Nama : Arya Azhari

Nim : 21919007

UTS : Teori Akuntansi

1. Because ideal conditions are certain conditions. The purpose of this certainty is that a
company's future cash flows and interest rates in the economy are widely known with
certainty
2. Because in non-ideal conditions no one can know for sure what conditions will occur.
That's why estimation is needed to calculate present value
3. No, Because under RRA, oil and gas assets are valued at expected present value, not at
historical cost. If proved reserves were valued on Husky’s balance sheet at present value
of $10,710 million, this value would be $708 million lower than a comparable historical
cost value. The balance sheet would still balance, since the lower RRA asset valuation
will equal the lower RRA retained earnings. In effect, asset valuation and revenue
recognition are two sides of the same coin.
4. Because Relevant is the value on the balance sheet based on expected future cash flows,
and irrelevant dividends. While Reliability is because ideal conditions ensure the
calculation of the present value is believed to describe the expected cash flows in the
future.
• Relevant means that a financial report in it must provide information that can influence
user decisions by helping evaluate past or present events and can predict the future
• Reliability in financial statements if the information presented is free and there is
nothing deviant in it. Present all the facts clearly and honestly.
5. ''A theoretically correct measure of income does not exist in the real world in which
accountants must operate.
a. A theoretically correct me sure of income is what makes accounting both
frustrating and fascinating at the same time. It is frustrating because of the
difficulty of agreeing on accounting policies. Different users will typically want
different tradeoffs between relevance and reliability.
 b. Because market values are not available for all firm assets and liabilities, an
income measure based on changes in market values is not possible. If they
existed, no one would need accountants, net income has no information content
when conditions are ideal. The present value calculations and related income
measurement could then be programmed in advance. All that is needed is the set
of states, their probabilities, and knowledge of which state is realized, and
accountants would not be needed for this. Thus, we can say of income
measurement, “If we can solve it, we don’t need it.”
c. Relevance and reliability are important characteristics of accounting information.
As we concluded in the previous section, it is accounting necessary to trade them
off. However, different measurement bases imply different tradeoffs. Historical
cost accounting is relatively reliable since the cost of an asset or liability to a firm
is usually a verifiable number that is less subject to errors of estimation and bias
than are present value calculations. However, historical costs may be low in
relevance. While cost may equal current value at date of acquisition, this equality
will soon be lost as current values change over time. Consequently, the relevance
of current value accounting generally exceeds that of historical cost. But the need
for estimates when conditions are not ideal opens current value accounting up to
problems of reliability.
d. Two problems
- The principle does not state how much amortization should be accrued except
for a vague indication that it should be systematic and rational.
- Vagueness also reduces reliability, since firm managers have room to manage
their reported profitability through choice of amortization method and useful
life, or through changes to these policies.
6. Using the concept of information asymmetry
a. Because unlike for used cars, investors may diversify at least some estimation risk
arising from inside information, since firms differ in the integrity of their insiders.
Thus, for some firms, investor losses at the hands of insiders may be more than
expected while losses may be less than expected for others. Nevertheless, while share
prices will reflect average investor losses at the hands of insiders, individual firms
 that wish to do so can reduce inside information about them selves, and thus their cost
of capital, by superior disclosure, much like the seller of a used car may receive a
higher price if he/she makes maintenance records available to the purchaser.
b. Because they are costly, these various disclosure devices do not completely eliminate
the problems. Nevertheless, they may be sufficiently effective to at least allow used
car and some insurance markets to operate, albeit not as well as they would in the
absence of information asymmetry.
c. Because a medical doctor may give a patient a cursory examination. A trustee for a
bond issue may shirk his/her duties, to the disadvantage of the bondholders. In our
context, moral hazard occurs because of the separation of ownership and control that
characterizes most large business entities. It is effectively impossible for shareholders
and lenders to observe directly the extent and quality of top manager effort on their
behalf. Then, the manager may be tempted to shirk on effort, blaming any
deterioration of firm performance on factors beyond his/her control, or biasing
reported earnings to cover up.
d. Because many sponsors failed, raised additional capital at distressed prices, or were
rescued by governments, resulting in a major contraction of the financial system. The
resulting security market collapse spread to the real economy, leading to worldwide
recession, including drastic falls in share prices
7. Information perspective in financial reporting based on information economics is a
unifying theme that formally recognizes that some parties to business transactions may
have an information advantage over others or may take actions that are unobservable to
others and this is rely on with historical cost basis of accounting because Debt investors,
such as bondholders, may prefer conservative accounting on grounds that understating
assets and earnings protects lenders’ interests by making it more difficult for managers to
reduce their security by, for example, paying excessive dividends to shareholders. Others
may prefer historical cost accounting, perhaps because they feel that current value
information is unreliable, or simply because they are used to historical cost information.
8. Not, the exact time will be found. Because when security prices respond in this manner,
we say that accounting information has value relevance. It does seem that accounting
information is useful to investors in helping them estimate the expected values and risks
 of security returns. to see that if accounting information did not have information content,
there would be no revision of beliefs upon receipt, hence no triggering of buy/sell
decisions. Without buy/sell decisions, there would be no trading volume or price changes.
In essence, information is useful if it leads investors to change their beliefs and actions.
Furthermore, the degree of usefulness for investors can be measured by the extent of
volume or price change following release of the information and the value relevance
approach takes the view that investors want to make their own predictions of future
security returns. If the exact time cannot be isolated the researcher have prior beliefs
about a firm’s future performance—that is, its dividends, cash flows, and/or earnings,
which affect the expected returns and risk of the firm’s securities.
9. Because there is the usefulness of accounting information in making investment decision,
then the presentation of accounting information is necessary in order to provide benefits
for the users of financial statements to make the best investment decisions. It is suggests
that, there is relevance value between values of market and accounting.
10. The case that financial statement information is both completely relevant and completely
reliable. Relevance holds because balance sheet values are based on expected future cash
flows, and dividend irrelevancy holds. Reliability holds because ideal conditions ensure
that present value calculations faithfully represent the firm’s expected future cash flows.
Decision usefulness is contrasted with another view of the role of financial reporting,
stewardship, whereby the role is to report on management’s success, or lack thereof, in
managing the firm’s resources. Accountants have decided that investors are a major
constituency of users and have turned to various theories in economics and finance in
particular, to theories of decision and investment to understand the type of financial
statement information investors need.
11. Once a firm’s current earnings become known, the information content should be quickly
digested by investors and incorporated into the efficient market price. However, it has
long been known that this is not exactly what happens. For firms that report good news
(GN) in quarterly earnings, their abnormal security returns tend to drift upward for some
time following their earnings announcement. Similarly, firms that report bad news (BN)
in earnings tend to have their abnormal security returns drift downward for a similar
period. This phenomenon is called postannouncement drift (PAD). Post-announcement
 drift has generated much subsequent research into the source of the anomaly. One
explanation is limited attention, under which investors do not exert the time and effort
needed to fully understand the serial correlation of quarterly earnings changes. However,
several related explanations have been suggested.
12. Yes it does. Valuing assets at historical cost prevents overstating an asset's value when
asset appreciation may be the result of volatile market conditions. For example, if a
company's main headquarters, including the land and building, was purchased for
$100,000 in 1925, and its expected market value today is $20 million, the asset is still
recorded on the balance sheet at $100,000.
13. Because based on a large sample of firms over the period 1962–2001, they found that
lower reliability accruals were less persistent. They also found that investors appeared to
ignore this lower persistence. That is, the less reliable the accrual component, the more
investors overestimate earnings persistence, leading to greater share mispricing. An
investment strategy to exploit this greater mispricing generated annual abnormal returns,
before transaction costs, even stronger than the 10.4% in Sloan’s original study.
14. Positive economics describes and explains various economic phenomena, while
normative economics focuses on the value of economic fairness or what the economy
should be. Example: "Government-provided healthcare increases public expenditures."
This statement is fact-based and has no value judgment attached to it. Its validity can be
proven (or disproven) by studying healthcare spending where governments provide
healthcare. "The government should provide basic healthcare to all citizens." As you can
deduce from this statement, it is value-based, rooted in personal perspective, and
satisfies the requirement of what "should" be.
15. No, it can’t, because the combination of separate evaluation of gains and losses and the
weighting of probabilities can lead to a wide variety of “irrational” behaviors. For
example, fear of losses may cause investors to stay out of the market even if prospects
have positive expected value according to a decision theory calculation. Also, they may
underreact to bad news by holding on to “losers” so as to avoid realizing a loss and, as
mentioned above, may even buy more of a loser stock, thereby taking on added risk.
Thus, under prospect theory, investor behavior depends in a complex way on payoff
 probabilities that may differ from those obtained from Bayes’ theorem, risk aversion
with respect to gains, and risk taking with respect to losses.
16. Using several quality measures, including the accrual quality measure of Dechow and
Dichev, they found that higher accounting quality is significantly associated with lower
delay. They also found a significant positive relationship between a firm’s delay and its
future abnormal share returns, consistent with investors demanding a higher return on
shares for which they perceive greater estimation risk. I think this is a good measure
because these results are consistent with average investor rationality, even though the
existence of delay implies less-than-full market efficiency.