Chapter 7 - Positive accounting theory - P3

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.

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

Which of the following is not an example of a Positive Accounting Theory or research?

A. True income theories

B. Legitimacy Theory

. Costs associated with increased wage claims

D. The cost of remaining largely unnoticed by government regulatory agencies

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

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.

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.

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

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.

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.

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

Chapter 7 - Positive accounting theory - P3

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