2ACCOUNTING THEORY AND CURRENT ISSUETable of ContentsIntroduction......................................................................................................................................4Section 1: Identification of the key Accounting Policies................................................................5Section 2: Assessment of Accounting Flexibility............................................................................6Section 3: Evaluating Accounting Strategy.....................................................................................8Norms for accounting policies with industry peers.....................................................................8Incentives for managers to manage earnings...............................................................................8Changes in policies and estimates and the rationale....................................................................8Structuring of the transaction to achieve certain accounting objectives......................................9Section 4: Evaluating the Quality of Disclosure..............................................................................9Adequacy of the disclosures........................................................................................................9Adequacy of footnotes to the financial statements......................................................................9Rationale for Financial Notes consistent with current performance.........................................10GAAP reflects or restricts the appropriate measurement of key measures of success..............10Adequacy of segment disclosure...............................................................................................11Section 5: Identification of the Potential Red Flags......................................................................11Unexplained changes in accounting, especially when performance is poor..............................11Unexplained transactions that boost profits...............................................................................11Unusual increases in receivables in relation to sales revenue...................................................12

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