Accounting Standards and Causal Allocation

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Questions and Answers

What is the primary goal of accounting classification?

To describe the cause and effect relationships between financial transactions

To maintain the fundamental accounting equation (correct)

To allocate resources to the most efficient departments

To maximize the utility of individual groups

What is the nature of the accounting standard-setting process?

A social process driven by ideology and exploitation

A technical process driven by efficiency considerations

A political process driven by interest groups (correct)

A market-driven process driven by supply and demand

What is the relationship between debits and credits in accounting?

Debits portray one classification, credits portray another (correct)

Debits and credits are unrelated

Debits always decrease, credits always increase

Debits always increase, credits always decrease

What is the impact of accounting information on society?

It has an impact on the welfare of various groups in society Signup and view all the answers

What is the purpose of accounting standards?

To provide a framework for financial reporting Signup and view all the answers

What is the nature of the demand for accounting information?

It is a derived demand Signup and view all the answers

What is the main role of the Securities Act of 1933?

Regulating the issuance of securities in the interstate markets Signup and view all the answers

What is characterized by ad hoc solutions to urgent problems and controversies?

The intervention of management Signup and view all the answers

What is the main provision of Section 13(b) of the 1934 Securities Exchange Act?

To prescribe accounting guidelines or forms for reports Signup and view all the answers

What was the SEC's message to the profession on April 25, 1938?

To use its mandate and develop accounting principles Signup and view all the answers

What was the focus of most accounting techniques during the early days?

The determination of taxable income and the minimization of income taxes Signup and view all the answers

What is one of the consequences of the dependence on management initiative?

The lack of theoretical support for most accounting techniques Signup and view all the answers

What is the basic principle of capitalism?

Economic initiative should come from individuals rather than the government Signup and view all the answers

What is one of the reasons that explain the role of double entry in economic expansion?

It contributed to a new attitude toward economic life, i.e., the goal of substance is replaced by the capitalistic goal of profits Signup and view all the answers

What is the main function of the independent bodies established under the Financial Reporting Act 1997?

To develop the capital market in Malaysia Signup and view all the answers

What is the primary purpose of the Financial Reporting Act 1997?

To enforce financial reporting standards Signup and view all the answers

Which of the following entities is required to comply with the Bursa Listing Requirements?

Listed companies Signup and view all the answers

What is the primary responsibility of the Securities Commission?

To regulate the securities industry Signup and view all the answers

What is the significance of February 2006 in the context of private entity reporting?

The announcement that private entities need not comply with FRSs Signup and view all the answers

What is the primary purpose of the Private Entity Reporting Standards (PERS)?

To provide accounting standards for private entities Signup and view all the answers

What is the role of the MASB in the context of financial reporting?

To develop financial reporting standards Signup and view all the answers

What is the significance of the Bursa Listing Requirements in the context of financial reporting?

To provide guidelines for financial reporting by listed companies Signup and view all the answers

What is the process of getting acceptance in a democratic society?

A highly complex and skilled marketing process in a political arena Signup and view all the answers

What is the focus of the FASB's approach to formulating accounting principles?

Deductive and quasi-political Signup and view all the answers

What is the goal of eliminating undesirable accounting techniques?

To codify acceptable accounting techniques Signup and view all the answers

What is the limitation of accounting history?

It may be incomplete and conditional Signup and view all the answers

What is the nature of accounting history?

Either narrative or interpretative, and conditional Signup and view all the answers

What is the role of professional associations and agencies?

They contribute to the formulation of accounting principles Signup and view all the answers

What is the goal of developing a theoretical framework for accounting?

To develop an accounting institution Signup and view all the answers

What do historical inquiries of accounting events provide?

Probable factors affecting the event Signup and view all the answers

What is the purpose of accounting?

To allocate the cost of resource usage against revenue Signup and view all the answers

How were future accountants trained in the past?

By being apprenticed to a practicing accountant Signup and view all the answers

What is the nature of Assets, Liabilities, and Owners' Equity in accounting?

They are residual from the process of allocating costs against revenue Signup and view all the answers

What is the objective of Positive Accounting Theory?

To explain and predict real-world accounting phenomena Signup and view all the answers

What is the approach used in accounting development?

Inductive approach Signup and view all the answers

What is the characteristic of accounting information according to the text?

Descriptive, inferential, and objective Signup and view all the answers

Study Notes

Accounting and Politics

Accounting standards are products of a political process, influenced by various groups that lobby for their own interests.
The SEC plays a significant role in the development of accounting principles, with the authority to prescribe accounting guidelines or forms for reports submitted to it.

Classification and Double Entry

Debit portrays one classification, while credit portrays another.
The value of increment is offset by an equal value of decrement in double entry accounting.

Economic Initiative and Capitalism

The basic principle of capitalism is that economic initiative should come from individuals rather than the government.
Double entry accounting contributed to a new attitude towards economic life, replacing the goal of substance with the capitalistic goal of profits.

Limitations of Accounting History

Historical inquiry may be incomplete and conditional, and may not reveal the cause of an event with certainty.
History can, however, indicate probable factors affecting an event.

Financial Reporting Regime

The Financial Reporting Act (FRA) 1997 provides enforcement authority to the standards issued by the Malaysian Accounting Standards Board (MASB).
Companies listed on Bursa Malaysia must comply with the Bursa Listing Requirements and the Financial Reporting Act (FRA) 1997.
Private entities need not comply with Financial Reporting Standards (FRSs), but can choose to apply Private Entity Reporting Standards (PERS).

Accounting Theory and Practice

The purpose of accounting is to allocate the historical cost of resource usage against revenue.
Assets, Liabilities, and Owners' Equity are residual from the accounting process, and do not measure or indicate value or financial situation.
Positive Accounting Theory (PAT) aims to explain and predict real-world accounting phenomena, and is based on observed behavior of accountants.

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Description

This quiz covers the impact of accounting information on various groups and the political process of standard setting in accounting.