Question

QUESTION OPTION 1

Choose an organisation and comment on how they have been engaging with issues of sustainability in recent years. How have they done well, and how have they done badly?

QUESTION OPTION 2

Assume you are an advisor to the government of a developing country. You are asked to prepare a report which includes arguments for and against adopting IFRS. What key points would be included in your report? Please answer in your own words.

QUESTION OPTION 3

In your own words explain how agency theory and corporate governance are related. Provide examples of companies that have experienced problems in corporate governance.

QUESTION OPTION 4

“The growing gap between book and market values risks rendering accounting information irrelevant. Accounting standards must be changed to address this situation”. Indicate whether you think the source of this gap lies mainly with tangible or intangible assets. Do you agree with the statement? Provide evidence to support your view.

Answer 1

Question Option 4

Book Value is the price of a share as recorded in the financial statements as the net amount of assets over liabilities which a shareholder can realize in case all assets were liquidated & all liabilities have been paid off.

Market price is the price of a stock listed in a recognized stock exchange. While the book value of a share is consistent with the books, market price of a share can really fluctuate due to multiple factors like market speculation, difference in demand & supply, sentiment over current news about the organization, favourable or unfavourable results, investor lookout, disclosures made etc. While the book value of a share is theoritical, market price is completely speculative.

Due to the variance in market price, a share can be undervalued or overvalued. If undervalued, it presents a lucrative opportunity to investors to buy in large volume and sell at profits. This also pushes up it's demand resulting in rising market prices. On the contrary, an overvalued share is less attractive for the investors and they prefer going short by selling them under derivatives segment.

Revaluation of assets, specially land & buildings, as observed, has been one of the major factors in updating book value of a share.

Intangible assets of a company usually remain quite consistent unless there's an opporunity of windfall gains/ unforeseen losses. Assets like goodwill, licence, patents/copyrights remain stable in terms of book value. Major deals or breakthroughs, patent registrations are good signs of a positive market movement.