Return to site

University of Durham ECON3411

Contemporary Issues in Accounting

· 案例展示

SUMMATIVE ASSIGNMENT Overall Word Limit 2,500

Scenario

You are working for a large international accounting firm which is evaluating the quality of the voluntary disclosure that accompanies the audited financial statements of its clients.

Below are extracts from the conclusions of the Report of the Joint Select Committee into the collapse of Carillion plc. These highlight serious concerns in the conduct of the accounting profession in discharging its duty to ensure that information provided in the audited financial statements shows a true and fair view.

Your firm is aware of the concerns that have been raised by regulators including the Financial Reporting Council (FRC) in the UK about narrative disclosure. You have been asked to explore whether the quality of the communication in the narrative element of the corporate reports failed to alert readers about the state of affairs at Carillion plc. From this, you are to conclude whether there are indicators in such disclosure which your firm could use to signal risks to the objectivity of client annual reports.

Carillion Plc

1.Carillion’s business model was an unsustainable dash for cash. The mystery is notthat it collapsed, but how it kept going for so long. Carillion’s acquisitions lacked acoherent strategy beyond removing competitors from the market yet failed to generate higher margins. Purchases were funded through rising debt and stored up pension problems for the future. Similarly, expansions into overseas markets weredriven by optimism rather than any strategic expertise. Carillion’s directors blamed afew rogue contracts in alien business environments, such as with Msheireb Properties in Qatar, for the company’s demise. But if they had had their way, theywould have won 13 contracts in that country. The truth is that, in acquisitions, debt and international expansion, Carillion became increasingly reckless in the pursuit of growth. In doing so, it had scant regard for long-term sustainability or the impact on employees, pensioners and suppliers.

Conclusions and recommendations – extracted from the Report of the Joint Select Committee into the collapse of Carillion Plc.https://www.parliament.uk/business/committees/committees-a-z/commons- select/work-and-pensions-committee/inquiries/parliament-2017/carillion-inquiry-17- 19/

14. Carillion used aggressive accounting policies to present a rosy picture to the markets. Maintaining stated contract margins in the face of evidence that showed they were optimistic, and accounting for revenue for work that not even been agreed,

1

ECON3411 Undergraduate Programmes 2018/19 Contemporary Issues in Accounting

enabled it to maintain apparently healthy revenue flows. It used its early payment facility for suppliers as a credit card but did not account for it as borrowing. The only cash supporting its profits was that banked by denying money to suppliers. Whether or not all this was within the letter of accountancy law, it was intended to deceive lenders and investors. It was also entirely unsustainable: eventually, Carillion would

need to get the cash in.

20. Major investors in Carillion were unable to exercise sufficient influence on the board to change its direction of travel. For this the board itself must shoulder most

responsibility. They failed to publish the trustworthy information necessary for investors who relied on public statements to assess the strength of the company. Investors who sought to discuss their concerns about management failings with the board were met with unconvincing and incompetent responses. Investors were left

with little option other than to divest.

21. It is not surprising that the board failed to attract the large injection of capital required from investors; we are aware of only one who even considered this possibility. In the absence of strong incentives to intervene, institutional investors acted in a rational manner, based on the information they had available to them. Resistance to an increase in bonus opportunities, regrettably, did not extend to direct challenges to board members. Carillion may have held on to investors temporarily by presenting its financial situation in an unrealistically rosy hue; had it been more receptive to the advice of key investors at an earlier stage it may have been able to avert the darkening clouds that subsequently presaged its collapse. (Paragraph 114)

22. KPMG audited Carillion for 19 years, pocketing £29 million in the process. Not once during that time did they qualify their audit opinion on the financial statements,instead signing off the figures put in front of them by the company’s directors. Yet,had KPMG been prepared to challenge management, the warning signs were there in highly questionable assumptions about construction contract revenue and the intangible asset of goodwill accumulated in historic acquisitions. These assumptions were fundamental to the picture of corporate health presented in audited annual accounts. In failing to exercise—and voice—professional scepticism towardsCarillion’s aggressive accounting judgements, KPMG was complicit in them. Itshould take its own share of responsibility for the consequences. (Paragraph 124)

23.Deloitte were responsible for advising Carillion’s board on risk management andfinancial controls, failings in the business that proved terminal. Deloitte were either unable to identify effectively to the board the risks associated with their business practices, unwilling to do so, or too readily ignored them. (Paragraph 125)

24.Carillion’s directors were supported by an array of illustrious advisory firms.Names such as Slaughter and May, Lazard, Morgan Stanley and EY were brandished by the board as a badge of credibility. But the appearance of prominent advisors proves nothing other than the willingness of the board to throw money at a problem and the willingness of advisory firms to accept generous fees.

2

ECON3411 Undergraduate Programmes 2018/19 Contemporary Issues in Accounting

Required

You must present a professional report for your firm with supporting references from academic research and professional sources.

With respect to Carillion plc, critically explore whether there is evidence of impression management being used by Carillion plc in its corporate reporting. Explore the possible contribution of such behaviour to hiding the crisis within the company. From this analysis conclude whether there are indicators which your firm could use to suggest increased risk.

SUBMISSION INSTRUCTIONS

Your completed assignment must be uploaded to DUO no later than 12:00 midday on Tuesday 30 April, 2019.

A penalty will be applied for work uploaded after 12:00 midday as detailed in the Programme Handbook. You must leave sufficient time to fully complete the upload process before the deadline and check that you have received a receipt. At peak periods, it can take up to 30 minutes for a receipt to be generated.

An IDENTICAL paper copy should be placed in the post box outside the Undergraduate Office in the Business School no later than 15:00 (3 pm). Work will not be marked unless this identical paper copy is received.

Assignments should be typed, using 1.5 spacing and an easy-to-read 12-point font. You should use double-sided printing, and ensure that assignments are securely bound. Written assignments and dissertations/business projects must not exceed the word count indicated in the module handbook/assessment brief.

The word count should:

 Include all the text, including title, preface, introduction, in-text citations, quotations, footnotes and any other items not specifically excluded below.

 Exclude diagrams, tables (including tables/lists of contents and figures), equations, executive summary/abstract, acknowledgements, declaration, bibliography/list of references and appendices. However, it is not appropriate to

3

ECON3411 Undergraduate Programmes 2018/19 Contemporary Issues in Accounting

use diagrams or tables merely as a way of circumventing the word limit. If a student uses a table or figure as a means of presenting his/her own words, then this is included in the word count.

Examiners will stop reading once the word limit has been reached, and work beyond this point will not be assessed. Checks of word counts will be carried out on submitted work, including any assignments or dissertations/business projects that appear to be clearly over-length. Checks may take place manually and/or with the aid of the word count provided via an electronic submission. Where a student has intentionally misrepresented their word count, the School may treat this as an offence under Section IV of the General Regulations of the University. Extreme cases may be viewed as dishonest practice under Section IV, 5 (a) (x) of the General Regulations.

Very occasionally it may be appropriate to present, in an appendix, material which does not properly belong in the main body of the assessment but which some students wish to provide for the sake of completeness. Any appendices will not have a role in the assessment - examiners are under no obligation to read appendices and they do not form part of the word count. Material that students wish to be assessed should always be included in the main body of the text.

Guidance on referencing can be found in the programme handbook and on DUO.

MARKING GUIDELINES

Performance in the summative assessment for this module is judged against the following criteria:

  •  Relevance to question(s)

  •  Organisation, structure and presentation

  •  Depth of understanding

  •  Analysis and discussion

  •  Use of sources and referencing

  •  Overall conclusions

    PLAGIARISM AND COLLUSION

    Students suspected of plagiarism, either of published work or the work of other students, or of collusion will be dealt with according to School and University guidelines.

    END OF ASSESSMENT

4

All Posts
×

Almost done…

We just sent you an email. Please click the link in the email to confirm your subscription!

OKSubscriptions powered by Strikingly