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Business, 31.08.2021 14:10 mauralawson
The focus of Positive Accounting Theory (PAT) is to forecast a firm's
actions concerned with accounting policy choices and the response of the
firm towards proposed new accounting standards. PAT adduce the
importance of accounting policy to management is related to the contracts
entered into by the firm
a) The political process in the article consists of the review of the rules and
regulation that govern the operations of the industry, such as the method
promotion of prescription drugs through educational events, based on
proposals by members of the public and input from consumer
organizations that are focused on protecting the end users of the
prescription drugs
b) According to the article, the maximum fines for companies that brake the
rules is expected to increase from $200,000 to $250,000, however the
consumer organization calls for a maximum fine of $1.1 million
Based on the expected increase of $50,000, the impact on small firms will
much more than impact of the fines on large companies in the
pharmaceutical industry that can afford such fines thereby promoting the
large firms to introduce more new prescription drugs that increases
revenue and market share
The increased fines will alter the accounting information of the firms which
can lead to more generalized expenses in order to avoid fines rather than
increased details. Therefore, expenses on advertisement may increase
alongside increase in revenue
c) (i) The proposed increase in fines from $200,000 to $250,000 will
further reduce the earnings of defaulting firms. However, the increased
revenue and market share that comes after promoting prescription drugs
at events can be easily made to offset the fine costs by increasing the
price of the drugs
(ii) The increase in fines indicates the level of effectiveness of the previous
fines was less than expected, therefore, the increase fines will not impact
the management compensation contract of firms that follow the rules, but
may increase incentives in other firms
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The focus of Positive Accounting Theory (PAT) is to forecast a firm's
actions concerned with accou...
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