Chapter 2 - The financial reporting environment - P3

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

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.

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.

'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

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.

The qualitative characteristics of financial reports that make information useful to users are

A. Understandability

B. Reliability

C. Comparability

D. Understandability, reliability and comparability

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 nonlisted 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.

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 2 - The financial reporting environment - P3

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