ACCT20074 Final Assignment Term 2, 2017: Amazon Financial Analysis

This assignment analyzes Amazon's financial reporting, focusing on the objectives of general-purpose financial reporting according to IFRS, with a specific emphasis on cash flow analysis for Amazon. The student discusses the importance of providing information to users, tracking cash flow, and anal...Read More

ACCT20074 Final Assignment
Term 2, 2017
Student ID:………………………………. Student name……………………………………………………..
Marker’s overall comments: The markers may include any
final comments here.
Overall Mark (Total) out of 50:
0

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.
According to the International Financial Reporting Standards (IFRS), the objective of general financial reporting is to offer
useful information that can be used to make and evaluate decisions such as allocation of resources and investment by the report users.
Financial reporting help the users to objectively track and analyze the entity’s income (Dillard, 2012). Purposely, financial reports are
meant to examine the usage of resources, establish the entity’s financial health, its performance, cash flow, and resource allocation and
usage (Deegan, 2014). With this information, investors and the business managers are in a better position of making decisions on how
best to manage the entity.
The three main objectives of general purpose financial reporting are;
a) Providing information to Users
The information contained in the financial reports is useful in several ways to the business. For example, it is used to determine
whether or not to offer credit sales to customers, whether or not to invest assets and whether or not to offer dividends to the
shareholders among others. Investors also rely on the report when making investment decisions (Deegan, 2014). For existing investors,
like those of Amazon, are interested in knowing how annual revenue is being reinvested into the business, the amount of dividend they
are likely to earn from the previous year’s proceeds, how efficient is their capital being used and whether or not the entity still remains
the better place to have their cash.
b) Tracking cash flow
Financial reporting provides information on the cash flows of a given entity. The information comprises of the uncertainty and
timing of such cash flows. Such information is vital in establishing the liquidity/ financial health of an entity i.e. whether or not it still
operates as going concern (Deegan, 2014). In evaluating the cash flows at Amazon.com, the financial report should help the investors
to answer the following questions; where is the company generating its money from? What is the future of the business? Is the
company making profits or losses? The questions can only be answered by tracking the cash flow (Atrill & McLaney , Management
Accounting for Decision Makers, 2015).
c) Analysing the entity’s assets, liabilities, and equity
Investors can anticipate the business performance to expect in the future by monitoring the changes in the three financial items.
The analysis will also reveal the ability of the business to meet its financial obligations. Lastly, such an analysis establishes the
availability of resources to ensure future growth (Ezzamel & Heathfield, 2013).
The best objective for Amazon.com

The information revealed in the Amazon’s financial report addresses the cash flows. Therefore, the investors should concentrate
on tracking the company’s cash flows. First, the financial report concentrates on the company’s profitability. Profit/ loss is obtained by
deducting the cost incurred in generating revenue from the revenue generated. The Amazon’s profit has been highly affected by the
ever-rising cost margin (Boje, 2008). Although the Company’ sales grew by 23% to $19.3 billion, the profit realized was unsatisfactory
(Deegan, 2014). Profitability also has a direct impact on the price of shares. The higher the profit, the higher the competitiveness and
the higher the share price. The report shows that the company shares have dropped in the market. Investors are shying away from
placing their cash in the company (Jennins, 2004).
By tracking and analyzing the Amazon’s cash flows of their previous years, the investors will form a formidable decision
whether or not to reward the growth strategies. The shareholders can also predict the likelihood of the company’s performance
improving the future. Lastly, the management can use the cash flow analysis report to identify the weakness within the company’s
operational strategy and come up with remedies to minimize the cost or maximise the profit margin (Riahi-Belkaoui, 2002).
References:
Atrill, D. P., & McLaney , E. (2015). Management Accounting for Decision Makers (8 edition ed.). London, UK: Pearson.
Boje, D. M. (2008). Critical Theory Ethics for Business and Public Administration. New York: IAP.
Deegan, C. (2011). Financial Accounting Theory: European. New York: McGraw-Hill Higher Education.
Deegan, C. M. (2014). Financial Accounting Theory (4 ed.). North Ryde, NSW: McGraw Hill Education (Australia) Pty Ltd.
Dillard, J. F. (2012). Accounting as a Critical Social Science. Accounting, Auditing & Accountability Journal.
Ezzamel, M., & Heathfield, D. (2013). Perspectives on Financial Control: Essays in memory of Kenneth Hilton. New York: Springer.
Jennins, A. (2004). Financial Accounting. New York: Thomson Learning.
Riahi-Belkaoui, A. (2002). Behavioral Management Accounting. New York: Quorum Books.
Tyson, L. (2001). Learning for a Diverse World: Using Critical Theory to Read and Write About Literature. London: Routledge.
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
Demonstrates a balanced and high
level of knowledge of core concepts
Demonstrates a good level of
knowledge of some of the core
Demonstrates limited knowledge of
core concepts by providing a limited
Demonstrates little, if any, knowledge
of the core concepts with extremely

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%
core concepts by providing a very high
level of analysis. Utilises current,
appropriate and credible sources.
by providing a high level of analysis.
Utilises mostly current, appropriate
and credible sources.
concepts by providing some level of
analysis. Utilises some current,
appropriate and credible sources.
level of analysis. Utilises few current,
appropriate and credible sources.
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.
Conservative accounting methods state that before claiming any company profit there is the need to verify all the associated
losses and expenditures incurred during a financial year. The accounting method is not meant to manipulate the reporting of
transactions, but it offers guidance when there is a need for verification when uncertainty arises. Revenue should be reported in the
same financial period as the associated expenses. In short, the conservatism accounting principles states that assets and liabilities are
generally understated while expenses and liabilities are overstated. Therefore, conservatism accounting lower the net come as well as
the future financial benefits of shareholders. The objective is to ensure the continuity of a company during the financial crisis when
many expenses cannot be met. Such benefits, expenses, and liabilities are carried forward to the future periods (Deegan C. M., 2014).
Application of Conservatism accounting principle
Assume that Amazon’s accountant is facing two alternatives in recording a transaction inventory. The cost of the inventory is $
500,000. However, the value of the inventory in the marketplace has dropped and it can only be sold at $450,000. The company would
incur an additional cost of $10,000 for packaging and shipment. The accounting would be confused on whether to record the inventory
at its historical value ($500,000) or at the net realizable value (NRV) of $ 440,000). NRV is equal $450,000 minus $10,000. Likewise,
the accountant is in a dilemma on whether to immediately record the $60,000 or ignore it until the inventory is sold.
According to the Conservative accounting principle, the inventory should be reported at its NRV of $440,000 in the balance
sheet and the loss of $ 60,000 reported immediately in the income statement (Atrill & McLaney, 2015).
Impact of Conservatism accounting on Amazon
There is a positive correlation between conservatism and a company’s value during the crisis. Conservatism accounting method
provides efficient and effective mechanisms used in mitigating control agency issues and information risk. Likewise, shareholders are
likely to benefit a lot from the application of conservative accounting.
First, during the systematic crisis, companies are likely to experience financial distress exposing them to agency problems. At
such a times, managers are likely to aggressively manipulate earnings for their personal benefits hence imposing more risks to the
shareholders. However, conservatism accounting will ensure verification which offers transparent and reliable accounting information
to the external shareholders. Second, Conservatism accounting protects a company’s stock from adverse price decline during the crisis

period. Third, conservatism has an impact on the company value. It reduces the cost of financing debts, increases investment
efficiency, control firm risks, improves the value of cash holding, and protect the stock price from crash risk in the market.
Conservatism principle would protect the firm from further loss of value during the current crisis (Deegan C. M., 2014).
Therefore, Conservative accounting method would benefit both Bezos and the shareholders. It will provide a quality,
transparent and reliable accounting information to the stakeholders. Conversely, the price of the company’s stock in the market would
be protected against further downfall hence enhancing the investors’ confidence. Moreover, Amazon’s value in the market would be
protected against extreme loss (Boje, 2008).
References:
Deegan, C. M. (2014). Financial Accounting Theory (4 ed.). North Ryde, NSW: McGraw Hill Education (Australia) Pty Ltd.
Atrill, D. P., & McLaney , E. (2015). Management Accounting for Decision Makers (8 edition ed.). London, UK: Pearson.
Boje, D. M. (2008). Critical Theory Ethics for Business and Public Administration. New York: IAP.
Deegan, C. (2011). Financial Accounting Theory: European. New York: McGraw-Hill Higher Education.
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 a very poor
standard so barely understandable.
Many spelling mistakes. Little or no
evidence of proofreading.
The assessment presents a detailed and The assessment presents a fairly The assessment presents a somewhat The assessment provides limited detail The assessment fails to provide any

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%
focused summary of the ideas
presented; drawing clear and well
thought-out conclusions.
detailed and focused summary of the
ideas presented; drawing fairly clear
and well thought-out conclusions.
detailed and focused summary of the
ideas presented; providing some
evidence of conclusions.
with no clear summary of the ideas
presented; drawing limited
conclusions.
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.
In the stock/ financial market, Capital Market Research (CMR), is used to determine the company earnings and stock prices that
best fit shareholders. CMR advocates on studying a company’s profile, size and the stock market with respect to its performance in the
market. Gathering and analysis of a past profitability and performance data and popularity of a company should be considered before
making a decision on whether to sell, buy or hold the current stock. Considering that investment in a company’s share is a long-term
activity, CMR helps in making decisions that increase profitability while minimizing risks involved (Deegan C. M., 2014).
Some of the company factors considered when conducting CMR analysis are;
 Market efficiency
 Feltham-Ohison Modelling
 Value Relevance
 Analysts Behaviour
 And, discretionary Behaviour.
Based on the earnings report released by Amazon, shareholders/ investors had mixed reactions. While some felt that their share
was secured others were contemplating that the best option would be selling out their shares. The earnings report showed unimpressive
performance during the period. Amazon missed two estimates in the last four quarterly financial reports that were released although the
stock prices remain strong in the industry. The stock contributed to 44.6% of the total earnings which was 2. 69% higher than the
industry’s gain (Dillard, 2012).
The performance was contributed by several factors. There was an increased performance in the AWS, North America, and
International segments. The North America segment attributed to 58% of the total sales representing 6.8% increment. The international
segment accounted for 325 of the total sales recording an increase of 7.8%. Lastly, the AWS segment accounted for 10%.However,
heavy investments contributed to a slim profit margin. Amazon invested heavily in building fulfillment centers which contributed to
the increased level of operating expenses (Ezzamel & Heathfield, 2013). The increases expenditure on movies and TV shows also
increased the operating expenses. Lastly, the expansion in the India market and Amazon Web Services also escalated the level of
company’s expenses.
Bezos has invested heavily on the retail, AWS, and IoT with an aim of increasing the market share. It is difficult for the
competitors to beat Amazon in the market. With reasonable prices, a variety of choices and convenience, Amazon is a Corporation for
the present and the future. The heavy investment is likely to contribute to higher profitability in the future. With the replication of its

domestic success in the international market, it is anticipated that the investors will witness more growth in the coming years.
Currently, the international market contributes only a third of the total revenue with an insignificant contribution to the net profit.
The mixed reaction of customers is based on the previous performance and the expected future performance based on the
current investments. Some customers are ready to sell their shares based on the current crisis. Others believe that Amazon is likely to
increase its growth in the future and they want to hold on their current shares. However, no one is willing to buy additional shares with
Amazon (Jennins, 2004).
References:
:
Deegan, C. M. (2014). Financial Accounting Theory (4 ed.). North Ryde, NSW: McGraw Hill Education (Australia) Pty Ltd.
Dillard, J. F. (2012). Accounting as a Critical Social Science. Accounting, Auditing & Accountability Journal.
Ezzamel, M., & Heathfield, D. (2013). Perspectives on Financial Control: Essays in memory of Kenneth Hilton. New York: Springer.
Jennins, A. (2004). Financial Accounting. New York: Thomson Learning.
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
The assessment presents a fairly
detailed and focused summary of the
The assessment presents a somewhat
detailed and focused summary of the
The assessment provides limited detail
with no clear summary of the ideas
The assessment fails to provide any
clear evidence of the ideas presented;

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%
presented; drawing clear and well
thought-out conclusions.
ideas presented; drawing fairly clear
and well thought-out conclusions.
ideas presented; providing some
evidence of conclusions.
presented; drawing limited
conclusions.
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.
Human decisions are based on intuition, nature, habits, emotional or cognitive biases hidden in one’s mind. Behaviour finance
explores how psychology influence financial markets and financial decisions. Investment decisions are greatly impacted by heuristic
biases. Various changes in financial setting such as varying economic situations and changes in the market have a gross effect on the
thinking and decisions made by investors.
Naturally, investors fear to lose their invested capital and readily react to market changes impulsively. They are likely to change
their long-term investment decision after listening to the opinions made by financial experts. Likewise, based on the past performance
of any organization/ market, investors tend to doubt the investment decisions they previously made. Traditionally, researchers believed
that investment decisions were based on in-depth knowledge of the market possessed by the investors and well-analyzed forecasts
based on past performances. However, studies have shown that psychological state of investors has a major influence on investment
decisions (Dillard, 2012).
Irrational decisions based on short-term market changes such as losses leads investors to make inefficient investments. The
heuristic approach reduces the willingness of the people to invest. Heuristic states that people rely on little information in making
general decisions. Heuristic helps people to make decisions in a shorter time than the time it would take to exhaustively analysis and
compute formidable decisions. Conversely, the approach undermines the ability to scrutinize, retrieve and store information in their
memory.
The Amazon Incorporation facing financial crisis. The organization is witnessing a diminishing profit margin as shown in its
financial reports. The heuristic approach can be used by new investors to decide whether or not buy Amazon shares. Likewise, old
investors can apply the same concept in deciding whether or not to hold or sell their current shares (Deegan C. M., 2014).
According to the behaviour finance, human beings fear to lose their money. After obtaining the poor profitability performance
by Amazon, such investors are likely to sell their current share so as to get their initial cash outlay paid on the shares.
However, Some investors might take some time to analyze the market performance in the new future. Such investors tend to
apply rational thinking instead of heuristic approach. They tend to believe that the current shortcomings are short lived. However, this
group of investors are cautious and would not be willing to invest more money to buy the shares. Hence they would rather hold their
current number of shares (Jennins, 2004).
The last group of investors is not influenced by a heuristic approach. The investors invest more time to understand the current
changes in the market as well as their impact in the long run. If the future projections are favourable, then the investors will buy more
shares.

The Amazon Inc. has invested heavily in its infrastructure and online market which has led to the small profit margin. It is
believed that investment would improve financial health and growth in the long run. Either way, investors rely on the current crisis
would sell their sales. The irrational one would hold their sales for a considerable time. While the well-informed ones would buy more
shares (Ezzamel & Heathfield, 2013).
References:
Deegan, C. M. (2014). Financial Accounting Theory (4 ed.). North Ryde, NSW: McGraw Hill Education (Australia) Pty Ltd.
Dillard, J. F. (2012). Accounting as a Critical Social Science. Accounting, Auditing & Accountability Journal.
Ezzamel, M., & Heathfield, D. (2013). Perspectives on Financial Control: Essays in memory of Kenneth Hilton. New York: Springer.
Jennins, A. (2004). Financial Accounting. New York: Thomson Learning.
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 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.
Accounting has become part and parcel in the current society. Accountant, auditors are relied on by companies, government and
institutions to offer credible, influential and legitimate advice. Organizational such as Amazon depend on accounting practitioners in
making decisions on contracting, mergers and acquisitions, accountability, investment, performance appraisal, risk management and
governance. Accounting information also impacts the pricing of financial instruments and shares and cost determination for the
services and goods. Accounting also guides Amazon in determining how and where goods are produced as well as the distribution
channels. The above reasons can be used to understand why accounting strongly connected to economic rationalization and
globalization. Therefore, the accounting value is based on the degree of its influence on decision-making by companies and investors
(Dillard, 2012).
Critical theory is defined as an approach that is used to destabilize and challenge the established knowledge. In accounting,
there are several principles, rules, and standards that are used when recording transactions. However, organizations tend to choose the
standards that favour them. For example, a company might choose GAAP principles and forgo the IFRS regulations.
In the case of Amazon, the company might choose to use the conservative accounting approach. As discussed earlier,
Conservatism accounting method provides efficient and effective mechanisms used in mitigating control agency issues and financial
risk. Which is an advantage to the company? Conservatism accounting ensures verification of items which offer transparent and
reliable accounting information. Conservatism accounting also safeguards a company’s stock from adverse price during the crisis.
Conversely, conservatism reduces the cost of financing debts, increase investment efficiency (Deegan C. M., 2014). Conservatism
principle would protect the firm from further loss of value during the crisis.
Likewise, Conservatism accounting states that liabilities and expenses should be overstated while assets and liabilities are
understated. The approach ensures that reported returns and profits are lower than the actual values. By recording small profit, the
company can prevent the demands for higher dividend payments from the shareholders until the financial situation stabilizes.
By applying conservative accounting method, benefit the company because it provides a quality, transparent and reliable
accounting information. The price of the company’s share would be protected against further decline thus promoting the investors’
confidence. As stipulated by the critical theory, Amazon would use the conservatism accounting to protect its financial performance in
the market against criticism (Ezzamel & Heathfield, 2013).
Moreover, the company might choose to record goods on transit as sales. According to the IFRS regulations, goods on transit
should be recorded as inventory until actual sales have been reported by the distributors. However, Amazon can report such items as
sales so as to increase its profit margin. With inflated profit, Amazon will be able to restore the investors, creditors and suppliers

confidence. The company will also protect itself against criticism from different stakeholders (Ezzamel & Heathfield, 2013).
Considering that trade unions rely on financial reports published by the company to demand salary increment. Accountants at Amazon
can choose to deflate their profitability so as to discourage new demands from trade unions. It should be noted that such practices are
against the accounting principles (Jennins, 2004). However, as stipulated in the critical theory, the company can choose to ignore the
norms and established principles for its advantage.
References:
Deegan, C. M. (2014). Financial Accounting Theory (4 ed.). North Ryde, NSW: McGraw Hill Education (Australia) Pty Ltd.
Dillard, J. F. (2012). Accounting as a Critical Social Science. Accounting, Auditing & Accountability Journal.
Ezzamel, M., & Heathfield, D. (2013). Perspectives on Financial Control: Essays in memory of Kenneth Hilton. New York: Springer.
Jennins, A. (2004). Financial Accounting. New York: Thomson Learning.
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 a very poor
standard so barely understandable.
Many spelling mistakes. Little or no
evidence of proofreading.
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.