ACCT30001: Financial Accounting Theory

20% Midsem;
10% Group Assignment; and
70% Final Exam

Uhmmm jeez. I’ll start out by saying that I’m generally quite biased against accounting subjects. Not too sure why I chose to major in accounting but too late now. Surprisingly however, the content in FAT is actually half decent.

FAT is much less application based than previous accounting studies. It’s accounting theory (obvious, yes I know) and takes it to another level. It separates the subject into two predominant accounting objectives. Essentially; is the purpose of financial accounting information to reduce moral hazard (by aligning incentives of managers to shareholders and debtholders) or to reduce adverse selection (provide the most relevant information to investors so they assess the true fundamental value of the firm)? That is the whole subject in a slightly long sentence.

The semester begins by understanding what actually is information asymmetry and looks towards value relevant accounting information. This answers more of the valuation objective (reducing adverse selection) as it looks at what information the market responds too. This covers a few weeks and you look at the benefits and limitations of Historical Cost, Fair Value, and Current Cost Accounting (CCA you would never of heard of, it’s a purely theoretical standpoint). I wouldn’t say these are too complicated but the lectures are quite disorganized in my opinion and it made it much more difficult for my own learning. This trend, unfortunately, continued all semester. In the next 4 weeks, you cover the basics of valuation of a company based on accounting numbers. This involves reducing accounting distortions of earnings management, condensing financial statements and looking at discounted dividend models including abnormal earnings and NOPAT. These 4 weeks are calculation based and the main application bits of the semester and being quite number-orientated I enjoyed. However, they require essentially a lot of memorization because you are not taught the reasoning behind them – rather just “make sure you can add these numbers in the exam” type of thing. The final 4 weeks focus on the moral hazard problem and how can you use debt contracts and managerial compensation contracts to align manager incentives and reduce contracting costs. I have to say here the lectures, for me anyway, were so disorganized I had to keep asking friends what the hell was the lecture even about. This involves things like non-recognition of internally generated intangibles (goodwill) and conservative accounting. The final lecture contains a bunch of info on economics of voluntary disclosure (this for me was the hardest lecture of the lot to follow, I had no fing idea how things linked together).

Now, for the lecturer; Bo. I think this is his 2nd semester taking the subject. I also had him as a tutor. I don’t necessarily recommend it – his teaching style did not resonate with me and I felt I was sitting through just purely reading off slides. I would recommend for him to at least try to look at it from the students perspective because I believe he’s a very very intellectual person and just takes it for granted that we are making connections. There were also a few things that disgruntled me with this subject. One of them was that word-for-word we ‘should probably not used words that are not in the lecture’ because he doesn’t know how other markers will mark. Fair enough, I suppose, but I never thought that I would attend university to be told to limit my reasoning to memorization. The tutorial questions were quite long and arduous. Bo will put up answers after each week – there are no tutorial marks so its not necessary to do all of them before the tutorial. It DOES help your understanding, but I’d focus on revisiting the uploaded answers early in the semester because at the start you honestly don’t even realize that they’re drawing in different parts of the course before you’ve even learnt it – I definitely liked this because I knew some of the content by the end weeks before even going to the lecture.

Sorry for this review dragging on lol, now for assessment. The midsem comprises 25 questions (9 true/false and 16 multi choice). It wasn’t hard, generally required common sense (how does this random situation link to something we learnt in class) and the average was 72%. It was one of the weirder midsems though just because those random situations really were random lol. I don’t think it required too much study but definitely know what’s going on and being able to understand and contextualize what actually adverse selection or moral hazard is. That was worth 20%. We also had an assignment worth 10% focusing on that valuation before – this involved a valuation task similar to one you’ll face in the exam, and then one on a company of your choosing. This was pretty extensive, required to be done in excel and creating our own assumptions. Again, not too hard but requiring a lot of time. At the end of each lecture we were given an example exam question. This was from either an exam he uploaded from 2016 when he didn’t take the subject or ones from last semester. Now, guess what the exam was. Word for word these questions. They were heavily theory based, required a lot of time but very little brain power because we had seen them before. I have very little words for what I thought of the exam (here’s a hint – it was crap) but it was easy and I can’t complain.

So overall, while the content in this subject has the potential to be interesting, due to the inexperience of the staff it was very disorganised. The assessment was, on the overall, very easy and this means – potentially – there may be an abundant of high scores and thus downward scaling (I’ll try to remember to update after scores come out). I imagine the subject won't stay in this current form very long so take what you will from this review.

Yes

Bo Qin

Yes, 1

3 out of 5

No

1x2 Hour Lecture
1x1 Hour Tutorial

2017 Semester 2

TBA

1.5hr mid sem test (20%), group assignment (10%), 3hr exam (70%). The handbook says the 10% component is tute participation, but it's actually a group assignment (but a pretty straightforward one – hence worth 10%).

Here’s to my 5th accounting subject review. I would like to say my reviews get better and better but that would arguably be a lie. Anyway.

This subject felt like two different subjects. Bo took the first half which was more quantitative and focused on identifying issues in financial statements, ratios and valuation, but note that no formula sheet is provided in the mid sem and exam (this is where Business Finance comes into play – if you still remember those formulas), I still remember the outrage when Bo announced in the lecture there would be no formula sheet haha poor guy (to be fair, there were < 10 formulas). During Bo’s half, you will feel overwhelmed with info because his lectures and tute qs are ridiculously long and convoluted, but when you take a step back at the end of it all, you’ll realise a lot of the content is repetitive and linked, so there’s actually not that much to understand/memorise.

Matt took the second half of the subject and his half puts the ‘theory’ in Financial Accounting Theory. Matt’s half is very qualitative and focuses on addressing info asymmetry through producing financial statements. There is actually a fair bit of content in Matt’s half, which is why it really feels like a separate subject altogether. Matt actually gets through all his lecture slides (unlike Bo) although he talks quite fast so you have to be reasonably switched on, and he's also very funny/enthusiastic which is hilariously great.
I’m not sure how I feel about this subject, my emotions may become clearer once I get my result… The first half felt like Business Finance mixed with IFA/IFA2, the second half felt like ARA minus calculations/journal entries? I know, it's a bit of a poor attempt on my behalf at describing this subject, but it doesn’t really matter how I feel in the scheme of things, the subject is what it is and you have to do it to major in accounting. Here’s a smiley face to end this review on a light note

Yes, with screen capture

Bo Qin, Matt Pinnuck

None because the content changed this semester, but the first half of the subject had practice qs which were of a similar style to the exam qs.

3.5 out of 5

For the first half, it was Business Analysis & Valuation: Using Financial Statements, lecture slides pretty much rephrase the content in the textbook. For the second half, the readings were from various textbooks but photocopies of the relevant chapters were posted on LMS, lecture slides along with tute qs cover the content in the chapters. All tute qs are on LMS so it's up to you, if you’re a textbook kinda student then read it, if not you’ll be fine without it.

2 x 1hr lecture and 1 x 1hr tutorial a week

2016, semester 1

TBA

30% Mid sem exam, 70% 3hr+15mins Final Exam

No debits and credits! …Which means you either love or hate this subject. It focuses on the purpose of financial statements, and how standard setters can choose standards to reduce two forms of information asymmetry: adverse selection (first half of the course) and moral hazard (second half). The nature of the course is that is it highly interwoven, so you are constantly building on your prior knowledge. Knowing the links between topics is what will get you a H1.

Matt takes the first half, and he’s pretty fun to listen to. There is a lottt of content covered, and Matt often doesn’t finish but I think he covers everything well at an overall theory level. For specifics, you’ll have to refer to the book. I was not a fan of Sandip’s lectures – he teaches very basic concepts, but the knowledge he expects is much more specific, so you’re more likely to need the book for his part of the course.

From memory there were six full theory questions at the start. These were short, eg. Information asymmetry means you can never have ideal conditions, discuss. Then there were five or six longer questions which had multiple parts, eg. First part was calculations, then theory questions relating to the facts given.

To prepare for the exam, mindmap! Tute work! Textbook review questions! Practice exam! There are some questions that come up over and over again so make sure you know them. From what my tutor said, the best answers are those that flow logically one point to another, which is why a mindmap is important

Yes, with screen capture.

Matt Pinnuck, Sandip Dhole

Relatively straightforward questions, with a few annoying questions in that the topic was NEVER mentioned in lectures (reserve recognition accounting)! It was in the specified readings though, so make sure you keep an eye out for this topic =.=

To revise, I found it helpful to draw out a mindmap and link topics together. As I said, the course is pretty much all woven together so these links are quite important. There were a few simple calculation questions, but mostly theory qs. Keep an eye out for theories Matt focuses on like Ball and Brown, Sloan accruals anomaly, etc. There are quite a few hard questions that relate to these, and they can get super specific, so aim to know them inside out .

This may not be the most fun subject, and it does require a little more effort than most subjects to get a good score, but you can really demonstrate your understanding and be adequately rewarded for your effort.

Yes, 1 exam, but doesn’t have a full set of questions.

3 Out of 5

Financial Accounting Theory (7th ed), Scott. I used this a lot, and it was generally really well structured and consistent with lectures.

Ugh the worst thing about this is you actually need the new edition of the book because almost all the tute questions you do are new. Matt actually uploaded the questions for us cause most of us didn’t buy the new edition haha but I’m not sure if he’ll do this again in future. In terms of book content, its mainly the same apart from one or two chapters. You could potentially borrow from the library and get away with buying the older edition .

In terms of tutors, Danny gives good exam advice (and even releases a few mid-sem questions as /practice/ but which actually showed up on the exam…) and good notes. Kevin/Arnav’s classes are more of a standard tute, but I preferred their tutes because their classes were smaller and you felt more comfortable with asking questions. Don’t know anything about Duncan or Mark.

In terms of pre-tute work, I don’t think it’s very helpful to write up full answers to theory questions, as there will likely be loads of points that you have missed. Its probably best to just dot point the main things you would mention. Even if you don’t, make sure you read the questions before the tute so you know what’s going on! Also make sure you do the calculation questions: more practice = better, and you’ll follow the tute along better.

2x1hr Lecture, 1x1hr Tute

2015 Sem 1