the form. This
form can be used to enter data into both the tables. You can create a new order
or update an existing order using this form.Data
entry using the form frmSalesOrderLet us enter some sales orders using
the newly created form frmSalesOrder. The process is straight forward
as described below;1.
Open the form in form View as shown
inFigure 43.
2.
Enter a sale, as you can see I have
created my first sale- saleID 1, as shown in Figure
43.3.
Close the form. 4. Open
the tables tblSaleHeader and tblLineItem and notice the
added records as shown inFigure
44 andFigure
45. 1clip_image004.jpg”>BUACC5937 June 14 Page 16 of 315.
Similarly, you can enter several sale
orders and line items using this form. Try it and close any open tables after
your testing. 1clip_image067.jpg”>Figure 44: Data entered into tblSaleHeader1clip_image069.gif”>1clip_image071.gif”>Figure 43: frmSalesOrder in Form
ViewFigure 45: Data entered into
tblLineItemUpdating
the form to make senseNow that the form is working fine, it
is time to improve its look and feel. First, we will improve the sub form – frmLineItem
by:
Removing the text frmLineItem
from the top of the sub form;
Removing the navigation buttons
from the bottom of the sub form;
Replacing the CardID with Card
Name combo box for more readability; and
Formatting the headings of the sub
form.The
process is described below:1.
Open the form – frmSalesOrder
in design mode. It looks likeFigure
42. 2.
Select the label frmLineItem
and delete it (you will find two so you have to repeat this process twice). 3.
To remove the navigation buttons from
the foot of the sub-form: 1clip_image073.jpg”>1clip_image074.jpg”>1clip_image075.jpg”>Figure
48Figure 46 Figure 47a.
Click on the property Sheet icon as
shown inFigure 46
on the ribbon. This will enable the property sheet window. b.
Select the sub-form. A yellow line
appears around the sub-form as shown inFigure 47 1clip_image004.jpg”>BUACC5937 June 14 Page 17 of 31c.
Click the square shaped box on the
top left corner of the sub-form. The box looks likeFigure 48.
d. Check
the property sheet. It should look likeFigure 49, in which the Navigation Buttons
property is set to Yes. e. Change
the navigation buttons property to No f. Check
the form in Form View. The navigation bar is not displayed
anymore. g. Change
to Design View again. 1clip_image076.jpg”>Figure 49: Sub-form Property sheetNote:
If the navigation buttons are still visible, that means you missed step C.
Repeat steps B to Euntilyou get it right.4.
Let us focus on replacing the CardID
with Card Name combo box. Make sure you are in the design view
of the form. a.
Select the cardID combo box
as shown inFigure 50
and delete it. b. Click
the Combo Box wizard in the design tab, highlighted inFigure 51
to activate it. 1clip_image078.jpg”>Figure
51: click on the Combo boxFigure 50c.The
mouse pointer will change its shape to a Combo Box.1clip_image004.jpg”>BUACC5937 June 14 Page 18 of 311clip_image080.gif”>Figure 52: Combo Box wizard1clip_image082.gif”>1clip_image084.gif”>Figure
53: Choose tblCard1clip_image085.jpg”>
d.
Click in the sub-form. An Unbound
combo Box will be inserted and the wizard takes over as shown inFigure 52.
e.
We have to link the combo box to
existing values. So choose the first option and click Next. f.
We have to link the combo box to the
values in the table – tblCard, so select it as shown inFigure 53
and click Next. g.
We have to choose the field CardName
from the table. Select it as shown inFigure 54 and click Next.h.
Choose
the sort order cardID as shown inFigure 55 and click Next. 1clip_image087.gif”>1clip_image089.gif”>Figure
54: Choose titleFigure
55: Select the sort order1clip_image090.jpg”>Figure 56: Column width selectioni. The
column width of the combo box can be changed at any time so accept the values
inFigure 56
and click Next j.
Store the value in the field cardID
as shown inFigure 57
and click Nextk.
The combo box wizard asks you for the
name of the new combo box just been created. Name it as Card Nameas
shown inFigure
58andclick
Finish l.
Change the Labels as needed and see
your form in Form View. It should look similar toFigure 59.
Note: I have formatted the sub form, you will not see it in your work. 1clip_image004.jpg”>BUACC5937 June 14 Page 19 of 311clip_image092.gif”>Figure 58Figure 57: Storing the value1clip_image093.jpg”>Figure
59: Sales Order Entry formChallenge
Task 02Compare the figures -Figure 40 andFigure 59. The following differences are
evident;1.
The CustomerID in the main
form is replaced by Customer Name. 2.
The employee ID in the main
form is replaced by Employee Name. 3.
The look and feel of the form. Use
the knowledge gained so far to implement these changes in your form so that it
looks similar toFigure
40.Enter some sales for all the
customers, check the tables and close the form.1clip_image004.jpg”>BUACC5937 June 14 Page 20 of 31Creating an Invoice formNow that we have a way to capture the
customers orders, we have to create an invoice that will be given to the
customer at the end of the transaction. A sample invoice shown inFigure 60.
Though you can use the MS Access reports for this purpose, we will use forms.1clip_image095.jpg”>InvoiceHeaderInvoiceBodyFigure
60: Invoice issued to a customerAs an accounting student you may
already have the knowledge of creating an invoice. The invoice can be divided
into two parts; header and body. Data for the header generally comes from tblSaleHeader
and tblCustomer. Similarly, Data for the body comes from tblLineItem
and tblCard. We will combine the data required for this form from tables
using queries.The process of creating an invoice
involves;
Creating individual queries (qryInvoiceHeader
and qryInvoiceBody) from the combined tables,
Creating individual forms from the
queries, and
Combining both the forms.This process is explained in the
following sections.Creating Invoice body query1clip_image097.jpg”>1.
Click Create tab on the menu
bar 2.
Click on the Query Design
icon on the ribbon as shown inFigure 61.3.
You will see a new window similar to
that ofFigure 62
which enables you to choose required tables. Figure 61: Query Design1clip_image004.jpg”>BUACC5937 June 14 Page 21 of 311clip_image099.gif”>4.
Select the tables; tblLineItem,
and tblCard, individually and click Add. 5.
Close the window by clicking Close.
6.
The query screen contains two tables
as shown inFigure 63.
Notice that it also shows theirrelationship, if any exists. Figure 62: Table selection1clip_image101.jpg”>Figure
63: qryInvoiceBody in Design view7.
Select the fields required by the
query as shown inFigure 63.
a. The
following fields from the selected tables are required: tblLineItem:saleID,
cardID, and quantity.tblCard:card
name, and card sale price.b. One
calculated fields: (You have to use Expression Builder in the Query Design
tools. Seek your tutors help in completing this part.)
LineTotal:
[cardSalePrice]*[quantity]8.
Test the query with the help of your
tutor. The output should look likeFigure 64. 1clip_image103.jpg”>Figure
64: Query output9.
Save the query as qryInvoiceBody and close it.1clip_image004.jpg”>BUACC5937 June 14 Page 22 of 31Creating Invoice Header QueryCreate
a query qryInvoiceHeaderHints:
The process is similar to creating
the qryInvoiceBody explained above.
Use tblSaleHeader, tblEmployee, and
tblCustomer.
tblSaleHeader: saleID, saleDate, and
CustomerID.
tblEmployee: employeeName.
tblCustomer: customer Name, address,
and phone number.
When you run the query the output
should look likeFigure
651clip_image105.jpg”>Figure
65: qryInvoiceHeader outputCreating invoice body form based on the queryThe body of the invoice uses the
query qryInvoiceBody to extract the data. Creating this form is very
similar to the forms created so far except the use of a query.1.Select Form
Wizard.2.Select qryInvoiceBody
and its fieldsas
shown inFigure 66.3.Click Next4.Select Tabular
layout5.Name
the form as frmInvoiceBodyFigure 66: Selecting the fieldsand
Click Finish to see your form.1clip_image106.jpg”>Change
the form view to Design View and adjust the width of the fields to
show the data, and make the headings meaningful. Place a textbox at the
top of the form to display the invoice total.To
get the sub-form total in this text box you need to select it in Design view,
and type the formula =sum ([LineTotal]) into the textbox. Your completed
form in the form view will look likeFigure 67. Format the cells as needed and
close the form.1clip_image004.jpg”>BUACC5937 June 14 Page 23 of 311clip_image108.gif”>Figure 67: partial view of the form- frmInvoiceBodyCreating invoice header form based on the queryCreate
a form frmInvoiceHints:
The process is similar to creating
the frmInvoiceBody explained above.
Use the query -qryInvo

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.gif”> 9-111 -084 R E V : M A Y 2 7 , 2 0 1 1 K A R T H I K R A M A N N A

.gif”>

9-111 -084

R E V : M A Y 2 7 , 2 0 1 1

K A R T H I K R A M A N N A

K A R O L M
I S Z T A L

D A N I E L A B E Y E R S D O R F E R

The IASB at a Crossro ds: The
Future of Internati nal Fi nancial Repor ting S tandar ds

In late
2010, the Internation al Accountin g Standards Board (IASB ), the Londo n-based
stan dard-setting body for I nternational Financial Re porting Stand ards
(IFRS), unveiled th e final phase of its prop sal on valuation of finan c ial
instrume nts.1 Impacting around 120 countries t hat had com mitted in so me form
over the last ten years to IFRS , the exposu re draft was an important step in
the IASBs efforts to advance globally acceptable princi ples of financial
reporting.

More
broadly, the financial nstruments valuation proposal reflected the IASBs aim
for its s econd decad e and bey on d to broade n the numbe r of countrie s
committing to its standards, and to make IFRS the single, high-quality set of
standards on a global basis. But, t he board still had several major

issue

to address o n this journey. First, whil e an
impressive number of jurisdictions had incorp

rated

IFRS

into their reporting
practices, the strength
o f the juris dictions co mmitments

varied

consi derably.2 Som e countries had entirely eliminated d ifferences bet ween
their standards and

IFRS

and h ad become IFRS full
adopters, whereas others h ad only begun to mini mize the differ ences through
a loosely defined proc ess called convergence. Besides, a large number of
countries h d not comm itted themselves to IFRS at all. Most p rominently, the
U.S. was still examining the extent of its comm itment to IFRS, as its
Generally A ccepted Ac counting Principles (GAAP) remain d an altern ative to
the IASBs standards. While the U.S. Financ ial Accounti ng Standards Board
(FAS ) had worked with the I ASB on alig ning U.S. GAA P with IFRS since 2002,
t he U.S. Securities and Exc hange Com mission (SEC ) and many w ithin the U.S
. investment community remained no n-committal o n full IFRS adoption in A
merica.

A
dditionally, the financial crisis of 20082009 had created so me discord mong
the IASBs world wide constituentscomp rised of inve stors, business managers,
bankers, auditors, and m arket reg ulators, among otherson the role of a
counting standards in pr ecipitating t he crisis.3 No tably, the p actice of
fair value accoun ting, promoted by the IA SB across several of its standards,
was one of the m ost contentious post-crisis accounting issues world wide.
Althou gh the IASB had advocate d fair value accounting as a mechan ism to
facilitate greater transparency in financial reporting, s everal IASB
constituents had criticized it as a destabilizing influence that had
exacerbated the financial crisis by am plifying boo m and bust cy cles in
real-a sset prices through their recognition in financial reports.

____________________ _______________
____________________________ ______________ _______________
____________________

Profess r Karthik Raman na and
HBS Euro e Research Center Research Assista nt Karol Misztal and Assistant Dire
ctor Daniela Beye rsdorfer prepared this case. This case is based primarily on
published sources. The cas ewriters gratefully acknowledge the insights of two
i nterview subjects who provided information contain ed in the Organi ational
Reforms section. HBS cases are developed s olely as the basis for class
discussion. Cases are not intended to serve a s endorsements, sources of
primary data, or illustration s of effective or ineffective manageme nt.

Copyrig ht 2011 Preside nt and Fellows of Harvard College. To
order copies or request permission to reproduce materials, call 1-800
-545-7685, write Harvard Business School Publishing, Boston, MA 02163, o r go
to www.hbsp .harvard.edu/educators. This publication may not be digitized,
photoco pied, or otherwise reproduced, posted, or transmitted, without the
permis sion of Harvard Business School.

Purchased by: Lyn
Klein AREYESKLEIN@HVC.RR.COM on March 20, 2014

111-084 The IASB at a Crossroads: The Future of
International Financial Reporting Standards

Finally,
while leaders of the G20 nations were increasing pressure on IASB
standard-setters to provide a consistent set of global accounting standards,
segments of the IASBs constituents viewed the boards organizational setup and
procedures as inappropriate for an international capital market authority.4 As of late 2010, the IFRS
Foundation, the IASBs parent entity, was still part of a Delaware-incorporated
non-profit corporation with no international standing. The foundation faced the
challenge of potentially reincorporating the organization to give it greater
international credibility. How it could go about this process was as yet
unclear.

The First Decade of the IASB

The IASBs Origins

The
antecedents of the IASB dated back to 1973, when the International Accounting
Standards Committee (IASC) emerged in London as an association of the
private-sector national accounting bodies of nine jurisdictions: Australia,
Canada, France, Germany, Japan, Mexico, the Netherlands, the U.K. and Ireland,
and the U.S.5 The predominance of English-speaking countries, with an
especially strong involvement of the Institute of Chartered Accountants of
England and Wales (ICAEW) in the creation of the IASC, resulted in the
perception that the committee had an Anglo-centric orientation.6 The IASC was the accountancy
professions initiative to narrow international differences in accounting
practices, driven mainly by an increasing need for comparable financial
information in a period of accelerating international trade.7 Rather than setting specific
rules, the IASC focused on developing broad, internationally recognized
accounting standards to shape accounting rules within member countries.8

A
series of events led to a restructuring of the IASC in the late 1990s, followed
by a broader adoption of its accounting standards. First, a growing number of
multinationals in the 1990s sought a common set of standards for their
operations across the world; in particular, the companies wanted to avoid
preparing multiple sets of books under different accounting regimes and then
engaging in costly, annual reconciliation exercises. Second, the European
Commission (EC), which was pushing for a common set of standards across its
member nations, wanted to play a more important role in the harmonization of
global financial reporting standards, thus preventing U.S. GAAP dominance of
this process. Third, large-scale corporate governance scandals emerging from
the 1997 South-East Asian financial crisis had built pressure from the
International Organization of Securities Commissions (IOSCO)a to further the IASCs
footprint across the IOSCOs jurisdiction.9 Sir David Tweedie, the IASBs inaugural chairman, recalled:

When we started, we were
focused on multinationals. There were subsidiaries in various countries using
different national standards, and they all had to be reconciled. What really
got us going was the 1997 Asian crash. There you had countries that had
standards and companies that looked all right, but suddenly they went bust. . .
. [T]here was a massive crisis of confidence. So . . . if nobody trusted their
[national] standards, they needed to consider other standards that were
trusted. And there were only two real choices: U.S. GAAP or the international
standards that were in place at that time.10

a The IOSCO was an association
of national capital market regulators from over 100 countries based in Madrid,
Spain. Recognized as the international standard-setter for securities markets,
it provided technical assistance to its members to protect investors; maintain
fair, efficient, and transparent markets; and address systemic risks. It was
divided into several committees, of which the Technical Committee and Emerging
Markets Committee were members of the IFRS Foundation monitoring board.

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The
IOSCO offered backing to the IASC in exchange for an effort to undergo
fundamental organizational changes and increase the quality and scope of the
IASCs standard-setting activities.11 The IASC commenced an intensive process to create a comprehensive
set of core accounting standards12 and to reshape its governance in line with the structure of the
FASB, in part to increase the odds of being recognized in the U.S.

The Founding of the IASB

The
Recommendations on Shaping IASC for the Future report that the IASC issued in
1999 laid the basis for its restructuring. The reforms were finalized in 2001
with the dissolution of the IASC and the creation of the IASB, which assumed
the standard-setting responsibilities from its predecessor. The IASB was highly
aligned with the FASB in terms of organization and governance, with a hope that
IFRS and U.S. GAAP would converge in the future.13

From
the beginning, the European Commission emerged as the IASBs main underwriter
and client. In 2000, the European Commission unveiled a proposal to delegate
European accounting standard-setting to the IASB and require all companies
listed in the European Union (EU) to report according to IFRS from 2005.14 The main motivation behind
the European Commissions move was to reinforce the establishment of a single
European capital market and to create support for an international
standard-setting platform that was acceptable to other countries, including the
U.S.15

The Organizational Structure

Compared
to the IASC, which was viewed as a collegial association of accountants, the
IASB adopted a more professional, hierarchical, and technocratic organization
structure.16 To this end, the board had
the support of several complementary institutions (see Exhibit 1 for the
IASBs organizational structure).

The
IASB board was a group of experts experienced in standard-setting, account
preparation and use, and academic work in accounting. The board members were
engaged in technical standard-setting matters and in managing relationships
with various national standard- setters to converge national accounting
standards with IFRS. The composition of the board roughly reflected countries
relative power in international capital markets: In 2010, the board included
five members from the European Union (two from the U.K., including the
chairman, and one each from France, Germany, and Sweden), four members from the
U.S., and one member each from Australia, Brazil, China, India, Japan, and
South Africa (see Exhibit 2 for details on the IASB members).

Founded
in 2001, the IFRS Foundation (formerly the IASC Foundation) was the non-profit
governance entity of the IASB. The foundations members, called trustees,
appointed the IASB members and oversaw, evaluated, and raised funds for
standard-setting activities. In 2010, there were six trustees from Europe
(including the chairman), six from North America, six from the Asia/Oceania
region, and one each from Africa and South America (see Exhibit 3 for
details on the IFRS Foundation trustees). The board and the foundation were
supported by a professional staff led by a chief operating officer. This group
of over 100 professionals was in charge of research, analysis of public
comments, and preparation of documents and recommendations for the boards
consideration.

In
2009, a new monitoring board was established to oversee the IASB and the IFRS
Foundation, composed, among others, of capital market regulators from the EU,
Japan, and the U.S. Created by powerful governments in wake of the 20082009
financial crisis, the monitoring board was not unilaterally well-received
within the existing IFRS institutions.17 The IASB chairman, Sir David

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Tweedie, described the
structure of the monitoring board as temporary.18 The monitoring board was
officially charged with appointing the IFRS Foundations trustees and overseeing
their activities, as well as with referring matters of public interest to the
IASB. As of 2010, relations between the IASB and its new overseeing board
seemed fractious on critical substantive issues such as global accounting
harmonization deadlines,19 accounting for financial instruments, and the appointment of a
new IASB chairman.20 One journalist wrote that trustees were furious about mandatory
consultations of their appointments with the monitoring board.21

IFRS

The
IASB developed its standards, i.e., IFRS, in a process of public consultations
with a broad pool of stakeholders such as investors, analysts, business
leaders, accountants, and national regulators (see Exhibit 4for a
description of the IASBs standard-setting process).22IFRS coexisted with
InternationalAccounting Standards (IAS), financial reporting principles
inherited from the IASC.

Ten Years On: The IASB in 2010

On the
verge of its 10th anniversary, the IASB had gained broad international acceptance,
with around 120 countries23 requiring or permitting the use of IFRS in some form.
Specifically, 93 jurisdictions (including 30 European Economic Area countries)
required IFRS-based financial reporting for all domestic listed companies, six
jurisdictions required IFRS-based financial reporting only for certain domestic
listed institutions, and 25 jurisdictions permitted domestic public firms to
report under IFRS (see Exhibit 5 for jurisdictions IFRS adoption
status).24 Some major economies,
including China, India, Russia, and the U.S., had not yet committed to IFRS
adoption, although all of these countries had at least some form of an IFRS
convergence project already in operation or planned (see Exhibit 6 for
details on IFRS adoption and convergence schedules of G20 countries).

The
first major IFRS adoption wave had occurred in 2005, when over 7,000 EU-listed
companies25 began their first full year
of IFRS-compliant financial reporting. The status of the IASB as the leading
global standard-setter beyond Europe rose in 2009 when Japan allowed its
domestic listed companies to report under IFRS and lifted the option for using
U.S. GAAP.26 Chinas fast-paced
convergence with IFRS, started in 2006, also indicated the growing prestige of
IFRS.

The
IASB described its set of standards as exhaustive and dealing with many
difficult and sensitive topics such as lease accounting,27 pension accounting,28 and derivatives.29 The ongoing multi-phase
development of IFRS 9, the international accounting standard on financial
instruments, was considered one of the IASBs most complex and challenging
ventures yet.30 By late 2010, the board had managed to advance its proposals in
IFRS 9, even though financial instruments valuation had caused profound
tensions among the IASBs stakeholders.31

Across many
of its standards, the IASB had spearheaded the use of fair value accounting as
an alternative basis to traditional historic- cost accounting.b Advocated by the IASB as
being more relevant and transparent, the increased worldwide use of fair value
accounting was regarded by some as one of the boards greatest successes.32 However, notwithstanding the
substantial progress made by the IASB in its first ten years, numerous critical
challenges lay ahead. Addressing these challenges was essential to maintaining
and growing the acceptability of IFRS across international capital markets.

b In some areas, however, other
standard-setters, such as the FASB, were seen as more active in proposing
fair-value-based standards.

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Adoption and Convergence

The
nature of countries commitments to IFRS varied considerably across the world.
A few countries, including Australia and Hong Kong, adopted IFRS in its
entirety with almost no exceptions. Many other countries, including the EU
member states, adopted substantially all of the IFRS standards the IASB issued,
but made exceptions in limited cases where local political and economic
situations demanded otherwise. Some other countries required IFRS only for
certain segments of the economy (e.g., banks). Finally, a number of larger
economies, such as China and the U.S., engaged in an often ambiguous process
known as IFRS convergence. Convergence involved minimizing and, where
possible, eliminating differences between national accounting standards and
IFRS through stakeholder consultations.33 When converging, a jurisdiction kept its own national standards
and decided on the amount of alignment with IFRS. Because national
standard-setters defined the extent of convergence, two countries that the
IASB identified as IFRS-convergent jurisdictions could have very different
local accounting standards.

Each of
these approaches to IFRS harmonization had proponents. Advocates of full
adoption, represented mainly by the IASB and the so-called Big Four
international audit firms (Deloitte, PricewaterhouseCoopers, Ernst & Young,
and KPMG), claimed that replacing the local rulebook with IFRS was the only way
to ensure complete international comparability of financial statements.34 Moreover, given the pressure
from the G20 leaders for rapid worldwide accounting harmonization, the IASB
argued that promoting IFRS by full adoption was less time-consuming than local
convergence consultations. Convergence is [an] impossible dream. You will
always find issues where you basically don’t agree and where both sides have
good reasons for not agreeing. Youve just got to make a decision. Fiddling
with IFRS [locally] is not the way forward, noted Ian Mackintosh, head of the
U.K. Accounting Standards Board and an advocate of full adoption.35

Convergence
champions such as China, on the other hand, stressed the necessity to remain
flexible and adjust accounting rules to the needs of a national economy.36 Advocates believed that such
adaptability of accounting rules to local needs would to lead to a better
understanding of local business performancean understanding that would not be
possible with one-size- fits-all IFRS principles. In addition, convergence, its
proponents argued, was more politically feasible: a jurisdiction that handed
over its accounting standard-setting to the IASB through full IFRS adoption was
surrendering some amount of its sovereignty. Finally, even if a country was
aiming at ultimate full adoption of IFRS, getting there through convergence,
supporters reasoned, was a better way to protect and advance the interests of
domestic constituents.

IFRS as adopted by the EUThe EUs vote on the adoption
of IFRS in 2004 was the firstmajor test for the
full-adoption approach. To prevent the IASB from having a direct impact on
European capital markets, the EU created a special Accounting Regulatory
Committee and charged it with deciding which IFRS rules would apply within its
jurisdiction.37 In 2003, the European Commission had asked the IASB to rewrite
the IAS 39 standard (dealing with recognition and measurement of financial
instruments), but the board had refused. What we cannot do is give a
concession we think is wrong, otherwise we destroy the board, noted Tweedie at
the time.38 As a result, in late 2004,
when the EU endorsed IFRS, it permitted certain companies not to apply some parts
of IAS 39.39 Several observers at that
point raised concerns that this would jeopardize further efforts at full
adoption of IFRS.40 However, seven years on, as the EU continued to be the IASBs
strongest backer, its need for carving out exceptions to IFRS remained minimal.

IFRS, made in ChinaIn early 2006, China pledged
to substantially converge itsAccounting Standards for
Business Enterprises (ASBE) with IFRS, effective 2007. Despite this firm

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convergence commitment, actual
ASBE post-2007 differed from IFRS in certain important areas; China cited its
unique circumstances for the differences. For instance, China restricted the
use of fair value accounting to only a handful of prominent companies, arguing
that the low sophistication of its financial markets and the low share of
financial institutions in the capital markets made the wider use of fair value
accounting less meaningful. Similarly, impairment reversals, permitted under
IFRS, were prohibited under the ASBE because the government feared that income
statement-oriented Chinese companies could use such reversals to manipulate
reported profits. But perhaps Chinas most important accomplishment in its
convergence with IFRS came in the area of disclosures on related-party
transactions. Given state ownership and control of a substantial proportion of
Chinese companies, China feared that many of its entities were likely to be
subject to extensive related-party disclosure requirements under a strict
interpretation of IFRS. Citing the onerous nature of such compliance, China
worked with the IASB so that its state-owned enterprises were not subject to
the same level of related- party disclosures when it adopted IFRS. After its
finalization in 2009, the related-party exemption for state-controlled entities
was used outside China, including in developed economies.

In
discussing Chinas convergence strategy, Zhang Wei-Guo, an IASB board member
and former chief accountant at the China Securities Regulatory Commission,
pragmatically argued that due to its emerging and transition economy, for a
short period maybe China needs special accounting answers, but after some years
the issues will go away, and added that Tweedies successor must take into
consideration different socio-economic factors and take a pragmatic approach,
rather than setting standards purely based on a conceptual framework or on
mathematical reasoning.41

IFRS in other major world
marketsAs IFRS
entered its second decade, ensuring adoptionof IFRS in areas of high
economic growth, like Asia and Latin America, seemed to be increasingly
important to the IASB.42 Prospects for increased IFRS adoption post-2010 were promising,
with Japan permitting IFRS from 2010, Brazil and South Korea slated to require
IFRS from 2011, Mexico and Argentina proposing adopting in 2012, and India
starting its convergence program in 2011. But this momentum was likely to
depend on the strength of commitment to IFRS from the U.S.43 The IASB feared that
rejection of IFRS in the U.S. could lead other major economies to make their
own changes to international standards.44

With major Asian
and Latin American countries signaling growing commitment to IFRS, another
issue facing the IASB was how to accommodate the new entrants interests within
the boards existing decision-making infrastructure. Chinas success in
tailoring the IASB standard on related-party disclosures to its domestic
interests was likely to set a precedent for new entrants to take a more active
role in shaping IFRS. The IFRS Foundation had already begun to accommodate
emerging markets by appointing the IOSCOs Emerging Markets Committee chairman
to its monitoring board.45 Tweedie also signaled further steps by
offering seats in the monitoring board to Brazil, China, or India, as well as
offering to shift the balance within the IASB to give Asia the deciding
voice, currently split between the U.S. and Europe.46 But these changes were unlikely to be costless to the IASBs
extant power bases. Some quick mental arithmetic suggested that such
reshuffling would happen at the expense of the U.S., Europe, or both.

The Position of the U.S.

Since its
establishment in 2001, the IASB had intended for IFRS to become recognized in
the United States.47 A first step was made in 2002, when the
U.S. FASB and the IASB pledged to make their accounting standards compatible.48 Both boards agreed to remove differences between their
accounting standards within jointly identified priority areas.49 From 2002 to 2007, the IASB and the

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FASB managed to converge on
issues such as accounting for changes in accounting standards, accounting for
error corrections, and accounting for share-based compensation.50 In recognition of the
convergence progress achieved, in 2007, the SEC lifted the requirement for
foreign companies listed in the U.S. to provide U.S. GAAP financials and
allowed the alternative use of IFRS.51 In 2008, the SEC voted for an updated convergence roadmap
proposing a switch to a single set of standards for all U.S. companies by 2016,
with a final decision scheduled for 2011.52 The following year, the G20 nations endorsed the idea of
preparing global accounting standards and set a tight deadline for mid-2011 to
attain it.53 In late 2010, however, the
outcome of U.S. GAAPs convergence with IFRS seemed uncertain, as the chances
that the SEC would decide to adopt a single common set of reporting standards
remained unclear.54

Organizationally,
the IASB had from the outset been designed similarly to the FASB.55 Doing so, it was believed,
would enhance the chances of the U.S. eventually adopting IFRS. The IASB also
gave Americans broad representation within its structures: four of the fifteen
board members, five of the twenty trustees, and the foundations top staffer,
its chief operating officer, were all American. Moreover, the FASB had been
awarded a special contractual working relationship with the IASB on setting IFRS.56 [The] FASB is sitting at the
table every month with the IASB, affecting the decisions that are made,
acknowledged Mackintosh.57 For its part, after the EU, the U.S. was the highest national
donor to the IASB. In 2010, around 20% of the funding for the IASB was expected
to come from U.S. sources.58

Although
IFRS and U.S. GAAP exhibited many commonalities,59 they differed conceptually in
certain important respects. For instance, U.S. GAAP, with a longer history and
a close working relationship with U.S. law, was often considered detailed and
rules-based; IFRS, reflecting in part the need to satisfy many diverse
constituencies, tended to be broader and more principles-based.60 Also, reflecting economic and
political differences across different industries, U.S. GAAP permitted
industry-specific accounting, which meant the same transaction could be
recorded differently, depending on the industry; IFRS, on the other hand, made
no industry -specific exceptions.61 Finally, while U.S. GAAP did not contain an embedded permission
to override its standards (although it had made some exceptions for private
companies), IFRS allowed a true and fair override when needed for an
appropriate financial presentation.62

On a
more technical level, IFRS and U.S. GAAP also conflicted in many areas.
Notwithstanding eight years of convergence efforts, some observers believed
that important and contentious differences remained unaddressed.63 Inventories, development
costs, long-lived assets, financial instruments, and consolidations were among
the areas where the systems seemed to diverge rather than come together (see Exhibit
7 for selected IFRS and U.S. GAAP differences).64 Its going to be hectic for
the next 12 months, I can assure you, said Tom Jones, former IASB vice chairman,
when discussing the upcoming convergence challenges in April 2010.65

The
benefits of converging further with or adopting IFRS in the U.S. were numerous.
Convergence promised simplified reconciliation work for financial statement
preparers like U.S. multinationals, and many believed that adoption of IFRS
would yield substantial cost savings.66 More specifically, according to some observers, compliance with
IFRS would enable U.S. multinationals to cut costs by centralizing accounting
functions and by gaining access to a global accounting talent pool.67 In addition, incorporation of
IFRS in the U.S. would enable U.S. firms to find financing more easily in new
growth markets like Asia,68 and American investors educated in IFRS were likely to better
understand foreign firms. Do U.S. investors understand Chinese accounting,
Indian accounting? No, but they do understand IFRS. So, it makes sense to go
that route, said Tweedie.69

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Incorporating,
and to a lesser degree, converging with IFRS in the U.S. also entailed certain
costs for various U.S. actors. Around 80% of U.S. companies that, according to
one CFO poll,70 hadnt reported in line with IFRS in 2010, would have to change
their accounting and related systems such as enterprise resource planning (ERP)
platforms.71 In the light of these
implementation challenges, a survey by KPMG and Financial Executives
International showed that while 94% of financial executives had declared their
capability of adopting IFRS by 2016 if decided in 2011, as much as 75% of
respondents would wait until the SEC required IFRS before their organizations
abandoned U.S. GAAP.72 That being said, certain companies boasted significant eagerness
to shift to IFRS. We saw the writing on the wall back in 2004 and we started a
project to prepare IBM for the eventual move. Now were at the stage of . . .
making sure that we know exactly what the impact will be when we adopt, said
Aaron Anderson, director of IFRS policy and implementation at IBM.73

Apart
from businesses, auditors would also need time to prepare for the new
standards.74 There is absolutely going to
be a cost to that, said John B. Veihmeyer, CEO of KPMG LLP in the United
States. But, he added quickly, Once you’ve implemented, there shouldn’t be any
higher cost of auditing IFRS than there is auditing U.S. GAAP.

The
costs of IFRS convergence and its possible adoption stretched beyond setup
expenses. As U.S. GAAP was tailored to the needs of the American markets, the
idea of switching to a one-size-fits-all system did not seem rational to some
U.S. financial market participants and regulators. Another big cost of adopting
IFRS was related to giving up sovereign control of accounting standard-setting
to an international body without a long history of due process.75 Additionally, some academics
argued that adopting IFRS in the U.S. could impede innovation in accounting
standard-setting, since such an adoption would virtually guarantee the IASB a
worldwide monopoly over accounting issues.76

Tweedie
noted on the role of convergence between U.S. GAAP and IFRS, I think it is
critical. We can have international standards, but we will never have global
standards without the United States. . . . It would be very difficult for the
rest of the world to accept [IFRS] if the United States said, We are not going
to do this.77

Strategic Tensions on Fair Value Accounting

Since
its establishment, the IASB was closely identified with fair value accounting.
The practice, rewriting accounting numbers to current estimates of their
fair-market value, was not new, but it remained a contentious accounting issue.
On one hand, many believed that fair values provided greater transparency in
financial reporting, thus allowing investors and other financial statement
users to make better capital allocation decisions.78 On the other hand, fair value
accounting was criticized for being subjective and difficult to apply, notably
in illiquid and poorly developed markets.79 In addition, many saw fair values as promoting short-termism,
putting the long- term stability of companies and economies at risk.80 In this vein, fair values had
been criticized as pro-cyclical, at first fueling market euphoria by recording
temporary increases in market values in financial reports, and then
exacerbating panic by forcing write-downs as the value of assets declined.81

The
first large-scale dissonance on fair values started in 2003, when the EU
prepared to vote on IFRS adoption. European banking supervisors, led by France,
protested loudly against the mark-to-market character of the IAS 39 regulations
on financial instruments, and demanded influence on reshaping the proposal.82 The IASB has been too
dogmatic, too reluctant to listen, protested Gilles de Margerie, then CFO of
the French bank Credit Agricole.83 The main issue was that fair value measurement of derivatives
required by IAS 39 could skew the income statements of many EU firms,

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especially banks.84 In 2004, the European
Commission decided to temporarily exclude the contentious parts of IAS 39 from
its endorsement.85 Tweedie admitted that IAS 39 was imperfect, and changes in the
standard would be made in the future.86

In the
wake of the 20082009 financial crisis, frictions around fair values in IFRS
intensified. Many IASB stakeholders, including banks and market regulators,
claimed that fair value standards for banks financial reporting inflated their
asset values in boom times, while overstating their losses when the financial
markets went bust in 2008.87 Tweedie admitted that fair value accounting had exacerbated
banks losses, but argued that its impact was minimal compared to other factors
such as poor lending decisions and a lack of risk management.88

Banks
used political support to limit the use of fair value accounting in the
recognition of distressed assets during and after the crisis.89 In October 2008, the U.S.
FASB enacted relaxed guidance on adopting fair value for certain securities.90 Subsequently, the EU
exercised pressure on the IASB to ease accounting rules on fair-value markdowns
to save European banks from collapsing.91 The European banks believed that they were at a disadvantage
compared to the U.S. banks. That’s where the pressure came from, explained
Mackintosh.92 The IASB quickly gave in to the pressure from the European
banking lobby, prompting a British legislator to publicly refer to the board as
spineless.93 Through 2010, the effects of the banks power over accounting
standard-setting continued to be felt, leading former SEC chairman Arthur
Levitt to lament, Independent standard-setting is in greater jeopardy than at
any time since the FASB was formed.94

Fair
value accounting also created a visible schism within the EU during and after
the financial crisis. Rewriting IFRS 9 rules on hedge accounting was one such
major fair- value- based issue as of 2010.95 On one side, France, Germany, Italy, the European Central Bank,
and some other continental European regulators were resisting the introduction
of more mark-to-market principles.96 Stability is part of the quality of standards, said Jrme
Haas, head of the French accounting standards body, adding that fast- paced
standards revisions could have a negative impact on companies.97 Many believed that this group
considered the 20082009 financial crisis to be primarily caused by illiquidity
in financial markets, and so viewed promoting post-crisis stability as
paramount. In this context, traditional historic cost accounting, with its
reluctance to write up accounts to current market values, was viewed as more
prudent. On the other side, the U.K., with its traditional faith in market
institutions, viewed promoting greater transparency in financial reporting
through increased fair-value use as the most appropriate post-crisis response.98 Commenting on this schism,
Tweedie noted the need for a solution, saying, There can’t be global banking
regulation if there are different accounting systems. IFRS is not just about
investments, but regulation as well. The IASB doesnt set the standards for
banking regulators, but IFRS is the core information they would start to use.99

The
financial crisis also seemed to polarize the investment community, which until
then was largely demanding as much transparency as possible through increased
fair-value use in financial reporting. After 2008, while some investors
continued to advocate for marking all assets to the market during post-crisis
regulatory consultations, several financial analysts tended to support the
companies they covered by arguing they should be shielded from fair-value-based
asset write-offs.100

The Way Forward?

For the
IASB, addressing these issues was critical to remaining relevant in the decade
ahead. However, addressing the issues required the board to tackle some very
basic differences among its constituencies. For example, while investors
generally wanted as much timely disclosure as possible to quickly understand a
companys financial position and its potential off-balance-sheet risks,

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regulators were often
concerned about the destabilizing effects of systemic asset write-downs and
liability recognition. Further, while companies often asked for standards to be
flexible and easy to implement, various advocacy groups sometimes added that
standards should also make firms accountable to society at large.101 Also in this mix were the
differing voices among governments and central banks on the importance of fair
values in maintaining capital market stability. Framing these basic differences
were even more fundamental questions about the boards existence and due
process. For example, what was the public good that the IASB was aiming to
deliver? And how was the board to prioritize among the various national
governments, multinational corporations, and public interest groups who were
actively lobbying to shape the nature of IFRS? While these questions were not
easy to answer directly, the IASB began exploring some critical organizational
reforms that would shape the boards approach to the challenges ahead.

Organizational Reforms

IncorporationThe more the IASBs influence
grew on a global level, the more often itsconstituents could be heard
questioning its structural setup. A 2007 article in Accountancy Age, for
example, stated, The IASB has to answer the question: Can it, a Delaware
corporation with no democratic mandate, be the solution to [the] problems of 21st-century accounting?102 The IFRS Foundations
incorporation as a private not-for-profit entity in the U.S. state of Delaware
indeed did not seem to reflect the boards international status and mandate
anymore. Discussions kept emerging about whether the board should reincorporate
in another country and under another status that better reflected its
international ambitions. Yet the choice of relocation was not a decision that
could be taken lightly. Should the IASB, for example, choose a European Union
member state or an Asian country as its new home to reflect the importance of
these regions in its functioning? Or should the foundation relocate to a
neutral country like Switzerland? And what impact would reincorporation away
from the U.S. have on that countrys eventual decision on IFRS?

Constitutional review103The IFRS Foundations constitution of 2000 included a requirementto conduct a review of the entire structure of the IASB and its
effectiveness every five years. The process allowed interested parties to comment
on the trustees public proposals and raise issues they wanted the foundation
to consider in wide public consultations.

The
trustees started the first mandatory review in 2004 (concluded in 2005). The
resulting internal reforms led to a more explicit definition of the IASB as the
standard-setter within the foundation, and prescribed an increase in the number
of trustees to six each from Europe, North America, and Asia/Oceania, and four
from other areas subject to establishing an overall geographic balance.

The
second review, commenced in 2008, included in two parts. The first part
(concluded in early 2009) focused on the IFRS Foundations governance and
public accountability, as well as on the IASBs size and composition. European
politicians, for example, had in the past criticized the fact that the
foundation was not answerable to democratic bodies. The resulting amendment,
created by a committee anxious to support the organizations underpinning
principle that global accounting standards should be developed by an
independent IASB, created a controversial monitoring board of public
authorities that would hold the trustees themselves accountable.104 It also recommended an
increase in the number of IASB members from 14 to 16 by 2012, included guidelines
to ensure a broad international basis for board membership, and provided more
flexibility regarding part-time members. The trustees stressed that the
amendments addressed the comments received from a wide base of stakeholders,
both organizations and individuals, including the recommendations made by the
G20 summit in 2008.105 The second part of the review, completed in early 2010, changed
the name

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The IASB at a Crossroads:
The Future of International Financial Reporting Standards

111-084

of the principal organization
to IFRS Foundation and included a bold designation of investors as the
boards target audience (see Exhibit 8 for selected changes).106

Subsequently,
the trustees initiated a strategy review assessing the IFRS Foundations
mission, governance, financing, and standard-setting process for a new decade.107 In parallel, the monitoring
board commenced its own governance review of the IFRS Foundation to evaluate
whether it could set global standards and be appropriately accountable yet
independent within the current organizational structure.108

A new IASB chairmanAs Tweedie neared the
completion of his second and final five-yearterm in June 2011, the
trustees had, in the fall of 2009, started an international search process for
his successor. Commenting on the early start for a replacement chairman, the
then-chairman of the trustees, Gerrit Zalm, noted, We shall shortly be
beginning the process of considering what the IASB will look like in the next
phase in the development of global standards. The new chairman will play an
important role in that process. We are launching the search process now to
allow time for the broadest international search possible to fill this vital
position and to provide for a smooth transition.109 The trustees sought
nominations from more than 500 stakeholder organizations, considered about 300
candidates from 28 countries, and then scrutinized a reduced pool of 45 people
from 20 countries.110

On
October 12, 2010, the trustees announced the appointment of Hans Hoogervorst, a
former Dutch finance minister and head of the Dutch financial market regulator,
as the new chairman of the IASB. Ian Mackintosh, a former chief accountant of
the Australian Securities and Investment Commission and extant chairman of the
U.K. Accounting Standards Board, was appointed as his vice chairman. The naming
of a European to the boards leadership was a potential signal that Europe
still remained at the center of the boards thinking; Britains losing the
boards top job to a Dutchman seemed to suggest a greater voice for continental
Europe in IFRS standard-setting. Hoogervorsts appointment also potentially signaled
a new deference to the political realities that were likely to shape
international standard-setting; the worlds top accounting standard-setter was
no longer to be an accountant, but rather a politician.111

Hoogervorst
commented on his appointment, I strongly believe that a global set of
accounting standards, set for investors by an independent standard-setter, is
an essential component for the worlds financial markets . . . The IFRS story
is a remarkable one. I relish the opportunity to build on the great work of Sir
David Tweedie and to lead the organization into a second decade of success.112
The IASB board compositionThe composition of the IASB
board had regularly beenscrutinized over the
organizations first decade to determine whether it accurately represented the
IASBs growing membership. Supporters of a reform had often criticized the
boards Anglo-American orientation and asked for a stronger voice for
continental European and emerging market economies. Tweedie noted in an
interview, Currently on the board are people from South Africa, Australia, the
U.K., and America; at least half of the board is Anglo-American, and we [all]
account basically the same way. We could argue over certain aspects of
accounting, but the whole thrust of the investor focus is very much an
Anglo-American trait.113

The
constitutional review of 2010 had prescribed broader geographic diversity for
an enlarged board of 16 by 2012. It stipulated that while the criteria for IASB
membership remained professional competence and practical experience, the
targeted outcome of the geographic diversity program was a board with four
members from Europe, four members from North America, four members from the
Asia/Oceania region, one member from South America, and two members appointed
from any area subject to maintaining overall geographical balance.114 The question of which area or
country should

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111-084 The IASB at a Crossroads: The Future of
International Financial Reporting Standards

be entitled to send the two
at-large members remained unresolved, but there were elements within the
Anglo-American capital markets community that argued for a continued
Anglo-centric plurality. (Stephen Haddrill, the chief executive of the U.K.
Financial Reporting Council, for example, noted that the region was still a
net exporter of corporate governance best practices.)115

Stakeholders
from other regions also lobbied to receive an expanded say. EU policymakers,
for example, felt that Europes early adoption of IFRS should provide them with
a major voice, but opposition arose from those claiming the IASBs independence
should have prevalence over regional interests.116 Other regional forums with
links to the public and the private sector, like those from Asia (primarily
under Chinese leadership), were also trying to influence the boards
internationalization.117

An enforcement body?Historically, standard-setting
had emerged and thrived withinspecific jurisdictions and
had, as such, carried enforcement authority, exercised either through the
national standard-setter itself or a related body (such as the SEC in the
U.S.). The IASB, on the other hand, issued international standards without
having any statutory authority or global enforcement mechanism in place. One
decade on, IFRS continued to be enforced locally and to differing degrees by
country-based regulatory regimes, such as the Ministry of Finance in China and
the Financial Services Authority (among other bodies) in the U.K. Just as the
degree of IFRS harmonization (from full adoption to convergence) varied across
jurisdictions, approaches to regulation and enforcement of financial reporting
standards and practices varied widely; jurisdictions legal histories and the
development of their capital markets often drove this variation. The SEC, for
example, had a reputation for relatively strong powers and a hands-on approach
to financial reporting enforcement,118 while enforcement institutions in many emerging markets remained
weak and susceptible to corruption.119 Moreover, even with relatively similar capital market
environments, enforcement could vary due to differences in political
philosophies; the U.K.s Financial Services Authority was perceived as less
active than the SEC in the U.S.120 Tweedie commented, We dont have an international SEC, and until
we do, it is going to be the individual [national] regulators. . . . Certain
countries are better than others at enforcing the standards. . . . We are
trying to get the enforcement on a more level basis throughout the world. . . .
We would ideally like standardized regulatory procedures worldwide.121 Because nations tended to
strive to maintain sovereignty over legal enforcement and sanctions, many felt
that international agreement over enforcement would be hard to achieve. The
European Unions difficulties in trying to create a single European enforcement
agency had revealed how difficult such an endeavor could be even in a relatively
cooperative trans-national environment.122

John B. Veihmeyer, CEO of KPMG LLP, commented:

One of the paths we need to
evolve down is working on a global regulatory framework. We will obviously
always need country regulators. That will never change, at least in my
lifetime. But I think making progress toward a global regulatory framework is a
very important issue. . . . There are already steps underway on the regulatory
side: groups that are coming together, composed of both regulators of the accounting
profession and securities regulators, to talk about the issues and the
challenges they face, and sharing some ideas about what is being done.123

Samuel
A. DiPiazza, then CEO of PricewaterhouseCoopers and an IFRS Foundation trustee,
agreed that the aim should be for a global framework rather than a single
regulator, saying, Were organized into national entities. Countries are led
by policy makers elected by their local people. Theyre not going to give up
the ability to regulate their own markets. What we have to do is find a

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The IASB at a Crossroads:
The Future of International Financial Reporting Standards

111-084

way for the governance
standards, trade standards, and accounting languages to be so comparable that
its easy to do business across borders.124

Some
observers noted that certain progress had already been made, with the worlds
regulators starting to enhance their dialogue with standard-setting bodies as
well as with their peers. The SEC, for example, had established a work plan
with EU regulators to address differences in interpretation and application of
IFRS.125 Others remained doubtful,
however, wondering whether an international standard-setting body or related
international enforcement body should and could ever be given real enforcement
power. Perhaps the monitoring board, which included representatives of some of
the most important international regulators,126 could evolve into an international quasi-enforcement authority?
Or could the IOSCO play a bigger role in this?127 Additionally, any efforts to
strengthen international enforcement would be difficult without also clarifying
what adoption or convergence of the underlying sets of standards really
meant.

The influence of audit firmsAudit firms, given the nature
of their business, followed andinfluenced standard-setting
very closely. On a global level, the Big Four audit firms had all contributed
to the emergence and subsequent spread of international accounting standards
through, for example, their participation in the IFRS Foundations funding.
Although the number of IFRS sponsors had increased over the years to include,
by 2010, thousands of bodies, either directly or indirectly, the Big Four still
were among the IASBs largest contributors (see Exhibits 9 and 10 for
aggregated national and corporate donations to the IASB, and Exhibit 11 for a
list of the IASBs main private sponsors).

Given
the position of large global audit firms on the front lines of accounting
practices, the expertise of these firms was invaluable for standard-setting.
Nevertheless, it was important for the board and its other constituents to
determine how much leverage the Big Four audit firms should have going forward.
Some countries reluctance to commit to IFRS was, for example, said to be
linked to their perception that the Big Fours agenda drove IFRS in important
ways. In India, for instance, the accounting profession was historically highly
fractured, as audit firms were not allowed to have more than 20 partners.128 A senior Big Four audit
partner in India opined that accountants from Indias smaller audit firms,
represented by the Institute of Chartered Accountants of India (ICAI), were
ambivalent to the adoption of IFRS in India partly due to fears that adoption
would diminish their standard-setting power relative to the Big Four.129

The IASBs financingAs of 2010, the IASB funding
model was based on voluntary supportfrom its constituents. This
model was adopted from that in use by the FASB at the time of the IASBs
founding. Since then, however, the Sarbanes-Oxley Act in the U.S. had
introduced public funding for U.S. standard-setting,130 leaving the IASB alone to
justify its continued reliance on private donations and open to the criticism
that it was beholden to the demands of its financial sponsors. Charles
Niemeier, a board member at the U.S. Public Company Accounting Oversight Board,
for example, had said on the issue, If the IASB wants its standards to be
considered for use in the United States, it should present a plan for
independent funding for the SEC to consider.131 In its defense, the IASB had
pointed out that the IFRS Foundation, not the board itself, received the
payments. Speaking on the separation between these two entities, Tweedie said,
They cant get involved with technical matters, and we don’t get involved in
finance or anything that falls within their purview.132 To further address the
funding issue, the IASB was also pursuing widening its funding over a range of
market participants from across the worlds capital markets and the
introduction of mandatory levies for listed companies in a growing number of
countries. Yet, a 2010 SEC report estimated that, thus far, only 25% of
jurisdictions that used IFRS as part of their financial reporting systems
contributed to the IFRS Foundation.133

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111-084 The IASB at a Crossroads: The Future of
International Financial Reporting Standards

Questions to Address

Ten
years on, it was difficult to deny the IASBs extraordinary achievement of
putting together a relatively well-respected and well-adopted set of accounting
standards for the world. However, the jury was still out on whether the
ultimate goal of a move to a single set of global accounting rules was really
possible or even desirable given legal and cultural differences across
countries; after all, uniform standards alone were unlikely to produce uniform
reporting.

The
IASB knew that the coming year, with the SECs decision on IFRS adoption, would
be crucial in determining its prospects of becoming the global
standard-setter going forward. Reflecting on the matter, Tweedie commented at
the American Institute of CPAs 2010 National Conference: [There] is a window
of opportunity. If we blow this, then I suspect the world is going to
disintegrate as far as the global standards are concerned. We won’t get a
second chance, he stressed. It will be gone for a generation.134

The
organization had already changed substantially in the past few years to meet
current and future challenges to its growth, but some fundamental questions
still remained. Should it, for example, put more emphasis on full adoption
versus convergence with its IFRS principles? Should it make more compromises to
facilitate adoption by the U.S.? Should it, in addition to IFRS, also focus on
harmonizing enforcement and auditing rules? Should it make more adjustments to
its own structure to accommodate the new tasks and its growing membership and
stakeholder base?

Multi-national
companies worldwide, seeing their playing fields internationalize as product,
services, capital, and managerial markets were increasingly global in
character, were following the process closely. The efforts to move to
internationally acceptable accounting standards were on the leading edge of a
more general move towards global standards in all areas of business practice,
including product quality standards, occupational safety standards,
environmental standards, trade law, securities law, and immigration reform.
Were there lessons to be learned from the accounting convergence process for
the convergence of corporate governance practices more generally? Had the IASB
moved too far, too fast, or was the pace of accounting globalization an example
for other areas of business standardization to follow?

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The IA SB at a Crossroads: The Future of International Financial
Reporting Standards

111-084

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.gif”>9-111 -084R E V : M A Y 2 7 , 2 0 1 1K A R T H I K R A M A N N AK A R O L M
I S Z T A LD A N I E L A B E Y E R S D O R F E RThe IASB at a Crossro ds: The
Future of Internati nal Fi nancial Repor ting S tandar dsIn late
2010, the Internation al Accountin g Standards Board (IASB ), the Londo n-based
stan dard-setting body for I nternational Financial Re porting Stand ards
(IFRS), unveiled th e final phase of its prop sal on valuation of finan c ial
instrume nts.1 Impacting around 120 countries t hat had com mitted in so me form
over the last ten years to IFRS , the exposu re draft was an important step in
the IASBs efforts to advance globally acceptable princi ples of financial
reporting.More
broadly, the financial nstruments valuation proposal reflected the IASBs aim
for its s econd decad e and bey on d to broade n the numbe r of countrie s
committing to its standards, and to make IFRS the single, high-quality set of
standards on a global basis. But, t he board still had several majorissueto address o n this journey. First, whil e an
impressive number of jurisdictions had incorpratedIFRSinto their reporting
practices, the strength
o f the juris dictions co mmitmentsvariedconsi derably.2 Som e countries had entirely eliminated d ifferences bet ween
their standards andIFRSand h ad become IFRS full
adopters, whereas others h ad only begun to mini mize the differ ences through
a loosely defined proc ess called convergence. Besides, a large number of
countries h d not comm itted themselves to IFRS at all. Most p rominently, the
U.S. was still examining the extent of its comm itment to IFRS, as its
Generally A ccepted Ac counting Principles (GAAP) remain d an altern ative to
the IASBs standards. While the U.S. Financ ial Accounti ng Standards Board
(FAS ) had worked with the I ASB on alig ning U.S. GAA P with IFRS since 2002,
t he U.S. Securities and Exc hange Com mission (SEC ) and many w ithin the U.S
. investment community remained no n-committal o n full IFRS adoption in A
merica.A
dditionally, the financial crisis of 20082009 had created so me discord mong
the IASBs world wide constituentscomp rised of inve stors, business managers,
bankers, auditors, and m arket reg ulators, among otherson the role of a
counting standards in pr ecipitating t he crisis.3 No tably, the p actice of
fair value accoun ting, promoted by the IA SB across several of its standards,
was one of the m ost contentious post-crisis accounting issues world wide.
Althou gh the IASB had advocate d fair value accounting as a mechan ism to
facilitate greater transparency in financial reporting, s everal IASB
constituents had criticized it as a destabilizing influence that had
exacerbated the financial crisis by am plifying boo m and bust cy cles in
real-a sset prices through their recognition in financial reports.____________________ _______________
____________________________ ______________ _______________
____________________Profess r Karthik Raman na and
HBS Euro e Research Center Research Assista nt Karol Misztal and Assistant Dire
ctor Daniela Beye rsdorfer prepared this case. This case is based primarily on
published sources. The cas ewriters gratefully acknowledge the insights of two
i nterview subjects who provided information contain ed in the Organi ational
Reforms section. HBS cases are developed s olely as the basis for class
discussion. Cases are not intended to serve a s endorsements, sources of
primary data, or illustration s of effective or ineffective manageme nt.Copyrig ht 2011 Preside nt and Fellows of Harvard College. To
order copies or request permission to reproduce materials, call 1-800
-545-7685, write Harvard Business School Publishing, Boston, MA 02163, o r go
to www.hbsp .harvard.edu/educators. This publication may not be digitized,
photoco pied, or otherwise reproduced, posted, or transmitted, without the
permis sion of Harvard Business School.Purchased by: Lyn
Klein AREYESKLEIN@HVC.RR.COM on March 20, 2014111-084 The IASB at a Crossroads: The Future of
International Financial Reporting StandardsFinally,
while leaders of the G20 nations were increasing pressure on IASB
standard-setters to provide a consistent set of global accounting standards,
segments of the IASBs constituents viewed the boards organizational setup and
procedures as inappropriate for an international capital market authority.4 As of late 2010, the IFRS
Foundation, the IASBs parent entity, was still part of a Delaware-incorporated
non-profit corporation with no international standing. The foundation faced the
challenge of potentially reincorporating the organization to give it greater
international credibility. How it could go about this process was as yet
unclear.The First Decade of the IASBThe IASBs OriginsThe
antecedents of the IASB dated back to 1973, when the International Accounting
Standards Committee (IASC) emerged in London as an association of the
private-sector national accounting bodies of nine jurisdictions: Australia,
Canada, France, Germany, Japan, Mexico, the Netherlands, the U.K. and Ireland,
and the U.S.5 The predominance of English-speaking countries, with an
especially strong involvement of the Institute of Chartered Accountants of
England and Wales (ICAEW) in the creation of the IASC, resulted in the
perception that the committee had an Anglo-centric orientation.6 The IASC was the accountancy
professions initiative to narrow international differences in accounting
practices, driven mainly by an increasing need for comparable financial
information in a period of accelerating international trade.7 Rather than setting specific
rules, the IASC focused on developing broad, internationally recognized
accounting standards to shape accounting rules within member countries.8A
series of events led to a restructuring of the IASC in the late 1990s, followed
by a broader adoption of its accounting standards. First, a growing number of
multinationals in the 1990s sought a common set of standards for their
operations across the world; in particular, the companies wanted to avoid
preparing multiple sets of books under different accounting regimes and then
engaging in costly, annual reconciliation exercises. Second, the European
Commission (EC), which was pushing for a common set of standards across its
member nations, wanted to play a more important role in the harmonization of
global financial reporting standards, thus preventing U.S. GAAP dominance of
this process. Third, large-scale corporate governance scandals emerging from
the 1997 South-East Asian financial crisis had built pressure from the
International Organization of Securities Commissions (IOSCO)a to further the IASCs
footprint across the IOSCOs jurisdiction.9 Sir David Tweedie, the IASBs inaugural chairman, recalled:When we started, we were
focused on multinationals. There were subsidiaries in various countries using
different national standards, and they all had to be reconciled. What really
got us going was the 1997 Asian crash. There you had countries that had
standards and companies that looked all right, but suddenly they went bust. . .
. [T]here was a massive crisis of confidence. So . . . if nobody trusted their
[national] standards, they needed to consider other standards that were
trusted. And there were only two real choices: U.S. GAAP or the international
standards that were in place at that time.10a The IOSCO was an association
of national capital market regulators from over 100 countries based in Madrid,
Spain. Recognized as the international standard-setter for securities markets,
it provided technical assistance to its members to protect investors; maintain
fair, efficient, and transparent markets; and address systemic risks. It was
divided into several committees, of which the Technical Committee and Emerging
Markets Committee were members of the IFRS Foundation monitoring board.2Purchased by: Lyn
Klein AREYESKLEIN@HVC.RR.COM on March 20, 2014The IASB at a Crossroads:
The Future of International Financial Reporting Standards111-084The
IOSCO offered backing to the IASC in exchange for an effort to undergo
fundamental organizational changes and increase the quality and scope of the
IASCs standard-setting activities.11 The IASC commenced an intensive process to create a comprehensive
set of core accounting standards12 and to reshape its governance in line with the structure of the
FASB, in part to increase the odds of being recognized in the U.S.The Founding of the IASBThe
Recommendations on Shaping IASC for the Future report that the IASC issued in
1999 laid the basis for its restructuring. The reforms were finalized in 2001
with the dissolution of the IASC and the creation of the IASB, which assumed
the standard-setting responsibilities from its predecessor. The IASB was highly
aligned with the FASB in terms of organization and governance, with a hope that
IFRS and U.S. GAAP would converge in the future.13From
the beginning, the European Commission emerged as the IASBs main underwriter
and client. In 2000, the European Commission unveiled a proposal to delegate
European accounting standard-setting to the IASB and require all companies
listed in the European Union (EU) to report according to IFRS from 2005.14 The main motivation behind
the European Commissions move was to reinforce the establishment of a single
European capital market and to create support for an international
standard-setting platform that was acceptable to other countries, including the
U.S.15The Organizational StructureCompared
to the IASC, which was viewed as a collegial association of accountants, the
IASB adopted a more professional, hierarchical, and technocratic organization
structure.16 To this end, the board had
the support of several complementary institutions (see Exhibit 1 for the
IASBs organizational structure).The
IASB board was a group of experts experienced in standard-setting, account
preparation and use, and academic work in accounting. The board members were
engaged in technical standard-setting matters and in managing relationships
with various national standard- setters to converge national accounting
standards with IFRS. The composition of the board roughly reflected countries
relative power in international capital markets: In 2010, the board included
five members from the European Union (two from the U.K., including the
chairman, and one each from France, Germany, and Sweden), four members from the
U.S., and one member each from Australia, Brazil, China, India, Japan, and
South Africa (see Exhibit 2 for details on the IASB members).Founded
in 2001, the IFRS Foundation (formerly the IASC Foundation) was the non-profit
governance entity of the IASB. The foundations members, called trustees,
appointed the IASB members and oversaw, evaluated, and raised funds for
standard-setting activities. In 2010, there were six trustees from Europe
(including the chairman), six from North America, six from the Asia/Oceania
region, and one each from Africa and South America (see Exhibit 3 for
details on the IFRS Foundation trustees). The board and the foundation were
supported by a professional staff led by a chief operating officer. This group
of over 100 professionals was in charge of research, analysis of public
comments, and preparation of documents and recommendations for the boards
consideration.In
2009, a new monitoring board was established to oversee the IASB and the IFRS
Foundation, composed, among others, of capital market regulators from the EU,
Japan, and the U.S. Created by powerful governments in wake of the 20082009
financial crisis, the monitoring board was not unilaterally well-received
within the existing IFRS institutions.17 The IASB chairman, Sir David3Purchased by: Lyn
Klein AREYESKLEIN@HVC.RR.COM on March 20, 2014111-084 The IASB at a Crossroads: The Future of
International Financial Reporting StandardsTweedie, described the
structure of the monitoring board as temporary.18 The monitoring board was
officially charged with appointing the IFRS Foundations trustees and overseeing
their activities, as well as with referring matters of public interest to the
IASB. As of 2010, relations between the IASB and its new overseeing board
seemed fractious on critical substantive issues such as global accounting
harmonization deadlines,19 accounting for financial instruments, and the appointment of a
new IASB chairman.20 One journalist wrote that trustees were furious about mandatory
consultations of their appointments with the monitoring board.21IFRSThe
IASB developed its standards, i.e., IFRS, in a process of public consultations
with a broad pool of stakeholders such as investors, analysts, business
leaders, accountants, and national regulators (see Exhibit 4for a
description of the IASBs standard-setting process).22IFRS coexisted with
InternationalAccounting Standards (IAS), financial reporting principles
inherited from the IASC.Ten Years On: The IASB in 2010On the
verge of its 10th anniversary, the IASB had gained broad international acceptance,
with around 120 countries23 requiring or permitting the use of IFRS in some form.
Specifically, 93 jurisdictions (including 30 European Economic Area countries)
required IFRS-based financial reporting for all domestic listed companies, six
jurisdictions required IFRS-based financial reporting only for certain domestic
listed institutions, and 25 jurisdictions permitted domestic public firms to
report under IFRS (see Exhibit 5 for jurisdictions IFRS adoption
status).24 Some major economies,
including China, India, Russia, and the U.S., had not yet committed to IFRS
adoption, although all of these countries had at least some form of an IFRS
convergence project already in operation or planned (see Exhibit 6 for
details on IFRS adoption and convergence schedules of G20 countries).The
first major IFRS adoption wave had occurred in 2005, when over 7,000 EU-listed
companies25 began their first full year
of IFRS-compliant financial reporting. The status of the IASB as the leading
global standard-setter beyond Europe rose in 2009 when Japan allowed its
domestic listed companies to report under IFRS and lifted the option for using
U.S. GAAP.26 Chinas fast-paced
convergence with IFRS, started in 2006, also indicated the growing prestige of
IFRS.The
IASB described its set of standards as exhaustive and dealing with many
difficult and sensitive topics such as lease accounting,27 pension accounting,28 and derivatives.29 The ongoing multi-phase
development of IFRS 9, the international accounting standard on financial
instruments, was considered one of the IASBs most complex and challenging
ventures yet.30 By late 2010, the board had managed to advance its proposals in
IFRS 9, even though financial instruments valuation had caused profound
tensions among the IASBs stakeholders.31Across many
of its standards, the IASB had spearheaded the use of fair value accounting as
an alternative basis to traditional historic- cost accounting.b Advocated by the IASB as
being more relevant and transparent, the increased worldwide use of fair value
accounting was regarded by some as one of the boards greatest successes.32 However, notwithstanding the
substantial progress made by the IASB in its first ten years, numerous critical
challenges lay ahead. Addressing these challenges was essential to maintaining
and growing the acceptability of IFRS across international capital markets.b In some areas, however, other
standard-setters, such as the FASB, were seen as more active in proposing
fair-value-based standards.4Purchased by: Lyn Klein
AREYESKLEIN@HVC.RR.COM on March 20, 2014The IASB at a Crossroads:
The Future of International Financial Reporting Standards111-084Adoption and ConvergenceThe
nature of countries commitments to IFRS varied considerably across the world.
A few countries, including Australia and Hong Kong, adopted IFRS in its
entirety with almost no exceptions. Many other countries, including the EU
member states, adopted substantially all of the IFRS standards the IASB issued,
but made exceptions in limited cases where local political and economic
situations demanded otherwise. Some other countries required IFRS only for
certain segments of the economy (e.g., banks). Finally, a number of larger
economies, such as China and the U.S., engaged in an often ambiguous process
known as IFRS convergence. Convergence involved minimizing and, where
possible, eliminating differences between national accounting standards and
IFRS through stakeholder consultations.33 When converging, a jurisdiction kept its own national standards
and decided on the amount of alignment with IFRS. Because national
standard-setters defined the extent of convergence, two countries that the
IASB identified as IFRS-convergent jurisdictions could have very different
local accounting standards.Each of
these approaches to IFRS harmonization had proponents. Advocates of full
adoption, represented mainly by the IASB and the so-called Big Four
international audit firms (Deloitte, PricewaterhouseCoopers, Ernst & Young,
and KPMG), claimed that replacing the local rulebook with IFRS was the only way
to ensure complete international comparability of financial statements.34 Moreover, given the pressure
from the G20 leaders for rapid worldwide accounting harmonization, the IASB
argued that promoting IFRS by full adoption was less time-consuming than local
convergence consultations. Convergence is [an] impossible dream. You will
always find issues where you basically don’t agree and where both sides have
good reasons for not agreeing. Youve just got to make a decision. Fiddling
with IFRS [locally] is not the way forward, noted Ian Mackintosh, head of the
U.K. Accounting Standards Board and an advocate of full adoption.35Convergence
champions such as China, on the other hand, stressed the necessity to remain
flexible and adjust accounting rules to the needs of a national economy.36 Advocates believed that such
adaptability of accounting rules to local needs would to lead to a better
understanding of local business performancean understanding that would not be
possible with one-size- fits-all IFRS principles. In addition, convergence, its
proponents argued, was more politically feasible: a jurisdiction that handed
over its accounting standard-setting to the IASB through full IFRS adoption was
surrendering some amount of its sovereignty. Finally, even if a country was
aiming at ultimate full adoption of IFRS, getting there through convergence,
supporters reasoned, was a better way to protect and advance the interests of
domestic constituents.IFRS as adopted by the EUThe EUs vote on the adoption
of IFRS in 2004 was the firstmajor test for the
full-adoption approach. To prevent the IASB from having a direct impact on
European capital markets, the EU created a special Accounting Regulatory
Committee and charged it with deciding which IFRS rules would apply within its
jurisdiction.37 In 2003, the European Commission had asked the IASB to rewrite
the IAS 39 standard (dealing with recognition and measurement of financial
instruments), but the board had refused. What we cannot do is give a
concession we think is wrong, otherwise we destroy the board, noted Tweedie at
the time.38 As a result, in late 2004,
when the EU endorsed IFRS, it permitted certain companies not to apply some parts
of IAS 39.39 Several observers at that
point raised concerns that this would jeopardize further efforts at full
adoption of IFRS.40 However, seven years on, as the EU continued to be the IASBs
strongest backer, its need for carving out exceptions to IFRS remained minimal.IFRS, made in ChinaIn early 2006, China pledged
to substantially converge itsAccounting Standards for
Business Enterprises (ASBE) with IFRS, effective 2007. Despite this firm5Purchased by: Lyn
Klein AREYESKLEIN@HVC.RR.COM on March 20, 2014111-084 The IASB at a Crossroads: The Future of
International Financial Reporting Standardsconvergence commitment, actual
ASBE post-2007 differed from IFRS in certain important areas; China cited its
unique circumstances for the differences. For instance, China restricted the
use of fair value accounting to only a handful of prominent companies, arguing
that the low sophistication of its financial markets and the low share of
financial institutions in the capital markets made the wider use of fair value
accounting less meaningful. Similarly, impairment reversals, permitted under
IFRS, were prohibited under the ASBE because the government feared that income
statement-oriented Chinese companies could use such reversals to manipulate
reported profits. But perhaps Chinas most important accomplishment in its
convergence with IFRS came in the area of disclosures on related-party
transactions. Given state ownership and control of a substantial proportion of
Chinese companies, China feared that many of its entities were likely to be
subject to extensive related-party disclosure requirements under a strict
interpretation of IFRS. Citing the onerous nature of such compliance, China
worked with the IASB so that its state-owned enterprises were not subject to
the same level of related- party disclosures when it adopted IFRS. After its
finalization in 2009, the related-party exemption for state-controlled entities
was used outside China, including in developed economies.In
discussing Chinas convergence strategy, Zhang Wei-Guo, an IASB board member
and former chief accountant at the China Securities Regulatory Commission,
pragmatically argued that due to its emerging and transition economy, for a
short period maybe China needs special accounting answers, but after some years
the issues will go away, and added that Tweedies successor must take into
consideration different socio-economic factors and take a pragmatic approach,
rather than setting standards purely based on a conceptual framework or on
mathematical reasoning.41IFRS in other major world
marketsAs IFRS
entered its second decade, ensuring adoptionof IFRS in areas of high
economic growth, like Asia and Latin America, seemed to be increasingly
important to the IASB.42 Prospects for increased IFRS adoption post-2010 were promising,
with Japan permitting IFRS from 2010, Brazil and South Korea slated to require
IFRS from 2011, Mexico and Argentina proposing adopting in 2012, and India
starting its convergence program in 2011. But this momentum was likely to
depend on the strength of commitment to IFRS from the U.S.43 The IASB feared that
rejection of IFRS in the U.S. could lead other major economies to make their
own changes to international standards.44With major Asian
and Latin American countries signaling growing commitment to IFRS, another
issue facing the IASB was how to accommodate the new entrants interests within
the boards existing decision-making infrastructure. Chinas success in
tailoring the IASB standard on related-party disclosures to its domestic
interests was likely to set a precedent for new entrants to take a more active
role in shaping IFRS. The IFRS Foundation had already begun to accommodate
emerging markets by appointing the IOSCOs Emerging Markets Committee chairman
to its monitoring board.45 Tweedie also signaled further steps by
offering seats in the monitoring board to Brazil, China, or India, as well as
offering to shift the balance within the IASB to give Asia the deciding
voice, currently split between the U.S. and Europe.46 But these changes were unlikely to be costless to the IASBs
extant power bases. Some quick mental arithmetic suggested that such
reshuffling would happen at the expense of the U.S., Europe, or both.The Position of the U.S.Since its
establishment in 2001, the IASB had intended for IFRS to become recognized in
the United States.47 A first step was made in 2002, when the
U.S. FASB and the IASB pledged to make their accounting standards compatible.48 Both boards agreed to remove differences between their
accounting standards within jointly identified priority areas.49 From 2002 to 2007, the IASB and the6Purchased by: Lyn
Klein AREYESKLEIN@HVC.RR.COM on March 20, 2014The IASB at a Crossroads:
The Future of International Financial Reporting Standards111-084FASB managed to converge on
issues such as accounting for changes in accounting standards, accounting for
error corrections, and accounting for share-based compensation.50 In recognition of the
convergence progress achieved, in 2007, the SEC lifted the requirement for
foreign companies listed in the U.S. to provide U.S. GAAP financials and
allowed the alternative use of IFRS.51 In 2008, the SEC voted for an updated convergence roadmap
proposing a switch to a single set of standards for all U.S. companies by 2016,
with a final decision scheduled for 2011.52 The following year, the G20 nations endorsed the idea of
preparing global accounting standards and set a tight deadline for mid-2011 to
attain it.53 In late 2010, however, the
outcome of U.S. GAAPs convergence with IFRS seemed uncertain, as the chances
that the SEC would decide to adopt a single common set of reporting standards
remained unclear.54Organizationally,
the IASB had from the outset been designed similarly to the FASB.55 Doing so, it was believed,
would enhance the chances of the U.S. eventually adopting IFRS. The IASB also
gave Americans broad representation within its structures: four of the fifteen
board members, five of the twenty trustees, and the foundations top staffer,
its chief operating officer, were all American. Moreover, the FASB had been
awarded a special contractual working relationship with the IASB on setting IFRS.56 [The] FASB is sitting at the
table every month with the IASB, affecting the decisions that are made,
acknowledged Mackintosh.57 For its part, after the EU, the U.S. was the highest national
donor to the IASB. In 2010, around 20% of the funding for the IASB was expected
to come from U.S. sources.58Although
IFRS and U.S. GAAP exhibited many commonalities,59 they differed conceptually in
certain important respects. For instance, U.S. GAAP, with a longer history and
a close working relationship with U.S. law, was often considered detailed and
rules-based; IFRS, reflecting in part the need to satisfy many diverse
constituencies, tended to be broader and more principles-based.60 Also, reflecting economic and
political differences across different industries, U.S. GAAP permitted
industry-specific accounting, which meant the same transaction could be
recorded differently, depending on the industry; IFRS, on the other hand, made
no industry -specific exceptions.61 Finally, while U.S. GAAP did not contain an embedded permission
to override its standards (although it had made some exceptions for private
companies), IFRS allowed a true and fair override when needed for an
appropriate financial presentation.62On a
more technical level, IFRS and U.S. GAAP also conflicted in many areas.
Notwithstanding eight years of convergence efforts, some observers believed
that important and contentious differences remained unaddressed.63 Inventories, development
costs, long-lived assets, financial instruments, and consolidations were among
the areas where the systems seemed to diverge rather than come together (see Exhibit
7 for selected IFRS and U.S. GAAP differences).64 Its going to be hectic for
the next 12 months, I can assure you, said Tom Jones, former IASB vice chairman,
when discussing the upcoming convergence challenges in April 2010.65The
benefits of converging further with or adopting IFRS in the U.S. were numerous.
Convergence promised simplified reconciliation work for financial statement
preparers like U.S. multinationals, and many believed that adoption of IFRS
would yield substantial cost savings.66 More specifically, according to some observers, compliance with
IFRS would enable U.S. multinationals to cut costs by centralizing accounting
functions and by gaining access to a global accounting talent pool.67 In addition, incorporation of
IFRS in the U.S. would enable U.S. firms to find financing more easily in new
growth markets like Asia,68 and American investors educated in IFRS were likely to better
understand foreign firms. Do U.S. investors understand Chinese accounting,
Indian accounting? No, but they do understand IFRS. So, it makes sense to go
that route, said Tweedie.697Purchased by: Lyn
Klein AREYESKLEIN@HVC.RR.COM on March 20, 2014111-084 The IASB at a Crossroads: The Future of
International Financial Reporting StandardsIncorporating,
and to a lesser degree, converging with IFRS in the U.S. also entailed certain
costs for various U.S. actors. Around 80% of U.S. companies that, according to
one CFO poll,70 hadnt reported in line with IFRS in 2010, would have to change
their accounting and related systems such as enterprise resource planning (ERP)
platforms.71 In the light of these
implementation challenges, a survey by KPMG and Financial Executives
International showed that while 94% of financial executives had declared their
capability of adopting IFRS by 2016 if decided in 2011, as much as 75% of
respondents would wait until the SEC required IFRS before their organizations
abandoned U.S. GAAP.72 That being said, certain companies boasted significant eagerness
to shift to IFRS. We saw the writing on the wall back in 2004 and we started a
project to prepare IBM for the eventual move. Now were at the stage of . . .
making sure that we know exactly what the impact will be when we adopt, said
Aaron Anderson, director of IFRS policy and implementation at IBM.73Apart
from businesses, auditors would also need time to prepare for the new
standards.74 There is absolutely going to
be a cost to that, said John B. Veihmeyer, CEO of KPMG LLP in the United
States. But, he added quickly, Once you’ve implemented, there shouldn’t be any
higher cost of auditing IFRS than there is auditing U.S. GAAP.The
costs of IFRS convergence and its possible adoption stretched beyond setup
expenses. As U.S. GAAP was tailored to the needs of the American markets, the
idea of switching to a one-size-fits-all system did not seem rational to some
U.S. financial market participants and regulators. Another big cost of adopting
IFRS was related to giving up sovereign control of accounting standard-setting
to an international body without a long history of due process.75 Additionally, some academics
argued that adopting IFRS in the U.S. could impede innovation in accounting
standard-setting, since such an adoption would virtually guarantee the IASB a
worldwide monopoly over accounting issues.76Tweedie
noted on the role of convergence between U.S. GAAP and IFRS, I think it is
critical. We can have international standards, but we will never have global
standards without the United States. . . . It would be very difficult for the
rest of the world to accept [IFRS] if the United States said, We are not going
to do this.77Strategic Tensions on Fair Value AccountingSince
its establishment, the IASB was closely identified with fair value accounting.
The practice, rewriting accounting numbers to current estimates of their
fair-market value, was not new, but it remained a contentious accounting issue.
On one hand, many believed that fair values provided greater transparency in
financial reporting, thus allowing investors and other financial statement
users to make better capital allocation decisions.78 On the other hand, fair value
accounting was criticized for being subjective and difficult to apply, notably
in illiquid and poorly developed markets.79 In addition, many saw fair values as promoting short-termism,
putting the long- term stability of companies and economies at risk.80 In this vein, fair values had
been criticized as pro-cyclical, at first fueling market euphoria by recording
temporary increases in market values in financial reports, and then
exacerbating panic by forcing write-downs as the value of assets declined.81The
first large-scale dissonance on fair values started in 2003, when the EU
prepared to vote on IFRS adoption. European banking supervisors, led by France,
protested loudly against the mark-to-market character of the IAS 39 regulations
on financial instruments, and demanded influence on reshaping the proposal.82 The IASB has been too
dogmatic, too reluctant to listen, protested Gilles de Margerie, then CFO of
the French bank Credit Agricole.83 The main issue was that fair value measurement of derivatives
required by IAS 39 could skew the income statements of many EU firms,8Purchased by: Lyn
Klein AREYESKLEIN@HVC.RR.COM on March 20, 2014The IASB at a Crossroads:
The Future of International Financial Reporting Standards111-084especially banks.84 In 2004, the European
Commission decided to temporarily exclude the contentious parts of IAS 39 from
its endorsement.85 Tweedie admitted that IAS 39 was imperfect, and changes in the
standard would be made in the future.86In the
wake of the 20082009 financial crisis, frictions around fair values in IFRS
intensified. Many IASB stakeholders, including banks and market regulators,
claimed that fair value standards for banks financial reporting inflated their
asset values in boom times, while overstating their losses when the financial
markets went bust in 2008.87 Tweedie admitted that fair value accounting had exacerbated
banks losses, but argued that its impact was minimal compared to other factors
such as poor lending decisions and a lack of risk management.88Banks
used political support to limit the use of fair value accounting in the
recognition of distressed assets during and after the crisis.89 In October 2008, the U.S.
FASB enacted relaxed guidance on adopting fair value for certain securities.90 Subsequently, the EU
exercised pressure on the IASB to ease accounting rules on fair-value markdowns
to save European banks from collapsing.91 The European banks believed that they were at a disadvantage
compared to the U.S. banks. That’s where the pressure came from, explained
Mackintosh.92 The IASB quickly gave in to the pressure from the European
banking lobby, prompting a British legislator to publicly refer to the board as
spineless.93 Through 2010, the effects of the banks power over accounting
standard-setting continued to be felt, leading former SEC chairman Arthur
Levitt to lament, Independent standard-setting is in greater jeopardy than at
any time since the FASB was formed.94Fair
value accounting also created a visible schism within the EU during and after
the financial crisis. Rewriting IFRS 9 rules on hedge accounting was one such
major fair- value- based issue as of 2010.95 On one side, France, Germany, Italy, the European Central Bank,
and some other continental European regulators were resisting the introduction
of more mark-to-market principles.96 Stability is part of the quality of standards, said Jrme
Haas, head of the French accounting standards body, adding that fast- paced
standards revisions could have a negative impact on companies.97 Many believed that this group
considered the 20082009 financial crisis to be primarily caused by illiquidity
in financial markets, and so viewed promoting post-crisis stability as
paramount. In this context, traditional historic cost accounting, with its
reluctance to write up accounts to current market values, was viewed as more
prudent. On the other side, the U.K., with its traditional faith in market
institutions, viewed promoting greater transparency in financial reporting
through increased fair-value use as the most appropriate post-crisis response.98 Commenting on this schism,
Tweedie noted the need for a solution, saying, There can’t be global banking
regulation if there are different accounting systems. IFRS is not just about
investments, but regulation as well. The IASB doesnt set the standards for
banking regulators, but IFRS is the core information they would start to use.99The
financial crisis also seemed to polarize the investment community, which until
then was largely demanding as much transparency as possible through increased
fair-value use in financial reporting. After 2008, while some investors
continued to advocate for marking all assets to the market during post-crisis
regulatory consultations, several financial analysts tended to support the
companies they covered by arguing they should be shielded from fair-value-based
asset write-offs.100The Way Forward?For the
IASB, addressing these issues was critical to remaining relevant in the decade
ahead. However, addressing the issues required the board to tackle some very
basic differences among its constituencies. For example, while investors
generally wanted as much timely disclosure as possible to quickly understand a
companys financial position and its potential off-balance-sheet risks,9Purchased by: Lyn
Klein AREYESKLEIN@HVC.RR.COM on March 20, 2014111-084 The IASB at a Crossroads: The Future of
International Financial Reporting Standardsregulators were often
concerned about the destabilizing effects of systemic asset write-downs and
liability recognition. Further, while companies often asked for standards to be
flexible and easy to implement, various advocacy groups sometimes added that
standards should also make firms accountable to society at large.101 Also in this mix were the
differing voices among governments and central banks on the importance of fair
values in maintaining capital market stability. Framing these basic differences
were even more fundamental questions about the boards existence and due
process. For example, what was the public good that the IASB was aiming to
deliver? And how was the board to prioritize among the various national
governments, multinational corporations, and public interest groups who were
actively lobbying to shape the nature of IFRS? While these questions were not
easy to answer directly, the IASB began exploring some critical organizational
reforms that would shape the boards approach to the challenges ahead.Organizational ReformsIncorporationThe more the IASBs influence
grew on a global level, the more often itsconstituents could be heard
questioning its structural setup. A 2007 article in Accountancy Age, for
example, stated, The IASB has to answer the question: Can it, a Delaware
corporation with no democratic mandate, be the solution to [the] problems of 21st-century accounting?102 The IFRS Foundations
incorporation as a private not-for-profit entity in the U.S. state of Delaware
indeed did not seem to reflect the boards international status and mandate
anymore. Discussions kept emerging about whether the board should reincorporate
in another country and under another status that better reflected its
international ambitions. Yet the choice of relocation was not a decision that
could be taken lightly. Should the IASB, for example, choose a European Union
member state or an Asian country as its new home to reflect the importance of
these regions in its functioning? Or should the foundation relocate to a
neutral country like Switzerland? And what impact would reincorporation away
from the U.S. have on that countrys eventual decision on IFRS?Constitutional review103The IFRS Foundations constitution of 2000 included a requirementto conduct a review of the entire structure of the IASB and its
effectiveness every five years. The process allowed interested parties to comment
on the trustees public proposals and raise issues they wanted the foundation
to consider in wide public consultations.The
trustees started the first mandatory review in 2004 (concluded in 2005). The
resulting internal reforms led to a more explicit definition of the IASB as the
standard-setter within the foundation, and prescribed an increase in the number
of trustees to six each from Europe, North America, and Asia/Oceania, and four
from other areas subject to establishing an overall geographic balance.The
second review, commenced in 2008, included in two parts. The first part
(concluded in early 2009) focused on the IFRS Foundations governance and
public accountability, as well as on the IASBs size and composition. European
politicians, for example, had in the past criticized the fact that the
foundation was not answerable to democratic bodies. The resulting amendment,
created by a committee anxious to support the organizations underpinning
principle that global accounting standards should be developed by an
independent IASB, created a controversial monitoring board of public
authorities that would hold the trustees themselves accountable.104 It also recommended an
increase in the number of IASB members from 14 to 16 by 2012, included guidelines
to ensure a broad international basis for board membership, and provided more
flexibility regarding part-time members. The trustees stressed that the
amendments addressed the comments received from a wide base of stakeholders,
both organizations and individuals, including the recommendations made by the
G20 summit in 2008.105 The second part of the review, completed in early 2010, changed
the name10Purchased by: Lyn
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The Future of International Financial Reporting Standards111-084of the principal organization
to IFRS Foundation and included a bold designation of investors as the
boards target audience (see Exhibit 8 for selected changes).106Subsequently,
the trustees initiated a strategy review assessing the IFRS Foundations
mission, governance, financing, and standard-setting process for a new decade.107 In parallel, the monitoring
board commenced its own governance review of the IFRS Foundation to evaluate
whether it could set global standards and be appropriately accountable yet
independent within the current organizational structure.108A new IASB chairmanAs Tweedie neared the
completion of his second and final five-yearterm in June 2011, the
trustees had, in the fall of 2009, started an international search process for
his successor. Commenting on the early start for a replacement chairman, the
then-chairman of the trustees, Gerrit Zalm, noted, We shall shortly be
beginning the process of considering what the IASB will look like in the next
phase in the development of global standards. The new chairman will play an
important role in that process. We are launching the search process now to
allow time for the broadest international search possible to fill this vital
position and to provide for a smooth transition.109 The trustees sought
nominations from more than 500 stakeholder organizations, considered about 300
candidates from 28 countries, and then scrutinized a reduced pool of 45 people
from 20 countries.110On
October 12, 2010, the trustees announced the appointment of Hans Hoogervorst, a
former Dutch finance minister and head of the Dutch financial market regulator,
as the new chairman of the IASB. Ian Mackintosh, a former chief accountant of
the Australian Securities and Investment Commission and extant chairman of the
U.K. Accounting Standards Board, was appointed as his vice chairman. The naming
of a European to the boards leadership was a potential signal that Europe
still remained at the center of the boards thinking; Britains losing the
boards top job to a Dutchman seemed to suggest a greater voice for continental
Europe in IFRS standard-setting. Hoogervorsts appointment also potentially signaled
a new deference to the political realities that were likely to shape
international standard-setting; the worlds top accounting standard-setter was
no longer to be an accountant, but rather a politician.111Hoogervorst
commented on his appointment, I strongly believe that a global set of
accounting standards, set for investors by an independent standard-setter, is
an essential component for the worlds financial markets . . . The IFRS story
is a remarkable one. I relish the opportunity to build on the great work of Sir
David Tweedie and to lead the organization into a second decade of success.112The IASB board compositionThe composition of the IASB
board had regularly beenscrutinized over the
organizations first decade to determine whether it accurately represented the
IASBs growing membership. Supporters of a reform had often criticized the
boards Anglo-American orientation and asked for a stronger voice for
continental European and emerging market economies. Tweedie noted in an
interview, Currently on the board are people from South Africa, Australia, the
U.K., and America; at least half of the board is Anglo-American, and we [all]
account basically the same way. We could argue over certain aspects of
accounting, but the whole thrust of the investor focus is very much an
Anglo-American trait.113The
constitutional review of 2010 had prescribed broader geographic diversity for
an enlarged board of 16 by 2012. It stipulated that while the criteria for IASB
membership remained professional competence and practical experience, the
targeted outcome of the geographic diversity program was a board with four
members from Europe, four members from North America, four members from the
Asia/Oceania region, one member from South America, and two members appointed
from any area subject to maintaining overall geographical balance.114 The question of which area or
country should11Purchased by: Lyn
Klein AREYESKLEIN@HVC.RR.COM on March 20, 2014111-084 The IASB at a Crossroads: The Future of
International Financial Reporting Standardsbe entitled to send the two
at-large members remained unresolved, but there were elements within the
Anglo-American capital markets community that argued for a continued
Anglo-centric plurality. (Stephen Haddrill, the chief executive of the U.K.
Financial Reporting Council, for example, noted that the region was still a
net exporter of corporate governance best practices.)115Stakeholders
from other regions also lobbied to receive an expanded say. EU policymakers,
for example, felt that Europes early adoption of IFRS should provide them with
a major voice, but opposition arose from those claiming the IASBs independence
should have prevalence over regional interests.116 Other regional forums with
links to the public and the private sector, like those from Asia (primarily
under Chinese leadership), were also trying to influence the boards
internationalization.117An enforcement body?Historically, standard-setting
had emerged and thrived withinspecific jurisdictions and
had, as such, carried enforcement authority, exercised either through the
national standard-setter itself or a related body (such as the SEC in the
U.S.). The IASB, on the other hand, issued international standards without
having any statutory authority or global enforcement mechanism in place. One
decade on, IFRS continued to be enforced locally and to differing degrees by
country-based regulatory regimes, such as the Ministry of Finance in China and
the Financial Services Authority (among other bodies) in the U.K. Just as the
degree of IFRS harmonization (from full adoption to convergence) varied across
jurisdictions, approaches to regulation and enforcement of financial reporting
standards and practices varied widely; jurisdictions legal histories and the
development of their capital markets often drove this variation. The SEC, for
example, had a reputation for relatively strong powers and a hands-on approach
to financial reporting enforcement,118 while enforcement institutions in many emerging markets remained
weak and susceptible to corruption.119 Moreover, even with relatively similar capital market
environments, enforcement could vary due to differences in political
philosophies; the U.K.s Financial Services Authority was perceived as less
active than the SEC in the U.S.120 Tweedie commented, We dont have an international SEC, and until
we do, it is going to be the individual [national] regulators. . . . Certain
countries are better than others at enforcing the standards. . . . We are
trying to get the enforcement on a more level basis throughout the world. . . .
We would ideally like standardized regulatory procedures worldwide.121 Because nations tended to
strive to maintain sovereignty over legal enforcement and sanctions, many felt
that international agreement over enforcement would be hard to achieve. The
European Unions difficulties in trying to create a single European enforcement
agency had revealed how difficult such an endeavor could be even in a relatively
cooperative trans-national environment.122John B. Veihmeyer, CEO of KPMG LLP, commented:One of the paths we need to
evolve down is working on a global regulatory framework. We will obviously
always need country regulators. That will never change, at least in my
lifetime. But I think making progress toward a global regulatory framework is a
very important issue. . . . There are already steps underway on the regulatory
side: groups that are coming together, composed of both regulators of the accounting
profession and securities regulators, to talk about the issues and the
challenges they face, and sharing some ideas about what is being done.123Samuel
A. DiPiazza, then CEO of PricewaterhouseCoopers and an IFRS Foundation trustee,
agreed that the aim should be for a global framework rather than a single
regulator, saying, Were organized into national entities. Countries are led
by policy makers elected by their local people. Theyre not going to give up
the ability to regulate their own markets. What we have to do is find a12Purchased by: Lyn
Klein AREYESKLEIN@HVC.RR.COM on March 20, 2014The IASB at a Crossroads:
The Future of International Financial Reporting Standards111-084way for the governance
standards, trade standards, and accounting languages to be so comparable that
its easy to do business across borders.124Some
observers noted that certain progress had already been made, with the worlds
regulators starting to enhance their dialogue with standard-setting bodies as
well as with their peers. The SEC, for example, had established a work plan
with EU regulators to address differences in interpretation and application of
IFRS.125 Others remained doubtful,
however, wondering whether an international standard-setting body or related
international enforcement body should and could ever be given real enforcement
power. Perhaps the monitoring board, which included representatives of some of
the most important international regulators,126 could evolve into an international quasi-enforcement authority?
Or could the IOSCO play a bigger role in this?127 Additionally, any efforts to
strengthen international enforcement would be difficult without also clarifying
what adoption or convergence of the underlying sets of standards really
meant.The influence of audit firmsAudit firms, given the nature
of their business, followed andinfluenced standard-setting
very closely. On a global level, the Big Four audit firms had all contributed
to the emergence and subsequent spread of international accounting standards
through, for example, their participation in the IFRS Foundations funding.
Although the number of IFRS sponsors had increased over the years to include,
by 2010, thousands of bodies, either directly or indirectly, the Big Four still
were among the IASBs largest contributors (see Exhibits 9 and 10 for
aggregated national and corporate donations to the IASB, and Exhibit 11 for a
list of the IASBs main private sponsors).Given
the position of large global audit firms on the front lines of accounting
practices, the expertise of these firms was invaluable for standard-setting.
Nevertheless, it was important for the board and its other constituents to
determine how much leverage the Big Four audit firms should have going forward.
Some countries reluctance to commit to IFRS was, for example, said to be
linked to their perception that the Big Fours agenda drove IFRS in important
ways. In India, for instance, the accounting profession was historically highly
fractured, as audit firms were not allowed to have more than 20 partners.128 A senior Big Four audit
partner in India opined that accountants from Indias smaller audit firms,
represented by the Institute of Chartered Accountants of India (ICAI), were
ambivalent to the adoption of IFRS in India partly due to fears that adoption
would diminish their standard-setting power relative to the Big Four.129The IASBs financingAs of 2010, the IASB funding
model was based on voluntary supportfrom its constituents. This
model was adopted from that in use by the FASB at the time of the IASBs
founding. Since then, however, the Sarbanes-Oxley Act in the U.S. had
introduced public funding for U.S. standard-setting,130 leaving the IASB alone to
justify its continued reliance on private donations and open to the criticism
that it was beholden to the demands of its financial sponsors. Charles
Niemeier, a board member at the U.S. Public Company Accounting Oversight Board,
for example, had said on the issue, If the IASB wants its standards to be
considered for use in the United States, it should present a plan for
independent funding for the SEC to consider.131 In its defense, the IASB had
pointed out that the IFRS Foundation, not the board itself, received the
payments. Speaking on the separation between these two entities, Tweedie said,
They cant get involved with technical matters, and we don’t get involved in
finance or anything that falls within their purview.132 To further address the
funding issue, the IASB was also pursuing widening its funding over a range of
market participants from across the worlds capital markets and the
introduction of mandatory levies for listed companies in a growing number of
countries. Yet, a 2010 SEC report estimated that, thus far, only 25% of
jurisdictions that used IFRS as part of their financial reporting systems
contributed to the IFRS Foundation.13313Purchased by: Lyn
Klein AREYESKLEIN@HVC.RR.COM on March 20, 2014111-084 The IASB at a Crossroads: The Future of
International Financial Reporting StandardsQuestions to AddressTen
years on, it was difficult to deny the IASBs extraordinary achievement of
putting together a relatively well-respected and well-adopted set of accounting
standards for the world. However, the jury was still out on whether the
ultimate goal of a move to a single set of global accounting rules was really
possible or even desirable given legal and cultural differences across
countries; after all, uniform standards alone were unlikely to produce uniform
reporting.The
IASB knew that the coming year, with the SECs decision on IFRS adoption, would
be crucial in determining its prospects of becoming the global
standard-setter going forward. Reflecting on the matter, Tweedie commented at
the American Institute of CPAs 2010 National Conference: [There] is a window
of opportunity. If we blow this, then I suspect the world is going to
disintegrate as far as the global standards are concerned. We won’t get a
second chance, he stressed. It will be gone for a generation.134The
organization had already changed substantially in the past few years to meet
current and future challenges to its growth, but some fundamental questions
still remained. Should it, for example, put more emphasis on full adoption
versus convergence with its IFRS principles? Should it make more compromises to
facilitate adoption by the U.S.? Should it, in addition to IFRS, also focus on
harmonizing enforcement and auditing rules? Should it make more adjustments to
its own structure to accommodate the new tasks and its growing membership and
stakeholder base?Multi-national
companies worldwide, seeing their playing fields internationalize as product,
services, capital, and managerial markets were increasingly global in
character, were following the process closely. The efforts to move to
internationally acceptable accounting standards were on the leading edge of a
more general move towards global standards in all areas of business practice,
including product quality standards, occupational safety standards,
environmental standards, trade law, securities law, and immigration reform.
Were there lessons to be learned from the accounting convergence process for
the convergence of corporate governance practices more generally? Had the IASB
moved too far, too fast, or was the pace of accounting globalization an example
for other areas of business standardization to follow?14Purchased by: Lyn
Klein AREYESKLEIN@HVC.RR.COM on March 20, 2014The IA SB at a Crossroads: The Future of International Financial
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Financial Reporting ProblemBeverly Crusher, a new staff accountant, is confused

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With the growing internationalization of economic trade and the globalization of

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