Deck 3: Standard Setting

Question 1

Which of the following is a fundamental assumption of public interest theory?

A)Regulation is costly.
B)People rationally advance their own self-interest.
C)Economic markets are fragile.
D)There is an efficient market.

Answer 1

C

Question 2

Disadvantage of principles-based standards is:

A)They supply broad guidelines.
B)They allow mangers to select policies that may not reflect the substance of a transaction.
C)They allow accountants to use professional judgement.
D)All of the above.

Answer 2

B

Question 3

One of the advantages of principles-based standard is:

A)They do not improve representational faithfulness of financial statements.
B)They allow for no professional judgement.
C)They are generally simpler.
D)None of the above.

Answer 3

C

Question 4

Which of the following is NOT a function of the AASB? standard setting.

A)Participate in the development of international accounting standards.
B)Making accounting standards.
C)Promoting international accounting standards.
D)Enforcing compliance with accounting standards.

Question 5

Which of the following is NOT a key element of regulation?

A)Regulation should be biased.
B)An intention to intervene.
C)A restriction on choice.
D)The exercise of control.

Question 6

Which of the following is a fundamental assumption of Capture Theory?

A)Regulation is costly.
B)People rationally advance their own self-interest.
C)Economic markets are fragile.
D)The market is an efficient market.

Question 7

Which of the following was identified as a benefit when Australia accepted the international harmonisation of its accounting standards?

A)Reporting costs would be lowered.
B)International comparability of financial statements would increase.
C)The cost of capital would decrease.
D)All of the above.

Question 8

Which of the following groups benefits most from rules based accounting regulation?

A)Shareholders.
B)Managers.
C)Auditors.
D)Accountants.

Question 9

The Financial Reporting Council (FRC)are responsible for:

A)Appointing board members to the AASB.
B)Broad oversight of the standard-setting process.
C)Providing strategic direction and advice to the AASB.
D)all of the above.

Question 10

Which of the following is a fundamental assumption of Bushfire theory?

A)People are not influenced by media when it comes to regulation.
B)People are proactive when it comes to regulation.
C)People are reactive when it comes to regulation.
D)People are apathetic when it comes to regulations.

Question 11

Which of the following is NOT a disadvantage of regulation?

A)It can restrict communication.
B)It can be difficult to reverse.
C)It leads to standardisation.
D)It can be difficult to determine the optimal regulations.

Question 12

Which if the following is an advantage of rules-based accounting standards?

A)Can cover most situations.
B)Reduced complexity of standards.
C)Reduced opportunities for earnings management through judgements.
D)Improve representational faithfulness of financial statements.

Question 13

Which of the following has NOT been identified as a problem with Australia accepting the international harmonisation of its accounting standards?

A)Too few countries have adopted international accounting standards.
B)IFRS standards tend to be more complex.
C)Compromises sometimes need to be made when creating standards.
D)None of the above,they are all problems.

Question 14

Which of the following is NOT an advantage of accounting regulation?

A)Reduced lobbying to produce favourable outcomes.
B)Increased efficiency in allocating capital.
C)Cheaper production of accounting disclosure.
D)Increased public confidence.

Question 15

Which of the following have been blamed for the Global Financial Crisis?

A)Auditor-Client relationships.
B)Corporate governance structures.
C)Accounting standards.
D)All of the above.

Question 16

One of the rules-based standard disadvantages can be:

A)They allow for no manipulation.
B)They can be very complex.
C)They can be very simple.
D)None of the above.

Question 17

Research into accounting regulation:

A)Supports capture theory.
B)Is extensive.
C)Shows that accounting is independent of political influence.
D)Looks after the interests of a wide range of stakeholders.

Question 18

Signalling Theory postulates that:

A)Regulation is largely unnecessary.
B)Non-disclosing entities will do better in the market for finance.
C)Regulation decreases the cost of capital.
D)Financial reporting is a pointless activity.

Question 19

Which of the following can the AASB NOT do when adopting IFRSs?

A)Require additional disclosure.
B)Change or remove requirements that are seen as anti-competitive.
C)Change words to take into account Australian legislation.
D)Limit the number of optional treatments.

Question 20

Which of the following groups have been criticised for their failure to respond to exposure drafts?

A)Large Australian companies.
B)Auditors.
C)Academics.
D)Analysts.