Accounting Research and Theory Exam Review
Course Introduction
Accounting Research and Theory explores the foundational concepts, frameworks, and methodologies that underpin modern accounting practice and scholarship. The course examines key theoretical perspectives such as positive accounting theory, normative accounting theory, and critical accounting theory, and investigates how these inform financial reporting, standard setting, and auditing. Students will learn advanced techniques in accounting research, including qualitative and quantitative approaches, literature reviews, hypothesis formulation, and data analysis. Emphasis is placed on evaluating current issues and trends in accounting, fostering critical thinking, and developing skills necessary to undertake independent research projects and contribute to the development of accounting knowledge.
Recommended Textbook
Accounting Theory Conceptual Issues in a Political and Economic Environment 9th Edition by Harry
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Page 2
Chapter 1: An Introduction to Accounting Theory
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Q1) The discounted cash flow approach can be used to determine an objective measurement for most assets and liabilities.
A)True
B)False
Answer: False
Q2) For which measurement scale must the change in the attribute measured among assigned numbers be equal and the zero point imply the absence of the attribute measured?
A)Interval scale
B)Ratio scale
C)Ordinal scale
D)Both a and b
Answer: B
Q3) When a direct assessment measure is used, there is always only one correct measure.
A)True
B)False
Answer: False
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3
Chapter 2: Accounting Theory and Accounting Research
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Q1) Which of the following is not a characteristic of good inductive accounting theory research?
A)It must carefully specify the problem that is being examined.
B)It must be based on a hypothesis that is capable of being tested.
C)It must test the entire population under investigation.
D)It must employ the requisite tools of statistical inference.
Answer: C
Q2) The use of research in accounting results in the field being referred to as an academic discipline.
A)True
B)False
Answer: True
Q3) Information economics research is usually inductive in nature.
A)True
B)False
Answer: False
Q4) Hypotheses are conclusions derived from the research process.
A)True
B)False
Answer: False
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Chapter 3: Development of Institutional Structure of Financial Accounting
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Q1) The liability concept that restricts liability to each defendant's share of the damages based upon the judge or jury's assessment of their share of the damages is called:
A)proportionate liability.
B)compensatory liability.
C)joint and several liability.
D)disproportionate liability.
Answer: A
Q2) Which of the following is true regarding the Emerging Issues Task Force (EITF)?
A)It has formal authority to establish GAAP.
B)Members of this group consist of CEOs of six major corporations and the chief accountant of the SEC.
C)It is concerned with highly technical issues, such as financial instruments, which may affect firms in virtually every industry.
D)All of the above
Answer: C
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Chapter 4: The Economics of Financial Reporting Regulation
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Q1) The focus of accounting regulation is on:
A)mandatory reporting.
B)improving the quality of reported information.
C)standards overload.
D)underproduction of accounting information.
Q2) Which of the following is not a possible justification for regulated markets?
A)Possible market failure
B)Natural monopolies
C)The possibility that free markets are contrary to social goals
D)Private contracting opportunities
Q3) The effect of an externality is that:
A)production of a public good equals market demand.
B)production of a private good equals market demand.
C)true market demand for public goods may be determined by the number of consumers that pay for the goods.
D)the producer of a public good has a limited incentive to produce it because all consumers cannot be charged for the good.
Q4) What is meant by "the paradox of regulation"?
Q5) What are the arguments against regulation of financial reporting?
Q6) What are the arguments favoring regulation of financial reporting? Page 6
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Page 7
Chapter 5: Postulates, Principles, and Concepts
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Q1) Discuss the revenue recognition principle and how the terms "critical event," "earned," "realized," and "realizable" apply to revenue recognition.
Q2) Which of the following is not true regarding the time period postulate?
A)It results in an artificial segmentation of a continuing process.
B)It has led to accrual accounting.
C)It allows different accounting methods to be followed in interim periods.
D)It allows interim reports to include estimates of annual amounts.
Q3) Which of the following is a true statement?
A)A principle contains elements observable by empirical techniques.
B)The APB's Special Committee on Research Program defined both postulates and broad principles.
C)A principle is an analytical statement whose truth or falsity is self-contained by its internal logic.
D)Postulates are generally defined as basic assumptions that cannot be verified.
Q4) What were the reasons for the failure of ARS 1 and ARS 3?
Q5) How is conservatism defined from a preparer's orientation? Which conservatism goal should take precedence when conservatism criteria conflict?
Q6) What is the going-concern postulate of ARS 1, and how has it been criticized?
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Chapter 6: The Search for Objectives
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Q1) Which of the following documents expressed the opinion that a choice among accounting valuation systems could not be made because of the diversity of users?
A)"Objectives of Financial Statements" (Trueblood Committee Report)
B)"Basic Concepts and Accounting Principles Underlying Financial Statements of Business Enterprises" (APB Statement 4)
C)"A Statement of Basic Accounting Theory" (ASOBAT)
D)"Statement of Accounting Theory and Theory Acceptance" (SATTA)
Q2) Identify and explain the two primary objectives of financial statements and the two secondary objectives of financial statements.
Q3) Which of the following documents stated fundamental concepts of financial reporting that would serve as a foundation for the opinions of the APB?
A)"Objectives of Financial Statements" (Trueblood Committee Report)
B)"Basic Concepts and Accounting Principles Underlying Financial Statements of Business Enterprises" (APB Statement 4)
C)"A Statement of Basic Accounting Theory" (ASOBAT)
D)"Statement of Accounting Theory and Theory Acceptance" (SATTA)
Q4) Identify the major contributions of APB Statement 4.
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Chapter 7: The Fasbs Conceptual Framework
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Q1) With regard to users, SFAC No. 1 established that financial statements should be aimed at a common core of similar information users.
A)True
B)False
Q2) Which of the following is not a true statement?
A)SFAC No. 3 defines 10 elements of financial statements.
B)SFAC No. 3 is a resolution of the definitions presented in the discussion memorandum for the conceptual framework project.
C)SFAC No. 3 was amended by SFAC No. 6.
D)SFAC No. 3 discusses in detail the three views of financial accounting mentioned in the discussion memorandum.
Q3) Why might SFAC No. 5 be considered a "failure"?
Q4) Which statement in the conceptual framework deals with qualitative characteristics of accounting information? Note that SFAC No. 8 replaces this older SFAC.
A)SFAC No. 1
B)SFAC No. 2
C)SFAC No. 3
D)SFAC No. 5
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Page 10
Chapter 8: Usefulness of Accounting Information to
Investors and Creditors
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Questions
Q1) The efficient markets hypothesis refers to the speed with which financial analysts are able to predict a firm's cash flows.
A)True
B)False
Q2) The expected portfolio return decreases as risk increases.
A)True
B)False
Q3) Which of the following findings would support the naive-investor hypothesis?
A)A finding that security prices respond to income levels that differ solely because of alternative accounting methods with no cash flow consequences.
B)A finding that security prices do not respond to artificial book-income differences.
C)A finding that security prices do not respond to the adoption of LIFO for accounting for inventories and cost of goods sold.
D)A finding that security prices do not respond to a change in reported accounting earnings from the prior year.
Q4) What are the weaknesses of capital market research?
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Chapter 9: Uniformity and Disclosure: Some Policy-Making
Directions
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Q1) The concept of uniformity appears to overlap with consistency.
A)True
B)False
Q2) Flexibility applies to which of the following situations?
A)Situations in which there are relevant circumstances and more than one possible accounting method exists.
B)Situations in which there are relevant circumstances but only one possible accounting method exists.
C)Situations in which there are no observable relevant circumstances and more than one possible accounting method exists.
D)All of the above.
Q3) Where rigid uniformity is in effect, the underlying reasons may be attributable to all but which one of the following factors?
A)A desire for conservatism
B)An inability of the standard-setting organization to determine meaningful relevant circumstances
C)An attempt to increase representational faithfulness of the measurement
D)Recognition of the fact that an allocation is involved
Q4) Discuss the role of management in relevant circumstances.
Page 12
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Chapter 10: International Accounting
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Q1) Which of the following is a characteristic of rules-based accounting standards?
A)They are highly detailed.
B)They rely heavily on judgment by management or the auditor.
C)They are shorter than rules-based standards.
D)They are required by Sarbanes-Oxley.
Q2) Which of the following is a financial reporting model that features the presence of a strong accounting profession?
A)The Anglo-Saxon model
B)The continental model
C)The ASEAN model
D)The international model
Q3) Which of the following is \(\underline{not}\) a true statement regarding the IASB?
A)The IASB has promulgated a conceptual framework.
B)The IASB is playing an important role in the drive toward harmonization.
C)Several European nations have surrendered their standard-setting powers to the IASB.
D)Members of the IASB have pledged to use their best endeavors to bring the adoption of IASB standards to their countries.
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Page 13
Chapter 11: The Balance Sheet
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Q1) Which one of the following measurement bases applies to receivables?
A)Historical cost
B)An approximation of net realizable value
C)Selling price through factoring
D)Discounted present value
Q2) The "future service potential" of an asset may be realized as a direct market exchange for another asset, or through conversion in a manufacturing operation for finished goods.
A)True
B)False
Q3) Which of the following is not a true statement regarding assets as they appear on the balance sheet?
A)Historical cost gives a good indication of the productive value of assets.
B)Assets held for sale and measured at net realizable value represent a high degree of certainty as to measurement reliability.
C)Certain types of deferred charges do not have any direct effect on future cash flows.
D)In terms of additivity, it is questionable if a balance sheet should be added.
Q4) Identify and define the five types of liabilities.
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Chapter 12: The Income Statement
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Q1) As a result of APB Opinion No. 30, extraordinary items other than gains and losses from early extinguishment of debt have practically disappeared.
A)True
B)False
Q2) Contrast the current operating and the all-inclusive concepts of income and identify arguments used in supporting each.
Q3) A major problem with SFAS No. 114 is that it applies only to creditors, while debtors are still governed by SFAS No. 15.
A)True
B)False
Q4) Describe how the reporting of extraordinary items is a good example of the shift away from finite uniformity to rigid uniformity in accounting standards.
Q5) The main reason underlying SFAS 154 is that it is part of the convergence project with the IASB.
A)True
B)False
Q6) What is "comprehensive income," and how does SFAS No. 120 allow it to be reported?
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Chapter 13: Statement of Cash Flows
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Q1) Which of the following directly preceded the statement of cash flows?
A)The funds flow statement
B)The sources and uses of funds statement
C)The statement of changes in financial position
D)The sources and uses of resources statement
Q2) Which of the following is a true statement?
A)Research is supportive of the contention that cash and funds flow data are informative above and beyond accrual data.
B)Use of the direct method in the cash flow statement frequently results in non-articulation.
C)Interest expense and long-term notes payable both appear in the financing section of the cash flow statement.
D)With SFAS No. 95, the FASB chose to follow the entity model rather than the traditional income statement (proprietary) approach.
Q3) Inclusion of a cash flow statement is mandatory.
A)True
B)False
Q4) Discuss reasons why the FASB replaced the more general funds flow concept with a cash flow statement.
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Chapter 14: Income Taxes and Financial Accounting
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Q1) Which of the following statements was not made in ARB 43?
A)Income taxes are an expense that should be allocated as other expenses are allocated.
B)Income taxes should be allocated to income and other accounts as other expenses are allocated.
C)The income statement should reflect tax expense properly allocable to the income included in the income statement for the year.
D)Tax expense should equal the amount of tax payable based on taxable income for the year.
Q2) The income tax law of 1913 established accounting income as a basis for taxation.
A)True
B)False
Q3) Comprehensive allocation is a form of rigid uniformity because the question of loan repayment is ignored.
A)True
B)False
Q4) Explain how the matching concept is applied in tax allocation and how this differs from other applications of matching.
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Chapter 15: Pensions and Other Postretirement Benefits
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Q1) The disclosure requirements of SFAS No. 132 pertain to both pensions and OPEBs where applicable.
A)True
B)False
Q2) Which of the following is \(\underline{not}\) true regarding SFAS 158?
A) It brought the overfunded and underfunded status of defined benefit plan to the footnotes of the balance sheet.
B) It required certain costs be charged to other comprehensive income.
C) It requires a credit to other pension income for amortized prior service costs.
D) An overfunded or underfunded amount for OPEBs must be shown as an asset or liability on the balance sheet.
Q3) Describe the two broad types of pension plans and identify how they differ from one another.
Q4) SFAS No. 87 achieved greater uniformity in measuring accrued pension expense by mandating use of one actuarial method, the accumulated benefit method.
A)True
B)False
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Chapter 16: Leases
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Q1) An argument against lease capitalization was that the use of present value discounting techniques introduced less reliable accounting numbers into the financial statements.
A)True
B)False
Q2) ARB 38 recommended that where it was obvious a lease contract was in substance a purchase, an asset, but not a liability, should be recognized in the lessee's balance sheet.
A)True
B)False
Q3) Respond to the following:
a.Why has so much attention been given to leases in accounting standards?
b.Why is leasing such a popular method of acquiring assets?
c.How have accounting procedures for leases changed since ARB 43?
Q4) Some capital leases are treated as loans with income realized through implicit interest in each lease payment.
A)True
B)False
Q5) Discuss two types of economic consequences of lease accounting.
Q6) How does lease accounting under the IASB differ from lease accounting under FAS?
Page 19
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Chapter 17: Intercorporate Equity Investments
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Q1) SFAS No. 52 adopted:
A)a U.S. dollar orientation to accounting for foreign currency operations.
B)a functional currency orientation to accounting for foreign currency operations.
C)a foreign currency orientation to accounting for foreign currency operations.
D)none of the above.
Q2) According to SFAS No. 115, the fair market value method applies for investments of less than 50 percent where market values are readily determinable
A)True
B)False
Q3) What is meant by proportionate consolidation, and what are its advantages?
Q4) Respond to the following:
a. What does the term functional currency mean?
b. What is the accounting treatment if the foreign entity's currency in the functional currency?
c. What is the accounting treatment if the U.S. currency is the functional currency?
Q5) What are the relevant circumstances that justify differential accounting for intercorporate equity investments?
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