Critical Theory and Amazon's Accounting

This assignment analyzes the application of critical accounting theory within Amazon. It examines how this theory surpasses traditional positive and normative theories by providing a framework for understanding problem causes and potential solutions. The text emphasizes the practical and explanatory benefits of critical theory for Amazon's accountants.

ACCT20074 Final Assignment
Term 2, 2017
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Question 1: There are several possible objectives for general purpose financial reporting. Explain what these
objectives might be, and which one you think best applies to Amazon’s financial reporting (based on the
information in the case study). Make sure that you fully explain your answer.
Answer:
The primary aim of general purpose financial reporting is to highlight the financial information that pertains to the organization and
establishes the conceptual framework. The objective of the GPFR sheds light on the important aspects such as recognition,
presentation, measurement, and disclosure.
The main aim of general purpose financial reporting is to showcase the financial information regarding the entity that is of paramount
utility to the current and potential investors, lenders, and creditors. It helps the related parties in taking a relevant decision.
Specifically, it assists in buying, selling, as well as holding the equity and debt instruments. Thirdly, GPFR helps in assessing the
prospect of an entity for the cash inflow that pertains to the future. The existing and potential investors, lenders, and creditors require
information pertaining to the entity resources, entity’s claims and the manner in which the management and governing have discharged
the role in using the resources of the entity (Mark & Michael, 2016). Further, the general purpose financial report provides relevant
information that aids the existing and the potential investors, lenders that estimate the reporting entity. Such responsibilities contain the
protection of the resources of the entity from unfavorable impact like price and changes in the technology and ensuring that the entity
complies with the laws that are applicable and other contractual obligations.
From the case study, it is clear that the general purpose financial reporting helps Amazon in projecting the information to the end users.
The financial information is best disclosed from where it is seen that the company’s unprofitable venture lead to a drop in the share
price. Hence, the investors are able to get a clear vision regarding the performance of the company in terms of sales and growth. The
long term prospect and the margins of the company are best disclosed. It is found that the margin pressure on the company is testing

the patience of the investors (Samaha & Dahaway, 2010). In this scenario, it can be commented that the general purpose financial
report is not structured to the show the entity’s value rather from the above case study it is well defined that the information is given to
provide help to the investors those are existing, as well as potential (Melville, 2013). Moreover, lenders and creditors will be able to
estimate the value of Amazon. The pressure on the margins will provide help in ascertaining the facts. Hence, going by the above
facts, a decision can be taken regarding the stock price of the company. As the information is clearly displayed and a clear
interpretation regarding the revenues and the margins has been showcased, a decision regarding the stock price can be easily made
(Spiceland et. al, 2011). Therefore, the objective of general purpose financial reporting in providing relevant information to the end
users is best described and witnessed in the case of Amazon. The financial position of Amazon and the claims is best known through
the GPFR. Moreover, this aids in knowing about the liquidity, as well as the solvency of the company in the near future.
References:
Mark A. C & Michael J. P 2016, ‘The timeliness of UK private company financial reporting: Regulatory and economic influences’,
The British Accounting Review, vol. 48, no. 3, pp. 297–315
Samaha, K. & Dahaway, K 2010, ‘Factory influencing corporate disclosure transparency, in the active share trading firms: An
Explanatory study’, Research in Emerging Economies, vol. 10, pp. 87-118.
Spiceland, J, Thomas, W. and Herrmann, D 2011, Financial accounting, New York: McGraw-Hill/Irwin,University Press.
Melville, A 2013, International Financial Reporting – A Practical Guide, 4th edition, Pearson, Education Limited, UK
Marker’s Comments: The marker will provide feedback here. Mark (10):
0

Exceeds Expectations
(High Distinction) 85-100%
Exceeds Expectations
(Distinction) 75 - 84%
Meets Expectations
(Credit) 65 – 74%
Meets Expectations
(Pass) 50 – 64%
Below Expectations
(Fail) below 50%
Demonstrates a balanced and very
high level of detailed knowledge of
core concepts by providing a very
high level of analysis. Utilises
current, appropriate and credible
sources.
Demonstrates a balanced and high
level of knowledge of core
concepts by providing a high level
of analysis. Utilises mostly current,
appropriate and credible sources.
Demonstrates a good level of
knowledge of some of the core
concepts by providing some level
of analysis. Utilises some current,
appropriate and credible sources.
Demonstrates limited knowledge of
core concepts by providing a
limited level of analysis. Utilises
few current, appropriate and
credible sources.
Demonstrates little, if any,
knowledge of the core concepts
with extremely limited, if any,
analysis. Utilises little, if any,
current, appropriate and credible
sources.
Quality of writing at a very high
standard. Paragraphs are
coherently connected to each
other. Correct grammar, spelling
and punctuation.
Quality of writing is of a high
standard. Paragraphs are mostly
well structured. Few grammar,
spelling and punctuation mistakes.
Quality of writing is of a good
standard. Few grammar, spelling
and punctuation mistakes.
Some problems with sentence
structure and presentation
Frequent grammar, punctuation
and spelling mistakes. Use of
inappropriate language.
Quality of writing is at a very poor
standard so barely
understandable. Many spelling
mistakes. Little or no evidence of
proof reading.
The assessment presents a
detailed and focused summary of
the ideas presented; drawing clear
and well thought-out conclusions.
The assessment presents a fairly
detailed and focused summary of
the ideas presented; drawing fairly
clear and well thought-out
conclusions.
The assessment presents a
somewhat detailed and focused
summary of the ideas presented;
providing some evidence of
conclusions.
The assessment provides limited
detail with no clear summary of the
ideas presented; drawing limited
conclusions.
The assessment fails to provide
any clear evidence of the ideas
presented; drawing no clear
conclusions.

Question 2: From the case study, it appears that the CEO of Amazon, Jeff Bezos, might be receiving bonus
company stock based on accounting outcomes (reported profit, for example, or share price performance). Let us
assume for now that this is true. Would Jeff Bezos or Amazon's shareholders prefer Amazon to use conservative
accounting methods such as historical cost? Fully explain the likely preferences of both parties.
Answer:
The CEO will use the historical cost concept because the valuation of the assets is done at the original cost. Jeff Bezos would in all
probability use the historical concept as it will provide better prospects and benefits to in terms of functioning. If the purchases of the
assets are being done at $400,000 then the assets will be recorded at the original cost or the price at which the transaction was done.
Moreover, at every accounting period, the reporting and measurement of land the same amount and are projected on the company’s
balance sheet. The CEO will like to use this concept because it helps in maintenance of the objectivity that is associated with the
accounting information. Moreover, the amount present in the financial statements is not shadowed with the increment and decline in
the values. There appears to be no point for manipulation of data because there is always an objective basis that concern with the
transaction of the business. The main use of this concept is that it enhances the reliability associated with the accounting information.
The amount that is reported is easily verifiable. The CEO can easily go to the previous documents sources of the transactions of the
business like invoices, work orders, etc as it helps in verification of the amount that we reported in the financial statements (Horngren,
2013). Hence, the shareholders can get a clear cut projection of the state of affairs and historical cost concept makes the concept
simple. The recordings of transactions are done at the original value and hence, the financial statements did not be restated each year to
project the changes in the values, the change in the purchasing power and inflation. Moreover, the CEO will be in a better position to
compare and ascertain the position by doing a comparison with that of the previous years. Hence, historical cost concept will help the
investors to compare the performances (Graham & Smart, 2012). Therefore, conservative technique or method will be highly supported
by the shareholders because there will no change in the value during the reporting period and this will help the shareholders to have a

better grasp of the scenario.
However, as per shareholders, it can be stated that the current market value is not projected by the historical cost and hence, they will
not opt for the historical cost as they want to know about the current scenario of the business. The historical cost is unable to project
the current market value and no factors are considered in this case. It needs to be noted that the value of the assets appreciates over the
period of time and using the concept means that the incorrect method is followed that does not project a clear picture (Deegan, 2011).
Therefore, as per the CEO concern, it is better to use the historical cost because that will provide a uniform effect while the
shareholders will be more inclined towards having a policy that will bestow benefits on them.
References:
Graham, J & Smart, S 2012, Introduction to corporate finance, Australia: South-Western Cengage Learning.
Horngren, C 2013, Financial accounting, Frenchs Forest, N.S.W: Pearson Australia Group.
Deegan, C. M 2011, In Financial accounting theory, North Ryde, N.S.W: McGraw-Hill.
Marker’s Comments: The marker will provide feedback here. Mark (10):
0

Exceeds Expectations
(High Distinction) 85-100%
Exceeds Expectations
(Distinction) 75 - 84%
Meets Expectations
(Credit) 65 – 74%
Meets Expectations
(Pass) 50 – 64%
Below Expectations
(Fail) below 50%
Demonstrates a balanced and very
high level of detailed knowledge of
core concepts by providing a very
high level of analysis. Utilises
current, appropriate and credible
sources.
Demonstrates a balanced and high
level of knowledge of core
concepts by providing a high level
of analysis. Utilises mostly current,
appropriate and credible sources.
Demonstrates a good level of
knowledge of some of the core
concepts by providing some level
of analysis. Utilises some current,
appropriate and credible sources.
Demonstrates limited knowledge of
core concepts by providing a
limited level of analysis. Utilises
few current, appropriate and
credible sources.
Demonstrates little, if any,
knowledge of the core concepts
with extremely limited, if any,
analysis. Utilises little, if any,
current, appropriate and credible
sources.
Quality of writing at a very high
standard. Paragraphs are
coherently connected to each
other. Correct grammar, spelling
and punctuation.
Quality of writing is of a high
standard. Paragraphs are mostly
well structured. Few grammar,
spelling and punctuation mistakes.
Quality of writing is of a good
standard. Few grammar, spelling
and punctuation mistakes.
Some problems with sentence
structure and presentation
Frequent grammar, punctuation
and spelling mistakes. Use of
inappropriate language.
Quality of writing is at a very poor
standard so barely
understandable. Many spelling
mistakes. Little or no evidence of
proof reading.
The assessment presents a
detailed and focused summary of
the ideas presented; drawing clear
and well thought-out conclusions.
The assessment presents a fairly
detailed and focused summary of
the ideas presented; drawing fairly
clear and well thought-out
conclusions.
The assessment presents a
somewhat detailed and focused
summary of the ideas presented;
providing some evidence of
conclusions.
The assessment provides limited
detail with no clear summary of the
ideas presented; drawing limited
conclusions.
The assessment fails to provide
any clear evidence of the ideas
presented; drawing no clear
conclusions.

Question 3: Use Capital Markets Research (CMR) to explain the reaction of Amazon’s shareholders to Amazon’s
earnings announcement.
Answer: Capital Market research can be defined as an important activity for the company as it helps in providing products and
services that cater to the desired customers. It can be stated as a well-defined and a logical method because it increases the company’s
profit-making ability. The companies can earn more dividends, on the contrary, it can lessen the intensity of the risk by research on the
capital market. The biggest advantage that can be gained due to the capital market research is the development of a proper
communication betwixt the customer and the companies (Peirson et. al, 2015). The reaction of the customers in tune to the different
services provided by the company can be evaluated due to capital market research.
As per the case study, the performance of Amazon in terms of sales witnessed a 23% increment as compared to the previous year
figures. However, the market sentiments were in an opposite manner considering this news. The shares fell nearly 11% and a huge
chunk amounting to $3.5 billion was knocked off. The matter of consistent profit together with the falling gross profit margin was the
major reason for the fall. As per the capital market research, it can be said that the company has an ambitious nature and is the root

cause of the fall (Petty et. al, 2012). The policies are not in tune with the standards of the company and hence, the growth has not been
significant. The growth of Amazon’s revenue is clocked at 20% that is not a reasonable figure to attract the investors. The reaction of
the shareholders was of a negative note because the expectations are high from the retail giant as it operates on an immense scale. The
margin that is showcased by Amazon disturbed the investor sentiments and is one of the major reasons why the investors abandoned
the shares and a decline was observed (Brealey et. al, 2015). The sentiment of the investors is a clear-cut indicator that the increment in
the sales revenue cannot bring glory to the company or investors. The potential and the attraction is judged by the margin of the
company. As per the capital market research, Amazon can minimize risk and ensure a better share price if the company stresses on the
concept of margin. The exact need of the investor resides in the margin and not the revenue hence, Amazon needs to concentrate on the
concept of margin instead of margin.
References:
Brealey, R. A, Myers, S. A & Marcus, A. J 2015, Fundamentals of Corporate Finance, 8th ed. Australia: McGraw-Hill Irwin.
Peirson, G, Brown, R., Easton, S., Howard, P & Pinder, S 2015, Business Finance, 12th ed., North Ryde: McGraw-Hill Australia.
Petty, J. W, Titman, S., Keown, A. J., Martin, J. D, Burrow, M & Nguyen, H., 2012, Financial Management: Principles and
Applications, 6th ed., Australia: Pearson Education Australia.
Mark (10):

Marker’s Comments: The marker will provide feedback here. 0
Exceeds Expectations
(High Distinction) 85-100%
Exceeds Expectations
(Distinction) 75 - 84%
Meets Expectations
(Credit) 65 – 74%
Meets Expectations
(Pass) 50 – 64%
Below Expectations
(Fail) below 50%
Demonstrates a balanced and very
high level of detailed knowledge of
core concepts by providing a very
high level of analysis. Utilises
current, appropriate and credible
sources.
Demonstrates a balanced and high
level of knowledge of core
concepts by providing a high level
of analysis. Utilises mostly current,
appropriate and credible sources.
Demonstrates a good level of
knowledge of some of the core
concepts by providing some level
of analysis. Utilises some current,
appropriate and credible sources.
Demonstrates limited knowledge of
core concepts by providing a
limited level of analysis. Utilises
few current, appropriate and
credible sources.
Demonstrates little, if any,
knowledge of the core concepts
with extremely limited, if any,
analysis. Utilises little, if any,
current, appropriate and credible
sources.
Quality of writing at a very high
standard. Paragraphs are
coherently connected to each
other. Correct grammar, spelling
and punctuation.
Quality of writing is of a high
standard. Paragraphs are mostly
well structured. Few grammar,
spelling and punctuation mistakes.
Quality of writing is of a good
standard. Few grammar, spelling
and punctuation mistakes.
Some problems with sentence
structure and presentation
Frequent grammar, punctuation
and spelling mistakes. Use of
inappropriate language.
Quality of writing is at a very poor
standard so barely
understandable. Many spelling
mistakes. Little or no evidence of
proof reading.
The assessment presents a
detailed and focused summary of
the ideas presented; drawing clear
and well thought-out conclusions.
The assessment presents a fairly
detailed and focused summary of
the ideas presented; drawing fairly
clear and well-thought-out
conclusions.
The assessment presents a
somewhat detailed and focused
summary of the ideas presented;
providing some evidence of
conclusions.
The assessment provides limited
detail with no clear summary of the
ideas presented; drawing limited
conclusions.
The assessment fails to provide
any clear evidence of the ideas
presented; drawing no clear
conclusions.

Question 4: Explain how an Amazon investor might use heuristics to decide whether to buy, sell, or hold Amazon
shares. To answer this, you should explain the various categories of heuristics available to the investor.
Answer:
A heuristic can be defined as mental trick or a shortcut that enables people to solve problems and hence aids to decision-making in a
quick and efficient manner. It can be stated as a strategy that reduces the length of the decision-making process and enables people to
function regularly to think about the next course of action. It can be utilized in a variety of situation like problem-solving, as well as
decision-making (Cherry, 2017).
The investors of Amazon can utilize the concept of heuristic to buy, sell or hold the stock. A quick solution can be derived by this
approach. The investors need to ascertain the financial statements and the manner in which the company (Amazon) is operating. If the
company is operating with high sales revenue and the margin is low then the investors can think about the potential issue that the
company is facing (Arnold, 2010). It stresses upon the fact that the company is under doldrums and unable to utilize the opportunity.
Either its operating cost is high or the expenses are more that is not letting the company post higher margins. In all probability, the
stock must be kept in a hold mode as the long-term credentials of the company is intact. It just needs to rectify the present situation.
Two kind of heuristic is available to the investor that is the availability heuristic and the representative heuristic. When it comes to the
concept of availability heuristic it leads to decision-making that is easy to be done. When a decision needs to be taken then the relevant
examples can be thought of by the investor. This is due to the fact that such examples already rest in the mind and judging such
outcomes is an easy task. When a decision to invest in Amazon happens, the recent scenario or the new will ultimately come to the
mind leading to an influence (Cherry, 2017). Here, the available heuristic comes to the forefront. The second being the representative
heuristic where the investor can compare the current situation to the one that represents the most. In this scenario, the traits match and

hence, a decision is influenced. If the investor scans upon the company Amazon then a general view will come to the forefront that
investment in the stocks that have low margin might appear to be risky and hence, can lead to losses in the future.
References:
Cherry, K 2017, What Is a Heuristic and How Does It Work?, viewed 2 October, 2017 https://www.verywell.com/what-is-a-heuristic-
2795235
Arnold, G 2010, The Financial Times Guide to Investing, Prentice Hall.
Marker’s Comments: The marker will provide feedback here. Mark (10):
0
Exceeds Expectations
(High Distinction) 85-100%
Exceeds Expectations
(Distinction) 75 - 84%
Meets Expectations
(Credit) 65 – 74%
Meets Expectations
(Pass) 50 – 64%
Below Expectations
(Fail) below 50%
Demonstrates a balanced and very
high level of detailed knowledge of
core concepts by providing a very
high level of analysis. Utilises
current, appropriate and credible
sources.
Demonstrates a balanced and high
level of knowledge of core
concepts by providing a high level
of analysis. Utilises mostly current,
appropriate and credible sources.
Demonstrates a good level of
knowledge of some of the core
concepts by providing some level
of analysis. Utilises some current,
appropriate and credible sources.
Demonstrates limited knowledge of
core concepts by providing a
limited level of analysis. Utilises
few current, appropriate and
credible sources.
Demonstrates little, if any,
knowledge of the core concepts
with extremely limited, if any,
analysis. Utilises little, if any,
current, appropriate and credible
sources.
Quality of writing at a very high
standard. Paragraphs are
coherently connected to each
other. Correct grammar, spelling
and punctuation.
Quality of writing is of a high
standard. Paragraphs are mostly
well structured. Few grammar,
spelling and punctuation mistakes.
Quality of writing is of a good
standard. Few grammar, spelling
and punctuation mistakes.
Some problems with sentence
structure and presentation
Frequent grammar, punctuation
and spelling mistakes. Use of
inappropriate language.
Quality of writing is at a very poor
standard so barely
understandable. Many spelling
mistakes. Little or no evidence of
proof reading.
The assessment presents a
detailed and focused summary of
the ideas presented; drawing clear
and well thought-out conclusions.
The assessment presents a fairly
detailed and focused summary of
the ideas presented; drawing fairly
clear and well-thought-out
The assessment presents a
somewhat detailed and focused
summary of the ideas presented;
providing some evidence of
The assessment provides limited
detail with no clear summary of the
ideas presented; drawing limited
conclusions.
The assessment fails to provide
any clear evidence of the ideas
presented; drawing no clear
conclusions.

Exceeds Expectations
(High Distinction) 85-100%
Exceeds Expectations
(Distinction) 75 - 84%
Meets Expectations
(Credit) 65 – 74%
Meets Expectations
(Pass) 50 – 64%
Below Expectations
(Fail) below 50%
conclusions. conclusions.

Question 5: Critical theorists view accounting very differently to positive or normative theorists. Use critical
theory to explain how Amazon uses accounting and accountants for its own purposes.
Answer: The critical theory is utilized by Stanley that helps in exploring a method to ensure the health of the organization while
enhancing the representation that influences the needs of human. It needs to be noted that corporations is economic and political
institutions. The communication reforms and aid can bring better avenues to the company. Amazon uses accounting, as well as
accountants for its own purpose. When it comes to the practical course of conduct, the critical inquiry establishes those reflective and
such cannot be confined to institutions those are democratic (Milne, 2002). Old theories are unable to cater to the requirements and
hence, keeping this into consideration the critical theory has been used by Amazon to give the desired impact.
Amazon contains a strong work culture and hence, the accounting and accountants are able to get a clear picture. The position of the
company rests upon the standards that are undertaken. The theory that is the critical theory helps in providing knowledge that leads to
the best of the work. The accountants, as well as auditors, are able to able to use the knowledge for the benefit of the organization as a
whole. In this entire process, the concern over the high profit of the company is highlighted and the death of the political cost is deep
that it shades the social theory of disclosures. Apparently, the accounting based social disclosure fails to give empirical evidence that is
gathered for the positive accounting theory support. As per the general condition and the functioning of the company it is viewed that
the company operates under immense pressure and despite the bumps, the conceptual framework and other compliances are in tune
with the standards. This reveals that the health of the organization is kept as a priority and that helps in influencing the human needs.
Therefore, it can be commented that Amazon has utilized the concept of critical theory as it is explanatory, practical, as well as
normative that means the theory has helped the company in explaining the problem that is present and further, this has provided the
accountants to know about the potential cause of problem and to seek the problem that exists (Bodie et. al, 2014). The traditional
theory fails in this regard and therefore the critical theory is used by Amazon to provide various courses of actions as per the needs of

the organization. In all probability, critical theory has an upper hand over positive and normative theorizes.
References:
Milne, M.J 2002, ‘Positive accounting theory, political costs and social disclosure analyses: a critical look’, Critical Perspectives
on Accounting, vol. 13, no. 3, pp. 369-395
Bodie, Z, Kane, A. & Marcus, A. J 2014, Investments, McGraw Hill
Marker’s Comments: The marker will provide feedback here. Mark (10):
0
Exceeds Expectations
(High Distinction) 85-100%
Exceeds Expectations
(Distinction) 75 - 84%
Meets Expectations
(Credit) 65 – 74%
Meets Expectations
(Pass) 50 – 64%
Below Expectations
(Fail) below 50%
Demonstrates a balanced and very
high level of detailed knowledge of
core concepts by providing a very
high level of analysis. Utilises
current, appropriate and credible
sources.
Demonstrates a balanced and high
level of knowledge of core
concepts by providing a high level
of analysis. Utilises mostly current,
appropriate and credible sources.
Demonstrates a good level of
knowledge of some of the core
concepts by providing some level
of analysis. Utilises some current,
appropriate and credible sources.
Demonstrates limited knowledge of
core concepts by providing a
limited level of analysis. Utilises
few current, appropriate and
credible sources.
Demonstrates little, if any,
knowledge of the core concepts
with extremely limited, if any,
analysis. Utilises little, if any,
current, appropriate and credible
sources.
Quality of writing at a very high
standard. Paragraphs are
coherently connected to each
other. Correct grammar, spelling
and punctuation.
Quality of writing is of a high
standard. Paragraphs are mostly
well structured. Few grammar,
spelling and punctuation mistakes.
Quality of writing is of a good
standard. Few grammar, spelling
and punctuation mistakes.
Some problems with sentence
structure and presentation
Frequent grammar, punctuation
and spelling mistakes. Use of
inappropriate language.
Quality of writing is at a very poor
standard so barely
understandable. Many spelling
mistakes. Little or no evidence of
proof reading.
The assessment presents a
detailed and focused summary of
The assessment presents a fairly
detailed and focused summary of
The assessment presents a
somewhat detailed and focused
The assessment provides limited
detail with no clear summary of the
The assessment fails to provide
any clear evidence of the ideas

Exceeds Expectations
(High Distinction) 85-100%
Exceeds Expectations
(Distinction) 75 - 84%
Meets Expectations
(Credit) 65 – 74%
Meets Expectations
(Pass) 50 – 64%
Below Expectations
(Fail) below 50%
the ideas presented; drawing clear
and well thought-out conclusions.
the ideas presented; drawing fairly
clear and well thought-out
conclusions.
summary of the ideas presented;
providing some evidence of
conclusions.
ideas presented; drawing limited
conclusions.
presented; drawing no clear
conclusions.