2.

In trying to explain shareholders' subdued reaction to Lend Lease reported earnings,

explain whether and/or how you could use the following approaches to accounting
theory construction.
(a) pragmatic
(b) decision usefulness
(c) positive accounting theory
(d) normative theory
(e) scientific approach
(0 naturalistic approach
3. Which of the approaches described in answer to question (2) do you believe i s most
useful?Why?
4. Are the approaches you described in answer to question (2) mutually exclusive, or
can they be used to complement each other? Explain.

international standards of accounting and reporting

As this Group of Experts has underscored on many occasions, principles-based, high
quality financial reporting standards are critical for the coherence and efficient func-
tioning of the international financial architecture. A rapidly globalizing world economy
needs global accounting, reporting and auditing standards. In a world economy that has
been growing increasingly interdependent, resource mobilization and allocation has
been taking place across borders. In the second half of this decade, we have witnessed
the transformation of the financial reporting landscape. An unprecedented number of
enterprises adopted International Financial Reporting Standards as the basis for the
preparation of their financial statements.
The centrality of reliable and comparable information for financial stability
and investors' ability to assess risk and allocate resources to different investment
opportunities has been painfully demonstrated by recent events. The global financial
crisis has shown how - in a world of unprecedented financial interdependence -
intransparent financial market products and financial accounts can wreak havoc not
only with investors' profits, but - more importantly - with the development prospects
of innocent bystanders, including some of the most vulnerable populations.
At the heart of this crisis are problems with opacity and complexity, while financial
institutions may have been reportrng a lot of information, the question was whether
or not those reports provided any meaningful insight or useful understanding of the
companies' inherent risks. With hindsight, the answer is clearly no. It is now evrdent
that even the boards of leading banks and their own accountants and internal auditors
did not fully understand the risks of their own products.
Ultimately, regaining investor confidence will once again require full transparency,
better accounting, reporting and auditing standards and practices. The current
crisis has prompted a re-examination of several accounting, reporting and audittng
requirements -- including consolidatron of off-balance sheet ent~ties, fair value
or mark-to-market valuation of f~nancialinstruments and related uncertainties.
I understand that in light of the current crisis, standard setters have taken actlon to
amend relevant standards . . .
Source: Excerpts from Statements by Supachai Panitchpakdi, Secretary-General of UNCTAD
(2008-20091, Geneva, 5 November 2008, www.unctad.org.

PART I Accounting theory

 Questions
1 . What are international financial reporting standards (IFRS)?
2. Many concerns are expressed in this article. List three factors that you think are
causing concern about the impact of adoption of IFRS.
3. Consider each of the three factors you mentioned in response to question 2. Is there
empirical evidence to support the factor?
4. Is the analysis leading from the factor to the concerns about adoption of IFRS scientific
or naturalistic in its approach?Explain your answer.
5. What role can normative theory play in resolving the issue(s) described in the
article?

Numerous approaches can be taken to construct a theory of how and why investors

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Tabcorp's full year profit may be back in the black but the gaming giant's shares were
almost 5 6er cent yesterday, with investors worried about mounting licence
fees and taxes and an extra $100 million to be spent upgrading Star City casino.
The fresh outlay of funds will take the cost bf the ' ~ y d n e ~ c a s i nrefurbishment
o to
$575 million in an environment Tabcorp chief executive Elmer Funke Kupper said
remained challenging.
"I think we'll still have a soft patch in the economy over the next 12 months and,
while we're all very encouraged by the housing market recovery and equity markets . . .
I think that uncertainty is still there," he said.
Tabcorp unveiled a $521.7 million net profit for the year to June 30, a sharp
turnaround from the previous year's $164.6 million loss, which had been weighed
down by writedowns associated with the Victoria Government's decision to end the
gambling duopoly between Tabcorp and Tatts in 2012.
Normalised profit for the past year, including the effect of one-off items and
fluctuations in Tabcorp's theoretical win rate against high-rolling gamblers, rose 1.2 per
cent to $496.2 million. Revenue rose 5 per cent to $4.2 billion.
However, investors dismissed the profit result - which was slightly ahead of
expectations - with the scrip closing 35c weaker at $7.03 in a stronger overall share
market. Analysts said investors were spooked by the company's grim outlook and the
admission that licence fees to racing clubs could rise to $65 million - more than
double the $30 million it had previously flagged. The company also will have to absorb
higher taxes in Queensland.
"The outlook commentary was a bit underwhelming," said Austock analyst Rohan
Sundram.
"Wagering will probably achieve low growth due to the full-year impact of race field
charges, but casinos is where the biggest downside i s - there will be a $30 million tax
hit on the Queensland casino pokies and then a $20 million EBlT impact from refurb
disruptions at Star City. It's going to be tough."
Mr Funke Kupper said the board gave the green light to the extra spend on Star City
earlier this month. He said about a third of the extra $100 million would go towards
beefing up gaming, a third towards food and beverage outlets and "nightlife", and the
rest to electrical upgrades.
P

CHAPTER 2 Accounting theory construction