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Introduction to financial accounting theory Chapter 1 Multiple choice 1. Which of the following is true about theories in general? A. Theories can include any coherent set of ideas or statements to explain, or provide guidance in respect of, certain phenomena. B. Theories must be empirically based t...

Introduction to financial accounting theory Chapter 1 Multiple choice 1. Which of the following is true about theories in general? A. Theories can include any coherent set of ideas or statements to explain, or provide guidance in respect of, certain phenomena. B. Theories must be empirically based to describe what is, rather than what should be. C. Theories must be based on inductive reasoning to provide a generalisation or prediction. D. All of the given options are correct. 2. According to Thouless (1974), the 'tricks' some writers often use to distract readers from limitations in the logic of an argument or theory are: A. Using emotionally-toned words B. Evasion of a sound refutation of an argument by use of a sophisticated formula C. Changing the meaning of a term during the course of an argument D. All of the given options are correct. 3. Normative accounting theories and research seek to: A. Explain and predict particular phenomena based on observation B. Prescribe particular approaches not driven by existing practices C. Describe what is normal, or generally accepted, practice D. All of the given options are correct. 4. A theory that predicts that, if certain conditions are met then particular accounting practices will be observed, is an example of: A. Positive Accounting Theory B. Negative Accounting Theory C. Normative Accounting Theory D. Descriptive Accounting Theory 5. Which of the following is not assumed in Positive Accounting Theory? A. Individuals (including managers) are economically rational in their behaviour. B. Individuals (including managers) are primarily motivated by self-interest. C. The natural objective of managers is to maximise the wealth of the firm. D. Managers are not indifferent in selecting accounting methods to use. 6. A theory (or model) that states that the most useful information for economic decision making is the current cash equivalents, as measured by the current net market values, is: A. Current Price Accounting B. Continuously Contemporary Accounting Theory C. Current Cost Accounting Theory D. Replacement Value Accounting Theory 7. One criticism of Positive Accounting Theory is that it tells us nothing about: A. Whether the practice or method being used is the most efficient B. Whether the practice or method being used is the most equitable C. Which method a firm should use D. All of the given options are correct. 8. Which of the following is not an example of a normative accounting theory or research? A. Conceptual frameworks of accounting B. Critical perspectives of accounting practice C. Capital markets-based (security price) research D. True income theories 9. In evaluating theories of accounting, which of the following is not true? A. Different theories are often the result of working in different paradigms, which provide greatly different perspectives. B. Positive Accounting Theory is an example of a theory that is value free. C. Selecting a theory, topic, design or method for research is based on value judgements. D. All theories of accounting, and assumptions on which they are based, are abstractions of reality, and so choice is based on how closely the theory fits our own perceptions. 10. Which of the following statements is true about proving a theory? A. An accepted Positive Accounting Theory purports to provide sound predictions the majority of the time. B. An accepted Positive Accounting Theory that purports to explain and predict, must hold true in all cases. C. A Positive Accounting Theory does not need to be tested or proven. D. An accepted Positive Accounting Theory has no 'exceptions to the rule'. 11. Which of the following statements aligns with the views of 'Falsificationists', such as Popper and others? A. Hypotheses are proposed by guessing, without guidance from existing theories. B. It is possible to state that a theory is true. C. Hypotheses must be stated in a form that assumes they are true, until evidence that is not supportive rejects them. D. All theories are false until they are proved to be true. 12. Which of the following statements best explains the role of logic in a theoretical argument? A. As long as the premises of an argument follow logically from one to the other, the conclusion will be correct. B. A conclusion can only be true to the extent that we accept that the premises on which it is based are true. C. Arguments cannot be rejected on the basis of observation; only on whether they are logical or not. D. All theories and their arguments must correspond with actual observation of current practices, or real-world phenomena, to be logical. 13. The failure of a particular study to support a theory: A. Provides the basis for rejecting the theory as useless or insignificant B. Means that the particular study must have flaws in its design or execution in specifying and collecting the data C. Threatens the theory, if repeated or more refined studies fail to support it with empirical evidence D. Means that the hypothesis was too broad, and did not specify the particular circumstances and conditions in enough detail 14. Which of the following statements is correct about generalising the findings of a study to the general population, based on particular samples? A. It is not possible to make generalisations unless you study the entire population. B. It is possible to make generalisations as long as the sample is representative of the population. C. It is possible to make generalisations as long as the sample includes at least 50 per cent of the population. D. It is possible to make generalisations if the sample is representative, and its size allows statistical inferences to be made. 15. In evaluating various research studies, it is important to first consider: A. The logic of the argument and how it is tested B. The logic of the argument and the assumptions on which it is based C. The purpose of the study and the type of theory on which it is based D. Whether the data collected represents a valid measure of the theoretical variables in question 16. Theories and models in the social sciences differ from theories in the pure sciences because: A. Theories about human behaviour cannot be expected to apply all the time, like some natural science theories. B. A number of theories may be available to describe, or provide a different perspective on, a particular phenomenon. C. Not all theories in social science have predictions that can be tested. D. All of the given options are correct. 17. The sequential stages of inductive reasoning are: A. Principles, objectives, assumptions and practice B. Practice, principles, assumptions and objectives C. Objectives, assumptions, principles and definitions D. Assumptions, objectives, principles and definitions 18. Which of the following terms describes a relationship that is argued from the specific (or particular) to the general? A. Scientific reasoning B. Inductive reasoning C. Deductive reasoning D. Logical reasoning 19. Which of the following is an example of a dominant paradigm in accounting prior to 1960? A. Current cost accounting B. Conceptual framework of accounting C. Historical cost accounting D. Continuously contemporary accounting 20. What is a deductive theory or argument judged by? A. Logic and assumptions B. Observable real-world phenomena C. Empirical evidence of relevant data to test the theory D. All of the given options are correct. 21. An inductive theory or argument: A. Relies on observation of real-world phenomena B. Establishes its truth or falsity by collecting objective empirical evidence C. Argues from the specific to form generalisations D. All of the given options are correct. 22. Which of the following is not a description of a paradigm? A. It is a model for the formulation and resolution of research problems. B. It is a school of thought or a principle by which a group of researchers operate. C. It is a collection of unrelated theories. D. It offers a systematic approach to raise questions and to frame answers. 23. The sequential stages of deductive reasoning are: A. Principles, objectives, assumptions and practice B. Practice, principles, assumptions and objectives C. Objectives, assumptions, principles and definitions D. Assumptions, objectives, principles and definitions 24. All liability accounts have credit balances. The accounts receivable account is a liability account. Therefore, the accounts receivable account has a credit balance. Which of the following statements is correct with respect to the above argument? A. The argument follows a logical and clear reasoning. B. The argument is illogical. C. The conclusion reached is clearly true. D. The classification of accounts receivable is consistent with the observed classification of receivables. 25. Which of the following conditions should be satisfied for generalisations to be accepted as legitimate in the process of induction? A. The number of observation statements forming the basis of a generalisation must be sufficiently large. B. Observations must be repeated under a wide variety of conditions. C. No accepted observation statement should conflict with the derived universal law. D. All of the given options are correct. 26. Which of the following hypotheses is testable, and therefore possible to falsify? A. Assets are designed to best fulfil the function for which they are intended B. Current replacement cost accounting is more useful than historical cost accounting C. Research and development expenditure is an expense. D. The net profit of a company is affected by the economic downturn 27. A good theory is one: A. That is falsified B. That is true C. For which there is a conceivable means of testing its falsity and the theory withstands the test D. For which there is no conceivable means of testing its falsity and the theory upholds 28. A theory is: A. A proposed explanation of a phenomenon which still has to be rigorously tested B. A scheme or system of ideas or statements or propositions which has undergone extensive testing and is generally accepted to be the accurate explanation behind an observation C. A provisionally accepted hypothesis proposed for further research D. None of the given options are correct. 29. Statement 1: All the fixed assets in the company are more than 10 years old.Statement 2: Some of the fixed assets in the company are plant and machinery. Assuming that Statement 1 and 2 are true, which of the following is correct based on logical deduction? A. All plant and machinery in the company is more than 10 years old. B. Most plant and machinery in the company is more than 10 years old. C. No plant and machinery in the company is more than 10 years old. D. Very little of the plant and machinery in the company is more than 10 years old. The financial reporting environment Chapter 2 Multiple Choice 1. 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. A level of knowledge sufficient to understand the financial reports properly C. A sound working knowledge D. An expert level of knowledge 2. Which of the following is not a rationale for regulating financial accounting information? A. To protect users from fraudulent or misleading information. B. A market for information without regulation is inefficient, and may result in the production of a sub-optimal amount of information. C. To assist management with better information, and to provide 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. 3. 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. 4. Which of the following statements is true about management 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. 5. 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 6. Which of the following is a criticism of the double-entry financial accounting system? A. It has a general inability to take the social and environmental consequences of a reporting entity's existence into account. B. It uses 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. 7. 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. 8. 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 the 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 the consistency and comparability of prepared financial reports. 9. What is the role of the accounting profession in the US with regard to stipulating accounting standards? A. It has the authority to develop and issue accounting standards. B. It has been 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. 10. Who has overall responsibility for issuing accounting standards in Australia? A. The Financial Reporting Council (FRC) B. The Australian Accounting Standards Board (AASB) C. The International Accounting Standards Board (IASB) D. The Australian Accounting Research Foundation (AARF) 11. 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 12. 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. 13. 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 is correct. 14. 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 15. Which of the following expectations regarding the economic and social consequences of accounting standards on affected parties is not in line with statements by standards-setters? 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. 16. Which 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 17. Which 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 18. Which of the following is a reason why accounting, and accountants, can be considered very powerful? A. The emphasis on profitability measures provides support to profitable companies which may not be worthy of support under other measures. B. The 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. 19. 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. 20. 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. They adopt different accounting methods to suit their own needs, and the needs of the company. D. None of the given options is correct. 21. Accounting theories should be: A. Inductive B. Deductive C. Descriptive D. None of the given options is correct. 22. 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. 23. Which of the following statements is true about early codification of accounting rules? A. In the early part of the twentieth century, limited work was undertaken to codify particular accounting principles or rules. B. Accountants used rules of 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. 24. 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 a 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. 25. 'In the process of introducing regulation, the organisations that are subject to the regulation will ultimately come to control the regulators'. This statement denotes: A. Public interest theory B. Capture theory C. Private interest theory D. Economic interest group theory 26. Efficiency perspective can be described as: A. All individuals' action is driven by self-interest. B. Individuals will act in an opportunistic manner to the extent that the actions will increase their wealth. C. Notions of loyalty and morality are ignored. D. Different organisational characteristics explain why different firms adopt different accounting methods. 27. The qualitative characteristics of financial reports that make information useful to users are: A. Understandability B. Reliability C. Comparability D. Understandability, reliability and comparability 28. Which of the following is not true for the International Accounting Standards Board (IASB)? A. The IASB is an independent standard-setting board that is publicly accountable to a monitoring ,board of capital market authorities. B. The IASB receives funding from the private sector, including mandatory levies on listed and nonlisted entities in countries that utilise its standards. C. The IASB has strong enforcement powers to ensure that entities that have adopted its standards are in full compliance. D. From 2005, the European Union adopted IFRSs for listed companies preparing consolidated financial reports. 29. Which of the following is true regarding the role of professional judgment in financial reporting? A. Accountants are always subjective in their judgments. B. Information generated should faithfully represent transactions and be neutral and verifiable. C. The consideration of economic and social standards implies objectivity in their development and implementation. D. Accountants are never required to apply professional judgment Positive Accounting Theory Chapter 7 Multiple Choice 1. Watts and Zimmerman's Positive Accounting Theory is: A. One of several normative theories of accounting B. One of several positive theories of accounting C. One of several critical theories of accounting D. None of the given options are correct. 2. Which of the following is a central assumption of Positive Accounting Theory? A. Individuals act solely on the basis of self-interest. B. Firms seek to maximise profits. C. The interests of principals and agents are not aligned. D. Financial statements will be audited regardless of legal requirements. 3. To test whether accounting information is useful, researchers such as Ball and Brown tested whether share prices responded to: A. Expected earnings announcements B. Forecast earnings announcements C. Unexpected earnings announcements D. All of the given options are correct. 4. The key theory that underpins Positive Accounting Theory is: A. The Efficient Markets Hypothesis B. Agency theory C. Normative ethical theory D. None of the given options are correct. 5. The principal's expectation of opportunistic behaviour by his or her agent results in lower payments to: A. The agent B. The principal C. The principal and the agent D. Neither the principal nor the agent 6. According to agency theory, contracts that align the interests of the principal and agent primarily benefit: A. The agent B. The principal C. Both the principal and the agent D. Neither the principal nor the agent 7. Agency theory suggests that government regulation is: A. Necessary, because principals know that agents may not act in their interests B. Necessary, because agents know that principals may not act in their interests C. Unnecessary, because principals know that agents may not act in their interests D. Unnecessary, because agents know that principals may not act in their interests 8. The 'political cost hypothesis' of Positive Accounting Theory suggests which of the following? A. Large firms are more likely to use accounting choices that reduce reported profits. B. Small firms are more likely to use accounting choices that reduce reported profits. C. Neither large nor small firms are more likely to use accounting choices that reduce reported profits. D. Both large and small firms are more likely to use accounting choices that reduce reported profits. 9. The 'bonus plan hypothesis' of Positive Accounting Theory suggests managers of firms with bonus plans tied to reported income are more likely to use accounting methods that: A. Increase prior period reported income B. Increase current period reported income C. Increase future period reported income D. None of the given options are correct. 10. The 'debt/equity hypothesis' of Positive Accounting Theory predicts which of the following? A. The higher the firm's debt/equity ratio, the more likely managers are to use accounting methods that lower income. B. The lower the firm's debt/equity ratio, the more likely managers are to use accounting methods that increase income. C. The higher the firm's debt/equity ratio, the more likely managers are to use accounting methods that increase income. D. None of the given options are correct. 11. The 'efficiency perspective' of Positive Accounting Theory suggests that firms will: A. Adopt the accounting methods that require the least resources to implement B. Adopt the accounting methods that result in the highest reported earnings C. Adopt the accounting methods that result in the lowest reported earnings D. Adopt the accounting methods that best reflect the underlying economic performance of the entity 12. Which of the following is correct in respect of Positive Accounting Theory? A. The opportunistic perspective is ex-post, and the efficiency perspective is ex-ante. B. The opportunistic perspective is ex-ante, and the efficiency perspective is ex-post. C. Both the opportunistic and efficiency perspectives are ex-ante. D. Both the opportunistic and efficiency perspectives are ex-post. 13. A manager electing to adopt a depreciation method that increases income, but does not reflect the actual use of the asset, is consistent with: A. The efficiency perspective of Positive Accounting Theory B. The opportunistic perspective of Positive Accounting Theory C. Both the opportunity and the efficiency perspectives of Positive Accounting Theory D. Neither the opportunity nor the efficiency perspectives of Positive Accounting Theory 14. Which of the following parties desire the firm to take the most risks? A. Managers B. Debtholders C. Owners D. All parties desire the firm to take the same level of risk. 15. Positive Accounting Theory suggests that bonus schemes benefit: A. Only managers B. Only owners C. Both managers and owners D. Neither managers nor owners 16. Which of the following is the main advantage of using accounting earnings instead of share prices to determine bonuses? A. Share prices are influenced by market forces that are outside the control of management. B. Accounting information is independently audited. C. Accounting information is unbiased. D. Share prices may be manipulated by managers engaging in insider trading. 17. According to Positive Accounting Theory, using stock prices to determine bonuses: A. Increases the likelihood of management disclosing good news B. Increases the likelihood of management disclosing of bad news C. Increases the likelihood of management disclosing both good and bad news D. Has no effect on the likelihood of management disclosures 18. According to Positive Accounting Theory, the existence of debt covenants: A. Can be explained from an efficiency perspective, and gives management an incentive to manipulate accounting information from an opportunistic perspective B. Can be explained from an opportunistic perspective, and gives management an incentive to manipulate accounting information from an efficiency perspective C. Can be explained from both efficiency and opportunistic perspectives D. Cannot be explained 19. Which of the following is a problem with Positive Accounting Theory? A. It is not testable. B. It has been empirically discredited. C. It contributes little to improving accounting practice. D. None of the given options are correct. 20. Which of the following is not a criticism of Positive Accounting Theory? A. It is based on the assumption that all action is driven by wealth maximisation. B. It is not value-free. C. It has developed little in the past 30 years. D. Its claims cannot be objectively verified. 21. A contribution of Positive Theory is that it enables us to understand: A. Why interest groups expend resources lobbying for or against particular standards B. Why a manager adopts particular accounting techniques over others C. The effect accounting standards have on different groups and resource allocation D. All of the given options are correct. 22. Which of the following is an example of political costs under the PAT perspective? A. Wage and salary deductions paid to unions B. Contributions to political parties C. Costs associated with increased wage claims D. The cost of remaining largely unnoticed by government regulatory agencies 23. Which of the following is not an example of a Positive Accounting Theory or research? A. True income theories B. Legitimacy Theory C. Costs associated with increased wage claims D. The cost of remaining largely unnoticed by government regulatory agencies 24. Which of the following statements is not true about Positive Accounting Theory? A. It is used to distinguish research aimed at explanation and prediction. B. It is designed to explain and predict which firms will, and which firms will not, use a particular method, and also prescribes which method a firm should use. C. It focuses on the relationships between the various individuals involved in providing resources to an organisation, and how accounting is used to assist in the functioning of these relationships. D. One of the key theories that underpins Positive Accounting Theory is Agency theory. 25. Which of the following statements is true regarding the origins and development of Positive Accounting Theory? A. Positive research in accounting started coming to prominence around the mid-1960s, and appeared to become the dominant research paradigm within financial accounting in the 1970s and 1980s. B. The introduction of positive research into accounting represented a paradigm shift from normative research to positive research. C. Currently, almost all papers in Accounting Review and most other leading academic journals are positive research-based. D. All of the given options are correct. 26. Which of the following is not true about Positive Accounting Theory? A. A positive theory seeks to explain and predict particular phenomena. B. A positive theory focuses on the relationships between various individuals and how accounting is used to assist in the functioning of these relationships. C. A positive theory prescribes how a particular practice should be undertaken. D. All of the given options are correct. 27. Which of the following statements is true about what caused the shift in paradigm from normative to positive research? A. The shift resulted from US reports on business education, and improved computing facilities enabling large-scale statistical analysis. B. The shift occurred because positive accounting researchers are not concerned with explaining or predicting what is (i.e. that which could be tested empirically); rather, they are concerned with what should be. C. The shift occurred because in positive research, falsifiable hypotheses are not generated from theory. D. All of the given options are correct. 28. It is common practice for managers to be rewarded in a way that is tied to the profits of the firm,´the sales of the firm, or the return on assets. That is, their remuneration is based on the output of the accounting system. Which of the following is a drawback for such bonus schemes? A. Bonus schemes tied to the performance of the firm will be put in place to align the interests of the owners and the managers. B. Rewarding managers on the basis of accounting profits may induce them to manipulate accounting numbers. C. There would be limited incentives for the manager to adopt risky strategies that increase the value of the firm. D. The manager may be reluctant to take on optimal levels of debt. 29. Which of the following bonus schemes would be appropriate for the managers of a biotechnology research company? A. A market-based bonus scheme, as it is more appropriate to reward the manager in terms of the market value of the firm's securities, which are assumed to be influenced by expectations about the net present value of expected future cash flows, and the manager will be given an incentive to increase the value of the firm. B. A fixed basis scheme, so that the managers would not take great risks, reject risky projects, and be reluctant to take on optimal levels of debt as it may be beneficial to those with equity in the firm. C. An accounting-based bonus scheme as this will be in the interest of the manager, as that manager will potentially receive greater rewards and will not have to bear the costs of the perceived opportunistic behaviours. D. A combination of fixed basis and accounting-based scheme, as assuming that self-interest drives the actions of the managers, it may be necessary to put in place remuneration schemes that reward the managers in a way that is, at least in part, tied to the performance of the firm. 30. Which of the following can be used as an accounting measure by the government and other interest groups that a particular organisation (typically large) is generating excessive profits and not paying its 'fair share' to other segments of the community? A. Total sales B. Total profits C. Total assets D. All of the given options are correct Positive theory Försöker förklara och förutsäga ett visst fenomen. (jfr normativ teori som föreskriver hur man gör saker) Agency theory within accounting research Den primära egenskapen hos byråteorin som gjorde det attraktivt för redovisning forskare är att det tillåter oss att uttryckligen införliva intressekonflikter, incitamentproblem och mekanismer för att kontrollera incitamentsproblem till våra modeller. Detta är viktigt eftersom mycket av motivationen för redovisning och revision har att göra med kontroll av incitamentsproblem. Till exempel, anledningen till att vi insisterar på att ha en "oberoende" revisor är att vi inte tror att vi kan lita på att chefer utfärdar sanningsenliga rapporter på egen hand. Likaså mycket av motivationen för att fokusera på objektiva och verifierbar information och för konservatism i finansiell rapportering ligger med incitament problem. Efficiency vs opportunistic perspective Effektivitetsperspektiv (ex ante) – avtalsmekanismerna kan bidra till att minska byrån kostader. Grundläggande antagande om att marknaden är effektiv om rätt kontrakt är på plats. Detta räknas både på land som företagsnivå. Opportunistiskt perspektiv (ex post) – de konkreta resultaten av ett avtalsarrangemang baserat på tesen om egenintresse (ett avtalsavtal kan inte vara omfattande och därför kommer det alltid att finnas utrymme för inte förväntat redovisningsmässig behandling). Three overarching hypotheses within PAT Management compensation hypothesis (or bonus plan hypothesis): chefer som är knutna till bonusprogram som relaterar till resultatet använder i större utsträckning redovisningsmetoder som höjer resultatet för aktuell period för att öka deras bonus. The debt/equity hypothesis: högre skuldsättningsgrad medför chefer som väljer en redovisningsmetod som visar högre inkomster.  The political cost hypothesis: större företag utnyttjar i större grad än mindre företag redovisningsmetoder som minskar resultatet för att undvika granskning av samhället. Då företagsledare tror sig vara under statlig granskning så använder de en redovisningsmetod som minskar resultatet. The Regulation of Financial Accounting Chapter 3 Multiple Choice 1. Which of the following best describes the process of setting accounting standards? A. A technical process where accounting experts determine the most technically correct and logical standards to issue B. A political process where the constituency affected either socially or economically by a proposed AASB standard has influence on the final outcome C. An exclusive process where the AASB sets the agenda and determines which standards to issue and what requirements they will contain D. An inclusive process where standards are proposed from various interested parties for approval by the AASB 2. Which of the following is not an example of a qualitative characteristic guiding the production of financial accounting information? A. Neutrality B. Representational faithfulness C. Consideration of economic and social consequences D. Consistency and comparability 3. The free-market perspective of accounting regulation suggests that accounting information: A. Should be provided free of charge B. Should be free of considerations and lobbying of the market C. Should be provided like any other good that is subject to demand and supply D. Will require regulation to avoid underproduction of information 4. According to some free-market theorists, there are private economics-based incentives for the organisation that will ensure that credible information will be provided. Which of the following assumptions is not consistent with this? A. Managers will provide true and correct information for fear of not being rewarded, or fired for not doing so. B. Shareholders will assume managers will act opportunistically and so, in the absence of safeguards, will pay less for shares. C. Lenders will price protect, in that the higher the preserved risk, the higher will be the cost of loan funds demanded. D. All of the given options are correct. 5. Which of the following is a valid criticism of the economics-based rationality argument that asserts that credible information will be supplied in the absence of regulation, by aligning management's self-interest with that of the owners and lenders, thereby reducing the cost of capital? A. The arguments do not follow logically. B. The arguments do not have historical support. C. The assumptions of management self-interest is too pessimistic. D. The argument has no empirical support. 6. Which of the following is not a valid criticism that management will enter performance-based contracts that will reward or constrain their behaviour, to maximise the value of the firm? A. It assumes management can gain more by entering a performance-based contract than by continuing to act opportunistically. B. It relies on credible accounting numbers to monitor performance, but there is no incentive to provide credible unbiased information. C. It assumes that managers always act from self-interest and do not attempt to maximise the value of the firm, which may not be true. D. It is too difficult to achieve in practice if there is a multitude of different contracting parties. 7. Which of the following would be required if we accepted the private contracting argument that managers' interests can be aligned with the maximisation of the wealth of the firm, through contracting arrangements that reward or constrain their behaviour? A. Credible financial accounting numbers to measure performance B. Independent audit to monitor and check that the accounting numbers are properly measured C. Regulation that restricts the choice of accounting methods D. All of the given options are correct. 8. Which of the following is not assumed by the 'market for managers argument' for reducing or eliminating regulation? A. The managerial labour market operates efficiently. B. Information about past management performance will be known by other prospective employers. C. Information about past management performance will not be fully impounded in future salaries. D. Managers are not approaching retirement. 9. Which of the following assumptions of the market for corporate takeovers can be criticised for being unrealistic in practice? A. An under-performing firm will be taken over by another firm, which will then subsequently replace the current management team. B. Managers will be motivated to maximise the firm's value to minimise the likelihood that outsiders could seize control. C. Management will know the marginal cost and benefit involved in producing the optimum amount of information required to minimise the firm's cost of capital. D. All of the given options are correct. 10. In the absence of regulation, the 'market for lemons perspective' (Arkerlof, 1970) assumes that: A. There is no incentive for firms to disclose bad news. B. Firms have incentives to disclose both good and bad news. C. No news is good news. D. All of the given options are correct. 11. A pro-regulatory perspective would argue that accounting information will be provided. A. Freely, to protect the public interest B. According to the forces of demand and supply C. To reduce the costs of capital D. To reduce uncertainty about the firm 12. It is argued by the pro-regulation supporters that accounting information is a free or public good. What is the characteristic of a free or public good? A. It is a good or service provided at no cost to anyone. B. It is a good or service whose over-production is an example of market failure. C. It is a good or service that, once available, people can obtain or use without paying. D. All of the given options are correct. 13. Which of the following is not an argument for the regulation of accounting information by proregulation proponents? A. Regulation is needed because it is difficult to make 'free riders' pay for its production. B. Regulation is needed to prevent wasteful over-supply, because users will overstate their need for information if they do not have to pay for it. C. Regulation is needed to correct market failure and under-supply due to the reluctance of producers of information to charge 'free riders' for it. D. Regulation is needed because the price system cannot function properly if it is not possible to exclude non-purchasers from consuming the good. 14. Which of the following is not a cause or result of 'information overload' or standards overload? A. Increased compliance costs B. Attempts to create a level playing field by requiring disclosures that provide equal access to information to everyone C. Concerted lobbying by different interest groups that are economically or socially affected D. Increased understanding of accounting information because of the increased quantity of standards and disclosures provided 15. Proponents of the free market approaches to accounting regulation use Adam Smith (1937) as a basis for support. Which of the following is not associated with Adam Smith's writings on the workings of the free market? A. The concept of the 'invisible hand' to guide allocation of resources for individuals and, as a result, does so for the market as a whole. B. No government intervention is necessary, as the free market can optimally allocate and distribute C. Individuals pursuing their own self-interest results in resources finding their way to their most productive use for the economy as a whole. D. All of the given options are correct. 16. Regulators often cite investor protection as a basis for more stringent regulation and financial reporting requirements enacted after a financial crisis. What is not a reason for this? A. To protect investors in the interests of the public B. To respond to lobbying by those affected by losing money. C. To look as if the regulators are doing something that seems to be a problem, and therefore maintain their position as regulators. D. All of the given options are correct. 17. Which of the following was not one of the pieces of evidence put forward by Walker (1987) to argue that the ASRB had been captured by the accounting profession? A. The accounting profession's AARF proposals for standards were fast-tracked, but more stringent requirements were in place for others. B. The profession influenced new appointments to the AASB so that, after just 2 years, virtually all members had some community of interest with the professional accounting bodies. C. The whole of AARF was merged with the AADB in 1987. D. By the beginning of 1986, the accounting profession indirectly managed to influence the procedures, priorities and output of the AASB. 18. Which of the following is a valid argument against regulatory capture? A. The regulated are best equipped to address the technical issues. B. The regulated are not independent from the regulator, and therefore lack neutrality and freedom from bias. C. The regulated are better able to understand the issues and need for regulation in specific areas. D. The regulation can be fast-tracked, because there is less time taken to argue the issues with other parties. 19. Which of the following may be the result of direct or indirect economic and social consequences of a proposed accounting standard? A. Increased lobbying to maximise the expected positive economic benefits from the standard B. Increased lobbying to minimise the expected negative economic and social consequences from the standard C. Impact on managerial decisions to optimise the reported numbers D. All of the given options are correct. 20. Which of the following is not true about the economic (private) interest theory of regulation? A. Unlike public interest theory, regulation is not considered to be a commodity that is subject to the principles of supply and demand. B. Regulation serves the private interests of particular parties, including politicians, who are seeking re-election. C. Regulation serves the private interest of politically-effective groups. D. Regulation tends to protect and maintain the ability of those with the power and financial wealth to afford to buy lobbying power and votes, and suppresses the ability of others without it. 21. Which of the following propositions is not true if we accept the notion that accounting regulation is considered to be the output of a political process? A. Financial accounting is objective, neutral and apolitical. B. Standard-setting bodies encourage affected parties to make submissions on draft versions of the proposed accounting standards. C. Many decisions that are made are the outcome of compromise. D. If the social welfare impact of accounting policies were ignored, the basis for the existence of a regulatory body would disappear. 22. Which of the following statements is true about accounting regulation? A. It is a set of prescribed rules that provides authoritative direction. B. It is developed by an independent authoritative body that has been given the power to govern how financial statements are to be prepared. C. It incorporates a basis for monitoring and enforcing compliance with the specific regulatory requirements. D. All of the given options are correct. 23. Which of the following statements is not true about the economics-based perspective of 'rationality' or 'self-interest' in explaining the behaviour of managers? A. Managers will work in their own self-interest unless constrained to do otherwise. B. Managers are opportunistic and in the absence of safeguards will reduce the amount they will pay for shares. C. Managers work towards maximising the benefits of all stakeholders. D. None of the given options are correct. 24. Which of the following arguments is used in support of reducing accounting regulation? A. Accounting information is like any other good, and the forces of supply and demand should be allowed to operate so that the optimal amount of accounting information is produced. B. The capital market operates quite efficiently, and will impose penalties on managers who elect to provide biased information about an organisation's financial performance and position. C. Individuals act in their own self-interest and will use the given regulation to maximise their own wealth. D. All of the given options are correct. 25. Which of the following statements does not describe why accounting regulation is needed? A. If a process is regulated, even though people might not understand the regulation they are more likely to have confidence in it. B. Regulation is put in place to protect the favoured positions of those with capital. C. Regulation is put in place so that the interest of the public is served. D. If the financial system is regulated, the resulting increased community confidence will lead to a reduced cost of capital for all firms. 26. Which of these arguments support the anti-regulation perspective? A. Private economic-based incentives B. Market for managers C. Market for lemons D. All of the given options are correct. 27. The rationale that 'Regulators will only propose and support regulation which leads to favourable outcomes for themselves, perhaps in terms of their re-election' is true for: A. Public Interest theory of regulation B. Capture theory of regulation C. Economic interest theories of regulation D. None of the given options are correct. 28. Under IFRS 2 and AASB 2 the fair value of share options has to be classified as: A. An expense B. A liability C. An owner's equity D. An asset 29. A lemon market will be produced: A. By asymmetry of information, in which no buyers can accurately assess the value of a product through examination before a sale is made and all sellers can more accurately assess the value of a product prior to sale. B. By a deficiency of effective public quality assurances—by reputation, regulation and/or effective guarantees or warranties. C. Where either a continuum of seller qualities exists or the average seller type is sufficiently low so that buyers are pessimistic about the seller's quality. D. All of the given options are correct. 30. Which of the following statements shows that Adam Smith advocated a regulatory approach? A. Without regulatory involvement, productive resources will find their way to the most productive uses. B. Leaving activities to the control of market mechanisms will protect market participants. C. The government needs to be involved in the 'public interest' to protect the more vulnerable. D. None of the given options are correct. WHAT IS REGULATION? Regler som har utvecklats av ett oberoende auktoritativt organ som har fått makten att styra hur vi ska förbereda ekonomiska uttalanden. Förordningen skulle också förväntas innehålla ett underlag för övervakning och upprätthålla efterlevnad av de specifika regulatoriska kraven. ‘FREE MARKET’ PERSPECTIVE Redovisningsinformation bör behandlas som andra varor, med efterfrågan och utbud krafter som tillåts verka för att generera en optimalt utbud PRO-REGULATION PERSPECTIVE Redovisningsinformation är en offentlig eller "gratis" vara Leder till underproduktion av information Nödvändig lagstiftning för att minska effekterna av marknadsmisslyckanden THEORIES TO EXPLAIN REGULATION Public interest theory - Reglering som införts för att gynna samhället som helhet snarare än förtjänta intressen - Tillsynsorgan som anses företräda det samhällets intressen snarare än tillsynsmyndigheternas privata intressen - Utgår från att regeringen är en neutral domare Kritik: Kritiker ifrågasätter antaganden om att ekonomiska marknader fungerar ineffektivt om de är oreglerade Capture theory - Den reglerade försöker ta över (fånga) tillsynsmyndigheten - Strävar efter att säkerställa att bestämmelser som senare släpps är fördelaktiga för deras industri - Även om reglering till en början var i allmänhetens intresse, svårt för tillsynsmyndigheten att förbli oberoende Kritik: Ingen anledning till varför en reglerad inte skulle kunna förhindra skapandet av tillsynsmyndigheten Economic interest group theory (private interest theory) - Antar att grupper kommer att bildas för att skydda särskilda ekonomiska intressen - Grupper är ofta i konflikt med varandra och kommer att lobba regeringen för att upprätta lagstiftning som kommer leda till att de gynnas på andras bekostnad - Ingen föreställning om allmänintresse som är inneboende i teorin Sustainability Reporting Chapter 9 Multiple Choice 1. The Brundtland Report defined 'sustainable development' in terms of: A. Intergenerational equity B. Intragenerational equity C. Both inter- and intra-generational equity D. None of the given options are correct. 2. It is commonly asserted that businesses should be sustainable because: A. The interests of business, society and the environment are aligned in the medium term. B. The interests of business, society and the environment are aligned in the long term. C. The interests of business, society and the environment are aligned in the short term. D. All of the given options are correct. 3. A company reporting on its social and environmental performance could be explained by: A. Legitimacy Theory, if management believed that the report would enhance the company's licence to operate B. Managerial Stakeholder Theory, if management believed that reporting would influence the perceptions of powerful stakeholders C. Institutional Theory, if management believed that by reporting they would gain approval from powerful stakeholders D. All of the given options are correct. 4. The drivers towards greater corporate social responsibility identified by the Business Council of Australia did not include improved: A. Employee recruitment and motivation B. Competitiveness and market positioning C. Social and environmental performance D. Operational efficiency 5. 'Enlightened self-interest' means that businesses: A. Will sacrifice financial returns in order to improve social and environmental performance B. Will not sacrifice financial returns in order to improve social and environmental performance C. Do not believe there is a conflict between financial returns and social and environmental performance D. None of the given options are correct. 6. Which of the following is implied by the 'shareholder primacy' view of corporate reporting? A. Regulators should mandate greater social and environmental reporting. B. Reporting should primarily meet the needs of those with a financial stake in the organisation. C. Organisations will voluntarily adopt greater social and environmental reporting. D. All of the given options are correct. 7. Which of the following is false? A. Many companies believe that social and environmental objectives can be achieved without sacrificing profitability. B. Many companies believe that social and environmental issues are becoming more important to their customers. C. Many companies believe that consideration of social and environmental issues is necessary for D. None of the given options are false. 8. The Business Council of Australia views the stakeholders of a business as those parties which: A. Can affect the operations of a business B. Are affected by the operations of a business C. Both can affect, and are affected by, the operations of a business D. None of the given options are correct. 9. Researchers have concluded that there is a demand for environmental and social disclosures based on: A. Surveys of stakeholders B. Examining the impacts on share prices of company disclosures C. Examining the impacts on share prices by independent rating agencies D. All of the given options are correct. 10. Including all affected stakeholders in a dialogue with the corporation may be difficult because: A. There may be multiple stakeholder groups in diverse geographic regions B. Stakeholders may be reluctant to express their honest views to the company for fear of reprisal C. The stakeholders may not be aware of the corporation's activities D. All of the given options are correct. 11. Which of the following is not a reason why traditional financial accounting may be unable to reflect the social and environmental impact of organisations? A. Externalities are difficult to measure. B. Traditional financial accounting typically discounts future liabilities to present value. C. Accountants are unable to understand the social and environmental impacts of an organisation. D. Traditional financial accounting adopts the 'entity assumption'. 12. Which of the following is not a reason why traditional financial accounting may be unable to reflect the social and environmental impact of organisations? A. The social and environmental impact of an organisation cannot be verified. B. The social and environmental impact of an organisation is often considered immaterial. C. Traditional financial accounting ignores the diminution of assets which are not controlled by the entity. D. Traditional financial accounting may categorise items such as pollution permits as assets. 13. Which of the following is not a problem with the concept of the 'triple bottom line'? A. It suggests that the social, environmental and economic aspects of an organisation are not interconnected. B. The term is not widely used or understood. C. It is not possible to reduce the social, environmental and economic aspects of an organisation to a 'common currency'. D. The concept of maximisation is difficult to apply to social and environmental aspects of corporate performance. 14. The Global Reporting Initiative Guidelines are: A. A mandatory framework containing a list of organisational financial, social and environmental performance indicators B. A mandatory framework containing a list of governmental financial, social and environmental performance indicators C. A voluntary framework containing a list of organisational financial, social and environmental performance indicators D. A voluntary framework containing a list of governmental financial, social and environmental performance indicators 15. 'Sustainable cost' is the amount an organisation must spend to: A. Maintain its current level of social and environmental performance B. Return the biosphere to the state it was in at the beginning of the accounting period C. Sustain its current level of profitability, given increasing societal expectations for improved social and environmental performance D. Adequately report its financial, social and environmental performance in accordance with the ethical formulation of Stakeholder Theory 16. A 'social audit' is when an organisation: A. Obtains independent verification on its social disclosures B. Obtains independent verification on its social and environmental disclosures C. Assesses its performance in relation to stakeholder expectations of social performance D. Assesses its performance in relation to stakeholder expectations of social and environmental performance 17. A 'social audit' may assist an organisation to: A. Identify areas where stakeholders believe it is deficient B. Avoid losing its 'licence to operate' C. Enhance its reputation D. All of the given options are correct. 18. The main problem for triple bottom line accounting is that social and environmental information is not: A. Comparable B. Relevant C. Reliable D. Understandable 19. The prevalence of social and environmental reporting is: A. Declining B. Increasing C. Stable D. None of the given options are correct. 20. The main contribution of frameworks such as the Global Reporting Initiative is that they enable: A. Comparison of social and environmental performance between companies B. Aggregation of social and environmental performance to a single 'sustainability' number C. Improved social and environmental performance D. None of the given options are correct. 21. Which of the following best describes the view taken by Milton Friedman in relation to the role of companies? A. Companies are an integral part of society, and as such should adopt the highest ethical principles. B. Companies, as part of society, should act in the interests of the harmonisation of society and the environment. C. Companies should detach themselves from the environment and focus on maximising the benefits to society. D. Companies should distance themselves from the community in which they operate and focus solely on maximising the returns to shareholders. 22. Which of the following statements is correct regarding the concept of environmental accounting? A. It is a method of incorporating the costs of depleting the company's assets into the financial statements of the company. B. It has been used to show the profits of a company. C. It does not apply to government organisations. D. It is a part of the ASX Listing Rules. 23. Which of the following statements is incorrect? A. Codes of conduct incorporating ethical standards are generally reactive, whereas laws are often proactive. B. Disqualifying directors from managing corporations is one way in which the law deals with conduct which is unethical. C. Accepting a secret commission is unethical behaviour. D. Offering a secret commission to an agent is unethical behaviour. 24. The 'triple bottom line' framework refers to three key areas, which are: A. Economic/financial, cultural and ethical B. Ethical, economic/financial and environmental C. Economic/financial, leadership and social D. Economic/financial, social and environmental 25. The quest towards sustainable development ultimately relies on people who: A. Are being driven solely by their self-interest B. Place wealth creation above all else C. Are not being driven solely by their self-interest D. Are not being driven solely by their self-interest but place value in wealth creation 26. Social and environment reporting are also referred to as: A. Sustainability reporting B. CSR reporting C. Triple bottom line reporting D. All of the given options are correct. 27. Which of the following statements relating to Stakeholder Theory explains 'why report?' social and environmental disclosure? A. Disclosures are linked to providing evidence that an entity is complying with the expectations of society. B. Disclosure depends on the expectations of powerful stakeholders, if the managerial perspective of Stakeholder Theory is embraced. C. Disclosure depends on positive wealth implications. D. Organisations will adopt particular practices because of institutional pressures. 28. Which of the following is not true where financial accounting adopts an entity assumption? A. Transactions not directly impacting the entity are ignored. B. Account externalities caused by the reporting entity are taken into account, some relating to the social and environmental implications of the entity's operations. C. Sustainability and the 'entity assumption' are mutually exclusive. D. The entity is treated as distinct from its owners and other stakeholders. 29. Stakeholder engagement process involves: A. Discovering what really matters to the key stakeholders B. Monitoring and managing stakeholder contributions and satisfaction levels C. Providing them with feedback on corporate strategies and performance, and identifying what andhow things can be changed D. All of the given options are correct. Reporting principles Accuracy - Noggrannhet Balance - Balans Clarity - Klarhet Comparability - Jämförbarhet Completeness - Fullständighet Sustainability context - Hållbarhetssammanhang Timeliness - Aktualitet Verifiability - Verifierbarhet Recommendations for reporting Anpassa sig till andra typer av rapportering - Ekonomisk rapportering - Långsiktigt värde - Negativa och positiva effekter på ekonomi, miljö och människor - Negativa och positiva konsekvenser för själva organisationen - Operativt, anseende, finansiellt Förbättra trovärdigheten Interna kontroller Extern försäkran System-oriented Accounting Theory Chapter 8 Multiple Choice 1. In relation to Political Economy Theory, which of the following statements is false? A. Political Economy Theory views society, politics and economics as inseparable. B. Political Economy Theory is derived from Positive Accounting Theory. C. Legitimacy Theory and Stakeholder Theory are derived from Political Economy Theory. D. Political Economy Theory can be divided into 'classical' and 'bourgeois' political economy. theories 2. The difference between 'classical' and 'bourgeois' political economy theory is that: A. 'Classical' political economy theory explicitly considers class conflict and the role of the state in its analysis, while 'bourgeois' political economy theory does not. B. 'Bourgeois' political economy theory explicitly considers class conflict and the role of the state in its analysis, while 'classical' political economy theory does not. C. 'Classical' political economy theory is a normative theory, whereas bourgeois' political economy theory is a positive theory. D. 'Bourgeois' political economy theory is a normative theory, whereas 'classical' political economy theory is a positive theory. 3. Which of the following statements is false? A. Legitimacy Theory is derived from 'classical' political economy theory. B. Legitimacy Theory suggests that organisations will act in a way that society perceives as legitimate. C. Legitimacy Theory relies upon the notion of the 'social contract'. D. Legitimacy Theory asserts that organisations will attempt to ensure that society perceives their actions as 'legitimate'. 4. The idea of the 'social contract' is that corporations only exist because they benefit: A. Shareholders B. Governments C. Managers D. Society 5. The 'legitimacy gap' of a corporation will narrow when: A. A corporation discloses good news about its behaviour but its actual behaviour declines. B. A corporation discloses bad news about its behaviour but its actual behaviour improves. C. Societal expectations of appropriate corporate behaviour increase. D. None of the given options are correct. 6. Which of the following is not a means by which an organisation may attempt to legitimise its activities? A. Adapting its output, goals and methods of operation to conform to prevailing definitions of legitimacy B. Attempting, through communication, to alter the definition of social legitimacy so that it conforms to the organisation's present practices, outputs and values. C. Asserting its right to operate under the existing regulatory framework that has been determined by society. D. Attempting, through communication, to become identified with symbols, values or institutions that have a strong base of legitimacy. 7. An example of a legitimising symbol would be: A. The World Wide Fund for Nature assessing compliance with the Australian Minerals Industry Code B. Monsanto employing the former CEO of Greenpeace Australia as a consultant C. Changing the name of a company from 'British Petroleum' to 'Beyond Petroleum' D. All of the given options are correct. 8. Empirical findings consistent with Legitimacy Theory would be increased disclosure of: A. Environmental good news, immediately following prosecutions for breaches of environmental standards B. Environmental bad news, immediately following prosecutions for breaches of environmental standards C. Environmental good news, immediately preceding prosecutions for breaches of environmental standards D. Environmental bad news, immediately preceding prosecutions for breaches of environmental standards 9. According to Legitimacy Theory, the annual report is: A. A means to assist users in legitimately allocating scarce resources B. A tool to legitimise the ongoing operations of the organization C. A legitimate account of the activities of the organisation for the period D. All of the given options are correct. 10. The difference between Positive Accounting Theory and Legitimacy Theory is that: A. Legitimacy Theory does not rely on the assumption that all action is driven by individual selfinterest. B. Legitimacy Theory makes no assumptions about the efficiency of markets. C. Legitimacy Theory suggests that organisations have a 'social contract' with society. D. All of the given options are correct. 11. Which of the following statements is characteristic of Stakeholder Theory? A. Stakeholder Theory has both a normative and positive perspective. B. Stakeholder Theory has neither a normative nor positive perspective. C. Stakeholder Theory is a normative theory. D. Stakeholder Theory is a positive theory. 12. The moral perspective of Stakeholder Theory holds that all stakeholders have the right to be treated fairly by an organisation: A. Provided this improves the organisation's financial performance B. Regardless of the impact on the organisation's financial performance C. Because, in the long run, this will improve the organisation's financial performance D. None of the given options are correct. 13. The difference between the managerial and moral perspectives of Stakeholder Theory is that: A. The moral perspective is empirically testable B. The moral perspective is more 'organisation-centred' C. The managerial perspective is empirically testable D. The managerial perspective holds that all stakeholders have certain minimum rights that must not be violated 14. Managerial Stakeholder Theory suggests that annual reports will be used to: A. Gain the support of powerful stakeholders B. Report on the activities of management with respect to each stakeholder C. Explain why profits may have been sacrificed in order to respect the minimum rights of some stakeholders D. All of the given options are correct. 15. Institutional Theory suggests which of the following? A. While organisational structures are initially varied, they are gradually homogenised by competition, the state and professions. B. While organisational structures are initially homogenous, they are gradually varied by competition, the State and professions. C. The organisational structure is determined by institutional factors such as management style and organisational culture. D. The organisational structure is determined by the organisation's most powerful stakeholders. 16. Which statement describes the relationship between Institutional Theory (IT), Legitimacy Theory (LT) and Stakeholder Theory (ST)? A. IT is a normative theory while LT and ST are positive theories. B. IT is a more detailed version of LT, and is broadly consistent with ST. C. The mechanisms IT suggests firms will use to align the perceptions of their performance with society's values could include the mechanisms suggested by LT and ST. D. The mechanisms IT suggests firms will use to align the perceptions of their performance with society's are different from the mechanisms suggested by LT and ST. 17. Which of the following is false? A. Isomorphism refers to the adaptation of an institutional practice by an organisation. B. Normative isomorphism refers to when organisations adopt particular institutional practices. C. Coercive isomorphism refers to when organisations change their practices due to stakeholder pressure. D. Mimetic isomorphism refers to when organisations copy the institutional practices of other organisations for competitive advantage practices. 18. An organisation disclosing social and environmental information because a competitor was gaining a competitive advantage by doing so, is an example of: A. Mimetic isomorphism B. Coercive isomorphism C. Normative isomorphism D. None of the given options are correct. 19. An organisation disclosing social and environmental information in response to societal expectations is an example of: A. Mimetic isomorphism B. Coercive isomorphism C. Normative isomorphism D. None of the given options are correct. 20. An organisation disclosing social and environmental information in response to shareholder demands is an example of: A. Mimetic isomorphism B. Coercive isomorphism C. Normative isomorphism D. None of the given options are correct. 21. Which of the following statement is false? A. Legitimacy Theory, Stakeholder Theory and Institutional Theory are all examples of 'systemsoriented theories'. B. A systems-oriented view of the organisation and society focuses on the role of information and disclosure in the relationship between organisations, the State, individuals and groups. C. Within a systems-based perspective, the entity is assumed to be influenced by, and in turn to have an influence on, the society in which it operates. D. Within Legitimacy Theory, Stakeholder Theory and Institutional Theory, accounting disclosure policies are not considered to constitute a strategy to influence the organisation's relationships with the other parties with which it interacts. 22. According to Lindblom (1994), which of the following strategies can an organisation adopt when it perceives that its legitimacy is in question because its actions or operations are at variance with society's expectations and values? A. Seek to educate and inform its 'relevant public' about actual changes in the organisation's performance and activities. B. Seek to change the perceptions that 'relevant public' have of the organisation's performance and activities. C. Seek to manipulate perception by deflecting attention from the issue of concern onto other issues to demonstrate how the organisation has fulfilled social expectations. D. All of the given options are correct. 23. Based on a joint consideration of Media Agenda Setting Theory and Legitimacy Theory, which of the following statements is correct? A. According to Legitimacy Theory management uses the annual report as a tool to legitimise the ongoing operations of the organisation, and according to Media Agenda Setting Theory the media are able to influence community perceptions about issues such as the environment. B. Community concerns about the environmental performance of a specific firm in an industry will also impact on the disclosure strategies of firms across that industry. C. We should find a relationship between the extent of disclosure of social and environmental issues within the annual report and the media attention given to those issues. D. All of the given options are correct. 24. Which of the following hypotheses, proposed by DiMaggio and Powell (1983), do not relate to coercive or mimetic isomorphism? A. The greater the dependence of an organisation on another organisation, the more similar it will become to that organisation in structure, climate and behavioural focus. B. The greater the centralisation of organisation A's resource supply, the greater the extent to which organisation A will change isomorphically to resemble the organisations on which it depends for resources. C. The greater the reliance on academic credentials in choosing managerial and staff personnel, the greater the extent to which an organisation will become like other organisations in its field. D. The more ambiguous the goals of an organisation, the greater the extent to which the organisation will model itself after organisations that it perceives to be successful. 25. Which of the following is not true about Political Economy Theory? A. The perspective embraced is that society, politics and economics are separable, and economic issues can be meaningfully investigated in the absence of considerations about the political, social and institutional framework in which the economic activity takes place. B. By considering the political economy, a researcher is able to consider broader (societal) issues that impact on how an organisation operates and what information it elects to disclose. C. Political Economy Theory has been divided into two broad streams: 'classical' and 'bourgeois'. D. The political economy perspective perceives accounting reports as social, political and economic documents. 26. Which of the following is true about substantive management techniques of legitimation? A. It does not actually reflect any real change in activities. B. Corporate behaviour is portrayed in a manner to 'appear consistent with social values and expectations'. C. It involves real, material change in organisational goals, structures, and processes or socially institutionalized practices. D. Companies may publish policies on various issues including the environment but not enforce or set in place mechanisms for the full adoption of such policies. 27. Legitimacy Theory cannot be applied to: A. Financial disclosure practices B. Social disclosure practices C. Environmental disclosure practices D. None of the given options are correct. 28. Which of the following is true about Stakeholder Theory? A. Stakeholder Theory can help managers in solving ethical problems, such as the environment, and gives managers a practical framework for assessing and balancing interests as long as normative principles are the foundation upon which decisions are made. B. Normative principles are incorporated into organisational decision making, and it allows managers to give an unbalanced or biased weighting of issues in order to preserve ethical integrity. C. Assessing stakeholders is often based on descriptive, not normative, assumptions. D. All of the given options are correct. 29. The rate of institutional isomorphism is increased when firms: A. Are highly dependent on the institutional environment B. Exist under high uncertainty or ambiguous goals C. Rely extensively on professionals D. All of the given options are correct. SYSTEMS-ORIENTED THEORIES LEGITIMACY THEORY Organisationer strävar efter att säkerställa att de verkar inom sina respektive samhällens gränser och normer Verksamhetsaktiviteter uppfattas som legitima Bygger på idén om ett socialt kontrakt LEGITIMACY VERSUS LEGITIMATION Legitimitet är den status eller det tillstånd som föreligger när ett företags värdesystem är kongruent med samhällets Legitimering är den process som leder till att en organisation ses som legitim LEGITIMACY Legitimitet anses att vara en resurs som en organistion är beroende av för sin överlevnad. Som många andra resurser är legitimitet en resurs som organisationen anser ska kunna påverka eller manipuleras genom olika strategier SOCIAL CONTRACT Representerar förväntningar som samhället har på hur organisationen bör utföra sina aktiviteter. Förväntingarna har ändrats med tiden så nu skall organisationen adressera människan, miljön och andra sociala frågor. LEGITIMACY GAP Legitimitets gap uppstår där det finns brist på korrespondens mellan hur samhället tror att en organisation ska uppföra sig och hur organisationen verkligen uppför sig. Detta kan uppstå när samhällets förväntningar ändras eller tidigare okänd information om organisationen blir känd. STAKEHOLDER THEORY Two branches of stakeholder theory Etisk (Moral) Alla intressenter har rätt att bli rättvist behandlade av organisationen. Frågor om intressenters makt är inte relevanta. Ledningen ska leda organisationen för förmån för alla intressenter. Positiv (Managerial) Försöker att förklara när företagsledningen kommer att ta till sig förväntingarna av kraftiga intressenter. Mer organisationscentrerad. DIFFERENCES BETWEEN THE STAKEHOLDER THEORY AND LEGITIMACY THEORY Stakeholder har fokus på hur en organisation integrerar med särskilda intressenter medan legimitimitets teorin fokuserar på interaktioner med samhället som helhet. INSTITUTIONAL THEORY Ger ett kompletterande perspektiv på frivillig rapportering till både stakeholder och legitimacy teorin. Förklarar hur legitimatiska mekanisner blir instutionaliserade. Två element: Isomorphism - Hänvisar till anpassning av en instutionell praxis av en organisation. Coercive, Mimetic och Normative Decoupling Kan använda hållbarhetsrapportering för att skapa en bild där organisationen tar mer ansvar i sociala frågor än vad de faktiskt gör. Detta kallas för Decoupling. Reactions of Capital Markets to Financial Reporting Chapter 10 Multiple Choice 1. Given efficient markets, the disclosure of favourable new information about a firm would be evidenced by: A. A share price decrease B. No change in the share price C. A share price increase D. None of the given options are correct. 2. Which of the following statements is true? A. Capital markets research analyses individual responses to financial reporting, while behavioural research assesses the aggregate effect of financial reporting. B. Capital markets research assesses the aggregate effect of financial reporting, while behavioural research analyses individual responses to financial reporting. C. Both capital markets and behavioural research assess the aggregate effect of financial reporting. D. Both capital markets and behavioural research analyse individual responses to financial reporting. 3. Which of the following is not a reason so many studies have focused on market responses to earnings announcements? A. Earnings data is unbiased. B. Earnings data is readily available. C. Earnings data is important to shareholders. D. Earnings data is the primary purpose of financial reporting. 4. Capital markets research assumes that markets are: A. Semi-strong-form efficient B. Strong-form efficient C. Weak-form efficient D. Inefficient 5. Semi-strong-form market efficiency means that the information reflected in security prices is: A. All publicly available financial information B. All public and private information C. All publicly available information D. All information about past prices and trading volumes 6. If markets are inefficient, the link between share price changes and information disclosures: A. Cannot be established B. Cannot be explained C. Does not exist D. All of the given options are correct. 7. An example of an event study is: A. The comparison of an earnings announcement with changes in share price levels B. The comparison of a dividend announcement with changes in share trading volume C. The comparison of an earnings announcement with changes in share price volatility D. All of the given options are correct. 8. Semi-strong-form market efficiency suggests security prices will change when: A. Unexpected earnings results are announced B. Earnings results are announced C. Cash flow results are announced D. All of the given options are correct. 9. Earnings are relevant to investors because: A. Investors want to maximise their profits B. Past earnings predict future earnings C. Past earnings predict future cash flows D. Future cash flows are a function of future earnings 10. The 'earnings/returns relation' refers to the relationship between returns and: A. Changes in expected future earnings B. Expected future earnings C. Changes in current earnings D. Current earnings 11. A 'systematic change' in share prices will not be caused by the disclosure of new information about: A. Inflation B. Dividends C. Business confidence D. Unemployment 12. Positive abnormal returns following an earnings announcement suggests the announcement contained: A. Good news B. Unexpected good news C. Bad news D. Unexpected bad news 13. According to the findings of capital markets research, historic cost earnings information is: A. Useful to investors B. Useful to investors when it differs from expectations C. Largely unknown by investors prior to announcement date D. Manipulated by managers 14. According to the findings of capital markets research, the existence of Post-announcement abnormal returns for a given firm suggests that for firms in the same industry: A. Subsequent post-announcement abnormal returns will increase B. Subsequent post-announcement abnormal returns will decrease C. There will be no effect on subsequent post-announcement abnormal returns D. It is impossible to predict the effect on subsequent post-announcement abnormal returns 15. Which of the following is not a finding of capital markets research? A. Earnings forecasts contain useful information. B. Voluntary disclosures benefit capital markets. C. The strength of the relationship between earnings announcements and share price movements is positively related to the size of an entity. D. Financial statement disclosures are perceived differently to footnote disclosures. 16. The book value is generally less than the market value of a firm because: A. Capital markets are not strong-form efficient B. Certain intangibles may not meet the asset recognition criteria C. Assets may be overvalued by unethical managers D. The market values of assets are difficult to measure 17. In addition to investigating the information content of earnings announcements, capital markets research has also considered whether: A. Earnings announcements reflect information previously utilised by investors B. Abnormal earnings announcements reflect information previously utilised by investors C. Cash flow announcements reflect information previously utilised by investors D. Abnormal cash flow announcements reflect information previously utilised by investors 18. Capital markets research suggests that: A. Cash flows are a more useful measure of firm performance than earnings B. Earnings are a more useful measure of firm performance than cash flows C. Cash flows and earnings are equally useful measures of firm performance D. None of the given options are correct. 19. Recent capital markets studies have: A. Suggested capital markets are less efficient than previously believed B. Confirmed previous beliefs about the efficiency of capital markets C. Suggested capital markets are more efficient than previously believed D. Not considered the efficiency of capital markets 20. Post-earnings announcement 'drift' is: A. Consistent with the strong-form efficient markets hypothesis B. Consistent with the semi-strong-form efficient markets hypothesis C. The predictability of returns following earnings announcements D. The predictability of abnormal returns following earnings announcements 21. Which of the following statements is not true regarding capital markets research? A. It explores the role of accounting and other financial information in equity markets. B. It involves examining statistical relations between financial information and share prices or returns. C. It analyses individual responses to financial reporting. D. It assesses the aggregate effect of financial reporting on investors. 22. Which of the following statements regarding capital markets research is true? A. Capital markets research relies on the underlying assumption that equity markets are efficient. B. Capital markets research typically assumes that equity markets are semi-strong-form efficient. C. A large fraction of published research in leading academic accounting journals examines the relation between financial statement information and capital markets. D. All of the given options are correct. 23. According to Zhang (2007), which of the following is not a negative effect of introducing the Sarbanes–Oxley Act (2002) in the US? A. The out-of-pocket compliance costs are significant. B. Executives complain that complying with the rules diverts their attention from doing business. C. The Act exposes managers and directors to lower litigation risks and penalties. D. CEOs take less risky actions, consequently changing their business strategies and potentially reducing firm value. 24. Which of the following statements is true, regarding the Ball and Brown (1968) study? A. It is the first major capital markets research publication in accounting. B. It investigated the usefulness of accounting earnings under an historical cost model. C. It found evidence to suggest that the information contained in the annual report is used in investment decision-making. D. All of the given options are correct. 25. Which of the following statements is correct, regarding the voluntary disclosure of information provided by a firm? A. Firms with more informative disclosure policies have a larger number of analysts following them, and more accurate analyst earnings forecasts. B. Firms with more informative disclosure policies have a lower number of analysts following them, and less accurate analyst earnings forecasts. C. Increased voluntary disclosure within the annual report is associated with higher costs of equity capital. D. There is no relationship between increased voluntary disclosures within the annual report and costs of equity capital. 26. Capital markets research is used to: A. Investigate share price reaction to the disclosure of financial information B. Investigate how share prices react to particular government announcements C. Investigate how share prices react to companies winning particular awards D. All of the given options are correct. 27. Which of the following is true about the semi-strong form of efficiency? A. All publicly available information is rapidly and fully impounded into share prices in a biased manner when released. B. All publicly available information is rapidly and partially impounded into share prices in an unbiased manner when released. C. Selected publicly available information is rapidly and fully impounded into share prices in an unbiased manner when released. D. All publicly available information is rapidly and fully impounded into share prices in an unbiased manner when released. 28. Which of the following is a finding of Beaver, Lambert and Morse (1980)? A. Share prices and related returns are related to accounting earnings. B. Over short intervals, earnings are more strongly associated with returns than are realised cash flows. C. Fair value estimates of bank's financial instruments seem to provide a better explanation of bank share prices than historical cost. D. Revaluation of assets results in better alignment of market and book values. 29. If market value is related to book value: A. Returns should not be related to accounting earnings per share, divided by price at the beginning of the accounting period B. Returns should be related to accounting earnings per share, divided by price at the beginning of the accounting period C. Returns should be related to accounting earnings per share, multiplied by price at the beginning of the accounting period D. Returns should be related to accounting earnings per share, divided by price at the end of the accounting period 30. Which of the following statements is true in regard to the results obtained by capital market research? A. The relationship between earnings announcements and share price movements is inversely related to the size of the entity. B. Earnings announcements have a greater impact on the share prices of larger firms than on smaller firms. C. Compared to US markets, the Australian market has larger adjustments during the year with slower adjustments at earnings announcement. D. Share prices remain the same if investors 'fixate' on reported earnings without considering the relative magnitudes of cash and accrual components. Capital market research - Introduction Utforskar rollen av redovisning och annan finansiell information på aktiemarknaderna Utforska hur individer eller grupp av individer reagerar till redovisningsupplysningar Innebär att undersöka statistiska samband mellan finansiell information och aktiekurser Investerarnas reaktioner tydligt från kapitalmarknaden transaktioner Ingen aktiekursförändring innebär ingen reaktion Capital market versus behavioural research Kapitalmarknadsundersökningar: Bedömer den samlade effekten av finansiell rapportering på investerare Tar endast hänsyn till investerare Beteendeforskning: Analyserar individuella svar på finansiell rapportering Granskar många gruppers beslutsfattande T.ex. bankchefer, låneansvariga, revisorer Three forms of Market Efficiency Weak Form: Priserna återspeglar information om tidigare priser och handelsvolymer Semi-strong Form: all offentligt tillgänglig information är snabbt och fullständigt beslagtas i aktiekurserna på ett opartiskt sätt när de släpptes - mest relevant för redovisningsbaserad kapitalmarknadsundersökning Strong Form: Offentlig och privat information tas del av Normative Theory; Changing prices Chapter 5 Multiple choice 1. Which of the following best describes the basis of the accounting measurement model in use today? A. Historical cost accounting B. Current cost accounting C. Historical cost, except where conceptual frameworks and accounting standards allow deviation from it D. A mixed method accounting model 2. Which of the following is not a valid criticism of historical cost accounting? A. It is not relevant in times of changing prices. B. It is not logical to add assets together that have been purchased in different periods, with dollars of different purchasing power. C. It understates profit in times of rising prices. D. It distorts the current year's operating results by including the current year's income, holding gains that accrued in previous periods. 3. If historical cost profits are all distributed in dividends during times of rising inventory prices, this will lead to (assuming other things being equal): A. A reduction in financial capital B. An erosion of operating capacity C. No effect on capital D. None of the given options is correct. 4. Which of the following measurement models of accounting equate with perspectives of maintaining the purchasing power of capital intact? A. General price-level adjustment accounting B. Current cost accounting C. Continuously contemporary accounting D. None of the given options is correct 5. Which of the following is not a feature of current cost accounting? A. It uses current values which could be based on present value, entry value (replacement) costs or exit value (selling) prices. B. It seeks to maintain the operating capability of capital. C. It uses specific prices of assets rather than general price-level adjustments. D. It seeks to maintain the purchasing power of capital. 8. Which of the following statements is not true in times of inflation? A. Holders of monetary liabilities will gain. B. Holders of monetary assets will lose. C. If the amount of monetary assets is the same as monetary liabilities, no gains or losses would occur. D. If the amount of monetary assets held is less than the amount of monetary liabilities held, a net loss would occur. 19. The reasons the promotion of alternative accounting models to historical cost did not succeed Include: A. There was a lack of agreement as to which model was the best B. The fact that such a change would have been extremely radical and costly C. The fact that such a change would create huge economical consequences, and therefore those affected would lobby to protect their self-interest D. All of the given options are correct. 20. How would the deprival value of an asset be determined? A. It is the present value of the future cash flows to be generated by the asset, except where the current replacement cost or net selling price is less than that value. B. It is the net selling price, except where the value to the business (present value) is less, or the current replacement cost greater. C. It is the current replacement cost, where the present value is less than the current replacement cost and greater than the net selling price. D. It is the value to the business of the asset (present value), within the bounds that this value is not less than the net selling price or greater than its current replacement cost. 23. What is included in 'income' according to the IASB Conceptual Framework? A. All events that result in an increase in the net assets of the reporting entity, other than owner contributions B. All events that result in an increase in the net assets of the reporting entity C. Events that relate to the central operations of the entity D. All of the given options are correct. 24. Which of the following statements is correct under our current accounting standards? A. Many assets can, or must, be measured at historical cost. B. Inventory must be measured at cost, or net realisable value if it is lower. C. Property, plant and equipment can be valued at cost where an entity has adopted the 'cost model' for a class of property, plant and equipment. D. All of the given options are correct. 26. In the historical cost model there is an assumption that the monetary unit is fixed and constant over time. Which of the following components of the modern economy makes the assumption less valid than it was at the time the model was developed? A. Specific price-level changes, occasioned by such things as technological advances and shifts in consumer preferences B. General price-level changes (inflation) C. Physical operating capital maintenance perspective D. All of the given options are correct. 27. Which of the following is the advantage of using current purchasing power adjustment? A. It relies on data already available under historical cost accounting. B. There is no need to incur cost or effort to collect data about current asset values. C. CPI data also readily available. D. All of the given options are correct. Accounting theory Normative theory: prescribe how to do things. Positive theory: seeks to explain and predict a particular phenomena. Three steps in the development of accounting theories 1. Historical cost approach - En historisk kostnad är ett värdemått som används i redovisningen där värdet av en tillgång i balansräkningen redovisas till dess ursprungliga anskaffningsvärde vid förvärvet av företaget. Pros and cons of historical cost accounting Fördelar  Lätt att greppa/beräkna (verifierbart) I linje med försiktighetsprincipen/konservativ redovisning (för det mesta) Nackdelar Historisk kostnadsredovisning urholkar det finansiella kapitalet och köpkraften (och naturligtvis påverkar skulden/eget kapital) Historisk kostnad kan leda till obalans över tid 2. Changing price approach Nuvarande kostnad är den kostnad som skulle krävas för att ersätta en tillgång i den aktuella perioden. Denna härledning skulle inkludera kostnaden för att tillverka en produkt med arbetsmetoder, material och specifikationer som används för närvarande. 3. Fair value approach Priset som skulle erhållas för att sälja en tillgång eller betalas för att överföra en skuld i en ordnad transaktion mellan marknadsaktörer vid mätningen datum Normative Theory Framework Projects Chapter 6 Multiple Choice 1. What is the definition of a 'conceptual framework'? A. A conceptual framework is a set of prescriptions of what accounting should be. B. A conceptual framework is a structured positive theory of accounting. C. A conceptual framework is a coherent system of objectives and fundamentals that are expected to lead to consistent standards. D. A conceptual framework is a group of independent concepts on specific accounting issues, that are grouped together to provide a single reference. 2. What is the purpose of developing a conceptual framework? A. To provide a coherent structure to accounting practice which had developed in an ad hoc way. B. To guide standard-setters to develop standards based on the same concepts and principles, rather than in a piecemeal approach. C. To guide users where there is no accounting standard covering an issue. D. All of the given options are correct. 3. The components, or building blocks, in the IASB Framework for the Preparation and Presentation of Financial Statements do not include: A. The definition of 'fi