Chapter 3 - The regulation of financial accounting theory - P2

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

It is argued by the pro-regulation supporters that accounting information is a free or public good. What is the characteristic of a free or public good?

A. It is a good or service provided at no cost to anyone.

B. It is a good or service whose over-production is an example of market failure.

C. It is a good or service that, once available, people can obtain or use without paying.

D. All of the given options are correct

13. Which of the following is not an argument for the regulation of accounting information by proregulation proponents?

A. Regulation is needed because it is difficult to make 'free riders' pay for its production.

B. Regulation is needed to prevent wasteful over-supply, because users will overstate their need for information if they do not have to pay for it.

C. Regulation is needed to correct market failure and under-supply due to the reluctance of producers of information to charge 'free riders' for it.

D. Regulation is needed because the price system cannot function properly if it is not possible to exclude non-purchasers from consuming the good.

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

. Proponents of the free market approaches to accounting regulation use Adam Smith (1937) as a basis for support. Which of the following is not associated with Adam Smith's writings on the workings of the free market?

A. The concept of the 'invisible hand' to guide allocation of resources for individuals and, as a result, does so for the market as a whole.

B. No government intervention is necessary, as the free market can optimally allocate and distribute

C. Individuals pursuing their own self-interest results in resources finding their way to their most productive use for the economy as a whole.

D. All of the given options are correct.

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.

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.

Which of the following is a valid argument against regulatory capture?

A. The regulated are best equipped to address the technical issues. B

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.

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.

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

Chapter 3 - The regulation of financial accounting theory - P2

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