ACC80005 FINANCIAL ACCOUNTING THEORY Take-home Assessment Semester 1

QUESTION 6 (10 Marks)

“Australia’s largest listed construction company CIMIC has inflated its profit and hidden poor performance to boost its share price in ‘engineering’ its accounts according to a scathing financial analysis by Hong Kong-based research house GMT. The research, circulated this week, alleges the company, formerly known as Leighton Holdings, has boosted pre-tax profits by up to $800 million in the past two years by booking revenue in some cases ‘even before the customer has been billed or the amount agreed’”. (Source: Loussikian, K (2019) ‘CIMIC in the gun as $800m profit boost questioned’ The Sydney Morning Herald.

https://www.smh.com.au/business/companies/construction-giant-cimic-targeted-over- 800m-profit-boost-20190503-p51jxg.html

REQUIRED:
After reading the above extract explain using the Positive Accounting Theory (PAT) why the management of CIMIC would ‘engineer’ its accounts? (Maximum word limit: 500 words) (10 marks)