TEST BANK For Financial Accounting Theory 4e Craig Deegan. Answers At The End Of Each Chapter

Chapter 01 Student: 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.

Chapter 01 Key

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.

Deegan - Chapter 01 #1 Difficulty: Easy

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.

Deegan - Chapter 01 #2 Difficulty: Easy

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.

Deegan - Chapter 01 #3 Difficulty: Easy

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

Deegan - Chapter 01 #4 Difficulty: Easy

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.

Deegan - Chapter 01 #5 Difficulty: Easy

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

Deegan - Chapter 01 #6 Difficulty: Easy

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.

Deegan - Chapter 01 #7 Difficulty: Easy

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

Deegan - Chapter 01 #8 Difficulty: Easy

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.

Deegan - Chapter 01 #9 Difficulty: Medium

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'.

Deegan - Chapter 01 #10 Difficulty: Medium

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.

Deegan - Chapter 01 #11 Difficulty: Easy

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.

Deegan - Chapter 01 #12 Difficulty: Hard

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

Deegan - Chapter 01 #13 Difficulty: Medium

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.

Deegan - Chapter 01 #14 Difficulty: Medium

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

Deegan - Chapter 01 #15 Difficulty: Easy

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.

Deegan - Chapter 01 #16 Difficulty: Easy

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

Deegan - Chapter 01 #17 Difficulty: Medium

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

Deegan - Chapter 01 #18 Difficulty: Easy

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

Deegan - Chapter 01 #19 Difficulty: Medium

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.

Deegan - Chapter 01 #20 Difficulty: Easy

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.

Deegan - Chapter 01 #21 Difficulty: Easy

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.

Deegan - Chapter 01 #22 Difficulty: Medium

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

Deegan - Chapter 01 #23 Difficulty: Medium

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.

Deegan - Chapter 01 #24 Difficulty: Hard

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.

Deegan - Chapter 01 #25 Difficulty: Easy

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

Deegan - Chapter 01 #26 Difficulty: Hard

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

Deegan - Chapter 01 #27 Difficulty: Medium

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.

Deegan - Chapter 01 #28 Difficulty: Medium

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.

Deegan - Chapter 01 #29 Difficulty: Hard

Chapter 01 Summary Category

# of Questions

Deegan - Chapter 01

29

Difficulty: Easy

15

Difficulty: Hard

4

Difficulty: Medium

10

Chapter 02 Student: ___________________________________________________________________________ 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 non-listed 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.

Chapter 02 Key

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

Deegan - Chapter 02 #1 Difficulty: Easy

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.

Deegan - Chapter 02 #2 Difficulty: Medium

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.

Deegan - Chapter 02 #3 Difficulty: Easy

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.

Deegan - Chapter 02 #4 Difficulty: Easy

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

Deegan - Chapter 02 #5 Difficulty: Medium

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.

Deegan - Chapter 02 #6 Difficulty: Easy

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.

Deegan - Chapter 02 #7 Difficulty: Easy

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.

Deegan - Chapter 02 #8 Difficulty: Medium

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.

Deegan - Chapter 02 #9 Difficulty: Easy

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)

Deegan - Chapter 02 #10 Difficulty: Easy

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.

Deegan - Chapter 02 #11 Difficulty: Medium

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.

Deegan - Chapter 02 #12 Difficulty: Easy

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.

Deegan - Chapter 02 #13 Difficulty: Easy

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

Deegan - Chapter 02 #14 Difficulty: Easy

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.

Deegan - Chapter 02 #15 Difficulty: Easy

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

Deegan - Chapter 02 #16 Difficulty: Easy

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

Deegan - Chapter 02 #17 Difficulty: Easy

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.

Deegan - Chapter 02 #18 Difficulty: hard

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.

Deegan - Chapter 02 #19 Difficulty: hard

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.

Deegan - Chapter 02 #20 Difficulty: Medium

21. Accounting theories should be: A. Inductive B. Deductive C. Descriptive D. None of the given options is correct.

Deegan - Chapter 02 #21 Difficulty: Easy

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.

Deegan - Chapter 02 #22 Difficulty: Easy

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.

Deegan - Chapter 02 #23 Difficulty: hard

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.

Deegan - Chapter 02 #24 Difficulty: Medium

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

Deegan - Chapter 02 #25 Difficulty: Easy

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.

Deegan - Chapter 02 #26 Difficulty: Medium

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

Deegan - Chapter 02 #27 Difficulty: Easy

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 non-listed 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.

Deegan - Chapter 02 #28 Difficulty: hard

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.

Deegan - Chapter 02 #29 Difficulty: Medium

Chapter 02 Summary Category

# of Questions

Deegan - Chapter 02

29

Difficulty: Easy

17

Difficulty: hard

4

Difficulty: Medium

8

Chapter 03 Student: ___________________________________________________________________________ 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 pro-regulation 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 resources.

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.

Chapter 03 Key

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

Deegan - Chapter 03 #1 Difficulty: Easy

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

Deegan - Chapter 03 #2 Difficulty: Easy

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

Deegan - Chapter 03 #3 Difficulty: Easy

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.

Deegan - Chapter 03 #4 Difficulty: Medium

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.

Deegan - Chapter 03 #5 Difficulty: Hard

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.

Deegan - Chapter 03 #6 Difficulty: Medium

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.

Deegan - Chapter 03 #7 Difficulty: Medium

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.

Deegan - Chapter 03 #8 Difficulty: Medium

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.

Deegan - Chapter 03 #9 Difficulty: Medium

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.

Deegan - Chapter 03 #10 Difficulty: Easy

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

Deegan - Chapter 03 #11 Difficulty: Easy

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.

Deegan - Chapter 03 #12 Difficulty: Easy

13. Which of the following is not an argument for the regulation of accounting information by pro-regulation 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.

Deegan - Chapter 03 #13 Difficulty: Medium

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

Deegan - Chapter 03 #14 Difficulty: Medium

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 resources.

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.

Deegan - Chapter 03 #15 Difficulty: Hard

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.

Deegan - Chapter 03 #16 Difficulty: Easy

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.

Deegan - Chapter 03 #17 Difficulty: Medium

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.

Deegan - Chapter 03 #18 Difficulty: Medium

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.

Deegan - Chapter 03 #19 Difficulty: Medium

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.

Deegan - Chapter 03 #20 Difficulty: Easy

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.

Deegan - Chapter 03 #21 Difficulty: Medium

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.

Deegan - Chapter 03 #22 Difficulty: Easy

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.

Deegan - Chapter 03 #23 Difficulty: Easy

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.

Deegan - Chapter 03 #24 Difficulty: Medium

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.

Deegan - Chapter 03 #25 Difficulty: Medium

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.

Deegan - Chapter 03 #26 Difficulty: Medium

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.

Deegan - Chapter 03 #27 Difficulty: Medium

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

Deegan - Chapter 03 #28 Difficulty: Easy

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.

Deegan - Chapter 03 #29 Difficulty: Hard

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.

Deegan - Chapter 03 #30 Difficulty: Medium

Chapter 03 Summary Category

# of Questions

Deegan - Chapter 03

30

Difficulty: Easy

11

Difficulty: Hard

3

Difficulty: Medium

16

Chapter 04 Student: ___________________________________________________________________________ 1. What is the cause of differences between the reporting results by the same company, in two different countries, for the same set of transactions and period?

A. Different underlying economic systems B. Different accounting and reporting standards C. Different accounting policy choice D. All of the given options are correct.

2. Which of the following is not a characteristic of the Anglo-American model of financial accounting and its regulation?

A. It has been strongly influenced by professional accounting bodies rather than government B. It emphasises the importance of capital markets as the main source of equity and debt C. Regulation tends to be totally rule-based rather than requiring professional judgement D. It emphasises consideration of substance over legal form

3. Which of the following is not a characteristic of the Continental European model of financial accounting and its regulation?

A. It has been strongly influenced by government and the banking sector.

B. It relies on qualitative requirements, such as 'true and fair', rather than accounting rules.

C. There is a strong association between accounting methods and the tax rules in place.

D. Information tends to be of the nature that protects creditors rather than investors.

4. According to Nobes (1998), many of the factors that have been suggested as reasons for differences in accounting methods in different countries are inter-related. He divided these into two broad categories. What is one of these broad categories?

A. Cultural factors B. Religious influences C. The political system in place D. The tax system in place

5. According to Violet (1983), accounting cannot be considered to be culture-free. Which of the following does not explain what Violet means by this?

A. Accounting is a social institution and, as such, has integrated certain cultural customs and elements within it.

B. Accounting is an independent component of culture.

C. Accounting is a product of culture, and contributes to the evolution of the culture which employs it.

D. Since accounting is culturally determined, other cultural customs, beliefs and institutions influence it.

6. Hofstede (1980) defined culture as: A. An expression of norms, values and customs which reflect typical behavioural aspects B. A system of individual values, customs and beliefs C. The collective programming of the mind, which distinguishes the members of one human group from another D. A system of societal or collectively-held values

7. Which researcher argued that the value systems of accountants are derived from, and related to, societal values, and that these social values are also held by accountants at a sub-culture level, and therefore will impact on the development of national accounting systems over time?

A. Hofstede (1980) B. Gray (1988) C. Mueller (1968) D. Perera (1989)

8. Which of the following is true of Hofstede's (1980) theory?

A. The theory was developed as part of the cross-cultural psychology literature, and therefore was not directly concerned with accounting.

B. It detected four structural elements of culture which strongly affect known behaviour in work situations in organisations and institutions.

C. It derived from data collected from a multinational corporation located in more than 50 countries.

D. All of the given options are correct.

9. Which of the following of Hofstede's societal value dimensions addresses the dimension of how a society handles inequities among people when they occur?

A. Large versus small power distance B. Individualism versus collectivism C. Strong versus weak uncertainty avoidance D. Masculinity versus femininity

10. Which of the following of Hofstede's societal value dimensions is associated with societies that maintain a more relaxed atmosphere, in which practice counts more than principles and deviance is more easily tolerated?

A. Weak uncertainty avoidance B. Collectivism C. Small power distance D. Femininity

11. Which of the following does not constitute one of Gray's accounting values in the accounting sub-culture, which he identified after closely considering Hofstede's societal values?

A. Secrecy versus transparency B. Uniformity versus flexibility C. Conservatism versus optimism D. Individualism versus collectivism

12. Which of the following of Gray's accounting sub-culture values describes a preference for substance over legal form regulation?

A. Professionalism versus statutory control B. Uniformity versus flexibility C. Conservatism versus optimism D. Secrecy versus transparency

13. According to Gray (1988), the higher a country ranks in terms of uncertainty avoidance and power distance, and the lower it ranks in individualism, the more likely it is to rank highly in terms of: A. Conservatism B. Professionalism C. Uniformity D. Flexibility

14. According to Gray (1988), the higher a country ranks in terms of individualism and the lower it ranks in terms of uncertainty avoidance and power distance, the more likely it is to rank highly in terms of: A. Optimism B. Professionalism C. Uniformity D. Transparency

15. According to Gray (1988), the higher a country ranks in terms of uncertainty avoidance and power distance, and the lower it ranks in terms of individualism and masculinity, the more likely it is to rank highly in terms of: A. Optimism B. Professionalism C. Uniformity D. Secrecy

16. Which of the following cultural characteristics is not consistent with communities that prefer information disclosures to be kept to a minimum?

A. Collective, rather than an individualistic approach B. High preference for uncertainty avoidance C. Low power distance D. All of the given options are correct.

17. Which of the following does not equate with Gray's hypothesised linkages between accounting values and accounting practice?

A. The higher the degree of optimism, as opposed to conservatism, the stronger the ties with traditional measurement practice.

B. The higher the degree of uniformity, the lower the extent of professional judgment and the stronger the level of enforcement in applying rules and procedures.

C. The higher the degree of secrecy preferred, the lower the amount of disclosure.

D. The higher the degree of professionalism, the greater the degree of self-regulation and the lower the need for government intervention.

18. What is the major difference between Islamic religion and Western accounting practices which would make convergence of accounting standards difficult to achieve in Islamic countries?

A. The Islamic concept that stewardship is to God not the individual.

B. Islam prevents debt financing and the payment of interest.

C. Fundamental business ethics flow automatically from religious practices rather than from the codes of professional associations.

D. The Islamic religion influences how people do business and make decisions.

19. The type of business ownership and financing system, and the taxation system, influence the nature of accounting practice in different countries. Which of the following describes the institutional influence more conducive to the increasing scale of globalised business and development of international accounting standards?

A. Outsider systems, where finance is mainly provided by external shareholders, and where the tax system is separate from the accounting system B. Insider systems, where finance is mainly provided by family owners, banks and government, and the tax system dominates the accounting system C. Outsider systems, where finance is mainly provided by family owners, banks and government, and the tax system is separate from the accounting system D. Insider systems, where finance is mainly provided by external shareholders, and where the tax system dominates the accounting system

20. Which of the following is an influence on the nature of accounting practice in different countries?

A. Accidents in history, such as stock-market crashes B. The strength of the accounting profession C. Religion D. All of the given options are correct.

21. Which of the following is not necessarily a benefit of harmonisation and convergence?

A. Increased relevance, functionality and appropriateness for all countries B. Improved understanding and interpretation of financial reports by users in different countries C. Increased comparability and consistency D. Lower preparation costs for companies that have to produce different financial reports in different countries

22. Which of the following is an obstacle that is not unique to international harmonisation of accounting standards?

A. Standards may be opposed due to their negative economic consequences on individuals or groups B. Standards may lack relevance to the recipients that they are imposed upon C. Differences of opinion as to who should have the authority and responsibility of setting accounting standards D. All of the given options are correct.

23. The decision that Australia would adopt international accounting standards issued by the IASB was made by: A. The Australian Accounting Standards Board B. The Federal Government Treasurer C. The Financial Reporting Council D. The International Accounting Standards Board

24. The process of adopting international accounting standards in Australia did not include: A. An initial period of harmonisation where AASB standards were made to be compatible with the IAS's, but with some divergence allowed where appropriate B. A Corporate Law and Economic Reform Program (CLERP) Report, in 1997, outlining the rationale and benefits for Australia of adopting international accounting standards C. A decision by the FRC in 2002 that Australia would adopt accounting standards issued by the IASNB, and no divergence was to be acceptable D. Opposition from the Australian Stock Exchange

25. Which of the following is not true for the International Accounting Standards and the International Financial Reporting Standards?

A. They are based on the legalistic approach.

B. They provide choices in the recognition and measurement of various accounting transactions.

C. They incorporate 'uncertainty expressions', such as 'probable', 'significant influence', 'control' and 'substantial'.

D. They are based on the concept of presenting a 'true and fair view' of a company's financial reports, where professional accountants are given the right to use their judgment to accomplish this goal.

26. From 2005, Australia has adopted the IASB standards for: A. All the reporting entities B. Multinational enterprises only C. All the entities listed on the stock markets D. All entities that prepare consolidated financial statements

27. Which of the following is not an objective of the IASB? A. To develop, in the public interest, a single set of high quality, understandable and enforceable global accounting standards that require high quality, transparent and comparable information in financial statements and other financial reporting to help participants in the world's capital markets and other users to make economic decisions.

B. To promote the use and rigorous application of the IASB standards.

C. To take account of, as appropriate, the special needs of small and medium-sized entities and emerging economies.

D. To provide financial support to countries adopting the IASB standards.

28. From a practical standpoint, what is the goal of accounting standards harmonisation or convergence?

A. Creating one set of standards used throughout the world B. Reducing the conflict among national accounting standards C. Producing accounting standards that are unique for each country D. Forcing compliance with IASB regulations

29. The reason accounting rules are different in various countries is because of underlying differences in: A. Culture B. Legal systems C. Financing systems D. All of the given options are correct.

30. Assume that a society is comfortable with ambiguity and the people are adaptable and entrepreneurial. Truth may be relative, though in the immediate social circles there is concern for Truth with a capital T, and rules (but not necessarily laws) abound. Nonetheless, adherence to laws and rules may be flexible to suit the situation and pragmatism is a fact of life. This description shows that this society has a: A. Weak Uncertainty Avoidance society B. Strong Uncertainty Avoidance society C. Large Power Distance society D. Small Power Distance Society

31. Australia is classified as a masculine society. This means that: A. Emotions are not shown much in Australia; people are fairly relaxed and not averse to taking risks.

B. Australians are proud of their successes and achievements in life, and the country offers a basis for hiring and promotion decisions in the workplace C. Both managers and employees expect to be consulted, and information is shared frequently.

D. In the business world, employees are expected to be self-reliant and to display initiative.

32. According to Zarzeski (1996): A. Entities located in countries classified as relatively more Individualistic and Masculine and relatively lower in terms of Uncertainty Avoidance provide greater levels of disclosure.

B. Entities with a relatively higher international profile tend to be more secretive than other entities.

C. Entities from continental European countries, such as France and Germany, which have historically tended to rely more heavily on debt financing than, say, Anglo-American companies, have higher levels of disclosure than Anglo-American companies.

D. Local enterprises are less likely to disclose information commensurate with the secrecy of their culture than are international enterprises.

33. Which of the following is not considered to be an obstacle in the standardisation of international accounting?

A. International cultural and institutional differences B. The economic implications of adopting a 'new' set of accounting standards C. IASs and IFRSs are strongly Anglo-American influenced D. None of the given options are correct.

Chapter 04 Key

1. What is the cause of differences between the reporting results by the same company, in two different countries, for the same set of transactions and period?

A. Different underlying economic systems B. Different accounting and reporting standards C. Different accounting policy choice D. All of the given options are correct.

Deegan - Chapter 04 #1 Difficulty: Easy

2. Which of the following is not a characteristic of the Anglo-American model of financial accounting and its regulation?

A. It has been strongly influenced by professional accounting bodies rather than government B. It emphasises the importance of capital markets as the main source of equity and debt C. Regulation tends to be totally rule-based rather than requiring professional judgement D. It emphasises consideration of substance over legal form

Deegan - Chapter 04 #2 Difficulty: Easy

3. Which of the following is not a characteristic of the Continental European model of financial accounting and its regulation?

A. It has been strongly influenced by government and the banking sector.

B. It relies on qualitative requirements, such as 'true and fair', rather than accounting rules.

C. There is a strong association between accounting methods and the tax rules in place.

D. Information tends to be of the nature that protects creditors rather than investors.

Deegan - Chapter 04 #3 Difficulty: Medium

4. According to Nobes (1998), many of the factors that have been suggested as reasons for differences in accounting methods in different countries are inter-related. He divided these into two broad categories. What is one of these broad categories?

A. Cultural factors B. Religious influences C. The political system in place D. The tax system in place

Deegan - Chapter 04 #4 Difficulty: Easy

5. According to Violet (1983), accounting cannot be considered to be culture-free. Which of the following does not explain what Violet means by this?

A. Accounting is a social institution and, as such, has integrated certain cultural customs and elements within it.

B. Accounting is an independent component of culture.

C. Accounting is a product of culture, and contributes to the evolution of the culture which employs it.

D. Since accounting is culturally determined, other cultural customs, beliefs and institutions influence it.

Deegan - Chapter 04 #5 Difficulty: Medium

6. Hofstede (1980) defined culture as: A. An expression of norms, values and customs which reflect typical behavioural aspects B. A system of individual values, customs and beliefs C. The collective programming of the mind, which distinguishes the members of one human group from another D. A system of societal or collectively-held values

Deegan - Chapter 04 #6 Difficulty: Easy

7. Which researcher argued that the value systems of accountants are derived from, and related to, societal values, and that these social values are also held by accountants at a sub-culture level, and therefore will impact on the development of national accounting systems over time?

A. Hofstede (1980) B. Gray (1988) C. Mueller (1968) D. Perera (1989)

Deegan - Chapter 04 #7 Difficulty: Easy

8. Which of the following is true of Hofstede's (1980) theory?

A. The theory was developed as part of the cross-cultural psychology literature, and therefore was not directly concerned with accounting.

B. It detected four structural elements of culture which strongly affect known behaviour in work situations in organisations and institutions.

C. It derived from data collected from a multinational corporation located in more than 50 countries.

D. All of the given options are correct.

Deegan - Chapter 04 #8 Difficulty: Easy

9. Which of the following of Hofstede's societal value dimensions addresses the dimension of how a society handles inequities among people when they occur?

A. Large versus small power distance B. Individualism versus collectivism C. Strong versus weak uncertainty avoidance D. Masculinity versus femininity

Deegan - Chapter 04 #9 Difficulty: Easy

10. Which of the following of Hofstede's societal value dimensions is associated with societies that maintain a more relaxed atmosphere, in which practice counts more than principles and deviance is more easily tolerated?

A. Weak uncertainty avoidance B. Collectivism C. Small power distance D. Femininity

Deegan - Chapter 04 #10 Difficulty: Easy

11. Which of the following does not constitute one of Gray's accounting values in the accounting sub-culture, which he identified after closely considering Hofstede's societal values?

A. Secrecy versus transparency B. Uniformity versus flexibility C. Conservatism versus optimism D. Individualism versus collectivism

Deegan - Chapter 04 #11 Difficulty: Easy

12. Which of the following of Gray's accounting sub-culture values describes a preference for substance over legal form regulation?

A. Professionalism versus statutory control B. Uniformity versus flexibility C. Conservatism versus optimism D. Secrecy versus transparency

Deegan - Chapter 04 #12 Difficulty: Medium

13. According to Gray (1988), the higher a country ranks in terms of uncertainty avoidance and power distance, and the lower it ranks in individualism, the more likely it is to rank highly in terms of: A. Conservatism B. Professionalism C. Uniformity D. Flexibility

Deegan - Chapter 04 #13 Difficulty: Medium

14. According to Gray (1988), the higher a country ranks in terms of individualism and the lower it ranks in terms of uncertainty avoidance and power distance, the more likely it is to rank highly in terms of: A. Optimism B. Professionalism C. Uniformity D. Transparency

Deegan - Chapter 04 #14 Difficulty: Medium

15. According to Gray (1988), the higher a country ranks in terms of uncertainty avoidance and power distance, and the lower it ranks in terms of individualism and masculinity, the more likely it is to rank highly in terms of: A. Optimism B. Professionalism C. Uniformity D. Secrecy

Deegan - Chapter 04 #15 Difficulty: Medium

16. Which of the following cultural characteristics is not consistent with communities that prefer information disclosures to be kept to a minimum?

A. Collective, rather than an individualistic approach B. High preference for uncertainty avoidance C. Low power distance D. All of the given options are correct.

Deegan - Chapter 04 #16 Difficulty: Easy

17. Which of the following does not equate with Gray's hypothesised linkages between accounting values and accounting practice?

A. The higher the degree of optimism, as opposed to conservatism, the stronger the ties with traditional measurement practice.

B. The higher the degree of uniformity, the lower the extent of professional judgment and the stronger the level of enforcement in applying rules and procedures.

C. The higher the degree of secrecy preferred, the lower the amount of disclosure.

D. The higher the degree of professionalism, the greater the degree of self-regulation and the lower the need for government intervention.

Deegan - Chapter 04 #17 Difficulty: Hard

18. What is the major difference between Islamic religion and Western accounting practices which would make convergence of accounting standards difficult to achieve in Islamic countries?

A. The Islamic concept that stewardship is to God not the individual.

B. Islam prevents debt financing and the payment of interest.

C. Fundamental business ethics flow automatically from religious practices rather than from the codes of professional associations.

D. The Islamic religion influences how people do business and make decisions.

Deegan - Chapter 04 #18 Difficulty: Easy

19. The type of business ownership and financing system, and the taxation system, influence the nature of accounting practice in different countries. Which of the following describes the institutional influence more conducive to the increasing scale of globalised business and development of international accounting standards?

A. Outsider systems, where finance is mainly provided by external shareholders, and where the tax system is separate from the accounting system B. Insider systems, where finance is mainly provided by family owners, banks and government, and the tax system dominates the accounting system C. Outsider systems, where finance is mainly provided by family owners, banks and government, and the tax system is separate from the accounting system D. Insider systems, where finance is mainly provided by external shareholders, and where the tax system dominates the accounting system

Deegan - Chapter 04 #19 Difficulty: Hard

20. Which of the following is an influence on the nature of accounting practice in different countries?

A. Accidents in history, such as stock-market crashes B. The strength of the accounting profession C. Religion D. All of the given options are correct.

Deegan - Chapter 04 #20 Difficulty: Easy

21. Which of the following is not necessarily a benefit of harmonisation and convergence?

A. Increased relevance, functionality and appropriateness for all countries B. Improved understanding and interpretation of financial reports by users in different countries C. Increased comparability and consistency D. Lower preparation costs for companies that have to produce different financial reports in different countries

Deegan - Chapter 04 #21 Difficulty: Medium

22. Which of the following is an obstacle that is not unique to international harmonisation of accounting standards?

A. Standards may be opposed due to their negative economic consequences on individuals or groups B. Standards may lack relevance to the recipients that they are imposed upon C. Differences of opinion as to who should have the authority and responsibility of setting accounting standards D. All of the given options are correct.

Deegan - Chapter 04 #22 Difficulty: Easy

23. The decision that Australia would adopt international accounting standards issued by the IASB was made by: A. The Australian Accounting Standards Board B. The Federal Government Treasurer C. The Financial Reporting Council D. The International Accounting Standards Board

Deegan - Chapter 04 #23 Difficulty: Easy

24. The process of adopting international accounting standards in Australia did not include: A. An initial period of harmonisation where AASB standards were made to be compatible with the IAS's, but with some divergence allowed where appropriate B. A Corporate Law and Economic Reform Program (CLERP) Report, in 1997, outlining the rationale and benefits for Australia of adopting international accounting standards C. A decision by the FRC in 2002 that Australia would adopt accounting standards issued by the IASNB, and no divergence was to be acceptable D. Opposition from the Australian Stock Exchange

Deegan - Chapter 04 #24 Difficulty: Easy

25. Which of the following is not true for the International Accounting Standards and the International Financial Reporting Standards?

A. They are based on the legalistic approach.

B. They provide choices in the recognition and measurement of various accounting transactions.

C. They incorporate 'uncertainty expressions', such as 'probable', 'significant influence', 'control' and 'substantial'.

D. They are based on the concept of presenting a 'true and fair view' of a company's financial reports, where professional accountants are given the right to use their judgment to accomplish this goal.

Deegan - Chapter 04 #25 Difficulty: Easy

26. From 2005, Australia has adopted the IASB standards for: A. All the reporting entities B. Multinational enterprises only C. All the entities listed on the stock markets D. All entities that prepare consolidated financial statements

Deegan - Chapter 04 #26 Difficulty: Easy

27. Which of the following is not an objective of the IASB? A. To develop, in the public interest, a single set of high quality, understandable and enforceable global accounting standards that require high quality, transparent and comparable information in financial statements and other financial reporting to help participants in the world's capital markets and other users to make economic decisions.

B. To promote the use and rigorous application of the IASB standards.

C. To take account of, as appropriate, the special needs of small and medium-sized entities and emerging economies.

D. To provide financial support to countries adopting the IASB standards.

Deegan - Chapter 04 #27 Difficulty: Medium

28. From a practical standpoint, what is the goal of accounting standards harmonisation or convergence?

A. Creating one set of standards used throughout the world B. Reducing the conflict among national accounting standards C. Producing accounting standards that are unique for each country D. Forcing compliance with IASB regulations

Deegan - Chapter 04 #28 Difficulty: Easy

29. The reason accounting rules are different in various countries is because of underlying differences in: A. Culture B. Legal systems C. Financing systems D. All of the given options are correct.

Deegan - Chapter 04 #29 Difficulty: Easy

30. Assume that a society is comfortable with ambiguity and the people are adaptable and entrepreneurial. Truth may be relative, though in the immediate social circles there is concern for Truth with a capital T, and rules (but not necessarily laws) abound. Nonetheless, adherence to laws and rules may be flexible to suit the situation and pragmatism is a fact of life. This description shows that this society has a: A. Weak Uncertainty Avoidance society B. Strong Uncertainty Avoidance society C. Large Power Distance society D. Small Power Distance Society

Deegan - Chapter 04 #30 Difficulty: Hard

31. Australia is classified as a masculine society. This means that: A. Emotions are not shown much in Australia; people are fairly relaxed and not averse to taking risks.

B. Australians are proud of their successes and achievements in life, and the country offers a basis for hiring and promotion decisions in the workplace C. Both managers and employees expect to be consulted, and information is shared frequently.

D. In the business world, employees are expected to be self-reliant and to display initiative.

Deegan - Chapter 04 #31 Difficulty: Hard

32. According to Zarzeski (1996): A. Entities located in countries classified as relatively more Individualistic and Masculine and relatively lower in terms of Uncertainty Avoidance provide greater levels of disclosure.

B. Entities with a relatively higher international profile tend to be more secretive than other entities.

C. Entities from continental European countries, such as France and Germany, which have historically tended to rely more heavily on debt financing than, say, Anglo-American companies, have higher levels of disclosure than Anglo-American companies.

D. Local enterprises are less likely to disclose information commensurate with the secrecy of their culture than are international enterprises.

Deegan - Chapter 04 #32 Difficulty: Medium

33. Which of the following is not considered to be an obstacle in the standardisation of international accounting?

A. International cultural and institutional differences B. The economic implications of adopting a 'new' set of accounting standards C. IASs and IFRSs are strongly Anglo-American influenced D. None of the given options are correct.

Deegan - Chapter 04 #33 Difficulty: Easy

Chapter 04 Summary Category

# of Questions

Deegan - Chapter 04

33

Difficulty: Easy

20

Difficulty: Hard

4

Difficulty: Medium

9

Chapter 05 Student: ___________________________________________________________________________ 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.

6. Assume that there are three types of commodities (A, B and C) that are consumed at the base-year quantities and prices as shown in the following table: Commodity A Commodity B Commodity C Year Price $ Base year(2012) 5.00 2013 6.00

Qty 100

Price $ 10.00 11.00

Qty Price $ Qty 300 15:00 200 14.50

What is the price index at the end of 2013?

A. 1.0597281 B. 0.9588235 C. 1.0461538 D. None of the given options is correct.

7. Assuming a price index calculated 104.5 in 2013, compared with 100 in 2012, for a bundle of goods, what is the current purchasing power of every dollar, compared to 2012?

A. 95.5 cents in every dollar, on average B. 95.69 cents in every dollar, on average C. 96.5 cents in every dollar, on average D. $1.045 in every dollar, on average

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.

9. The following procedures are required to apply the Current Purchasing Power Accounting (CPPA) model in order to adjust the financial statements to reflect price-level adjusted financial statements.

1. Determine the movement in net monetary assets from the beginning of the year compared with the end of the year.

2. Reconcile opening and closing net monetary assets with the reasons for the changes.

3. Determine when the movements in net monetary assets for each item took place and then apply the appropriate price-level index to calculate current purchasing power adjusted amounts.

4. The difference between the adjusted and unadjusted amount total in the reconciliation is the loss on purchasing power.

5. A price-adjusted Balance Sheet is then prepared, adjusting all the non-monetary assets with the end-of-year price index.

In applying the CPPA model, if the price-level index was 120 at the beginning of the year, 150 at end of the year, and averaged 135 during the year, what price-level index would be applied to sales that occurred uniformly during the year?

A. 150/135 B. 135/150 C. 150/120 D. 135/120

10. The following procedures are required to apply the Current Purchasing Power Accounting (CPPA) model in order to adjust the financial statements to reflect price-level adjusted financial statements.

1. Determine the movement in net monetary assets from the beginning of the year compared with the end of the year.

2. Reconcile opening and closing net monetary assets with the reasons for the changes.

3. Determine when the movements in net monetary assets for each item took place, and then apply the appropriate price-level index to calculate current purchasing power adjusted amounts.

4. The difference between the adjusted and unadjusted amount totals in the reconciliation is the loss of purchasing power.

5. A price-adjusted Balance Sheet is then prepared, adjusting all the non-monetary assets with the end-of-year price index.

In applying the CPPA model, if the price level index was 120 at the beginning of the year, 150 at end of the year, and averaged 135 during the year, which of the following price-level indexes would be incorrect?

A. 150/135 would be applied to sales, purchases of goods, and payment of expenses B. 150/120 would be applied to opening net monetary assets C. 150/135 would be applied to dividends and tax if they did not arise until the end of the year D. All of the given options are correct.

11. The following procedures are required to apply the Current Purchasing Power Accounting (CPPA) model in order to adjust the financial statements to reflect price-level adjusted financial statements.

1. Determine the movement in net monetary assets from the beginning of the year compared with the end of the year.

2. Reconcile opening and closing net monetary assets with the reasons for the changes.

3. Determine when the movements in net monetary assets for each item took place, and then apply the appropriate price-level index to calculate current purchasing power adjusted amounts.

4. The difference between the adjusted and unadjusted amount totals in the reconciliation is the loss of purchasing power.

5. A price-adjusted Balance Sheet is then prepared, adjusting all the non-monetary assets with the end-of-year price index.

In applying the CPPA model, where does the loss of purchasing power appear in the price-level adjusted financial statements?

A. It appears as a deduction from Retained Earnings in the Balance Sheet.

B. It appears as an expense in the income statement.

C. It appears as a deduction from profit after tax in the Income Statement.

D. It appears in the notes to the accounts.

12. The following procedures are required to apply the Current Purchasing Power Accounting (CPPA) model in order to adjust the financial statements to reflect price-level adjusted financial statements.

1. Determine the movement in net monetary assets from the beginning of the year compared with the end of the year.

2. Reconcile opening and closing net monetary assets with the reasons for the changes.

3. Determine when the movements in net monetary assets for each item took place, and then apply the appropriate price-level index to calculate current purchasing power adjusted amounts.

4. The difference between the adjusted and unadjusted amount totals in the reconciliation is the loss of purchasing power.

5. A price-adjusted Balance Sheet is then prepared, adjusting all the non-monetary assets with the end-of-year price index.

In applying the CPPA model, which of the following is correct in preparing the price-level adjusted financial statements?

A. Purchasing power losses only arise as a result of holding net monetary assets.

B. Non-monetary assets are restated in the Balance Sheet at their adjusted current purchasing power.

C. Monetary assets are not adjusted because they are already stated in current purchasing power dollars.

D. All of the given options are correct.

13. Which of the following is not a possible limitation with CPPA accounting?

A. The prices of the goods and services included in the general price index may not be reflective of the price movements (inflation) specific to that particular industry.

B. The information is simple, and easily understood by users.

C. Research has shown that the information provided by CPPA may not be decision-relevant.

D. Users might think that the price-level adjusted amounts might reflect the specific value of specific assets.

14. A limitation of Current Cost Accounting does not include the fact that: A. Replacement costs are easily determined, and therefore the preparation cost is low B. Replacement costs do not reflect what it would be worth if the firm decided to sell it C. CCA assumes assets would in fact be replaced, or replaced with that type of asset and not another D. There are too many versions of current cost accounting, making it confusing to preparers

15. Which of the following statements about holding gain (cost savings) in the CCA model is false?

A. Unrealised savings include gains (cost saving) from holding inventory that has increased in price, which have yet to be realised.

B. Realised savings relate to cost savings in inventory actually incurred, and gains (cost savings) relate to depreciation actually incurred.

C. Unrealised savings include gains (cost savings) from holding depreciable assets (with higher replacement costs) not yet realised through the process of depreciation.

D. All of the given options are correct.

16. Which of the following characteristics is not included in Continuously Contemporary Accounting (CoCoA), as proposed by Chambers?

A. It provides information about an entity's capacity to adapt to changing circumstances using its cash and cash equivalents.

B. All assets are valued in the Balance Sheet based on their exit (net selling) prices.

C. Profit is defined as the amount that can be distributed while maintaining operating capacity intact.

D. Unlike CCA, CoCoA does not make a distinction between realised and unrealised gains (cost savings).

17. Which of the following is a unique characteristic of the CoCoA model in comparison with other alternative accounting models?

A. It attempts to recognise the changes in value of specific assets on the Balance Sheet.

B. All gains (realised or unrealised) are treated as part of the profits.

C. It includes an adjustment to take into account changes in purchasing power which it calls a 'capital maintenance adjustment'.

D. All of the given options are correct.

18. Which of the following is not a reason why alternative methods have not gained acceptance or been formally implemented?

A. The arguments for the alternative methods were not logical.

B. There appeared to be more interest when inflation was a problem than when it was not.

C. Some alternative models were likely to incur significant costs, negative economic consequences and impacts.

D. Lack of support by the public or the government, and eventually by the accounting profession.

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.

21. Assume that an entity acquired 150 items of inventory at a cost of $90 each, and sold 100 of the items for $160 each when the replacement cost to the entity was $120 each. Also assume that the replacement cost of the 50 remaining items of inventory at year end was $130. Under the Edwards and Bell approach to current cost accounting, what portion of operating profit would be available for dividends?

A. $4 000 [100 x ($160 - $120)] B. $1 000 [100 x ($130 - $120)] C. $3 000 [100 x ($160 - $130)] D. $1 500 [50 x ($160 - $130)]

22. Assume that an entity acquired 150 items of inventory at a cost of $90 each, and sold 100 of the items for $160 each when the replacement cost to the entity was $120 each. Also assume that the replacement cost of the 50 remaining items of inventory at year end was $130. What would be the realised holding gain on the inventory that was sold?

A. $7 000 [100 x ($160 - $90)] B. $4 000 [100 x ($130 - $90)] C. $3 000 [100 x ($120 - $90)] D. $500 [50 x ($130 - $120)]

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.

25. Craig sold land for $1 200 000. He had initially purchased the land for $1 000 000, when the price index was 100. The price index at the end of the current period is 118. The adjusted cost is $1 180 000. The adjusted profit is $20 000 (compared with an historical cost profit of $200 000). This is an example of: A. Financial capital maintenance perspective B. Purchasing power maintenance perspective C. Physical operating capital maintenance perspective D. None of the given options is 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.

28. Which of the following aligns with CoCoA's definition of 'wealth'?

A. The present (selling) price is seen as the correct valuation of wealth at a point in time.

B. Profit is not tied to the increase (or decrease) in the current net selling prices of the entity's assets.

C. Wealth is the distinction between realised and unrealised gains—not all gains are treated as part of profit.

D. Profit is the amount that cannot be distributed, while maintaining the entity's adaptive ability (adaptive capital).

29. Assume that for Company X, the opening residual equity was $30 000 000 and the price index increased from 150 to 175. The capital maintenance adjustment would be calculated and classified as: A. Calculation: $30 000 000  25/150 = $5 000 000 and classified as an income B. Calculation: $30 000 000  25/175 = $4 285 714 and classified as an income C. Calculation: $30 000 000  25/150 = $5 000 000 and classified as an expense D. Calculation: $30 000 000  25/175 = $4 285 714 and classified as an expense

Chapter 05 Key

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

Deegan - Chapter 05 #1 Difficulty: Easy

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.

Deegan - Chapter 05 #2 Difficulty: Easy

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.

Deegan - Chapter 05 #3 Difficulty: Medium

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

Deegan - Chapter 05 #4 Difficulty: Easy

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.

Deegan - Chapter 05 #5 Difficulty: Medium

6. Assume that there are three types of commodities (A, B and C) that are consumed at the base-year quantities and prices as shown in the following table: Commodity A Commodity B Commodity C Year Price $ Base year(2012) 5.00 2013 6.00

Qty 100

Price $ 10.00 11.00

Qty Price $ Qty 300 15:00 200 14.50

What is the price index at the end of 2013?

A. 1.0597281 B. 0.9588235 C. 1.0461538 D. None of the given options is correct.

Deegan - Chapter 05 #6 Difficulty: Medium

7. Assuming a price index calculated 104.5 in 2013, compared with 100 in 2012, for a bundle of goods, what is the current purchasing power of every dollar, compared to 2012?

A. 95.5 cents in every dollar, on average B. 95.69 cents in every dollar, on average C. 96.5 cents in every dollar, on average D. $1.045 in every dollar, on average

Deegan - Chapter 05 #7 Difficulty: Medium

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.

Deegan - Chapter 05 #8 Difficulty: Medium

9. The following procedures are required to apply the Current Purchasing Power Accounting (CPPA) model in order to adjust the financial statements to reflect price-level adjusted financial statements.

1. Determine the movement in net monetary assets from the beginning of the year compared with the end of the year.

2. Reconcile opening and closing net monetary assets with the reasons for the changes.

3. Determine when the movements in net monetary assets for each item took place and then apply the appropriate price-level index to calculate current purchasing power adjusted amounts.

4. The difference between the adjusted and unadjusted amount total in the reconciliation is the loss on purchasing power.

5. A price-adjusted Balance Sheet is then prepared, adjusting all the non-monetary assets with the end-of-year price index.

In applying the CPPA model, if the price-level index was 120 at the beginning of the year, 150 at end of the year, and averaged 135 during the year, what price-level index would be applied to sales that occurred uniformly during the year?

A. 150/135 B. 135/150 C. 150/120 D. 135/120

Deegan - Chapter 05 #9 Difficulty: Easy

10. The following procedures are required to apply the Current Purchasing Power Accounting (CPPA) model in order to adjust the financial statements to reflect price-level adjusted financial statements.

1. Determine the movement in net monetary assets from the beginning of the year compared with the end of the year.

2. Reconcile opening and closing net monetary assets with the reasons for the changes.

3. Determine when the movements in net monetary assets for each item took place, and then apply the appropriate price-level index to calculate current purchasing power adjusted amounts.

4. The difference between the adjusted and unadjusted amount totals in the reconciliation is the loss of purchasing power.

5. A price-adjusted Balance Sheet is then prepared, adjusting all the non-monetary assets with the end-of-year price index.

In applying the CPPA model, if the price level index was 120 at the beginning of the year, 150 at end of the year, and averaged 135 during the year, which of the following price-level indexes would be incorrect?

A. 150/135 would be applied to sales, purchases of goods, and payment of expenses B. 150/120 would be applied to opening net monetary assets C. 150/135 would be applied to dividends and tax if they did not arise until the end of the year D. All of the given options are correct.

Deegan - Chapter 05 #10 Difficulty: Medium

11. The following procedures are required to apply the Current Purchasing Power Accounting (CPPA) model in order to adjust the financial statements to reflect price-level adjusted financial statements.

1. Determine the movement in net monetary assets from the beginning of the year compared with the end of the year.

2. Reconcile opening and closing net monetary assets with the reasons for the changes.

3. Determine when the movements in net monetary assets for each item took place, and then apply the appropriate price-level index to calculate current purchasing power adjusted amounts.

4. The difference between the adjusted and unadjusted amount totals in the reconciliation is the loss of purchasing power.

5. A price-adjusted Balance Sheet is then prepared, adjusting all the non-monetary assets with the end-of-year price index.

In applying the CPPA model, where does the loss of purchasing power appear in the price-level adjusted financial statements?

A. It appears as a deduction from Retained Earnings in the Balance Sheet.

B. It appears as an expense in the income statement.

C. It appears as a deduction from profit after tax in the Income Statement.

D. It appears in the notes to the accounts.

Deegan - Chapter 05 #11 Difficulty: Medium

12. The following procedures are required to apply the Current Purchasing Power Accounting (CPPA) model in order to adjust the financial statements to reflect price-level adjusted financial statements.

1. Determine the movement in net monetary assets from the beginning of the year compared with the end of the year.

2. Reconcile opening and closing net monetary assets with the reasons for the changes.

3. Determine when the movements in net monetary assets for each item took place, and then apply the appropriate price-level index to calculate current purchasing power adjusted amounts.

4. The difference between the adjusted and unadjusted amount totals in the reconciliation is the loss of purchasing power.

5. A price-adjusted Balance Sheet is then prepared, adjusting all the non-monetary assets with the end-of-year price index.

In applying the CPPA model, which of the following is correct in preparing the price-level adjusted financial statements?

A. Purchasing power losses only arise as a result of holding net monetary assets.

B. Non-monetary assets are restated in the Balance Sheet at their adjusted current purchasing power.

C. Monetary assets are not adjusted because they are already stated in current purchasing power dollars.

D. All of the given options are correct.

Deegan - Chapter 05 #12 Difficulty: Medium

13. Which of the following is not a possible limitation with CPPA accounting?

A. The prices of the goods and services included in the general price index may not be reflective of the price movements (inflation) specific to that particular industry.

B. The information is simple, and easily understood by users.

C. Research has shown that the information provided by CPPA may not be decision-relevant.

D. Users might think that the price-level adjusted amounts might reflect the specific value of specific assets.

Deegan - Chapter 05 #13 Difficulty: Easy

14. A limitation of Current Cost Accounting does not include the fact that: A. Replacement costs are easily determined, and therefore the preparation cost is low B. Replacement costs do not reflect what it would be worth if the firm decided to sell it C. CCA assumes assets would in fact be replaced, or replaced with that type of asset and not another D. There are too many versions of current cost accounting, making it confusing to preparers

Deegan - Chapter 05 #14 Difficulty: Easy

15. Which of the following statements about holding gain (cost savings) in the CCA model is false?

A. Unrealised savings include gains (cost saving) from holding inventory that has increased in price, which have yet to be realised.

B. Realised savings relate to cost savings in inventory actually incurred, and gains (cost savings) relate to depreciation actually incurred.

C. Unrealised savings include gains (cost savings) from holding depreciable assets (with higher replacement costs) not yet realised through the process of depreciation.

D. All of the given options are correct.

Deegan - Chapter 05 #15 Difficulty: Hard

16. Which of the following characteristics is not included in Continuously Contemporary Accounting (CoCoA), as proposed by Chambers?

A. It provides information about an entity's capacity to adapt to changing circumstances using its cash and cash equivalents.

B. All assets are valued in the Balance Sheet based on their exit (net selling) prices.

C. Profit is defined as the amount that can be distributed while maintaining operating capacity intact.

D. Unlike CCA, CoCoA does not make a distinction between realised and unrealised gains (cost savings).

Deegan - Chapter 05 #16 Difficulty: Medium

17. Which of the following is a unique characteristic of the CoCoA model in comparison with other alternative accounting models?

A. It attempts to recognise the changes in value of specific assets on the Balance Sheet.

B. All gains (realised or unrealised) are treated as part of the profits.

C. It includes an adjustment to take into account changes in purchasing power which it calls a 'capital maintenance adjustment'.

D. All of the given options are correct.

Deegan - Chapter 05 #17 Difficulty: Easy

18. Which of the following is not a reason why alternative methods have not gained acceptance or been formally implemented?

A. The arguments for the alternative methods were not logical.

B. There appeared to be more interest when inflation was a problem than when it was not.

C. Some alternative models were likely to incur significant costs, negative economic consequences and impacts.

D. Lack of support by the public or the government, and eventually by the accounting profession.

Deegan - Chapter 05 #18 Difficulty: Easy

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.

Deegan - Chapter 05 #19 Difficulty: Easy

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.

Deegan - Chapter 05 #20 Difficulty: Hard

21. Assume that an entity acquired 150 items of inventory at a cost of $90 each, and sold 100 of the items for $160 each when the replacement cost to the entity was $120 each. Also assume that the replacement cost of the 50 remaining items of inventory at year end was $130. Under the Edwards and Bell approach to current cost accounting, what portion of operating profit would be available for dividends?

A. $4 000 [100 x ($160 - $120)] B. $1 000 [100 x ($130 - $120)] C. $3 000 [100 x ($160 - $130)] D. $1 500 [50 x ($160 - $130)]

Deegan - Chapter 05 #21 Difficulty: Medium

22. Assume that an entity acquired 150 items of inventory at a cost of $90 each, and sold 100 of the items for $160 each when the replacement cost to the entity was $120 each. Also assume that the replacement cost of the 50 remaining items of inventory at year end was $130. What would be the realised holding gain on the inventory that was sold?

A. $7 000 [100 x ($160 - $90)] B. $4 000 [100 x ($130 - $90)] C. $3 000 [100 x ($120 - $90)] D. $500 [50 x ($130 - $120)]

Deegan - Chapter 05 #22 Difficulty: Medium

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.

Deegan - Chapter 05 #23 Difficulty: Easy

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.

Deegan - Chapter 05 #24 Difficulty: Easy

25. Craig sold land for $1 200 000. He had initially purchased the land for $1 000 000, when the price index was 100. The price index at the end of the current period is 118. The adjusted cost is $1 180 000. The adjusted profit is $20 000 (compared with an historical cost profit of $200 000). This is an example of: A. Financial capital maintenance perspective B. Purchasing power maintenance perspective C. Physical operating capital maintenance perspective D. None of the given options is correct.

Deegan - Chapter 05 #25 Difficulty: Medium

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.

Deegan - Chapter 05 #26 Difficulty: Easy

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.

Deegan - Chapter 05 #27 Difficulty: Easy

28. Which of the following aligns with CoCoA's definition of 'wealth'?

A. The present (selling) price is seen as the correct valuation of wealth at a point in time.

B. Profit is not tied to the increase (or decrease) in the current net selling prices of the entity's assets.

C. Wealth is the distinction between realised and unrealised gains—not all gains are treated as part of profit.

D. Profit is the amount that cannot be distributed, while maintaining the entity's adaptive ability (adaptive capital).

Deegan - Chapter 05 #28 Difficulty: Medium

29. Assume that for Company X, the opening residual equity was $30 000 000 and the price index increased from 150 to 175. The capital maintenance adjustment would be calculated and classified as: A. Calculation: $30 000 000  25/150 = $5 000 000 and classified as an income B. Calculation: $30 000 000  25/175 = $4 285 714 and classified as an income C. Calculation: $30 000 000  25/150 = $5 000 000 and classified as an expense D. Calculation: $30 000 000  25/175 = $4 285 714 and classified as an expense

Deegan - Chapter 05 #29 Difficulty: Hard

Chapter 05 Summary Category

# of Questions

Deegan - Chapter 05

58

Difficulty: Easy

13

Difficulty: Hard

3

Difficulty: Medium

13

Chapter 06 Student: ___________________________________________________________________________ 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 'financial reporting' B. Definition of users and their needs C. Underlying assumptions D. Accounting standards

4. Which of the following cannot be concluded from an overview of the history of the development of conceptual framework projects?

A. A number of countries have successfully completed conceptual framework projects.

B. Those responsible for them have either been reluctant to promote significant changes, or the changes suggested have not been accepted.

C. Conceptual framework projects have been reluctant to prescribe a particular valuation or measurement approach.

D. The conceptual framework is a continuous and evolving project.

5. Which of the following appears to be most influential in developing the objectives of financial reporting as well as a number of other concepts that have been used as a basis for most conceptual framework projects?

A. Accounting Principles Board (APB) Statement No 4 (1970) B. The Trueblood Report (1973) C. The Corporate Report (UK) (1976) D. The Stamp Report (1980)

6. Which of the following was particularly concerned with addressing the rights of the community, in terms of access to financial information about entities?

A. Accounting Principles Board (APB) Statement No 4 (1970) B. The Trueblood Report (1973) C. The Corporate Report (UK) (1976) D. The FASB Conceptual Framework Project

7. Since 1 January 2005, the Australian Accounting Standards Board's conceptual framework consists of: A. The IASB's Framework for the Preparation and Presentation of Financial Statements B. SAC 1: Definition of the Reporting Entity C. SAC 2: Objectives of General Purpose Financial Reporting D. All of the given options are correct.

8. On what criteria is a 'reporting entity', as defined in SAC 1, dependent?

A. Whether there are users that are dependent on the reports to make or evaluate resource decisions B. Professional judgment providing some guidelines to help make a decision C. Whether there are users that are dependent on the reports to make or evaluate resource decisions, and professional judgement provides some guidelines to help make a decision D. The Corporations Law based on measures of gross revenue, dollar value of assets and the number of employees

9. The objective of general purpose financial reporting is stated in most conceptual frameworks as providing decision-useful information to users of financial reports. Which of the following is not regarded as a legitimate user of financial reports according to the IASB Conceptual Framework?

A. Users without some proficiency in financial accounting B. Recipients of goods and services C. Special interest groups in the general public D. All of the given options are correct.

10. What is the objective of financial reporting, as stated in the IASB Framework for the Preparation and Presentation of Financial Reports, and consistent with the Australian SAC 2: Objectives of Financial Reporting?

A. Stewardship B. Accountability C. Decision usefulness D. All of the given options are correct.

11. Which of the following is a qualitative characteristic of financial information in general purpose financial reports, if they are to be useful?

A. Understandability B. Comparability C. Reliability D. All of the given options are correct.

12. Which characteristic of information, when omitted or misstated, could influence economic decisions taken by users on the basis of financial statements?

A. Relevance B. Reliability C. Materiality D. Comparability

13. Which of the following is a characteristic of reliability?

A. It influences economic decisions.

B. It represents faithfully what it purports to represent.

C. It provides predictive value and feedback to confirm or correct earlier expectations.

D. None of the given options are correct.

14. Which of the following represents a contradiction, rather than a trade-off that needs to be balanced?

A. Information may be reliable, but the time taken to ensure its reliability may result in it being potentially irrelevant.

B. Determining whether the benefits derived from information are greater than the costs to produce it.

C. The argument for neutrality and faithful representation; but standard-setters consider the economic consequences of standards.

D. Information may be relevant, but the data may be so unreliable that it could be potentially misleading.

15. Which of the following describes the accounting process?

A. Technical B. Political C. Procedural D. Objective

16. Which of the following is not a characteristic of an asset, according to the IASB Conceptual Framework?

A. There is an expected future economic benefit.

B. The entity must have ownership over the resource giving rise to the future economic benefits.

C. The transaction or event giving rise to the ownership over future economic benefits must have occurred.

D. The reporting entity must have control over the resource to benefit from it, or to deny or regulate the access of others to the benefit.

17. Which of the following is not a characteristic of a liability, according to the IASB Conceptual Framework?

A. A future deposition or transfer of economic benefits to others will occur.

B. A past transaction or event is to have created the obligation.

C. There must be a legal obligation.

D. None of the given options are correct.

18. Which of the following will satisfy the definition of a 'constructive liability', as outlined in the IASB Conceptual Framework?

A. A decision by management to carry out maintenance over the next two years B. A public offer to repair a defective good, even if it is out of warranty C. A parent company's guarantee to meet the debts of a subsidiary entity if the subsidiary itself cannot pay them D. All of the given options are correct.

19. According to the IASB definition of 'income', which of the following is not included?

A. Non-reciprocal transfers such as grants, bequests or liabilities forgiven B. Gains and losses from the sale of assets C. Enhancement of assets D. Dividends received

20. Which of the following is true in relation to expenses, according to the IASB Conceptual Framework?

A. Expenses are restricted to transactions and events relating to 'ongoing major or central operations'.

B. There is no reference to matching of revenue and expenses in the Conceptual Framework.

C. Expenses would not include losses that were not under the control of the entity, such as uninsured losses of assets from flood.

D. None of the given options are correct.

21. Which of the following measurement methods is not explicitly recognised in the IASB Conceptual Framework, although it is recognised in the FASB Framework?

A. Current market value B. Current replacement cost C. Net realisable value D. Present value

22. Which of the following is not a perceived advantage in developing a conceptual framework project?

A. Standard-setters will be less accountable for their decisions.

B. Setting accounting standards will be more economical, despite the resources needed to develop the conceptual framework and standards.

C. It will result in a reduced number of accounting standards where issues are covered by the conceptual framework.

D. It will provide a defence and enhance the legitimacy of the accounting profession.

23. What does the political legitimacy argument, as outlined by Hines (1991), suggest?

A. The accounting profession consists of experts in technical knowledge of accounting and should therefore be given authority to regulate accounting.

B. The accounting profession used the development of the conceptual framework as a strategy to promote their self-regulation interests.

C. The conceptual framework provides the authority to resolve technical issues with authority and legitimacy.

D. As users are politically involved in developing the conceptual framework, the outcome has political legitimacy.

24. Which of the following is a characteristic of relevance?

A. It influences economic decisions.

B. It represents faithfully what it purports to represent.

C. It provides predictive value and feedback to confirm or correct earlier expectations.

D. None of the given options is correct.

25. According to the IASB, a conceptual framework: A. Is a coherent system of concepts that flow from an objective B. Provides guidance on identifying the boundaries of financial reporting in selecting the transactions, other events and circumstances to be represented C. Outlines how transactions should be recognised and measured (or disclosed) D. All of the given options are correct.

26. In Australia, according to SAC 2 'Objective of General-Purpose Financial Reporting', the primary user groups(s) of general purpose financial reports are: A. Resource providers B. Recipients of goods and services C. Parties performing a review or oversight function D. All of the given options are correct.

27. Over time, a number of objectives have been attributed to information provided within financial statements.

Which of the following is not an objective of financial statements?

A. To enable outsiders to assess the stewardship of management.

B. To provide information to users that is useful for making and evaluating decisions about the allocation of scarce resources.

C. To enable reporting entities to demonstrate accountability between the entity and those parties to which the entity is deemed to be accountable.

D. To help managers to maximise their own wealth and the wealth of the organisation.

28. Conceptual frameworks provide prescription so they are considered to be: A. Normative theories of accounting B. Positive theories of accounting C. Decision usefulness theory of accounting D. None of the given options are correct.

29. Factors that may indicate a reporting entity include: A. Separation of management from those with an economic interest in the entity B. The economic or political importance/influence of the entity to/on other parties C. The financial characteristics of the entity D. All of the given options are correct.

30. Which of the following is an enhancing qualitative characteristics identified by the IASB Conceptual Framework?

A. Comparability and faithful representation B. Relevance and timeliness C. Timeliness and verifiability D. Understandability and reliability

31. Which of the following is true about conceptual frameworks?

A. They lead to decreased international compatibility of accounting standards.

B. Communication between standard-setters and their constituents would be diminished.

C. Smaller organisations may feel overburdened by reporting requirements.

D. Standard-setters would be less accountable for their decisions.

32. Which of the following is correct about the concept of 'control' in the recognition of assets?

A. Control relates to the capacity of a reporting entity to benefit from an asset and to deny or regulate the access of others to the benefit.

B. The capacity to control would not normally stem from legal rights.

C. Control is not required before an asset can be shown within the body of an entity's balance sheet (statement of financial position).

D. Controlled assets are always owned.

Chapter 06 Key

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.

Deegan - Chapter 06 #1 Difficulty: Easy

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.

Deegan - Chapter 06 #2 Difficulty: Easy

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 'financial reporting' B. Definition of users and their needs C. Underlying assumptions D. Accounting standards

Deegan - Chapter 06 #3 Difficulty: Easy

4. Which of the following cannot be concluded from an overview of the history of the development of conceptual framework projects?

A. A number of countries have successfully completed conceptual framework projects.

B. Those responsible for them have either been reluctant to promote significant changes, or the changes suggested have not been accepted.

C. Conceptual framework projects have been reluctant to prescribe a particular valuation or measurement approach.

D. The conceptual framework is a continuous and evolving project.

Deegan - Chapter 06 #4 Difficulty: Easy

5. Which of the following appears to be most influential in developing the objectives of financial reporting as well as a number of other concepts that have been used as a basis for most conceptual framework projects?

A. Accounting Principles Board (APB) Statement No 4 (1970) B. The Trueblood Report (1973) C. The Corporate Report (UK) (1976) D. The Stamp Report (1980)

Deegan - Chapter 06 #5 Difficulty: Medium

6. Which of the following was particularly concerned with addressing the rights of the community, in terms of access to financial information about entities?

A. Accounting Principles Board (APB) Statement No 4 (1970) B. The Trueblood Report (1973) C. The Corporate Report (UK) (1976) D. The FASB Conceptual Framework Project

Deegan - Chapter 06 #6 Difficulty: Medium

7. Since 1 January 2005, the Australian Accounting Standards Board's conceptual framework consists of: A. The IASB's Framework for the Preparation and Presentation of Financial Statements B. SAC 1: Definition of the Reporting Entity C. SAC 2: Objectives of General Purpose Financial Reporting D. All of the given options are correct.

Deegan - Chapter 06 #7 Difficulty: Easy

8. On what criteria is a 'reporting entity', as defined in SAC 1, dependent?

A. Whether there are users that are dependent on the reports to make or evaluate resource decisions B. Professional judgment providing some guidelines to help make a decision C. Whether there are users that are dependent on the reports to make or evaluate resource decisions, and professional judgement provides some guidelines to help make a decision D. The Corporations Law based on measures of gross revenue, dollar value of assets and the number of employees

Deegan - Chapter 06 #8 Difficulty: Easy

9. The objective of general purpose financial reporting is stated in most conceptual frameworks as providing decision-useful information to users of financial reports. Which of the following is not regarded as a legitimate user of financial reports according to the IASB Conceptual Framework?

A. Users without some proficiency in financial accounting B. Recipients of goods and services C. Special interest groups in the general public D. All of the given options are correct.

Deegan - Chapter 06 #9 Difficulty: Easy

10. What is the objective of financial reporting, as stated in the IASB Framework for the Preparation and Presentation of Financial Reports, and consistent with the Australian SAC 2: Objectives of Financial Reporting?

A. Stewardship B. Accountability C. Decision usefulness D. All of the given options are correct.

Deegan - Chapter 06 #10 Difficulty: Easy

11. Which of the following is a qualitative characteristic of financial information in general purpose financial reports, if they are to be useful?

A. Understandability B. Comparability C. Reliability D. All of the given options are correct.

Deegan - Chapter 06 #11 Difficulty: Easy

12. Which characteristic of information, when omitted or misstated, could influence economic decisions taken by users on the basis of financial statements?

A. Relevance B. Reliability C. Materiality D. Comparability

Deegan - Chapter 06 #12 Difficulty: Easy

13. Which of the following is a characteristic of reliability?

A. It influences economic decisions.

B. It represents faithfully what it purports to represent.

C. It provides predictive value and feedback to confirm or correct earlier expectations.

D. None of the given options are correct.

Deegan - Chapter 06 #13 Difficulty: Easy

14. Which of the following represents a contradiction, rather than a trade-off that needs to be balanced?

A. Information may be reliable, but the time taken to ensure its reliability may result in it being potentially irrelevant.

B. Determining whether the benefits derived from information are greater than the costs to produce it.

C. The argument for neutrality and faithful representation; but standard-setters consider the economic consequences of standards.

D. Information may be relevant, but the data may be so unreliable that it could be potentially misleading.

Deegan - Chapter 06 #14 Difficulty: Hard

15. Which of the following describes the accounting process?

A. Technical B. Political C. Procedural D. Objective

Deegan - Chapter 06 #15 Difficulty: Easy

16. Which of the following is not a characteristic of an asset, according to the IASB Conceptual Framework?

A. There is an expected future economic benefit.

B. The entity must have ownership over the resource giving rise to the future economic benefits.

C. The transaction or event giving rise to the ownership over future economic benefits must have occurred.

D. The reporting entity must have control over the resource to benefit from it, or to deny or regulate the access of others to the benefit.

Deegan - Chapter 06 #16 Difficulty: Medium

17. Which of the following is not a characteristic of a liability, according to the IASB Conceptual Framework?

A. A future deposition or transfer of economic benefits to others will occur.

B. A past transaction or event is to have created the obligation.

C. There must be a legal obligation.

D. None of the given options are correct.

Deegan - Chapter 06 #17 Difficulty: Medium

18. Which of the following will satisfy the definition of a 'constructive liability', as outlined in the IASB Conceptual Framework?

A. A decision by management to carry out maintenance over the next two years B. A public offer to repair a defective good, even if it is out of warranty C. A parent company's guarantee to meet the debts of a subsidiary entity if the subsidiary itself cannot pay them D. All of the given options are correct.

Deegan - Chapter 06 #18 Difficulty: Medium

19. According to the IASB definition of 'income', which of the following is not included?

A. Non-reciprocal transfers such as grants, bequests or liabilities forgiven B. Gains and losses from the sale of assets C. Enhancement of assets D. Dividends received

Deegan - Chapter 06 #19 Difficulty: Medium

20. Which of the following is true in relation to expenses, according to the IASB Conceptual Framework?

A. Expenses are restricted to transactions and events relating to 'ongoing major or central operations'.

B. There is no reference to matching of revenue and expenses in the Conceptual Framework.

C. Expenses would not include losses that were not under the control of the entity, such as uninsured losses of assets from flood.

D. None of the given options are correct.

Deegan - Chapter 06 #20 Difficulty: Medium

21. Which of the following measurement methods is not explicitly recognised in the IASB Conceptual Framework, although it is recognised in the FASB Framework?

A. Current market value B. Current replacement cost C. Net realisable value D. Present value

Deegan - Chapter 06 #21 Difficulty: Easy

22. Which of the following is not a perceived advantage in developing a conceptual framework project?

A. Standard-setters will be less accountable for their decisions.

B. Setting accounting standards will be more economical, despite the resources needed to develop the conceptual framework and standards.

C. It will result in a reduced number of accounting standards where issues are covered by the conceptual framework.

D. It will provide a defence and enhance the legitimacy of the accounting profession.

Deegan - Chapter 06 #22 Difficulty: Medium

23. What does the political legitimacy argument, as outlined by Hines (1991), suggest?

A. The accounting profession consists of experts in technical knowledge of accounting and should therefore be given authority to regulate accounting.

B. The accounting profession used the development of the conceptual framework as a strategy to promote their self-regulation interests.

C. The conceptual framework provides the authority to resolve technical issues with authority and legitimacy.

D. As users are politically involved in developing the conceptual framework, the outcome has political legitimacy.

Deegan - Chapter 06 #23 Difficulty: Medium

24. Which of the following is a characteristic of relevance?

A. It influences economic decisions.

B. It represents faithfully what it purports to represent.

C. It provides predictive value and feedback to confirm or correct earlier expectations.

D. None of the given options is correct.

Deegan - Chapter 06 #24 Difficulty: Easy

25. According to the IASB, a conceptual framework: A. Is a coherent system of concepts that flow from an objective B. Provides guidance on identifying the boundaries of financial reporting in selecting the transactions, other events and circumstances to be represented C. Outlines how transactions should be recognised and measured (or disclosed) D. All of the given options are correct.

Deegan - Chapter 06 #25 Difficulty: Easy

26. In Australia, according to SAC 2 'Objective of General-Purpose Financial Reporting', the primary user groups(s) of general purpose financial reports are: A. Resource providers B. Recipients of goods and services C. Parties performing a review or oversight function D. All of the given options are correct.

Deegan - Chapter 06 #26 Difficulty: Hard Difficulty: Medium

27. Over time, a number of objectives have been attributed to information provided within financial statements.

Which of the following is not an objective of financial statements?

A. To enable outsiders to assess the stewardship of management.

B. To provide information to users that is useful for making and evaluating decisions about the allocation of scarce resources.

C. To enable reporting entities to demonstrate accountability between the entity and those parties to which the entity is deemed to be accountable.

D. To help managers to maximise their own wealth and the wealth of the organisation.

Deegan - Chapter 06 #27 Difficulty: Medium

28. Conceptual frameworks provide prescription so they are considered to be: A. Normative theories of accounting B. Positive theories of accounting C. Decision usefulness theory of accounting D. None of the given options are correct.

Deegan - Chapter 06 #28 Difficulty: Easy

29. Factors that may indicate a reporting entity include: A. Separation of management from those with an economic interest in the entity B. The economic or political importance/influence of the entity to/on other parties C. The financial characteristics of the entity D. All of the given options are correct.

Deegan - Chapter 06 #29 Difficulty: Medium

30. Which of the following is an enhancing qualitative characteristics identified by the IASB Conceptual Framework?

A. Comparability and faithful representation B. Relevance and timeliness C. Timeliness and verifiability D. Understandability and reliability

Deegan - Chapter 06 #30 Difficulty: Easy

31. Which of the following is true about conceptual frameworks?

A. They lead to decreased international compatibility of accounting standards.

B. Communication between standard-setters and their constituents would be diminished.

C. Smaller organisations may feel overburdened by reporting requirements.

D. Standard-setters would be less accountable for their decisions.

Deegan - Chapter 06 #31 Difficulty: Medium

32. Which of the following is correct about the concept of 'control' in the recognition of assets?

A. Control relates to the capacity of a reporting entity to benefit from an asset and to deny or regulate the access of others to the benefit.

B. The capacity to control would not normally stem from legal rights.

C. Control is not required before an asset can be shown within the body of an entity's balance sheet (statement of financial position).

D. Controlled assets are always owned.

Deegan - Chapter 06 #32 Difficulty: Medium

Chapter 06 Summary Category

# of Questions

Deegan - Chapter 06

32

Difficulty: Easy

17

Difficulty: Hard

2

Difficulty: Medium

14

Chapter 07 Student: ___________________________________________________________________________ 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.

Chapter 07 Key

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.

Deegan - Chapter 07 #1 Difficulty: Easy

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.

Deegan - Chapter 07 #2 Difficulty: Easy

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.

Deegan - Chapter 07 #3 Difficulty: Easy

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.

Deegan - Chapter 07 #4 Difficulty: Easy

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

Deegan - Chapter 07 #5 Difficulty: Easy

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

Deegan - Chapter 07 #6 Difficulty: Easy

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

Deegan - Chapter 07 #7 Difficulty: Medium

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.

Deegan - Chapter 07 #8 Difficulty: Easy

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.

Deegan - Chapter 07 #9 Difficulty: Easy

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.

Deegan - Chapter 07 #10 Difficulty: Easy

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

Deegan - Chapter 07 #11 Difficulty: Easy

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.

Deegan - Chapter 07 #12 Difficulty: Easy

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

Deegan - Chapter 07 #13 Difficulty: Hard

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.

Deegan - Chapter 07 #14 Difficulty: Easy

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

Deegan - Chapter 07 #15 Difficulty: Easy

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.

Deegan - Chapter 07 #16 Difficulty: Medium

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

Deegan - Chapter 07 #17 Difficulty: Medium

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

Deegan - Chapter 07 #18 Difficulty: Hard

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.

Deegan - Chapter 07 #19 Difficulty: Easy

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.

Deegan - Chapter 07 #20 Difficulty: Easy

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.

Deegan - Chapter 07 #21 Difficulty: Easy

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

Deegan - Chapter 07 #22 Difficulty: Medium

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

Deegan - Chapter 07 #23 Difficulty: Medium

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.

Deegan - Chapter 07 #24 Difficulty: Hard

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.

Deegan - Chapter 07 #25 Difficulty: Easy

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.

Deegan - Chapter 07 #26 Difficulty: Easy

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.

Deegan - Chapter 07 #27 Difficulty: Easy

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.

Deegan - Chapter 07 #28 Difficulty: Medium

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.

Deegan - Chapter 07 #29 Difficulty: Hard

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.

Deegan - Chapter 07 #30 Difficulty: Easy

Chapter 07 Summary Category

# of Questions

Deegan - Chapter 07

30

Difficulty: Easy

20

Difficulty: Hard

4

Difficulty: Medium

6

Chapter 08 Student: ___________________________________________________________________________ 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 organisation 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 self-interest.

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 'systems-oriented 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.

Chapter 08 Key

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

Deegan - Chapter 08 #1 Difficulty: Easy

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.

Deegan - Chapter 08 #2 Difficulty: Medium

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'.

Deegan - Chapter 08 #3 Difficulty: Easy

4. The idea of the 'social contract' is that corporations only exist because they benefit: A. Shareholders B. Governments C. Managers D. Society

Deegan - Chapter 08 #4 Difficulty: Easy

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.

Deegan - Chapter 08 #5 Difficulty: Medium

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.

Deegan - Chapter 08 #6 Difficulty: Medium

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.

Deegan - Chapter 08 #7 Difficulty: Medium

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

Deegan - Chapter 08 #8 Difficulty: Medium

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 organisation C. A legitimate account of the activities of the organisation for the period D. All of the given options are correct.

Deegan - Chapter 08 #9 Difficulty: Easy

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 self-interest.

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.

Deegan - Chapter 08 #10 Difficulty: Easy

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.

Deegan - Chapter 08 #11 Difficulty: Easy

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.

Deegan - Chapter 08 #12 Difficulty: Medium

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

Deegan - Chapter 08 #13 Difficulty: Easy

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.

Deegan - Chapter 08 #14 Difficulty: Easy

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.

Deegan - Chapter 08 #15 Difficulty: Medium

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.

Deegan - Chapter 08 #16 Difficulty: Hard

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.

Deegan - Chapter 08 #17 Difficulty: Easy

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.

Deegan - Chapter 08 #18 Difficulty: Easy

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.

Deegan - Chapter 08 #19 Difficulty: Easy

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.

Deegan - Chapter 08 #20 Difficulty: Easy

21. Which of the following statement is false?

A. Legitimacy Theory, Stakeholder Theory and Institutional Theory are all examples of 'systems-oriented 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.

Deegan - Chapter 08 #21 Difficulty: Medium

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.

Deegan - Chapter 08 #22 Difficulty: Easy

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.

Deegan - Chapter 08 #23 Difficulty: Medium

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.

Deegan - Chapter 08 #24 Difficulty: Hard

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.

Deegan - Chapter 08 #25 Difficulty: Easy

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.

Deegan - Chapter 08 #26 Difficulty: Medium

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.

Deegan - Chapter 08 #27 Difficulty: Easy

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.

Deegan - Chapter 08 #28 Difficulty: Hard

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.

Deegan - Chapter 08 #29 Difficulty: Medium

Chapter 08 Summary Category

# of Questions

Deegan - Chapter 08

29

Difficulty: Easy

15

Difficulty: Hard

3

Difficulty: Medium

11

Chapter 09 Student: ___________________________________________________________________________ 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 profitable growth.

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 and how things can be changed D. All of the given options are correct.

Chapter 09 Key

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.

Deegan - Chapter 09 #1 Difficulty: Easy

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.

Deegan - Chapter 09 #2 Difficulty: Easy

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.

Deegan - Chapter 09 #3 Difficulty: Medium

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

Deegan - Chapter 09 #4 Difficulty: Easy

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.

Deegan - Chapter 09 #5 Difficulty: Easy

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.

Deegan - Chapter 09 #6 Difficulty: Medium

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 profitable growth.

D. None of the given options are false.

Deegan - Chapter 09 #7 Difficulty: Medium

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.

Deegan - Chapter 09 #8 Difficulty: Easy

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.

Deegan - Chapter 09 #9 Difficulty: Medium

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.

Deegan - Chapter 09 #10 Difficulty: Hard

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'.

Deegan - Chapter 09 #11 Difficulty: Medium

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.

Deegan - Chapter 09 #12 Difficulty: Medium

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.

Deegan - Chapter 09 #13 Difficulty: Easy

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

Deegan - Chapter 09 #14 Difficulty: Medium

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

Deegan - Chapter 09 #15 Difficulty: Hard

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

Deegan - Chapter 09 #16 Difficulty: Medium

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.

Deegan - Chapter 09 #17 Difficulty: Easy

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

Deegan - Chapter 09 #18 Difficulty: Easy

19. The prevalence of social and environmental reporting is: A. Declining B. Increasing C. Stable D. None of the given options are correct.

Deegan - Chapter 09 #19 Difficulty: Easy

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.

Deegan - Chapter 09 #20 Difficulty: Medium

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.

Deegan - Chapter 09 #21 Difficulty: Hard

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.

Deegan - Chapter 09 #22 Difficulty: Easy

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.

Deegan - Chapter 09 #23 Difficulty: Medium

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

Deegan - Chapter 09 #24 Difficulty: Easy

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

Deegan - Chapter 09 #25 Difficulty: Easy

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.

Deegan - Chapter 09 #26 Difficulty: Easy

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.

Deegan - Chapter 09 #27 Difficulty: Medium

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.

Deegan - Chapter 09 #28 Difficulty: Medium

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 and how things can be changed D. All of the given options are correct.

Deegan - Chapter 09 #29 Difficulty: Medium

Chapter 09 Summary Category

# of Questions

Deegan - Chapter 09

29

Difficulty: Easy

13

Difficulty: Hard

3

Difficulty: Medium

13

Chapter 10 Student: ___________________________________________________________________________ 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.

Chapter 10 Key

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.

Deegan - Chapter 10 #1 Difficulty: Easy

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.

Deegan - Chapter 10 #2 Difficulty: Medium

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.

Deegan - Chapter 10 #3 Difficulty: Easy

4. Capital markets research assumes that markets are: A. Semi-strong-form efficient B. Strong-form efficient C. Weak-form efficient D. Inefficient

Deegan - Chapter 10 #4 Difficulty: Easy

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

Deegan - Chapter 10 #5 Difficulty: Easy

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.

Deegan - Chapter 10 #6 Difficulty: Easy

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.

Deegan - Chapter 10 #7 Difficulty: Easy

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.

Deegan - Chapter 10 #8 Difficulty: Easy

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

Deegan - Chapter 10 #9 Difficulty: Medium

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

Deegan - Chapter 10 #10 Difficulty: Easy

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

Deegan - Chapter 10 #11 Difficulty: Easy

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

Deegan - Chapter 10 #12 Difficulty: Medium

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

Deegan - Chapter 10 #13 Difficulty: Easy

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

Deegan - Chapter 10 #14 Difficulty: Hard

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.

Deegan - Chapter 10 #15 Difficulty: Medium

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

Deegan - Chapter 10 #16 Difficulty: Medium

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

Deegan - Chapter 10 #17 Difficulty: Hard

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.

Deegan - Chapter 10 #18 Difficulty: Easy

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

Deegan - Chapter 10 #19 Difficulty: Easy

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

Deegan - Chapter 10 #20 Difficulty: Medium

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.

Deegan - Chapter 10 #21 Difficulty: Easy

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.

Deegan - Chapter 10 #22 Difficulty: Medium

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.

Deegan - Chapter 10 #23 Difficulty: Easy

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.

Deegan - Chapter 10 #24 Difficulty: Hard

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.

Deegan - Chapter 10 #25 Difficulty: Medium

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.

Deegan - Chapter 10 #26 Difficulty: Easy

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.

Deegan - Chapter 10 #27 Difficulty: Hard

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.

Deegan - Chapter 10 #28 Difficulty: Medium

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

Deegan - Chapter 10 #29 Difficulty: Medium

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.

Deegan - Chapter 10 #30 Difficulty: Medium

Chapter 10 Summary Category

# of Questions

Deegan - Chapter 10

30

Difficulty: Easy

15

Difficulty: Hard

4

Difficulty: Medium

11

Chapter 11 Student: ___________________________________________________________________________ 1. Behavioural research is concerned with how: A. Individuals behave when provided with particular items of information B. Individuals should behave when provided with particular items of information C. Firms behave when provided with particular items of information D. Firms should behave when provided with particular items of information

2. Which of the following is not a branch of behavioural research?

A. Managerial control systems B. Stakeholder management systems C. Accounting information systems design D. Organisational sociology

3. Which of the following is not a branch of behavioural research?

A. Auditing processes B. Accounting information processing C. Accounting standard setting processes D. All of the given answers are branches of behavioural research.

4. Theories important to behavioural research are drawn from: A. Behavioural science B. Behavioural science and psychology C. Finance and economics D. Finance and behavioural science

5. Behavioural research in accounting has been used to investigate which of the following decision-making processes?

A. The valuation of market shares by individual analysts B. The lending decisions of loan officers C. The assessment of bankruptcy by bankers or auditors D. All of the given options are correct.

6. The primary data source for behavioural research is: A. Observation B. Archival data C. Computer simulations D. All of the given options are correct.

7. The purpose of behavioural research is: A. To comprehend individual decision-making B. To improve individual decision-making C. To predict individual decision-making D. All of the given options are correct.

8. The Lens Model enables researchers to determine the cues that are: A. Considered important by an individual in creating a certain outcome B. Actually important in creating a certain outcome C. Both A and B D. None of the given options are correct.

9. Which of the following statements is true about the Lens Model?

A. Cues may be either independent or interrelated.

B. Cues may be inter-related but not independent.

C. Cues may be independent but not inter-related.

D. None of the given options is correct.

10. Some of the issues that have been considered in behavioural research include assessing the impact of: A. The presentation of cues B. The perceived rewards of cues C. The scaling of cues D. All of the given options are correct.

11. Some of the issues that have been considered in behavioural research do not include: A. How decisions are valued by the market B. The importance of prior experience to the decision process C. Whether decisions are stable over time D. How individuals weigh up cues to make decisions

12. Behavioural research could be useful to accountants because it could demonstrate the items which should be included in financial reports on the basis that they are: A. Useful to stakeholders B. Useful to decision-makers C. Necessary to discharge management accountability D. All of the given options are correct.

13. In relation to current cost information, behavioural research: A. Does not support the inclusion of current cost information, as this information does not appear to alter investment decisions B. Does not support the inclusion of current cost information, as this information does not appear to alter investment returns C. Supports the inclusion of current cost information, as this information appears to alter investment decisions D. Supports the inclusion of current cost information, as this information appears to alter investment returns

14. According to behavioural research, the most useful accounting information for analysts is: A. Earnings B. Sales and earnings C. Sales, earnings and cash flows D. Sales, earnings, cash flows and dividends

15. Behavioural research suggests the presentation of financial information in pictorial formats: A. Makes little difference to decision making B. Can improve decision making C. Is perceived to improve decision making, but does not actually improve decision making D. None of the given options are correct.

16. 'Heuristics' are: A. Rules B. Cues C. Behaviours D. Decisions

17. An auditor does not revise his or her initial assessment of the quality of a firm's internal controls when contradictory evidence is subsequently obtained. This is an example of the: A. Anchoring and adjustment heuristic B. Availability heuristic C. Representativeness heuristic D. Assessment heuristic

18. Which of the following was revealed by behavioural research on bankruptcy prediction?

A. Group predictions outperformed individual predictions.

B. Group predictions underperformed individual predictions.

C. Bankruptcies were not typically predicted.

D. Models which combined the judgments of different subjects underperformed individual models.

19. The limitations of protocol analysis do not include difficulties with: A. Ensuring that verbal protocols are complete B. Ensuring that verbal protocols match cognitive processes C. Developing theory from verbal protocols D. Coding verbal protocols

20. Which of the following are not among the limitations of behavioural research?

A. Many studies present conflicting results.

B. Small sample sizes limit the reliability of conclusions.

C. Studies are typically conducted in the 'real world', which makes findings difficult to generalise.

D. Theory development is incomplete.

21. Which of the following statements is true when comparing behavioural research with capital markets research?

A. Both behavioural research and capital markets research assess the aggregate effect of financial reporting.

B. Both behavioural research and capital markets research analyse individual responses to financial reporting.

C. Behavioural research analyses individual responses to financial reporting, while capital markets research assesses the aggregate effect of financial reporting.

D. None of the given options are correct.

22. Which of the following is an issue that has to be considered at the input level of the Lens Model?

A. Characteristics of the person making the judgment B. Scaling characteristics of individual cues C. Qualities of the judgment D. Characteristics of the decision rule

23. Which of the following is an issue that has to be considered at the output or decision level of the Lens Model?

A. Characteristics of the person making the judgment B. Scaling characteristics of individual cues C. Qualities of the judgment D. Characteristics of the decision rule

24. According to Wood and Ross (2006), which of the following environmental and social controls is the most influential factor in affecting managers' capital investment decisions with respect to investing in less polluting plant and equipment?

A. Mandatory disclosure required by law and accounting standards B. Regulatory costs, such as direct payments on pollutant emissions and clean-up costs C. Stakeholder opinion, that is, how the investment will be approved by various stakeholder groups D. None of the given options are correct.

25. Which of the following statements is not true about behavioural research?

A. There can ultimately be a normative component to behavioural research.

B. Behavioural research can be classified as positive research, because it seeks to explain particular actions or behaviours.

C. Behavioural research is typically grounded in organisational theory, and theories from psychology and sociology.

D. Behavioural research is an example of economics-based theories where assumptions about what motivates human actions are made and such motivations are attributed to all individuals.

26. How is behavioural research relevant to accounting?

A. Standard-setters could see how particular stakeholder groups react to particular disclosures or accounting methods before particular disclosure requirements are made mandatory.

B. New possibilities need to be tested (e.g. accounting and auditing standards, presentation alternatives, performance measurement systems) C. By generating knowledge about how different categories of financial statement users react to particular accounting disclosures, corporations, the accounting profession and regulators will be better placed to anticipate how different individuals will react to particular information D. All of the given options are correct.

27. Which of the following is not an example of secondary data?

A. Data collected through survey B. Data collected through qualitative methodologies C. Published printed sources D. Organisational records

28. Can behavioural research complement research undertaken using other paradigms?

A. Yes, because behavioural archival research can be used as a complement to other research paradigms, such as those used in capital markets experimental research.

B. Yes, because behavioural research can be used to address issues that might be unresolved by researchers who embrace other research paradigms, such as those used in capital markets research.

C. No, because behavioural research might provide some relevant insights to explain the perceived market inefficiency which other research paradigms, such as those used in capital markets research can provide adequately.

D. None of the given options are correct.

29. Which of the environmental social controls that influence a manager's capital investment in less-polluting plant and machinery is least significant?

A. Regulatory costs B. Mandatory disclosure C. Stakeholder opinion D. Depreciation allowances

Chapter 11 Key

1. Behavioural research is concerned with how: A. Individuals behave when provided with particular items of information B. Individuals should behave when provided with particular items of information C. Firms behave when provided with particular items of information D. Firms should behave when provided with particular items of information

Deegan - Chapter 11 #1 Difficulty: Easy

2. Which of the following is not a branch of behavioural research?

A. Managerial control systems B. Stakeholder management systems C. Accounting information systems design D. Organisational sociology

Deegan - Chapter 11 #2 Difficulty: Easy

3. Which of the following is not a branch of behavioural research?

A. Auditing processes B. Accounting information processing C. Accounting standard setting processes D. All of the given answers are branches of behavioural research.

Deegan - Chapter 11 #3 Difficulty: Medium

4. Theories important to behavioural research are drawn from: A. Behavioural science B. Behavioural science and psychology C. Finance and economics D. Finance and behavioural science

Deegan - Chapter 11 #4 Difficulty: Easy

5. Behavioural research in accounting has been used to investigate which of the following decision-making processes?

A. The valuation of market shares by individual analysts B. The lending decisions of loan officers C. The assessment of bankruptcy by bankers or auditors D. All of the given options are correct.

Deegan - Chapter 11 #5 Difficulty: Easy

6. The primary data source for behavioural research is: A. Observation B. Archival data C. Computer simulations D. All of the given options are correct.

Deegan - Chapter 11 #6 Difficulty: Easy

7. The purpose of behavioural research is: A. To comprehend individual decision-making B. To improve individual decision-making C. To predict individual decision-making D. All of the given options are correct.

Deegan - Chapter 11 #7 Difficulty: Easy

8. The Lens Model enables researchers to determine the cues that are: A. Considered important by an individual in creating a certain outcome B. Actually important in creating a certain outcome C. Both A and B D. None of the given options are correct.

Deegan - Chapter 11 #8 Difficulty: Easy

9. Which of the following statements is true about the Lens Model?

A. Cues may be either independent or interrelated.

B. Cues may be inter-related but not independent.

C. Cues may be independent but not inter-related.

D. None of the given options is correct.

Deegan - Chapter 11 #9 Difficulty: Easy

10. Some of the issues that have been considered in behavioural research include assessing the impact of: A. The presentation of cues B. The perceived rewards of cues C. The scaling of cues D. All of the given options are correct.

Deegan - Chapter 11 #10 Difficulty: Easy

11. Some of the issues that have been considered in behavioural research do not include: A. How decisions are valued by the market B. The importance of prior experience to the decision process C. Whether decisions are stable over time D. How individuals weigh up cues to make decisions

Deegan - Chapter 11 #11 Difficulty: Medium

12. Behavioural research could be useful to accountants because it could demonstrate the items which should be included in financial reports on the basis that they are: A. Useful to stakeholders B. Useful to decision-makers C. Necessary to discharge management accountability D. All of the given options are correct.

Deegan - Chapter 11 #12 Difficulty: Easy

13. In relation to current cost information, behavioural research: A. Does not support the inclusion of current cost information, as this information does not appear to alter investment decisions B. Does not support the inclusion of current cost information, as this information does not appear to alter investment returns C. Supports the inclusion of current cost information, as this information appears to alter investment decisions D. Supports the inclusion of current cost information, as this information appears to alter investment returns

Deegan - Chapter 11 #13 Difficulty: Hard

14. According to behavioural research, the most useful accounting information for analysts is: A. Earnings B. Sales and earnings C. Sales, earnings and cash flows D. Sales, earnings, cash flows and dividends

Deegan - Chapter 11 #14 Difficulty: Easy

15. Behavioural research suggests the presentation of financial information in pictorial formats: A. Makes little difference to decision making B. Can improve decision making C. Is perceived to improve decision making, but does not actually improve decision making D. None of the given options are correct.

Deegan - Chapter 11 #15 Difficulty: Easy

16. 'Heuristics' are: A. Rules B. Cues C. Behaviours D. Decisions

Deegan - Chapter 11 #16 Difficulty: Easy

17. An auditor does not revise his or her initial assessment of the quality of a firm's internal controls when contradictory evidence is subsequently obtained. This is an example of the: A. Anchoring and adjustment heuristic B. Availability heuristic C. Representativeness heuristic D. Assessment heuristic

Deegan - Chapter 11 #17 Difficulty: Easy

18. Which of the following was revealed by behavioural research on bankruptcy prediction?

A. Group predictions outperformed individual predictions.

B. Group predictions underperformed individual predictions.

C. Bankruptcies were not typically predicted.

D. Models which combined the judgments of different subjects underperformed individual models.

Deegan - Chapter 11 #18 Difficulty: Medium

19. The limitations of protocol analysis do not include difficulties with: A. Ensuring that verbal protocols are complete B. Ensuring that verbal protocols match cognitive processes C. Developing theory from verbal protocols D. Coding verbal protocols

Deegan - Chapter 11 #19 Difficulty: Medium

20. Which of the following are not among the limitations of behavioural research?

A. Many studies present conflicting results.

B. Small sample sizes limit the reliability of conclusions.

C. Studies are typically conducted in the 'real world', which makes findings difficult to generalise.

D. Theory development is incomplete.

Deegan - Chapter 11 #20 Difficulty: Medium

21. Which of the following statements is true when comparing behavioural research with capital markets research?

A. Both behavioural research and capital markets research assess the aggregate effect of financial reporting.

B. Both behavioural research and capital markets research analyse individual responses to financial reporting.

C. Behavioural research analyses individual responses to financial reporting, while capital markets research assesses the aggregate effect of financial reporting.

D. None of the given options are correct.

Deegan - Chapter 11 #21 Difficulty: Hard

22. Which of the following is an issue that has to be considered at the input level of the Lens Model?

A. Characteristics of the person making the judgment B. Scaling characteristics of individual cues C. Qualities of the judgment D. Characteristics of the decision rule

Deegan - Chapter 11 #22 Difficulty: Easy

23. Which of the following is an issue that has to be considered at the output or decision level of the Lens Model?

A. Characteristics of the person making the judgment B. Scaling characteristics of individual cues C. Qualities of the judgment D. Characteristics of the decision rule

Deegan - Chapter 11 #23 Difficulty: Easy

24. According to Wood and Ross (2006), which of the following environmental and social controls is the most influential factor in affecting managers' capital investment decisions with respect to investing in less polluting plant and equipment?

A. Mandatory disclosure required by law and accounting standards B. Regulatory costs, such as direct payments on pollutant emissions and clean-up costs C. Stakeholder opinion, that is, how the investment will be approved by various stakeholder groups D. None of the given options are correct.

Deegan - Chapter 11 #24 Difficulty: Medium

25. Which of the following statements is not true about behavioural research?

A. There can ultimately be a normative component to behavioural research.

B. Behavioural research can be classified as positive research, because it seeks to explain particular actions or behaviours.

C. Behavioural research is typically grounded in organisational theory, and theories from psychology and sociology.

D. Behavioural research is an example of economics-based theories where assumptions about what motivates human actions are made and such motivations are attributed to all individuals.

Deegan - Chapter 11 #25 Difficulty: Easy

26. How is behavioural research relevant to accounting?

A. Standard-setters could see how particular stakeholder groups react to particular disclosures or accounting methods before particular disclosure requirements are made mandatory.

B. New possibilities need to be tested (e.g. accounting and auditing standards, presentation alternatives, performance measurement systems) C. By generating knowledge about how different categories of financial statement users react to particular accounting disclosures, corporations, the accounting profession and regulators will be better placed to anticipate how different individuals will react to particular information D. All of the given options are correct.

Deegan - Chapter 11 #26 Difficulty: Easy

27. Which of the following is not an example of secondary data?

A. Data collected through survey B. Data collected through qualitative methodologies C. Published printed sources D. Organisational records

Deegan - Chapter 11 #27 Difficulty: Medium

28. Can behavioural research complement research undertaken using other paradigms?

A. Yes, because behavioural archival research can be used as a complement to other research paradigms, such as those used in capital markets experimental research.

B. Yes, because behavioural research can be used to address issues that might be unresolved by researchers who embrace other research paradigms, such as those used in capital markets research.

C. No, because behavioural research might provide some relevant insights to explain the perceived market inefficiency which other research paradigms, such as those used in capital markets research can provide adequately.

D. None of the given options are correct.

Deegan - Chapter 11 #28 Difficulty: Hard

29. Which of the environmental social controls that influence a manager's capital investment in less-polluting plant and machinery is least significant?

A. Regulatory costs B. Mandatory disclosure C. Stakeholder opinion D. Depreciation allowances

Deegan - Chapter 11 #29 Difficulty: Medium

Chapter 11 Summary Category

# of Questions

Deegan - Chapter 11

29

Difficulty: Easy

18

Difficulty: Hard

3

Difficulty: Medium

8

Chapter 12 Student: ___________________________________________________________________________ 1. Critical researchers accuse financial accounting of: A. Being open to manipulation by self-interested managers B. Reinforcing unequal distributions of wealth and power C. Being irrelevant to management decision making D. Giving inaccurate predictions of share price movements

2. Critical researchers believe that accounting information: A. Is neutral and unbiased B. Benefits neither the rich nor poor C. Is used by the elite to maintain their power D. Challenges existing social orders

3. Which of the following describes praxis?

A. Theory influences practice.

B. Practice influences theory.

C. Theory influences practice, while practice influences theory.

D. Theory does not influence practice, and practice does not influence theory.

4. Which of the following does not describe praxis?

A. It is an objective and neutral evaluation of the role accounting plays in society.

B. Praxis is usually focused at the broader level of society rather than at specific accounting practices.

C. Praxis is concerned with changing ethical, social, political and economic life along socialist lines.

D. It is the assumption of a circular relationship between theory and practice.

5. Critical researchers believe: A. They are objective and neutral, but that non-critical researchers are biased and partisan B. They are biased and partisan, but that non-critical researchers are objective and neutral C. That both critical and non-critical researchers are objective and neutral D. That both critical and non-critical researchers are biased and partisan

6. Marxists believe capitalism is inherently: A. Unstable B. Unjust C. Contradictory D. All of the given options are correct.

7. Critical accounting researchers have criticised other social and environmental accounting researchers for: A. Lacking objectivity B. Being too radical and unrealistic C. Leaving existing social structures unchallenged D. Ignoring the findings of empirical accounting research

8. Critical researchers believe increased corporate social and environmental disclosures may: A. 'Capture' radical movements B. Place unnecessary burdens on corporations C. Improve corporate social and environmental performance D. Address some of the inherent inequities of capitalist society

9. Which theoretical perspectives have been utilised by critical researchers?

A. Marxism B. Deep ecology C. Radical feminism D. All of the given options are correct.

10. Broadly speaking, critical researchers have been: A. Successful in identifying problems in accounting practices but unsuccessful in changing practices B. Successful in exposing problems in accounting practices and successful in changing practices C. Unsuccessful in exposing problems in accounting practices but successful in changing practices D. Unsuccessful in exposing problems in accounting practices and unsuccessful in changing practices

11. Critical researchers interpret the Australian accounting bodies' opposition to mandatory corporate social and environmental reporting as evidence that the accounting profession: A. Is legitimately concerned with introducing unnecessary regulation B. Does not believe mandatory reporting would enhance corporate accountability C. Does not believe shareholders and the public support mandatory reporting D. Promotes the interests of business above the interests of other stakeholders

12. Critical researchers believe that accountants are: A. Complicit in the exploitation of citizens B. Resistant to the exploitation of citizens C. Irrelevant to the exploitation of citizens D. Exploited by citizens

13. Critical researchers believe that capital markets studies are flawed because they: A. Only consider the usefulness of accounting information to investors B. Focus on quantitative, rather than qualitative data C. Ignore social and environmental disclosures D. All of the given options are correct.

14. Critical researchers believe that regulation of corporations is ineffective because the government: A. Is weak and powerless B. Is deceived by corporations C. Favours the rich D. Does not believe that more effective social and environmental legislation is required

15. Critical researchers believe that most accounting research: A. Supports the prevailing political ideology B. Challenges the prevailing political ideology C. Examines the prevailing political ideology D. Brackets the prevailing political ideology

16. Critical researchers interpret the post-Enron increase in mandatory corporate reporting as primarily benefiting: A. Society, as corporations are required to improve their level of disclosure B. Corporations, as confidence will be restored to financial markets C. Employees, as fewer companies will go bankrupt D. Accountants, as demand for accounting services will increase

17. Critical researchers believe that accounting standards: A. Describe reality B. Challenge reality C. Create reality D. Obscure reality

18. Critical researchers oppose the use of accounting reports to legitimise corporate activities because: A. Corporate activities typically exploit the poor B. Accounting reports should be objective C. Accounting reports are highly influential D. All of the given options are correct.

19. Critical researchers suggest that accounting reports may legitimise the capitalist system by: A. Providing a legitimate account of the activities of a corporation B. Assisting investors to allocate capital C. Highlighting the role of the State in requiring accounting disclosures D. Helping to resolve problems caused by the inherent instability of capitalism

20. Critical researchers believe that critical research has received little attention in accounting journals because: A. It challenges the assumptions and conclusions of mainstream accounting research B. It questions the role of the State C. It is qualitative rather than quantitative D. Journal subscribers don't like reading critical research

21. 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 objectives can be achieved without sacrificing operational capacities.

C. Many companies believe that social and environmental issues are becoming more important to their customers.

D. Many companies believe that consideration of social and environmental issues is necessary for profitable growth.

22. Which of the following statements is not true regarding the 'deep ecologists' and 'radical feminists' perspective?

A. The 'deep ecologists' question the trade-off between economic performance and ecological damage.

B. The 'radical feminists' believe that accounting maintains and reinforces masculine traits, such as the need for success and competition.

C. Researchers working with the feminist literature argue for the need for accounting to be more 'masculine' and less 'feminine' in orientation.

D. To a deep ecologist it is inconceivable that a trade-off could have any form of moral justification.

23. Which of the following statements regarding the 'critical perspective' of accounting is true?

A. Critical perspective describes research undertaken by many researchers that sometimes apply different philosophical perspectives.

B. In the critical perspective there is no single established theory or approach.

C. In the critical perspective there is little consensus on how to proceed, aside from an absolute horror of modernity and neo-classical economics.

D. All of the given options are correct.

24. Which of the following statements is true, when comparing the research undertaken by critical theorists with the work undertaken by other accounting researchers?

A. Most accounting researchers tend to accept current social systems as 'given', unlike critical theorists that question whether current systems of accounting systematically favour certain classes in society at the expense of others.

B. Critical theorists do not tend to debate which methods of accounting should be employed, rather they reconsider the structures of society in terms of whether the structures are equitable.

C. Critical theorists view accounting as a social practice within political struggles and not merely a market practice guided by equilibrium in an efficient market.

D. All of the given options are correct.

25. According to the critical perspective, which of the following is not a role of the Conceptual Framework Project?

A. The role of conceptual frameworks is not to improve the practice of financial accounting.

B. The role of conceptual frameworks is to improve the practice of financial accounting.

C. Conceptual frameworks legitimise the role of the accounting profession within society.

D. Conceptual frameworks provide a source of power for those people currently holding positions of power and wealth.

26. Which of the following is true about critical perspective?

A. It is grounded in Political Economy Theory.

B. It highlights issues which may not otherwise be addressed.

C. It is based on 'classical' branch—challenges the existing nature and structure of society.

D. All of the given options are correct.

27. Which of the following reveals critical theorists' view on disclosure of social responsibility information?

A. Corporate social reporting may be beneficial because it gives the impression of concern and change but in fact, will do no more than allow the system to 'capture' the radical elements of, for example, socialism, environmentalism or feminism and thus emasculate them.

B. Greater disclosure of social responsibility information efforts are wasted unless they are accompanied by fundamental changes in how society is structured.

C. The disclosure of corporate social responsibility information acts to legitimise, and challenge, those providing the information.

D. All of the given options are correct.

28. What is wrong with the ongoing research being undertaken to explore how to account for the social and environmental implications of business?

A. Researchers are using the current economics and accounting that caused environmental crisis to try to solve the problem.

B. Researchers are using the process of juridification which is likely to solve a problem by applying more of the thing which caused the problem.

C. Researchers are using the current economics and accounting that did not cause environmental crisis to try to solve the problem.

D. None of the above options are correct.

29. Which of the following statements is true of the Critical Theory perspective?

A. By means of intervention, it seeks to promote a better relationship between accounting and the interests of all society's various stakeholder groups.

B. As the embodiment of the philosophy of praxis, it does not content itself with understanding accounting.

C. It offers a means of establishing what might be desirable to retain from what currently exists, while always being informed by the belief that it is possible to build something better, which will serve the interests of a much broader set of stakeholders.

D. All of the given options are correct.

30. Which of the following is not true about the role of the State in supporting existing social structures?

A. Increasing the flow of information, or availability of specific types of information, is seen as a means of maintaining particular organisations and social structures.

B. Government does not operate in the public interest but in the interests of 'well off' groups.

C. Government will take action to enhance the legitimacy of the (unjust) social system.

D. None of the above options are correct.

Chapter 12 Key

1. Critical researchers accuse financial accounting of: A. Being open to manipulation by self-interested managers B. Reinforcing unequal distributions of wealth and power C. Being irrelevant to management decision making D. Giving inaccurate predictions of share price movements

Deegan - Chapter 12 #1 Difficulty: Easy

2. Critical researchers believe that accounting information: A. Is neutral and unbiased B. Benefits neither the rich nor poor C. Is used by the elite to maintain their power D. Challenges existing social orders

Deegan - Chapter 12 #2 Difficulty: Easy

3. Which of the following describes praxis?

A. Theory influences practice.

B. Practice influences theory.

C. Theory influences practice, while practice influences theory.

D. Theory does not influence practice, and practice does not influence theory.

Deegan - Chapter 12 #3 Difficulty: Easy

4. Which of the following does not describe praxis?

A. It is an objective and neutral evaluation of the role accounting plays in society.

B. Praxis is usually focused at the broader level of society rather than at specific accounting practices.

C. Praxis is concerned with changing ethical, social, political and economic life along socialist lines.

D. It is the assumption of a circular relationship between theory and practice.

Deegan - Chapter 12 #4 Difficulty: Medium

5. Critical researchers believe: A. They are objective and neutral, but that non-critical researchers are biased and partisan B. They are biased and partisan, but that non-critical researchers are objective and neutral C. That both critical and non-critical researchers are objective and neutral D. That both critical and non-critical researchers are biased and partisan

Deegan - Chapter 12 #5 Difficulty: Medium

6. Marxists believe capitalism is inherently: A. Unstable B. Unjust C. Contradictory D. All of the given options are correct.

Deegan - Chapter 12 #6 Difficulty: Easy

7. Critical accounting researchers have criticised other social and environmental accounting researchers for: A. Lacking objectivity B. Being too radical and unrealistic C. Leaving existing social structures unchallenged D. Ignoring the findings of empirical accounting research

Deegan - Chapter 12 #7 Difficulty: Easy

8. Critical researchers believe increased corporate social and environmental disclosures may: A. 'Capture' radical movements B. Place unnecessary burdens on corporations C. Improve corporate social and environmental performance D. Address some of the inherent inequities of capitalist society

Deegan - Chapter 12 #8 Difficulty: Easy

9. Which theoretical perspectives have been utilised by critical researchers?

A. Marxism B. Deep ecology C. Radical feminism D. All of the given options are correct.

Deegan - Chapter 12 #9 Difficulty: Easy

10. Broadly speaking, critical researchers have been: A. Successful in identifying problems in accounting practices but unsuccessful in changing practices B. Successful in exposing problems in accounting practices and successful in changing practices C. Unsuccessful in exposing problems in accounting practices but successful in changing practices D. Unsuccessful in exposing problems in accounting practices and unsuccessful in changing practices

Deegan - Chapter 12 #10 Difficulty: Medium

11. Critical researchers interpret the Australian accounting bodies' opposition to mandatory corporate social and environmental reporting as evidence that the accounting profession: A. Is legitimately concerned with introducing unnecessary regulation B. Does not believe mandatory reporting would enhance corporate accountability C. Does not believe shareholders and the public support mandatory reporting D. Promotes the interests of business above the interests of other stakeholders

Deegan - Chapter 12 #11 Difficulty: Hard

12. Critical researchers believe that accountants are: A. Complicit in the exploitation of citizens B. Resistant to the exploitation of citizens C. Irrelevant to the exploitation of citizens D. Exploited by citizens

Deegan - Chapter 12 #12 Difficulty: Easy

13. Critical researchers believe that capital markets studies are flawed because they: A. Only consider the usefulness of accounting information to investors B. Focus on quantitative, rather than qualitative data C. Ignore social and environmental disclosures D. All of the given options are correct.

Deegan - Chapter 12 #13 Difficulty: Easy

14. Critical researchers believe that regulation of corporations is ineffective because the government: A. Is weak and powerless B. Is deceived by corporations C. Favours the rich D. Does not believe that more effective social and environmental legislation is required

Deegan - Chapter 12 #14 Difficulty: Easy

15. Critical researchers believe that most accounting research: A. Supports the prevailing political ideology B. Challenges the prevailing political ideology C. Examines the prevailing political ideology D. Brackets the prevailing political ideology

Deegan - Chapter 12 #15 Difficulty: Medium

16. Critical researchers interpret the post-Enron increase in mandatory corporate reporting as primarily benefiting: A. Society, as corporations are required to improve their level of disclosure B. Corporations, as confidence will be restored to financial markets C. Employees, as fewer companies will go bankrupt D. Accountants, as demand for accounting services will increase

Deegan - Chapter 12 #16 Difficulty: Medium

17. Critical researchers believe that accounting standards: A. Describe reality B. Challenge reality C. Create reality D. Obscure reality

Deegan - Chapter 12 #17 Difficulty: Easy

18. Critical researchers oppose the use of accounting reports to legitimise corporate activities because: A. Corporate activities typically exploit the poor B. Accounting reports should be objective C. Accounting reports are highly influential D. All of the given options are correct.

Deegan - Chapter 12 #18 Difficulty: Easy

19. Critical researchers suggest that accounting reports may legitimise the capitalist system by: A. Providing a legitimate account of the activities of a corporation B. Assisting investors to allocate capital C. Highlighting the role of the State in requiring accounting disclosures D. Helping to resolve problems caused by the inherent instability of capitalism

Deegan - Chapter 12 #19 Difficulty: Medium

20. Critical researchers believe that critical research has received little attention in accounting journals because: A. It challenges the assumptions and conclusions of mainstream accounting research B. It questions the role of the State C. It is qualitative rather than quantitative D. Journal subscribers don't like reading critical research

Deegan - Chapter 12 #20 Difficulty: Medium

21. 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 objectives can be achieved without sacrificing operational capacities.

C. Many companies believe that social and environmental issues are becoming more important to their customers.

D. Many companies believe that consideration of social and environmental issues is necessary for profitable growth.

Deegan - Chapter 12 #21 Difficulty: Medium

22. Which of the following statements is not true regarding the 'deep ecologists' and 'radical feminists' perspective?

A. The 'deep ecologists' question the trade-off between economic performance and ecological damage.

B. The 'radical feminists' believe that accounting maintains and reinforces masculine traits, such as the need for success and competition.

C. Researchers working with the feminist literature argue for the need for accounting to be more 'masculine' and less 'feminine' in orientation.

D. To a deep ecologist it is inconceivable that a trade-off could have any form of moral justification.

Deegan - Chapter 12 #22 Difficulty: Hard

23. Which of the following statements regarding the 'critical perspective' of accounting is true?

A. Critical perspective describes research undertaken by many researchers that sometimes apply different philosophical perspectives.

B. In the critical perspective there is no single established theory or approach.

C. In the critical perspective there is little consensus on how to proceed, aside from an absolute horror of modernity and neo-classical economics.

D. All of the given options are correct.

Deegan - Chapter 12 #23 Difficulty: Easy

24. Which of the following statements is true, when comparing the research undertaken by critical theorists with the work undertaken by other accounting researchers?

A. Most accounting researchers tend to accept current social systems as 'given', unlike critical theorists that question whether current systems of accounting systematically favour certain classes in society at the expense of others.

B. Critical theorists do not tend to debate which methods of accounting should be employed, rather they reconsider the structures of society in terms of whether the structures are equitable.

C. Critical theorists view accounting as a social practice within political struggles and not merely a market practice guided by equilibrium in an efficient market.

D. All of the given options are correct.

Deegan - Chapter 12 #24 Difficulty: Medium

25. According to the critical perspective, which of the following is not a role of the Conceptual Framework Project?

A. The role of conceptual frameworks is not to improve the practice of financial accounting.

B. The role of conceptual frameworks is to improve the practice of financial accounting.

C. Conceptual frameworks legitimise the role of the accounting profession within society.

D. Conceptual frameworks provide a source of power for those people currently holding positions of power and wealth.

Deegan - Chapter 12 #25 Difficulty: Medium

26. Which of the following is true about critical perspective?

A. It is grounded in Political Economy Theory.

B. It highlights issues which may not otherwise be addressed.

C. It is based on 'classical' branch—challenges the existing nature and structure of society.

D. All of the given options are correct.

Deegan - Chapter 12 #26 Difficulty: Easy

27. Which of the following reveals critical theorists' view on disclosure of social responsibility information?

A. Corporate social reporting may be beneficial because it gives the impression of concern and change but in fact, will do no more than allow the system to 'capture' the radical elements of, for example, socialism, environmentalism or feminism and thus emasculate them.

B. Greater disclosure of social responsibility information efforts are wasted unless they are accompanied by fundamental changes in how society is structured.

C. The disclosure of corporate social responsibility information acts to legitimise, and challenge, those providing the information.

D. All of the given options are correct.

Deegan - Chapter 12 #27 Difficulty: Medium

28. What is wrong with the ongoing research being undertaken to explore how to account for the social and environmental implications of business?

A. Researchers are using the current economics and accounting that caused environmental crisis to try to solve the problem.

B. Researchers are using the process of juridification which is likely to solve a problem by applying more of the thing which caused the problem.

C. Researchers are using the current economics and accounting that did not cause environmental crisis to try to solve the problem.

D. None of the above options are correct.

Deegan - Chapter 12 #28 Difficulty: Medium

29. Which of the following statements is true of the Critical Theory perspective?

A. By means of intervention, it seeks to promote a better relationship between accounting and the interests of all society's various stakeholder groups.

B. As the embodiment of the philosophy of praxis, it does not content itself with understanding accounting.

C. It offers a means of establishing what might be desirable to retain from what currently exists, while always being informed by the belief that it is possible to build something better, which will serve the interests of a much broader set of stakeholders.

D. All of the given options are correct.

Deegan - Chapter 12 #29 Difficulty: Easy

30. Which of the following is not true about the role of the State in supporting existing social structures?

A. Increasing the flow of information, or availability of specific types of information, is seen as a means of maintaining particular organisations and social structures.

B. Government does not operate in the public interest but in the interests of 'well off' groups.

C. Government will take action to enhance the legitimacy of the (unjust) social system.

D. None of the above options are correct.

Deegan - Chapter 12 #30 Difficulty: Easy

Chapter 12 Summary Category

# of Questions

Deegan - Chapter 12

30

Difficulty: Easy

16

Difficulty: Hard

2

Difficulty: Medium

12