Deck 2: The Financial Reporting Environment

Question 1

Which of the following statements is true about accounting measurements such as profits and assets?

A) They are subject to professional judgment
B) They would not vary if prepared by different accountants, providing they were based on the same set of accounting standards
C) They are based on hard, objective, evidence
D) All of the given options are correct

Answer 1

A

Question 2

Which of the following is a reason why accounting,and accountants,can be considered very powerful?

A) Emphasis on profitability measures provides support to profitable companies which may not be worthy of support under other measures
B) Provision of purported objective information provides users with a source of power to drive changes to a corporation's behaviour
C) The output of the accounting process impacts on many decisions which can result in transfers of funds, and therefore wealth
D) All of the given options are correct

Answer 2

D

Question 3

Which of the following statements is true about management accounting,compared with financial accounting?

A) Management accounting provides financial reports to external parties that require information to meet their decision needs
B) Management accounting is largely unregulated
C) Management accounting attempts to protect the information rights and needs of all users
D) Management accounting adopts a pro-regulation perspective

Answer 3

B

Question 4

Which of the following is a criticism of the double-entry financial accounting system?

A) Its general inability to take social and environmental consequences of a reporting entity's existence into account
B) Its use of a system of debts and credits to account for increases and decreases, instead of positive and negative numbers
C) Its initial development in a generally unregulated environment has resulted in a lack of uniformity and comparability
D) All of the given options are correct

Question 5

Advocates of which theory would argue that the government is best able to develop accounting standards because it has greater enforcement powers,and is more likely to be less responsive to pressures from interest groups?

A) Capture theory
B) Private interest theory
C) Economic interest theory
D) Public interest theory

Question 6

Who has overall responsibility for issuing accounting standards in Australia?

A) The Financial Reporting Council (FRC)
B) The Australian Accounting Standards Boards (AASB)
C) The International Accounting Standards Board (IASB)
D) The Australian Accounting Research Foundation (AARF)

Question 7

What theoretical perspective suggests that where firms are able to choose accounting methods,they will choose those that best reflect their economic performance?

A) Opportunistic perspective
B) Efficiency perspective
C) Creative accounting perspective
D) Economic interest perspective

Question 8

Which of the following is not an argument for regulation?

A) Markets for information are not efficient, and therefore produce a sub-optimum amount of information given the problem of 'free riders'
B) The capital market is efficient, but only 'on average'
C) Capital markets require information, and therefore firms that do not supply it will be punished
D) Information asymmetry exists, because not everyone has the same power over resources to obtain the information they need

Question 9

Which of the following is a characteristic of capture theory?

A) In deciding on a particular regulation, regulators consider the impact on key voters and on election finances
B) The regulated subsequently try to control the regulator, to achieve their self-interest
C) The regulator is a neutral arbiter, and does not let its own interest impact on its rule-making process
D) None of the given options are correct

Question 10

Which of the following is not a rationale for regulating financial accounting information?

A) To protect users from fraudulent or misleading information
B) Market for information without regulation is inefficient, and may result in production of sub-optimal amount of information
C) To assist management with better information, and reports for use by management and parties within the organisation
D) To ensure equal access to information by all interested parties, including those that have limited power to demand it

Question 11

Which of the following is not a rationale for regulation?

A) To redress the inequality of access to information by users
B) To protect users from fraudulent activities of insiders
C) To reduce the oversupply of information caused by excess user demand, because users do not have to pay for its cost
D) To enhance consistency and comparability of use of accounting methods

Question 12

What is the minimum level of accounting knowledge that readers of financial statements are assumed to possess,according to most professional accounting bodies around the world?

A) None
B) Some level of knowledge sufficient to understand the financial reports properly
C) A sound working knowledge
D) Expert level of knowledge

Question 13

Which of the following statements is true about the regulation of accounting practice in its early period of development?

A) Accounting was largely determined by accounting theory
B) Accounting was largely determined by accounting standards issued by the accounting profession
C) Accounting was largely determined by the national Securities and Exchange Commissions and resulting legislation
D) Accounting was largely determined by generally-accepted practice

Question 14

Which of the following statements is not true for accountants in general?

A) They should be objective and free from bias when performing their duties
B) The information they report should represent faithfully the underlying transactions and events
C) Adopt different accounting methods to suit their own needs, and the needs of the company
D) None of the given options are correct

Question 15

What is the role of the accounting profession in the US with regards to stipulating accounting standards?

A) Authority to develop and issue accounting standards
B) Delegated responsibility from the Securities and Exchange Commission, providing it performs such duties diligently
C) Indirect authority. Standards are issued by the Accounting Principles Board, a committee of the accounting professional bodies
D) No authority. Standards are issued by the Federal Accounting Standards Board, which is independent of the accounting profession

Question 16

Which of the following expectations is not in line with statements by standards-setters that they consider the economic and social consequences of standards on affected parties when setting accounting standards?

A) Accounting standards should be neutral and free from bias
B) Accounting standards should represent faithfully the underlying transactions
C) Accounting standards should consider the potential impact on others
D) None of the given options is correct

Question 17

Which of the following statements is true?

A) Measures of profit ignore many social and environmental externalities caused by the firm
B) The profit figure is an objective measure of performance
C) The company has reported a record profit, therefore it is automatically worthy of support
D) All of the given options are correct

Question 18

What theoretical perspective suggests that where firms are able to choose accounting methods,they will choose those that provide the result desired by the preparers?

A) Efficiency perspective
B) Objectivity perspective
C) Stakeholder perspective
D) Opportunistic perspective

Question 19

Financial accounting leads to the generation of:

A) Reports to meet the specific information needs of users
B) Monthly financial reports for management
C) Special purpose financial reports
D) General purpose financial reports

Question 20

Which of the following theories asserts that regulators are not initially put in place to protect the public interest,and are driven by self-interest?

A) Private interest theory
B) Public interest theory
C) Capture theory
D) All of the given options are correct

Question 21

Which of the following is an example of a normative accounting theory,or research?

A) Conceptual frameworks of accounting
B) Critical perspectives of accounting practice
C) True income theories
D) All of the given options are normative accounting theories

Question 22

Which of the following arguments supports the view that regulation is not necessary,particularly to the extent that it currently exists?

A) Accounting information is like any other good and people will be prepared to pay for it to the extent that it has use
B) Markets for information are not efficient and therefore produce a sub optimum amount of information, given the problem of "free riders"
C) Investors need protection from fraudulent organisations that may produce misleading information
D) Information asymmetry exists because not everyone has the same power over resources to obtain the information they need

Question 23

Accounting theories should be

A) Inductive
B) Deductive
C) Descriptive
D) None of the given options is correct

Question 24

Which of the following statements is true about early codification of accounting rules?

A) In the early part of the twentieth century, there was limited work undertaken to codify particular accounting principles or rules
B) Accountants used rules which they were aware, and which they believed, were most appropriate to the particular circumstances
C) There was very limited uniformity between the accounting methods adopted by different organisations, thereby creating comparability problems.
D) All of the given options are correct