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Assignment – article and adopting a Positive Accounting Theory

Word limit:
Whilst there is not a maximum limit, the minimum is 1500 words.
Assignment
requirements.

Read the
following article and adopting a Positive Accounting Theory perspective,
consider the following issues:

1. If a new accounting standard impacts on profits, should this impact
on the value of the firm, and if so, why?
2. Will the
imposition of a particular accounting method have implications for the
efficiency of the organization?

Foster’s: less
goodwill, higher earnings

The challenges
facing investors seeking a true picture of a company’s earnings during the
impending profit reporting season were underlined again on Friday when Foster’s
flagged it would report a $1.2 billion reduction in net assets under new
accounting standards.
The transition to
international financial reporting standards (IFRS) means Foster’s net assets
will fall from $4.6 billion to $3.37 billion based on its last reported balance
sheet, mainly as a result of the internally generated goodwill on brand names
not being recognized.
The other major
contributor to the reduction is the requirement to allow for deferred tax
liabilities based on the difference between the carrying values of assets and
their cost base.
Despite scepticism about the likely success of Foster’s recent $3 billion
acquisition of winemaker Southcorp and Foster’s ability to extract sufficient
merger synergies, the changes to the reported accounts do not relate to any
issues with that acquisition. The brewing and winemaking group told analysts
the balance sheet adjustments wouldn’t affect its cash flow or ability to pay
dividends.
But reported profits
will be higher than they otherwise would be because of the removal of goodwill
amortization charges.
Under the standards, goodwill is instead
subject to an annual “impairment test”, with the elimination of amortization
expenses boosting reported profits. If the new standards were applied to
Foster’s half-year accounts to December 31, 2004,

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