Contemporary Issues in Accounting

1. The statement that best defines what is meant by a theory is:

a. A coherent set of hypothetical, conceptual and pragmatic principles forming the
general framework for a field of inquiry
b. A deductive system of statements of decreasing generality
c. A set of ideas used to explain real-world observations
d. All of the above

2. Which of these arguments is not a criticism of scientific method?

a. Results from scientific-based research are difficult to generalise
b. Hypotheses are based on the use of share market prices or surveys which are remote
from the world of practitioners
c. Large-scale statistical research tends to lump everything together
d. Hypotheses are not commensurate with the concerns of many individual accountants

3. To be relevant accounting information should have which of these characteristics?

a. The transaction or other event relating to the accounting information should have
occurred
b. It must assist in making predictions about future situations or must help confirm
past predictions of users
c. The financial information should faithfully represent transactions and events without
bias or undue error
d. To be relevant accounting information should have all of the above characteristics

4. The IASB sets standards for:

a. The private sector
b. The public and private sectors
c. The public, private and not-for-profit sector
d. The private and not-for-profit sector

5. The statement that best defines the term 'empirical analysis' is:
a. Reasoning from the general to specific statements
b. Testing the truth of a proposition by observing a subset of real world observations or
events
c. Understanding practices, activities or behaviour based upon direct observations
and/or experience
d. Actions undertaken by interested parties to influence the actions or outcomes of
decisions made by others

6.To ensure shareholders are sufficiently informed good governance practices include:
a. Detail related party transactions.
b. Prepare regular reports.
c. Have annual reports audited.
d. All of the above.

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7. The situation where a manager protects against bearing agency costs by paying the agent
according to the level of costs expected is called:

a. Residual loss
b. Monitoring costs
c. Price protection
d. Bonding costs

8. Which of these is not an assumption underlying the public-interest theory of regulation?

a. There are agents who will seek regulation on behalf of the public interest
b. The government has an independent role to play in the development of
regulations
c. The interest of consumers is translated into legislative action through the operation of
the internal marketplace
d. Economic markets are subject to a series of market imperfections or transaction
failures

9.Legitimacy theory suggests that corporate social disclosure will be used to:

a. Disclose all firm activities, good or bad.

b. Signal deeply held ethical values of the entity.
c. Manage the concerns of key stakeholders.
d. The minimal degree possible.

10. Which of these would be an example of normative research (research based upon a normative
theory)?
a. A researcher, through observation, documents the breeding cycle of the gnat
b. An economist develops a method of using last month's share market prices to predict
unemployment levels
c. In order to ensure consistency in schooling outcomes an education researcher
recommends that all final year school students undertake the same six subjects
for assessment purposes
d. An accounting researcher predicts that auditors will perform faster audits when the
audit materials are presented in graphical rather than tabular form

11. Which of these factors should not affect the extent to which particular countries are able to
influence the international standard-setting process?
a. The number of accounting standards issued
b. National economic significance
c. Professional expertise
d. English language competence

12. Which of the following arguments are reasons why normative theories cannot be empirically
tested?
i. It is impossible to demonstrate empirically what ought to be

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 ii. Normative theories are based on value judgements
iii. There is no access to empirical data sets
a. i, iii
b. i, ii
c. ii, iii
d. i, ii, iii

13.Income smoothing:
a. Is only possible when sufficient profits are regularly made.
b. Aims to produce a steady growth in the profit stream.
c. Transfers wealth from new shareholders to management.
d. All of the above.

14. Users of accounting information who bear little of the cost of producing the information and
therefore have an incentive to demand increased levels of disclosure are know as:
a. Agents
b. Principals
c. Free-agents
d. Free-riders

15. Which of these is not a criticism of the historical cost accounting theoretical model?
a. There is no independent, empirical operation to verify the calculated outputs such as
'profit' or 'assets'
b. Poor syntax whereby different types of monetary measures are added together
c. Many hypotheses associated with the model are unable to be tested as per the
falsificationist approach
d. All are criticisms

16. Managers and shareholders have differing incentives regarding the firm. The statement
regarding incentives that is true is:
a. Because shareholders' investment portfolios can be widely diversified they are less
likely to want to undertake risky projects than managers
b. A manager can fully diversify his/her risk by investing in other firms
c. Managers may hold off paying dividends to owners in order to 'empire build'
d. We would expect the horizon problem to lessen as a manager's age increases

17. A disadvantage of rules-based standards for users of the standards is:

a. They may reduce the opportunities for earnings management
b. They increase comparability of accounting information
c. They allow for specific structuring of transactions to work around the rules
d. All of the above are disadvantages.

18. Which of these is not one of the benefits of a conceptual framework?

a. Reporting requirements will be more consistent and logical
b. It may allow firms to reduce their reported profit
c. The need for specific accounting standards should be reduced
d. Standard setting boards will be more accountable for their actions

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19. The statement that is not descriptive of positive theories is:
a. They are descriptive rather than prescriptive
b. They avoid making value-laden judgements
c. They explain why people behave in a certain manner
d They are concerned with developing policy recommendations for accounting
practice

20. A disadvantage of a conceptual framework is:

a. It will be easier to avoid reporting requirements
b. It will be more expensive to prepare individual accounting standards
c. It will increase political interference in the standard setting process
d. None of the above are disadvantages

21. Which of these is not an underlying assumption of positive accounting theory?

a. Individuals attempt to maximise their own wealth
b. Accounting numbers play a central role in the distribution of wealth
c. People are self-interested and rational
d. Non-financial aspects of individuals' utility functions are important in the
distribution of wealth.

22. Which of these is not a typical approach to testing hypotheses under positive accounting
theory?
a. Questionnaires
b. Surveys
c. Taking output data of specific accounting systems to determine whether the data
helps users to make the right decisions
d. Testing the assumed importance of accounting outputs in the marketplace

23. Both the IASB and the FASB frameworks consider the main objective of financial reporting
is to communicate financial information to users. The information is to be selected on the
basis of its usefulness in the economic decision-making process. This objective is seen to be
achieved by reporting information that is:
I Useful in making economic decisions
II Useful in assessing cash flow prospects
III About enterprise resources, claims to those resources and changes in them
a. i, ii
b. i, iii
c. ii, iii
d. i, ii, iii

24. Which of these is a criticism of the public interest theory of accounting regulation?
a. The theory is not the only explanation for observed behaviours
b. Managers of businesses have strong incentives to 'correct' market failure perceptions
about their business activities.
c. A and B
d. Neither A nor B is a criticism

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25. The four principal qualitative characteristics recognised by the IASB Framework are:
a. Materiality, relevance, timeliness, cost versus benefit
b. Relevance, materiality, reliability, comparability
c. Understandability, relevance, reliability, comparability
d. Understandability, cost versus benefit, relevance and reliability

26. A conceptual framework of accounting is a structured theory of accounting. Which of issues

would be dealt with at the operational level of the framework?
a. The scope and objective of financial reporting
b. The qualitative characteristics of financial reporting
c. The elements of financial reporting
d. The basis of recognition and measurement of financial reporting