ACC303 FINANCIAL REPORTING II
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ACC303 FINANCIAL REPORTING II
COURSEWORK, SEMESTER 1 2022
ADVERSE SELECTION AND INFORMATION ASYMMETRY
Adverse selection refers to a scenario where either the buyer or the seller has information about a product that the other party does not have. Adverse selection in business can arise from information asymmetry between firms, insiders and ordinary investors. This occurs when members of the firm, have more information than investors have, or vice versa, about some aspect of the firm. For example, adverse selection occurs when a manager takes advantage of the investor’s ignorance regarding the limitations of a financial asset, that could potentially put investors at a loss.
Required
a) Explain what the adverse selection problem is in the context of business. Does it represent source of market failure in the production of financial accounting information?
b) The failure of managers to release bad news is a version of the adverse selection problem. Explain why a manager might withhold bad news?
c) How can financial accounting information reduce or even eliminate the adverse selection problem?
d) Find an article in the media (print, visual or social media) that depicts an adverse selection problem in business. Cite the article (and submit a copy of the article with your coursework) and explain why you think it is adverse section problem.
• For example: Nvidia pays $5.5 million fine for withholding information from shareholders: Nvidia pays $5.5 million fine for withholding information from shareholders - World News | TakeToNews [https://taketonews.com/nvidia- pays-5 -5 -million -fine-for-withholding -information-from-shareholders/ ― accessed 16 August, 2022).
(20 + 20 + 20 + 40 = 100 marks) (300 + 300 + 400 + 500 = 1,500 words)
Submission details:
• Coursework should be undertaken in self-selected groups of no more than 4 students.
• This assignment contributes 15% of the marks available for this module.
• Maximum word length is 1,500 words (excluding the reference list)
• Answers should be submitted using MS Word Arial, size 12 pitch, single line spacing. Full academic referencing, using the Harvard method, should be supplied.
• Attach the assignment coversheet to your coursework before the submission. The cover sheet must include module code and title, assignment title, student names and numbers.
• If you submit your coursework after the deadline, your mark will be reduced by 5% for each day that the coursework is late. If you submit your coursework more than 5 days late, your coursework will be given a mark of 0.
• You must submit a soft copy of the coursework (MS -Word file) to Learning Mall with the Turnitin Test by 23:59 pm (Beijing Time), November 6 (Sunday).
Writing your answers
When attempting to answer questions, you should:
• answer the whole question (i.e. address all parts of the question)
• answer nothing but the question (i.e. do not provide extra information or information from outside the text).
The typical essay structure (introduction, key themes and conclusion) is not required in this assignment, get straight to the point. For example, start with an introductory sentence(s), make your point(s), provide simple examples where appropriate, then finish with a concluding sentence(s).
You should also avoid the following two extremes:
• being too wordy – usually you do not need to include the stem of the question in your answer
• being too brief, so that your answers do not make sense or are difficult for an assessor to understand.
2022-10-24