Contemporary Issues in
Accounting – 3rd Edition
ST
SOLUTIONS
UV
MANUAL
IA
_A
Michaela Rankin
PP
Kimberly Ferlauto
Susan McGowan
Patricia Stanton
RO
Comprehensive Solutions Manual for
VE
Instructors and Students
D?
© Michaela Rankin, Kimberly Ferlauto, Susan McGowan & Patricia Stanton. All rights
reserved. Reproduction or distribution without permission is prohibited.
©MedConnoisseur
, TABLE OF CONTENTS
Solutions Manual – Contemporary Issues in Accounting, 3rd Edition (ISBN
9780730397823)
Michaela Rankin, Kimberly Ferlauto, Susan McGowan, Patricia Stanton
ST
Chapter 1. Contemporary Issues in Accounting
Chapter 2. Standard Setting
UV
Chapter 3. Measurement
Chapter 4. Theories in Accounting
Chapter 5. The Conceptual Framework for Financial Reporting
Chapter 6. Corporate Governance
IA
Chapter 7. Technology in Accounting
Chapter 8. Capital Market Research and Accounting
Chapter 9. Earnings Management
_A
Chapter 10. Sustainability and Corporate Social Responsibility
Chapter 11. International Accounting
Chapter 12. Fair Value Accounting
Chapter 13. Products of the Accounting System
PP
RO
VE
D?
©MedConnoisseur
, Chapter 1: Contemporary issues in accounting
Chapter 1: Contemporary issues in accounting
Contemporary issue 1.1
Dick Smith hearings reveal questionable accounting of rebates
Questions
ST
1. This article states ‘accounting standards are currently unclear’ with regard to how
to account for rebates. Given these rebates seem to be quite common, can you think
of any reasons the accounting for these could be unclear and why there may not be
an accounting standard that specifies exactly how to account for these particular
transactions?
UV
2. This article claims that profits were overstated by Tesco ‘because it had booked
rebates from suppliers before receiving them’. Do accounting principles require
cash to be received before recognising items in the accounting? If not, why should
accounting be implicated in these profit overstatements?
3. A note prepared by PricewaterhouseCoopers claims that supplier rebates are
IA
complex and as accounting requirements are unclear.
Ultimately, getting rebate accounting correct relies on a culture and leadership that
encourages accounting for the commercial substance of rebate arrangements and
_A
discourages short‐term profit maximisation.
What do you think is meant by ‘getting the accounting correct’? Can you identify any
factors that would influence the exercise of professional judgement in this context?
PP
1. The key reason would be that rebates vary significantly and are often complex. These can
involve for example:
Rebates related to inventory (e.g. retrospective volume rebates)
Other rebates (e.g. involving contributions to marketing and promotional costs or
activities).
RO
These rebates will be tailored to the particular circumstances (as the PWC notes states these
vary widely “reflecting the different elements of the goods and services exchanged between
suppliers and retailers”.)
Given the complexities and variations in these rebates, it would not be feasible for the
VE
accounting standards to specify exactly how to account for every possible rebate in every
particular context/circumstance. The principles in the standards should be applied to reflect
the substance of the particular rebate contract/arrangement. For example, if the rebate related
to volume rebates we would need to apply the principles relating to cost of inventory in IAS
2/AASB 102 Inventories.
D?
Students should also consider if the accounting standards were to specify exactly how such
rebates were to be accounted for:
Is it likely such prescriptions would take a conservative approach (e.g. not allow
these rebates to be recognised/factored into costing of inventory until virtually
certain)? If this occurred would it necessarily result in faithful representation.
© John Wiley and Sons Australia, Ltd 2022 1.1
, Solution manual to accompany: Contemporary issues in accounting 3e by Rankin et al. Not for distribution in
full. Instructors may post selected solutions for questions assigned as homework to their LMS.
This would amount to a ‘rules’ based approach. If this were to occur, could the
contracts be drawn so they do not fall within the types of rebate contracts specified
in the standards?
2. A key accounting principle is the accrual basis: that the effects of transactions and events
are recognised in accounting records when they occur, not when the cash is received or paid.
Therefore accounting principles do not require cash to be received before recognising an item.
ST
For example, we do not defer recognition of revenue when sales are made on credit.
However, the accounting standards do specify recognition criteria. For example:
For assets it is expected that future economic benefits will be received.
For revenue, the amount of any variable consideration can only be recognised to the
UV
extent that highly likely it will not reverse.
Given that these rebates often are contingent on/linked to future events/circumstances – such
as the sale of a particular volume/amount of inventory – this requires estimation and
judgment. For example, in the article it states that “Dick Smith breached accounting
IA
standards by booking its rebates as profit before these were actually sold”. The argument
here is based on the circumstances of Dick Smith where the inventory was not able to be sold.
However, if a company has a history of easily selling and forecasts indicate that it will sell at
least the amount of inventory required to receive the rebate, then it would be expected to be
_A
entitled to this rebate (and thus would reduce the cost of inventory by the rebate expected to
be received).
It could be argued that accounting is implicated as:
It does not require certainty (or is not conservative enough), and./or
PP
In these cases there were inappropriate estimations/judgments made.
3. ‘Getting the accounting correct’ would mean that the accounting reflects the substance of
the arrangements and applies the principles of the standards to reflect a true and fair view.
Remember that the objective of financial accounting is to provide useful information to users,
RO
that is relevant and faithfully represents what it purports to represent.
Factors that could influence professional judgment in this context would be:
Complexity and variation in arrangements, which leads to more possible alternative
accounting treatments.
The continent nature of these rebates involves uncertainties which need to be assessed
VE
and evaluated and this can make these more problematic and ambiguous.
Given the above, pressure from clients/companies to exercise professional judgment
‘favourably’ for the company.
In addition, the apparent widespread ‘early’ booking of such rebates would seemingly
further justify that this may be ‘acceptable practice’.
D?
© John Wiley and Sons Australia, Ltd 2022 1.2
Accounting – 3rd Edition
ST
SOLUTIONS
UV
MANUAL
IA
_A
Michaela Rankin
PP
Kimberly Ferlauto
Susan McGowan
Patricia Stanton
RO
Comprehensive Solutions Manual for
VE
Instructors and Students
D?
© Michaela Rankin, Kimberly Ferlauto, Susan McGowan & Patricia Stanton. All rights
reserved. Reproduction or distribution without permission is prohibited.
©MedConnoisseur
, TABLE OF CONTENTS
Solutions Manual – Contemporary Issues in Accounting, 3rd Edition (ISBN
9780730397823)
Michaela Rankin, Kimberly Ferlauto, Susan McGowan, Patricia Stanton
ST
Chapter 1. Contemporary Issues in Accounting
Chapter 2. Standard Setting
UV
Chapter 3. Measurement
Chapter 4. Theories in Accounting
Chapter 5. The Conceptual Framework for Financial Reporting
Chapter 6. Corporate Governance
IA
Chapter 7. Technology in Accounting
Chapter 8. Capital Market Research and Accounting
Chapter 9. Earnings Management
_A
Chapter 10. Sustainability and Corporate Social Responsibility
Chapter 11. International Accounting
Chapter 12. Fair Value Accounting
Chapter 13. Products of the Accounting System
PP
RO
VE
D?
©MedConnoisseur
, Chapter 1: Contemporary issues in accounting
Chapter 1: Contemporary issues in accounting
Contemporary issue 1.1
Dick Smith hearings reveal questionable accounting of rebates
Questions
ST
1. This article states ‘accounting standards are currently unclear’ with regard to how
to account for rebates. Given these rebates seem to be quite common, can you think
of any reasons the accounting for these could be unclear and why there may not be
an accounting standard that specifies exactly how to account for these particular
transactions?
UV
2. This article claims that profits were overstated by Tesco ‘because it had booked
rebates from suppliers before receiving them’. Do accounting principles require
cash to be received before recognising items in the accounting? If not, why should
accounting be implicated in these profit overstatements?
3. A note prepared by PricewaterhouseCoopers claims that supplier rebates are
IA
complex and as accounting requirements are unclear.
Ultimately, getting rebate accounting correct relies on a culture and leadership that
encourages accounting for the commercial substance of rebate arrangements and
_A
discourages short‐term profit maximisation.
What do you think is meant by ‘getting the accounting correct’? Can you identify any
factors that would influence the exercise of professional judgement in this context?
PP
1. The key reason would be that rebates vary significantly and are often complex. These can
involve for example:
Rebates related to inventory (e.g. retrospective volume rebates)
Other rebates (e.g. involving contributions to marketing and promotional costs or
activities).
RO
These rebates will be tailored to the particular circumstances (as the PWC notes states these
vary widely “reflecting the different elements of the goods and services exchanged between
suppliers and retailers”.)
Given the complexities and variations in these rebates, it would not be feasible for the
VE
accounting standards to specify exactly how to account for every possible rebate in every
particular context/circumstance. The principles in the standards should be applied to reflect
the substance of the particular rebate contract/arrangement. For example, if the rebate related
to volume rebates we would need to apply the principles relating to cost of inventory in IAS
2/AASB 102 Inventories.
D?
Students should also consider if the accounting standards were to specify exactly how such
rebates were to be accounted for:
Is it likely such prescriptions would take a conservative approach (e.g. not allow
these rebates to be recognised/factored into costing of inventory until virtually
certain)? If this occurred would it necessarily result in faithful representation.
© John Wiley and Sons Australia, Ltd 2022 1.1
, Solution manual to accompany: Contemporary issues in accounting 3e by Rankin et al. Not for distribution in
full. Instructors may post selected solutions for questions assigned as homework to their LMS.
This would amount to a ‘rules’ based approach. If this were to occur, could the
contracts be drawn so they do not fall within the types of rebate contracts specified
in the standards?
2. A key accounting principle is the accrual basis: that the effects of transactions and events
are recognised in accounting records when they occur, not when the cash is received or paid.
Therefore accounting principles do not require cash to be received before recognising an item.
ST
For example, we do not defer recognition of revenue when sales are made on credit.
However, the accounting standards do specify recognition criteria. For example:
For assets it is expected that future economic benefits will be received.
For revenue, the amount of any variable consideration can only be recognised to the
UV
extent that highly likely it will not reverse.
Given that these rebates often are contingent on/linked to future events/circumstances – such
as the sale of a particular volume/amount of inventory – this requires estimation and
judgment. For example, in the article it states that “Dick Smith breached accounting
IA
standards by booking its rebates as profit before these were actually sold”. The argument
here is based on the circumstances of Dick Smith where the inventory was not able to be sold.
However, if a company has a history of easily selling and forecasts indicate that it will sell at
least the amount of inventory required to receive the rebate, then it would be expected to be
_A
entitled to this rebate (and thus would reduce the cost of inventory by the rebate expected to
be received).
It could be argued that accounting is implicated as:
It does not require certainty (or is not conservative enough), and./or
PP
In these cases there were inappropriate estimations/judgments made.
3. ‘Getting the accounting correct’ would mean that the accounting reflects the substance of
the arrangements and applies the principles of the standards to reflect a true and fair view.
Remember that the objective of financial accounting is to provide useful information to users,
RO
that is relevant and faithfully represents what it purports to represent.
Factors that could influence professional judgment in this context would be:
Complexity and variation in arrangements, which leads to more possible alternative
accounting treatments.
The continent nature of these rebates involves uncertainties which need to be assessed
VE
and evaluated and this can make these more problematic and ambiguous.
Given the above, pressure from clients/companies to exercise professional judgment
‘favourably’ for the company.
In addition, the apparent widespread ‘early’ booking of such rebates would seemingly
further justify that this may be ‘acceptable practice’.
D?
© John Wiley and Sons Australia, Ltd 2022 1.2
