Question 1

Which of the following statements is true about accounting measurements such as profits and assets?
A) They are subject to professional judgment
B) They would not vary if prepared by different accountants, providing they were based on the same set of accounting standards
C) They are based on hard, objective, evidence
D) All of the given options are correct

Accepted Answer

Accounting measurements such as profits and assets are subject to professional judgment, as different accountants may interpret and apply accounting rules differently based on their experiences and expertise. The other options are not entirely accurate: B is incorrect because different accountants may prepare financial statements differently even if they adhere to the same accounting standards, due to variations in accounting policies and estimates. C is also incorrect because accounting measurements are often estimates based on historical cost, market value, or other factors that require assumptions and judgments.

Question 2

Which of the following is a reason why accounting,and accountants,can be considered very powerful?
A) Emphasis on profitability measures provides support to profitable companies which may not be worthy of support under other measures
B) 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

Accepted Answer

All of the given options are correct. Accounting and accountants hold significant power due to their ability to influence decisions and allocations of funds within a corporation. The emphasis on profitability measures can support companies that may not be worthy of support under other measures, while the provision of objective information can drive changes in behavior. Additionally, the output of the accounting process impacts many important decisions, which can result in transfers of wealth.

Question 3

Which of the following statements is true about management accounting,compared with financial accounting?
A) Management accounting provides financial reports to external parties that require information to meet their decision needs
B) Management accounting is largely unregulated
C) Management accounting attempts to protect the information rights and needs of all users
D) Management accounting adopts a pro-regulation perspective

Accepted Answer

Management accounting is largely unregulated, unlike financial accounting, which is subject to strict regulations and standards set by governing bodies such as the SEC and FASB. Management accounting is geared towards providing financial information and analysis to internal stakeholders such as management and employees, and is not focused on providing external financial reports to investors or regulatory bodies. Therefore, management accounting has more flexibility in terms of reporting methods and standards.

Question 4

Which of the following is a criticism of the double-entry financial accounting system?
A) Its general inability to take social and environmental consequences of a reporting entity's existence into account
B) Its use of a system of debts and credits to account for increases and decreases, instead of positive and negative numbers
C) Its initial development in a generally unregulated environment has resulted in a lack of uniformity and comparability
D) All of the given options are correct

Accepted Answer

The double-entry financial accounting system has been criticized for its general inability to take social and environmental consequences of a reporting entity's existence into account, its use of a system of debts and credits to account for increases and decreases, instead of positive and negative numbers, and its initial development in a generally unregulated environment has resulted in a lack of uniformity and comparability.

Question 5

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

Accepted Answer

Advocates of the public interest theory believe that the government is best suited to develop accounting standards because it is impartial, has the necessary authority to enforce the standards, and is accountable to the public. The other theories suggest that private interest groups or entities have more influence over accounting standards development, which may not be in the best interest of society as a whole.

Question 6

Who has overall responsibility for issuing accounting standards in Australia?
A) The Financial Reporting Council (FRC)
B) The Australian Accounting Standards Boards (AASB)
C) The International Accounting Standards Board (IASB)
D) The Australian Accounting Research Foundation (AARF)

Accepted Answer

The Australian Accounting Standards Board (AASB) has overall responsibility for issuing accounting standards in Australia. The AASB is an independent government agency that develops and maintains accounting standards for both the public and private sectors in Australia. The AASB also works closely with the International Accounting Standards Board (IASB) to ensure that Australian accounting standards are consistent with international standards.

Question 7

What 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

Accepted Answer

The efficiency perspective suggests that firms will choose accounting methods that best reflect their economic performance as they seek to maximize efficiency and minimize costs. This perspective assumes that firms are rational and will act in their best interest to achieve economic efficiency. Therefore, the best answer would be B.

Question 8

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

Accepted Answer

The answer of Which of the following is not an...

Question 9

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 are correct

Accepted Answer

Capture theory suggests that the regulated entities, such as large corporations, may seek to control the regulator to achieve their self-interest. This can manifest in various ways, such as regulatory capture or revolving doors between regulatory agencies and the regulated industries. The other options do not reflect the characteristic of capture theory.

Question 10

Which of the following is not a rationale for regulating financial accounting information?
A) To protect users from fraudulent or misleading information
B) Market for information without regulation is inefficient, and may result in production of sub-optimal amount of information
C) To assist management with better information, and reports for use by management and parties within the organisation
D) To ensure equal access to information by all interested parties, including those that have limited power to demand it

Accepted Answer

Regulation of financial accounting information is primarily focused on protecting users from fraudulent or misleading information, ensuring equal access to information by all interested parties, and promoting information efficiency in the market. The rationale to assist management with better information is not a justification for regulating financial accounting information as the duty to produce management reports and other internal reports falls on the organisation itself, rather than external regulation.

Question 11

Which of the following is not a rationale for regulation?
A) To redress the inequality of access to information by users
B) To protect users from fraudulent activities of insiders
C) To reduce the oversupply of information caused by excess user demand, because users do not have to pay for its cost
D) To enhance consistency and comparability of use of accounting methods

Accepted Answer

The oversupply of information caused by excess user demand is not a rationale for regulation. In fact, regulation is often put in place to ensure that users have access to a sufficient amount of reliable information to make informed decisions. The other options, A, B, and D, are all valid rationales for regulation, such as ensuring equality of access to information, preventing fraud, and promoting consistency in accounting practices.

Question 12

What is the minimum level of accounting knowledge that readers of financial statements are assumed to possess,according to most professional accounting bodies around the world?
A) None
B) Some level of knowledge sufficient to understand the financial reports properly
C) A sound working knowledge
D) Expert level of knowledge

Accepted Answer

Most professional accounting bodies around the world assume that the readers of financial statements have some level of knowledge sufficient to understand the financial reports properly. While they may not be experts in accounting, they are expected to understand basic financial terms and concepts like revenue, expenses, assets, liabilities, cash flow, profit and loss, and so on. This knowledge is essential for investors, creditors, analysts, regulators, and other stakeholders to make informed decisions based on the financial information provided by the company. However, it is important to note that the level of accounting knowledge required may vary depending on the complexity of the financial statements and the specific needs of the users.

Question 13

Which of the following statements is true about the regulation of accounting practice in its early period of development?
A) Accounting was largely determined by accounting theory
B) Accounting was largely determined by accounting standards issued by the accounting profession
C) Accounting was largely determined by the national Securities and Exchange Commissions and resulting legislation
D) Accounting was largely determined by generally-accepted practice

Accepted Answer

In its early period of development, accounting was largely determined by generally-accepted practice. This means that there were no official standards or regulations in place and accounting practices were based on what was commonly accepted by practitioners at the time. It was not until much later that professional organizations and government agencies began to develop formal standards and regulations for the accounting profession.

Question 14

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) Adopt different accounting methods to suit their own needs, and the needs of the company
D) None of the given options are correct

Accepted Answer

Accountants should not adopt different accounting methods to suit their own needs or the needs of the company. They should follow generally accepted accounting principles and ensure that financial statements accurately represent the company's financial position.

Question 15

What is the role of the accounting profession in the US with regards to stipulating accounting standards?
A) Authority to develop and issue accounting standards
B) Delegated responsibility from the Securities and Exchange Commission, providing it performs such duties diligently
C) Indirect authority. Standards are issued by the Accounting Principles Board, a committee of the accounting professional bodies
D) No authority. Standards are issued by the Federal Accounting Standards Board, which is independent of the accounting profession

Accepted Answer

The answer of What is the role of the accounting...

Question 16

Which of the following expectations is not in line with statements by standards-setters that they consider the economic and social consequences of standards on affected parties when setting accounting standards?
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

Accepted Answer

Accounting standards should be neutral and free from bias is not in line with statements by standards-setters that they consider the economic and social consequences of standards on affected parties when setting accounting standards.

Question 17

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

Accepted Answer

Measures of profit only account for financial gains and do not take into consideration the social and environmental costs that may have been incurred by the firm. Therefore, it is important to consider other factors besides profit when evaluating a company's worthiness of support.

Question 18

What 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

Accepted Answer

The opportunistic perspective suggests that firms will choose accounting methods that provide the result desired by the preparers, even if it is not the most objective or efficient method. This perspective assumes that firms will act in their own self-interest rather than in the interest of stakeholders.

Question 19

Financial accounting leads to the generation of:
A) Reports to meet the specific information needs of users
B) Monthly financial reports for management
C) Special purpose financial reports
D) General purpose financial reports

Accepted Answer

Financial accounting generates general purpose financial reports that are intended for a wide range of users, including investors, creditors, regulators, and other external stakeholders. These reports summarize the financial performance and position of an organization over a specific period of time and are prepared in accordance with generally accepted accounting principles. Unlike special purpose financial reports, which are tailored to meet specific information needs of users, general purpose reports provide a comprehensive view of an organization's financial health and facilitate comparisons across different entities. Monthly financial reports for management are typically generated through managerial accounting, which focuses on providing internal stakeholders with timely and relevant financial information to support decision-making.

Question 20

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

Accepted Answer

Private interest theory suggests that regulatory bodies are established not primarily for the public good but are influenced by private interests, implying that the actions and regulations are often shaped by the self-interest of the regulators or the entities they are supposed to regulate.

Quiz 2: The Financial Reporting Environment

Which of the following statements is true about accounting measurements such as profits and assets?

Which of the following is a reason why accounting,and accountants,can be considered very powerful?

Which of the following statements is true about management accounting,compared with financial accounting?

Which of the following is a criticism of the double-entry financial accounting system?

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?

Who has overall responsibility for issuing accounting standards in Australia?

What theoretical perspective suggests that where firms are able to choose accounting methods,they will choose those that best reflect their economic performance?

Which of the following is not an argument for regulation?

Which of the following is a characteristic of capture theory?

Which of the following is not a rationale for regulating financial accounting information?

Which of the following is not a rationale for regulation?

What is the minimum level of accounting knowledge that readers of financial statements are assumed to possess,according to most professional accounting bodies around the world?

Which of the following statements is true about the regulation of accounting practice in its early period of development?

Which of the following statements is not true for accountants in general?

What is the role of the accounting profession in the US with regards to stipulating accounting standards?

Which of the following expectations is not in line with statements by standards-setters that they consider the economic and social consequences of standards on affected parties when setting accounting standards?

Which of the following statements is true?

What theoretical perspective suggests that where firms are able to choose accounting methods,they will choose those that provide the result desired by the preparers?

Financial accounting leads to the generation of:

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?