Podcast
Questions and Answers
According to the passage, what is the main argument for why managers should be able to determine the accounting methods that best reflect their entity's performance?
According to the passage, what is the main argument for why managers should be able to determine the accounting methods that best reflect their entity's performance?
- In the absence of regulation, managers will still be motivated to provide financial information to avoid being perceived as a 'lemon'.
- Managers have the best understanding of their business and can make more informed decisions than regulators. (correct)
- Accounting information has characteristics of a 'free good' and market mechanisms do not operate efficiently with free goods.
- Managers are able to determine the marginal costs and benefits of disclosing particular information.
What is the 'lemons' argument mentioned in the passage?
What is the 'lemons' argument mentioned in the passage?
- Accounting information has characteristics of a 'free good' and market mechanisms do not operate efficiently with free goods.
- In the absence of regulation, only those with sufficient power will be able to obtain the information they demand.
- Managers will only disclose information that makes their company appear high quality, hiding any negative information.
- If an organization fails to provide financial information, it will be assumed to be of inferior quality, like a 'lemon'. (correct)
According to the passage, what is one argument against the idea that market mechanisms will lead to the optimal amount of accounting information being produced?
According to the passage, what is one argument against the idea that market mechanisms will lead to the optimal amount of accounting information being produced?
- Managers lack the sophistication to determine the marginal costs and benefits of disclosing particular information.
- Accounting information has characteristics of a 'free good' and market mechanisms do not operate efficiently with free goods.
- Markets display characteristics that indicate they are not always efficient, and 'on average' arguments ignore individual losses.
- All of the above (correct)
What is the 'rights-to-know' argument mentioned in the passage?
What is the 'rights-to-know' argument mentioned in the passage?
What does the passage mean when it states that the 'market for lemons' argument assumes that 'if you do not disclose particular information then the market will penalise you'?
What does the passage mean when it states that the 'market for lemons' argument assumes that 'if you do not disclose particular information then the market will penalise you'?
What is the main argument presented in the passage for why market mechanisms may not lead to the optimal amount of accounting information being produced?
What is the main argument presented in the passage for why market mechanisms may not lead to the optimal amount of accounting information being produced?
According to the argument for reducing regulation, what is assumed about individuals?
According to the argument for reducing regulation, what is assumed about individuals?
What is one argument made in favor of a 'free-market' approach to accounting information?
What is one argument made in favor of a 'free-market' approach to accounting information?
According to the contracting perspective, why might managers provide financial information to investors or creditors?
According to the contracting perspective, why might managers provide financial information to investors or creditors?
What is one assumption made in the argument for reducing regulation of accounting information?
What is one assumption made in the argument for reducing regulation of accounting information?
What might happen if managers fail to provide financial information?
What might happen if managers fail to provide financial information?
What is one argument made in the text for reducing regulation of accounting information?
What is one argument made in the text for reducing regulation of accounting information?
