Case Study 1 Recently, Oman Ceramics Company promoted Mahmood as the Chief Financial Officer of the company. Mohammed started his career in Oman Ceramics Company 15 years back as accountant and was mainly involved in preparing the financial statements of the company. He has contributed significantly in the development of a new accounting system and was promoted to Chief Accountant after spending five years in the company. He was also recognised for his exemplary performance over the last few years, which is considered as one of the races blind his promotion. In addition, while assigned the task of the chief accountant, Mohammed's efforts helped the company to reduce operational expenses by 5% and reducing the cash collection period by 6% annually. He was rewarded during that time, by a bike of 30% in his salary nad 2000 m shares of the company However, the company is facing a financial crisis now. The crisis that erupted due to the w material shortage that affected the production and distribution of its various products. The management observed that although the financial performance declined as a result of the crisis the financial reports still show a better performance of the company. The financial crisis is posing significant threats to the reliability of the accounting reports. An investigation is conducted by the audit department based on the instruction from the management. The following observations are made by the audit department based on their audit. The revenue is inflated by including the expected sales from a contract signed the end of the year. Though the contract was signed, and the payment was recived as an advance, the materials were not supplied. Since the revenues are inflated, the profit after tax also showed an increase compared to the previous year's performance. The auditors found cash embezzlement by an accountant by showing increased credit sales Though the sale was reportedly cash sale, it is considered as crodit sales in the back of The company is suffering from a low liquidity problem and the current ratio is less than 1:1. The company took a loan from the bank during the year. It was mentioned in the lo agreement that the loan should be used to acquire additional machinery for the newly established unit. However, the company has used the loan amount to finance the working capital requirements, because of the financial crisis IT As the CFO holds shares of the company, he wanted to show a higher profitability to increase the market value of shares Based on the above case, answer the following: (Maximum werd count for Case Study is 400 Words) (4+33 - 10 Marks 1. Write down each hypothesis in the positive accounting theory and explain whether the accounting practices in the Oman Ceramics Company is influenced by the underlying assumptions in the theory What are the accounting concepts and conventions violated by the content? Briefly explain. 3. Critically evaluate the criticisms against positive accounting theory, based on the relevant facts of the case 2. Case Study 1 Recently, Oman Ceramics Company promoted Mahmood as the Chief Financial Officer of the company. Mohammed started his career in Oman Ceramics Company 15 years back as accountant and was mainly involved in preparing the financial statements of the company. He has contributed significantly in the development of a new accounting system and was promoted to Chief Accountant after spending five years in the company. He was also recognised for his exemplary performance over the last few years, which is considered as one of the races blind his promotion. In addition, while assigned the task of the chief accountant, Mohammed's efforts helped the company to reduce operational expenses by 5% and reducing the cash collection period by 6% annually. He was rewarded during that time, by a bike of 30% in his salary nad 2000 m shares of the company However, the company is facing a financial crisis now. The crisis that erupted due to the w material shortage that affected the production and distribution of its various products. The management observed that although the financial performance declined as a result of the crisis the financial reports still show a better performance of the company. The financial crisis is posing significant threats to the reliability of the accounting reports. An investigation is conducted by the audit department based on the instruction from the management. The following observations are made by the audit department based on their audit. The revenue is inflated by including the expected sales from a contract signed the end of the year. Though the contract was signed, and the payment was recived as an advance, the materials were not supplied. Since the revenues are inflated, the profit after tax also showed an increase compared to the previous year's performance. The auditors found cash embezzlement by an accountant by showing increased credit sales Though the sale was reportedly cash sale, it is considered as crodit sales in the back of The company is suffering from a low liquidity problem and the current ratio is less than 1:1. The company took a loan from the bank during the year. It was mentioned in the lo agreement that the loan should be used to acquire additional machinery for the newly established unit. However, the company has used the loan amount to finance the working capital requirements, because of the financial crisis IT As the CFO holds shares of the company, he wanted to show a higher profitability to increase the market value of shares Based on the above case, answer the following: (Maximum werd count for Case Study is 400 Words) (4+33 - 10 Marks 1. Write down each hypothesis in the positive accounting theory and explain whether the accounting practices in the Oman Ceramics Company is influenced by the underlying assumptions in the theory What are the accounting concepts and conventions violated by the content? Briefly explain. 3. Critically evaluate the criticisms against positive accounting theory, based on the relevant facts of the case 2