Question 1

Which statement best explains the semi-strong form of the efficient securities market hypothesis?

Accepted Answer

A) A market in which the prices of securities traded in that market at all times properly reflect all information that is publicly known about those securities. 
B) A market in which the prices of securities traded in that market reflect all information, whether publicly or privately known. 
C) A market in which the prices of debt securities traded in that market reflect all information that is privately known about those securities. 
D) A market in which the prices of equity securities traded in that market reflect all information that is privately known about those securities. 
A) A market in which the prices of securities traded in that market at all times properly reflect all information that is publicly known about those securities. 
B) A market in which the prices of securities traded in that market reflect all information, whether publicly or privately known. 
C) A market in which the prices of debt securities traded in that market reflect all information that is privately known about those securities. 
D) A market in which the prices of equity securities traded in that market reflect all information that is privately known about those securities. A

Question 2

Explain what accounting is and why financial reporting exists.

Accepted Answer

Accounting is the production of information about an enterprise and the transmission of that information from those who have it to those who need it. In other words, accounting is communicating information about business transactions and activities about business entities to interested external parties.
Financial reporting is the process by which enterprises provide information to external parties. Financial reporting is an economic good that is subject to the laws of supply and demand. Financial reporting exists because interested parties require information about the business entity to make their investment, credit or other decisions. The demand for information arises from people's need to make decisions under uncertainty about the future. In many contexts, there are asymmetric distributions of information amongst people. Those who have more information are the potential suppliers of information to those who have less.
People making decisions under uncertainty demand information to alleviate that uncertainty; an asymmetric distribution of information allows some individuals to supply information to others.

Question 3

Explain the process an accountant uses to determine the appropriate accounting method for a business transaction.

Accepted Answer

As GAAP refers to broad principles, not specific rules, accounting involves exercising professional judgment to determine the appropriate accounting. Judgment is exercised by:
•considering the range of possible methods of accounting;
•evaluating whether and how the particular method of accounting is consistent with the conceptual framework underlying GAAP;
•appreciation for the underlying economic forces at work and ensuring that the accounting appropriately reflects the substance of the transaction.

Question 4

How does accounting information help alleviate adverse selection and moral hazard?

Accepted Answer

•The presence of adverse selection reduc

Question 5

Explain the meaning of adverse selection and moral hazard. Give an example of each.

Accepted Answer

Adverse selection: A type of information

Question 6

Explain the meaning of information and information asymmetry. Give an example of each

Accepted Answer

Information: Evidence that can potential

Question 7

For the situations described below, explain whether managers would be motivated to manage earnings, assets, and equity upward and liabilities downward, or alternatively, managers may be motivated to manage earnings, assets, and equity downward and liabilities upward.

Accepted Answer

The answer of For the situations described below, explain whether...

Question 8

Which statement best explains "information asymmetry"?

Accepted Answer

A) Information asymmetry means that there is uncertainty about the future. 
B) Information asymmetry means that some people have more information than others. 
C) Information asymmetry means that external parties need financial information. 
D) Information asymmetry means information is material to a decision maker. 
A) Information asymmetry means that there is uncertainty about the future. 
B) Information asymmetry means that some people have more information than others. 
C) Information asymmetry means that external parties need financial information. 
D) Information asymmetry means information is material to a decision maker.

Question 9

Explain the meaning of financial accounting, managerial accounting and tax accounting. How are these accounting activities related to each other?

Accepted Answer

Financial reporting is the process by wh

Question 10

Explain the accounting implications of the following concepts about efficient securities markets:
a)Accounting information competes with other sources of information.
b)Accounting reports and standards can assume that users have a reasonable level of sophistication.

Accepted Answer

a)The demand for accounting reports depe

Question 11

Which statement is not correct?

Accepted Answer

A) Financial accounting is the process of providing information to external parties. 
B) Accounting is about the communication of financial information. 
C) Accounting is the production of information about an enterprise and the transmission of that information to those who need the information. 
D) Financial accounting is the process of providing information to internal parties. 
A) Financial accounting is the process of providing information to external parties. 
B) Accounting is about the communication of financial information. 
C) Accounting is the production of information about an enterprise and the transmission of that information to those who need the information. 
D) Financial accounting is the process of providing information to internal parties.

Question 12

Explain how adverse selection and moral hazard affect the qualitative characteristics of accounting information.

Accepted Answer

Adverse selection means that users will

Question 13

Explain the meaning of generally accepted accounting principles (GAAP).

Accepted Answer

GAAP refers to broad principle

Question 14

Discuss two ways in which a bank can mitigate the problem of moral hazard when lending money to a company.

Accepted Answer

The lender can request certain covenants

Question 15

Having an audit performed on the company's financial statements best illustrates which of the following?

Accepted Answer

A) Cheap talk. 
B) Signalling. 
C) Moral hazard. 
D) Information. 
A) Cheap talk. 
B) Signalling. 
C) Moral hazard. 
D) Information.

Question 16

Explain how accounting information helps security markets?

Accepted Answer

Accounting is an important source of inf

Question 17

Which statement best explains the relationship between the efficient securities market hypothesis and accounting?

Accepted Answer

A) Security prices adjust slowly when accounting reports are publicly released. 
B) The timeliness of accounting information is irrelevant to securities markets. 
C) Accounting information competes with other sources of information. 
D) Security prices are unaffected when accounting reports are publicly released. 
A) Security prices adjust slowly when accounting reports are publicly released. 
B) The timeliness of accounting information is irrelevant to securities markets. 
C) Accounting information competes with other sources of information. 
D) Security prices are unaffected when accounting reports are publicly released.

Question 18

Which is not a question that financial accounting theory can answer?

Accepted Answer

A) Why do companies provide financial information to external parties? 
B) Why do all companies use the same accounting policies? 
C) Why is certain disclosure mandatory in financial reporting? 
D) What is the role of financial accounting and reporting? 
A) Why do companies provide financial information to external parties? 
B) Why do all companies use the same accounting policies? 
C) Why is certain disclosure mandatory in financial reporting? 
D) What is the role of financial accounting and reporting?

Question 19

Why is financial information required?

Accepted Answer

•Governmental bodies issue proclamations

Question 20

How does an accountant decide on the appropriate method of accounting for a business transaction?

Accepted Answer

A) Evaluating if the particular method is consistent with the conceptual framework. 
B) Ensuring that the accounting method agrees with that selected by other companies. 
C) Evaluating whether the selected method differs from the underlying economics. 
D) Testing the selected method for numerical accuracy and consistency. 
A) Evaluating if the particular method is consistent with the conceptual framework. 
B) Ensuring that the accounting method agrees with that selected by other companies. 
C) Evaluating whether the selected method differs from the underlying economics. 
D) Testing the selected method for numerical accuracy and consistency.

Which statement best explains the semi-strong form of the efficient securities market hypothesis?

Explain what accounting is and why financial reporting exists.

Explain the process an accountant uses to determine the appropriate accounting method for a business transaction.

How does accounting information help alleviate adverse selection and moral hazard?

Explain the meaning of adverse selection and moral hazard. Give an example of each.

Explain the meaning of information and information asymmetry. Give an example of each

For the situations described below, explain whether managers would be motivated to manage earnings, assets, and equity upward and liabilities downward, or alternatively, managers may be motivated to manage earnings, assets, and equity downward and liabilities upward.

Which statement best explains "information asymmetry"?

Explain the meaning of financial accounting, managerial accounting and tax accounting. How are these accounting activities related to each other?

Explain the accounting implications of the following concepts about efficient securities markets: a)Accounting information competes with other sources of information. b)Accounting reports and standards can assume that users have a reasonable level of sophistication.

Which statement is not correct?

Explain how adverse selection and moral hazard affect the qualitative characteristics of accounting information.

Explain the meaning of generally accepted accounting principles (GAAP).

Discuss two ways in which a bank can mitigate the problem of moral hazard when lending money to a company.

Having an audit performed on the company's financial statements best illustrates which of the following?

Explain how accounting information helps security markets?

Which statement best explains the relationship between the efficient securities market hypothesis and accounting?

Which is not a question that financial accounting theory can answer?

Why is financial information required?

How does an accountant decide on the appropriate method of accounting for a business transaction?

Conceptual Frameworks for Financial Reporting

Accrual Accounting

Revenue Recognition

Cash and Receivables

Inventories

Financial Assets

Property, Plant, and Equipment

Intangible Assets, Goodwill, Mineral Resources, and Government Grants

Applications of Fair Value to Non-Current Assets

Filters

Exam 1: Fundamentals of Financial Accounting Theory

Which statement best explains the semi-strong form of the efficient securities market hypothesis?

Explain what accounting is and why financial reporting exists.

Explain the process an accountant uses to determine the appropriate accounting method for a business transaction.

How does accounting information help alleviate adverse selection and moral hazard?

Explain the meaning of adverse selection and moral hazard. Give an example of each.

Explain the meaning of information and information asymmetry. Give an example of each

For the situations described below, explain whether managers would be motivated to manage earnings, assets, and equity upward and liabilities downward, or alternatively, managers may be motivated to manage earnings, assets, and equity downward and liabilities upward.

Which statement best explains "information asymmetry"?

Explain the meaning of financial accounting, managerial accounting and tax accounting. How are these accounting activities related to each other?

Explain the accounting implications of the following concepts about efficient securities markets: a)Accounting information competes with other sources of information. b)Accounting reports and standards can assume that users have a reasonable level of sophistication.

Which statement is not correct?

Explain how adverse selection and moral hazard affect the qualitative characteristics of accounting information.

Explain the meaning of generally accepted accounting principles (GAAP).

Discuss two ways in which a bank can mitigate the problem of moral hazard when lending money to a company.

Having an audit performed on the company's financial statements best illustrates which of the following?

Explain how accounting information helps security markets?

Which statement best explains the relationship between the efficient securities market hypothesis and accounting?

Which is not a question that financial accounting theory can answer?

Why is financial information required?

How does an accountant decide on the appropriate method of accounting for a business transaction?

Conceptual Frameworks for Financial Reporting

Accrual Accounting

Revenue Recognition

Cash and Receivables

Inventories

Financial Assets

Property, Plant, and Equipment

Intangible Assets, Goodwill, Mineral Resources, and Government Grants

Applications of Fair Value to Non-Current Assets

Filters