PART A

The income recognition policy is the cornerstone of the additional accounts and the same
objective. The accounts shall be calculated for both the cash and cash periods. The revenues are
recognized, in principle, when received or received and received (usually when goods or services
are transferred), independently of whether the money is received. Contrast revenues are
recognized when revenues are received in case of cash accounting regardless of the sale of goods
or services.

In the past or in the past, repayments can be made for bonds or related funds (when goods or
services are delivered) and the following two types of accounts are recorded:

1) Profits: income is recognized prior to receipt of the cash.

2) Income deferred: when cash is received, income is recognized.

The salary includes income received at the time of the accounting.

In the identification of a sensitive revenue transaction event, IFRS provides five procedures:

1)Risks and benefits from seller to buyer will be transferred.

2) Unable to control the goods sold by the seller.

3)The collection of payments has been checked properly.

4) Income can be reliably measured.

5) The cost of earning can be rationally measured.

Performance is the first two approaches mentioned above. Listing occurs when the seller has
done too much or everything he has to do to be paid. Eg. The company sold well and without a
warranty the customer left the shop. As the buyer now has the benefits and risks and the rewards
associated with them, the seller has finished his work. Collectability is called the third condition.
The seller must be fairly satisfied. If the trader is not fully guaranteed to receive a payment, the
grant account must be established. Measurability is the fourth and fifth processes.

The seller must be able to match the costs and costs involved in making a profit by virtue of its
match policy. Income and expenditure should therefore be measured appropriately

Earnings pre-prepared shall not be recognized as income but as liabilities (revenue) .

Funds are available in case of receipt of cash or cash claims (receivables). Funding is available
where it is easy to convert into cash or cash.

When goods/services are transferred/dispatched, revenue is received.

Income recognition for four transaction types:

On day of sale, which is normally interpreted as the delivery date, the revenue from the sale of
goods is recognised.

When services are completed and charged, revenue from the delivery of services is recognised.

Income from the use of the assets of a company is recognised as a time or an asset usage (such as
operating fund interest, rental for the use of fixed assets and royal income for the use of
intangible assets.

Revenue from the sale of goods other than goods shall, where applicable, be recognised at the
point of sale.

Receivables are assets similar to the provision of goods or services (surplus assets). On delivery,
the receivables shall be received with the corresponding revenue item as revenue. When the
amount is deducted from the proceeds, their revenues will be recorded in their future accounting
period.

Deferred income is a liability for goods and services to be brought into future financial accounts,
such as money received from a partner. In the event of delivery, revenue shall be received,
related revenue shall be recognised and income deferred. For example, before January 1, a
company receives an annual software licence fee payable by a customer. The financial year of
the company ends however on 31 May. Therefore, only five months (5/12) to annual profit and
loss is added to a company using additional accounting. Revenue earned financially. The
remainder is included in the annual balance of deferred wages (credit).

Development is not considered to be adequate evidence of sales; therefore, until the sale end
there shall be no written charges. Prepayments are deferred and registered as liabilities until the
whole amount is paid and the delivery is made (meaning that the same obligations are available).

PART B

1. To answer this question first let me brief with the concept of positive accounting
theory. Positive accounting is an objective approach which usually is used in data
collection and accounting. It analyses and discerns the effects of these expenses based
on a physical transaction history of a company. It compares revenue to expenses in
order to determine whether and why a company is at net loss or profit. The theory
anticipates how a company will deal with the future transactions based on that
knowledge. For example, if an organization has a very successful financial year, it
will be able to boost the payment of investor dividends in the next year. The positive
accounting theory would therefore deduce that the growth of corporations causes the
shareholder transfer to rise. Positive accounting begins with specific policies and
creates higher standards based on them, making this the best option to explain past
transactions or the current economic situation of a company. However, this theory
presents disadvantages, most importantly because every business owner is supposed
not to look for the fiscal safety of his company but to act on his own interests.
 A further downturn in positive accounting enables assets to be depicted inaccurately. The
2007 global financial crisis is a real example. In the past, banks held obscure financial
securities, which were treated in the same way as real-estate securities, meaning that
there was no need to "market" or revaluation assets at the market level. This meant that
substantial variations in the value were hidden. When the assets were lost, the value
unbalance became evident, which was the catalyst for the fiscal breakdown.

Positive accounting theory (PAT) is about predicting actions such as the choice of
company accounting policies and how companies will respond to proposed new
accountability standards. It states that the contracts that companies conclude are a
concern for accounting policies for management.

In the hypothesis of management compensation (or bonus plan), management with bonus
plans (bound to profits reported) is more likely to use methodologies to increase
accounting income reported during the current period. To depart from the hypothesis of
management compensation, we must determine whether the upward reassessment is
consistent with the hypothesis of increased profit reported.

If we undertake an upward revaluation and the assets are depreciable, then the
depreciable basis of the assets will increase and therefore the depreciation cost will
decrease. Instead of being considered as part of profit, the upgraded revaluation will lead
to credit for a revaluation surplus. Also, any profit on the sale of a non-current asset is
reduced due to an increase in revaluation (the gain on sale being the difference between
the fair value of the consideration less the carrying amount of the asset). Consequently,
the impact of an upward revaluation is to reduce reported profits although the revaluation
is aimed at increasing net income.

The management compensation hypothesis cannot therefore explain an upward

revaluation. If we accept that PAT provides a sound prediction or accounting explanation,
then perhaps the company would breach a debt pact, and its advantages in preventing
breaches would be more than compensating for potentially negative management
compensation impacts (also, the firm may have been subject to political costs and an
upward revaluation may have been part of a portfolio of accounting choices used to
reduce reported income and therefore the possibility of political costs being imposed).

2. Financial statement manipulation is a type of accounting fraud that remains an

ongoing problem in corporate America. Although the Securities and Exchange
Commission (SEC) has taken many steps to mitigate this type of corporate
malfeasance, the structure of management incentives, the enormous latitude afforded
by the Generally Accepted Accounting Principles (GAAP), and the ever-present
conflict of interest between the independent auditor and the corporate client continues
to provide the perfect environment for such activity.

Reason for Manipulation-

The management manipulates the financial statements for three primary reasons. First,
the compensation of executives is, in many cases, directly linked to the company's
 financial performance. They therefore have a straightforward incentive to paint a rosy
picture of the financial situation of the company, to meet established performance
expectations and improve their personal compensation.

Secondly, it's quite easy to do. A considerable degree of flexibility and interpretation is
provided by the Financial Accounting Standards Council (FASB), which sets standards
for the GAAP. These GAAP standards provide considerable flexibility for better or
worse, enabling the management to paint a specific picture of the financial status of the
company.

Third, the relationship between the independent auditor and the corporate customer is
likely to detect financial manipulation by investors. In the United States, the corporate
audit environment is dominated by Big Four accounting firms and numerous smaller
regional accounting firms. Although these companies are regarded as independent
auditors, the companies have a direct conflict of interest because the companies that they
audit are offset, often very substantially. In this way, the auditors might be tented to abide
by accounting regulations to portray the company's financial condition in a way that
keeps the customer happy and keeps business.

The Board executives typically have their salaries tied to the Company's performance. This
makes them accountable for the company's financial performance and shareholder returns.

a. The audit committee is autonomous and reports to the committee, not to the
management and does not have control over the executive directors.
b. Executive directors can sign off the financial statements and are therefore legally
responsible for any intention. they may be motivated to inflate reporting profits,
however the risk of misrepresentation can be mitigated by ensuring the following:

c. There should be sufficient independently-owned board directors who are free from the
company's day-to-day operation without an incentive for the company to perform.
Typically, these managers receive a flat fee.

3. Opportunistic behaviour occurs when management actions are designed to improve their own
interests. The discussion of the optimal set of accounting policies must be taken in consideration
because this affects the results generated by flexibility in the determination of accounting
policies by managers.

The opportunistic perspective is that managers, who are principal agents, act according to their
own interests. In the opinion that the company is also gaining, they only accept accounting
policies which allow them to benefit. There are different types of hypotheses, such as political
cost, a bonus plan and a debt hypothesis, which show why managers choose an accounting
method over a different one.

The compensation hypothesis for management shows that managers with accounting incentives
or pay linked to the company's accountancy performance have a tendency to manipulate accounts
and figures to show the accounting performance more effectively than they should. The
following: Managers choose a different method of depreciation which allows lower profits at the
beginning and higher profit at the end. Older managers tend to ignore research and development
costs because they reduce their revenues in the current year.

Hypothesis of debt equity

The hypothesis of the debt/equity says that managers tend to show better profits in the interest
and principal of the debt they accumulated in business (as is the case of the bonus
plan/management compensation hypothesis) with the intention of improving performance and
liquidity.

[3] The following: The higher the level of debt/equity, the more likely it is, the more accounts
and procedures managers tend to use to boost accounting profit.

Assumption of political costs

The political cost assumption assumes that companies tend to show their profits lower with
different accounting methods and processes so that politicians, who have an eye on high-profit
industries, will not attract the attention of the firm. The public and the eyes of the
government,that regulates high-earning companies are turned away from the fact that lower
profits are allowed to take hold.

Manager to manipulate corporate disclosure-

The manipulation of financial statements is based on two general approaches. Firstly, by

artificially inflating revenues and gains or deflating current period expenses, the income
statement is used to exaggerate the current period. This approach gives the company a better look
at its financial condition than it is to fulfil established expectations.

The second approach requires the exact opposite tactic, which is to minimise current income
from a statement of income by deflating income or by inflating current expenses for the period.
There may seem uncomfortable making a corporation's financial state worse than it actually is,
but there are numerous reasons for doing so: deter potential buyers; get away from all the bad
news in order for it to look forward; put the grim numbers into a period when the current
macroeconomic environment can be attributed to poor performance.