Master of Accountancy
Comprehensive Final Exam
Fall 2007
Question 1. Comparative Accounting Theory Question
Part 1
Does market efficiency, of any level, exist in the U.S. financial markets? Give specific accounting examples to defend your position. Your examples may include academic papers or findings, formal theories, anecdotal evidence (i.e. stories or news articles), or logical suppositions (e.g. ‘Imagine that John owns 5 shares of stock. If new information was released to the market, the price of John’s stock would . . .’). You answer must include at least one example of academic accounting research.
Your answer should contain the following:
· A general definition of market efficiency that a freshman would understand.
· An explanation of the differences between the three levels (strong, semi-strong, and weak) of market efficiency.
· A specific explanation of which level you believe exists and why you believe in that level of efficiency instead of the other two.
Part 2
Based on your answer to part 1, explain the implications that level of market efficiency has for the accounting profession.
Please clearly label your answer to each part of the question!
Question 2. Accounting Information Systems Seminar Question
1. Mike Strumm has just opened a small outdoor sports equipment store and has hired two employees. Mike wants to hire you to prepare monthly financial statements and handle other accounting-related tasks.
You agree to handle the accounting tasks but you advise Mike that he needs to have an adequate internal control structure to help the new business venture be a success. He responds that internal controls are not critical to the operations of a small store such as his. Further, he states that he cannot afford more outlays for the new business. Finally, he comforts you by stating that he does not want to offend the two new employees with elaborate procedures and rigid policies. Besides, the new employees are family-oriented, ethical and honest and not likely to steal from him.
How would you respond to Mike? Be specific and clear.
Answer either Question 2 or Question 3. If you answer both, only item 2 will be graded.
2. The following is a quote from a leading textbook in Accounting Information Systems:
Although researchers have argued that object-oriented DBMSs are superior to relational DBMSs, most organizations still use relational DBMSs. The main advantage of an object-oriented model is the storage of complex data types. In recent years, relational DBMSs have added the ability to store complex data types. These databases are sometimes called object-relational databases. Although developers continue to refine object-oriented DBMSs, most companies seem to be satisfied with relational or object-relational DBMSs at this time.
Describe clearly, the difference between the object-oriented data base and the relational database. Do you agree or disagree with the assessment of the author? Why or why not?
3. An author of a leading AIS textbook states:
The role of accountants in the construct and deliver phases of the SDLC should be significant. Most system failures are due to poor designs and improper implementation. Being a major stakeholder in all financial systems, accountants must apply their expertise in this phase of the SDLC to guide and shape the finished system.
How should accountants be involved in the construct and deliver phase of the SDLC? Be specific.
Question 3. Financial Accounting & Reporting Seminar Question
Amy Manners, the controller of Fino Processing (one of your client companies) has called and asked for help to account for a new type of contract. Fino Processing has just signed a long-term supply agreement with HotNCold Corporation. HotNCold Corporation makes heat exchangers and corrosion resistant pipes that require substantial amounts of the metal sponge form of zirconium. Under the contract, Fino Procesing will supply zirconium sponge for $30 per kilogram for the first 50,000 kilograms and for $20 per kilogram thereafter. The arrangement provides that if fewer than 50,000 kilograms are processed, Fino Processing will reimbursed for design and development costs incurred under the arrangement, up to a maximum reimbursement of $500,000. For example, if 40,000 kilograms are produced under the supply agreement, in addition to the $30 per kilogram received, Fino Processing will be reimbursed for design and development costs incurred under the arrangement up to a maximum of $100,000 [$500,000 – ($10 x 40,000 kilograms)]. The zirconium sponge metal will be produced under the contract at the agreed-upon prices for 3 years.
In the past, Fino Processing has primarily produced zirconium in the powder metal form and will have to re-tool the plant to make the desired quantities of metal sponge zirconium. The engineer has told Amy that the preproduction design and start-up costs related to the contract are estimated at $525,000.
Amy wants to know if the company can capitalize the preproduction costs and amortize them over the life of the long-term supply arrangement.
Question 4. Advanced Auditing Seminar Question
A. Sarbanes Oxley Act was enacted to improve the accuracy and transparency of financial reporting and corporate disclosures.
1. Discuss managements’ attestation requirements SOX and PCAOB’s Auditing Standard No. 2. Include a discussion on how the current requirements are different from the requirements prior to SOX.
2. Discuss external auditors’ attestation requirements SOX and PCAOB’s Auditing Standard No. 2. Include a discussion on how the current requirements are different from the requirements prior to SOX.
B. The SEC has recently approved PCAOB Auditing Standard on Internal Control over Financial Reporting No. 5 to replace the existing Auditing Standard No. 2.
1. What is the PCAOB’s purpose for the revised standard?
2. Discuss external auditors’ attestation requirements SOX and PCAOB’s Auditing Standard No. 5. Include a discussion on how the current requirements are different from the requirements of PCAOB’s Auditing Standard No. 2.
3. Discuss two specific revisions in the new standard (other than the related to #2 above).
C. Statement on Auditing Standards No. 99 was designed by the Auditing Standards Board to formalize the auditors’ responsibility for fraud detection. How have the requirements of SAS No. 99 been incorporated in the design of the PCAOB Audit Standard No. 2?