Chapter 2 - The financial reporting environment - P2

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

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.

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.

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

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.

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

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

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.

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.

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.

Chapter 2 - The financial reporting environment - P2

More Surveys