GROUP MIDTERM ASSIGNMENT
ACCT90013 Financial Accounting Theory & Practice
Semester 1, 2023
DEPARTMENT OF ACCOUNTING
ACCT90013 FINANCIAL ACCOUNTING THEORY & PRACTICE
Semester 1, 2023
Group Midterm Assignment
DUE DATE Friday, 28 April 2023 11.59PM (before midnight, Melbourne
time zone)
This assignment represents 20% of your overall grade for this
subject.
This assignment is to be completed in a group of 3 to 4 students.
WORD LIMIT No more than 4,000 words (excluding References and
Appendix).
REFERENCE
References should be on a separate sheet(s). You are suggested
to use the Harvard system of referencing your sources (see
Giblin-Eunson Library Help sheets for a referencing resource).
Please note that Wikipedia is not considered a reliable source.
ADMINISTRA-
TION
Assignments must be typed, double-spaced with font size of at
least 11 (Arial) or 12 (Times New Roman). All pages should be
numbered.
SUBMISSION
Submission should be made on the LMS subject page. If you use
excel worksheets, they should be added in the Appendix to your
report.
Please make sure that you only submit the final version of the
assignment (as a pdf document) and that the file name includes
the company name, followed by “_” and your group number
(without spaces). An example is “Coles_45.pdf”.
FURTHER
INFORMATION
For information relating to plagiarism/collusion, late submission,
special consideration, referencing, penalties, teaching and
learning unit, please refer to SUBJECT GUIDE.
1
Midterm Assignment
The midterm assignment is designed to further develop your understanding of the core
materials from the first half of this course. The assignment is to be done in groups of three (3)
or four (4) members.1 Each group is required to select one company from the following list:
Company Industry Country Investor relations website
Pfizer Pharmaceuticals USA https://investors.pfizer.com/Investors/Overview
Baidu Tech China https://ir.baidu.com/
BHP Resources Australia https://www.bhp.com/investors
You are an equity analyst team, who is tasked with providing fundamental insights about the
followed company’s fundamentals and its financial reporting. Please provide an executive
report on the firm’s business model, how recent issues have affected its financial position, its
reliance on intangible assets, its use of non-GAAP reporting, and a preliminary relative
valuation of the company. In your report, you should address the following questions by using
as much information from the most recent audited annual report as possible. However, you
can and sometimes must supplement your analysis by making use of additional disclosures
from the company, such as its quarterly reports, semi-annual reports, press releases etc.
Section Description of section requirement Marks
Business
environment
(around 1000
words)
Provide a brief description of the company’s business model
and environment, including its main operational activities, the
key source of revenue, its strategy, and its competitive
environment.
What are recent issues (trends, events, changes in the business
environment, new product/services, investments) that have an
impact on the firm’s business? How do they impact the firm’s
financials?
3
Asset recognition
(around 1000
words)
a) What are the company’s most important intangible assets
for value creation?
b) Does the mandated accounting treatment for these assets
introduce asset-nonrecognition biases into the financial
statements?
c) Are total net assets and net income of the company likely
to be unbiased, under-, or overstated?
5
1 Groups with only one or two students or five or more students are not generally not admissible.
2
d) Is nonrecognition of intangible assets a big concern for the
company’s financial reporting quality?
Non-GAAP
earnings (around
1000 words)
a) Which non-GAAP financial measures does the company
disclose in its annual or quarterly reports, press releases, or
other disclosures?
b) What prominence relative to GAAP measures do the
identified non-GAAP measures receive in the disclosures?
c) What are the most important exclusions that are made in
deriving these measures? Are there any exclusions that are
unique to the company? Are there exclusions that are
commonly made in the company’s industry?
d) What are potential arguments for or against the most
important exclusions?2
e) Are the non-GAAP measures provided for information or
opportunistic reason? Provide a statement on their quality.
5
Valuation (around
1000 words)
Apply a relative valuation approach to value the firm. Your
discussion should include the following points:
a) Identify three benchmark companies and discuss why you
think these companies are comparable benchmarks.
b) Value the firm using the P/E ratio, the P/B ratio, and
TEV/EBITDA. Discuss potential reasons specific to your
firm on why the different multiples lead to different values.
c) Discuss what happens to the valuation under (b) if you
adjust for the most important intangible asset as identify under
Asset Recognition.
5
Structure,
presentation, and
clarity of the report
The information contained in the report should be structured
to sensibly progress from requirements to conclusions in clear
sections. Brevity is desirable, provided that necessary
information is properly communicated.
2
TOTAL 20
2 In your answer, select the most important exclusions not only based on the size of the exclusion but also on
whether the exclusion is unique or unusual (if applicable to your company).
3
Additional guidance
1. Format: The midterm assignment should be delivered in a report format. You are
encouraged to use the above framework to scope the report. It is expected that you
address all the key issues listed above.
2. Specificity: You are expected to analyse the above key issues under the specific
situation of the firm. Please avoid generic discussions with no link to the specific firm.
3. Quality: A high-quality report should provide convincing and concrete arguments and
support the analyses with evidence. Note that writing quality will also be assessed.
4. Incomplete information: As the chosen firms are real firms, you may find that crucial
information is not readily available. In this case, please make assumptions where
necessary and clearly state the assumptions in the report.