If It echoes by Hines (1988); “But as

If one could measure thelearning curve I had gained for the past few months, it would be rather steep -in other words; a lot is acquired within a short span of time. Looking back, myunsophisticated mind was not able to project the big picture of ‘profit figure’and literally making pound-to-pound comparison in production line; something ofwhich I would not be proud of today.

Nevertheless, there are some merits in myconcluding paragraph that raised the concern on the ‘importance of implicitcosts’ that have been deliberately overlooked and seek for further evaluation(Author 2017 Part 1). After going through a transformative period learning thistheory-packed module, I began looking at profit figures more cautiously on adifferent set of lenses. One true accounting profit figure is merely a figmentof an accountant’s imagination and hardly admissible. I am now able to substantiatethe truth and faithful representation more firmly, which I have comprehendthroughout learning this module.  When accounting for figures onthe financial statement, accountants are heavily influenced by personalfeelings and subjective evaluations are taken in place.

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This ties up to thepoint of subjectivity that is raised in the last few lines of Part 1 (Author2017) that seems consistent with Hines (1988) on how accountants dictate thecreation of reality. In constructing the status quo, accountants are able to includeor omit any details when building up to a single accounting profit figure – thelikes of an artist with a blank canvas. It echoes by Hines (1988); “But asofficial Communicators of Reality, we have more power than most” (Hines, 1988,p. 255). Essentially, this would lead to a wide range of profit figuresdepending on the person calculating them, hence vulnerable to creativeaccounting methods that exploit the loopholes in the accounting standard toarrive at a more favourable figure. This is proven in the case of Enron whenits hyper revenue growth surprised the financial market after climbing upFortune 500 to Number 7 in no time. Enron’s accountants had adopted duplicitousaccounting techniques, more precisely, mark-to-market (MTM) policy andaggressive accounting interpretation to boost the revenue from $13.

3 billion to$100.8 billion in just 4 years (Dharan and Bufkins, 2008).  The ‘level playing field’arguments hold by the pro-regulation perspective became the bedrock of thepublic interest theory in dealing with the nature of accounting. Publicinterest theory emphasises that the accounting information is a public good andsociety needs confidence in the capital market, in order for it to functioneffectively.

They also believe that regulatory setup is needed to protectvarious stakeholders in the economy. The absence of check and balance systemwould result in severe market failure due to ambiguous accounting information (Deeganand Unerman, 2011). Today, accounting standards are streamlined with theestablishment of regulatory bodies such as International Accounting StandardsBody (IASB) that formulate the Conceptual Framework (IASB, 2015).  The need to establish regulatorybodies is in line with the nature of profession as suggested by Wagner (1965),insisting that an accountant’s prime asset is called professional judgement. As judgment emanated from the mind, it isessential for us to condition our mind in a certain way to instil conformity inwork process. Objectivity is what being seek by the accountants, although wecannot expect such perfection, the absence of perceptual defects in exercising the judgement is the closest wecould ever get (Wagner, 1965). I strongly believe the arguments laid outbeforehand are in the favour of setting up the regulatory framework in thefirst place. However, private interest theory holds that regulators themselvesare publicly known to have interest in controlling the industry and to maintainposition in this privileged community.

More often than not, they ought toplease the big companies/lobbyist for their own benefit (Anderson-Gough, 2017)and at times, under-the-table alterations were made to the said policies tomeet the client’s requirement. This notion is further strengthened by capturetheory hypothesis, asserting that regulated subjects will try to obtain controlof regulatory body because they know the decisions made by regulators willsignificantly impact their business model (Deegan and Unerman, 2011).  Week 7 lecture delivered byProfessor Yuval Millo on Positive Accounting Theory was perhaps the mosteye-opening experience for me in learning this module.

Prior to this, I wasconvinced that managers – bounded by the code of conducts and ethics – would dotheir utmost to align themselves with the interest of shareholders. I could nothave been more wrong. This theory explains the reasoning behind a manager’schoice using three powerful hypotheses namely the bonus plan hypothesis, debt covenanthypothesis and political cost hypothesis. For example, short-term profitsbecame the focal point among the managers in Enron because they adopted theperformance reward system (Dharan and Bufkins, 2008).

They were responsible inchoosing less conservative and less volatile accounting policies to smooththings over in order to project higher earning. This is a concrete evidence ofthe bonus plan hypothesis. 

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