Question 1

Explain and discuss why,under signalling theory,it is predicted that firms will disclose more information than is demanded.

Accepted Answer

The answer of Explain and discuss why,under signalling theory,it is...

Question 2

The following arguments are philosophical criticisms of positive accounting theory,except:

Accepted Answer

The argument regarding poorly specified cross-sectional models is not a philosophical criticism, but rather a methodological criticism of positive accounting theory. The other arguments listed are philosophical criticisms.

Question 3

The statement that is true is:

Accepted Answer

Politically sensitive firms are likely to understate profits because they may want to avoid any negative attention or scrutiny from government agencies or the public. Overstating profits could possibly lead to accusations of taking advantage of their political connections.

Question 4

'Politically sensitive firms are likely to understate profits' ' J.Godfrey,et el,'Accounting Theory',7^th Ed.p.384.Explain why this may be so and which firms are likely to be 'politically sensitive'.

Accepted Answer

The answer of 'Politically sensitive firms are likely to understate...

Question 5

Which of these research findings is not true?

Accepted Answer

The answer of Which of these research findings is not...

Question 6

The statement that is correct concerning Australia is:

Accepted Answer

This statement is correct as most debt covenants constrain liabilities as a proportion of assets. The other statements are not related to Australia or debt covenants.

Question 7

Traditional conservatism in accounting means:

Accepted Answer

Traditional conservatism in accounting emphasizes the principle of being cautious in financial reporting, which includes anticipating potential losses but not recognizing gains until they are realized. This approach aims to present a company's financial situation in a more conservative (or less optimistic) light to avoid overstating the company's financial health.

Question 8

The statement that does not relate to the information perspective on accounting policy choice is:

Accepted Answer

The information perspective focuses on how accounting choices convey information about the firm's performance and prospects to outside parties, rather than on how accounting policies are used in contracts or agreements, which is the focus of contracting theory.

Question 9

Which of these is not the reason why there is generally less demand and incentive for the production of information in political markets than in capital markets?

Accepted Answer

This is actually one of the reasons why there is more demand for information in capital markets compared to political markets. In capital markets, individuals are driven by the desire to increase their wealth and therefore the probability that their actions will affect their wealth is high, leading to higher demand for information.

Question 10

Outline how the demand for auditing can be explained by agency theory as part of monitoring and bonding activities and costs.

Accepted Answer

The answer of Outline how the demand for auditing can...

Question 11

Explain and discuss why the firm can be described as a 'nexus of contracts.

Accepted Answer

The answer of Explain and discuss why the firm can...

Question 12

The change that will increase reported profit (assuming inflation)is:

Accepted Answer

Switching from LIFO (Last-in-First-Out) to FIFO (First-in-First-Out) method of inventory valuation assumes that the older lower-priced inventory items will be sold first, resulting in a lower cost of goods sold and higher reported profits. This change is more effective in an inflationary environment where prices are increasing.

Option B and C may also increase reported profits, but it depends on the specific circumstances and should be evaluated on a case-by-case basis.

Question 13

The statement in relation to issues for auditors in relation to agency theory that is not true is:

Accepted Answer

Explanation: The statement that smaller auditing firms have more to lose by failing to report a breach in a client's accounts than larger audit firms is not necessarily true. The impact of failing to report a breach can be significant for any auditing firm, regardless of its size, affecting its reputation, credibility, and ability to attract future business. However, larger firms might have more resources to manage the fallout and may be perceived as having more to lose in terms of client base and financial stability.

Question 14

Distinguish between the ex ante efficient contracting approach and ex post opportunism.

Accepted Answer

The answer of Distinguish between the ex ante efficient contracting...

Quiz 11: Positive Theory of Accounting Policy and Disclosure

Explain and discuss why,under signalling theory,it is predicted that firms will disclose more information than is demanded.

The following arguments are philosophical criticisms of positive accounting theory,except:

The statement that is true is:

'Politically sensitive firms are likely to understate profits' ' J.Godfrey,et el,'Accounting Theory',7^th Ed.p.384.Explain why this may be so and which firms are likely to be 'politically sensitive'.

Which of these research findings is not true?

The statement that is correct concerning Australia is:

Traditional conservatism in accounting means:

The statement that does not relate to the information perspective on accounting policy choice is:

Which of these is not the reason why there is generally less demand and incentive for the production of information in political markets than in capital markets?

Outline how the demand for auditing can be explained by agency theory as part of monitoring and bonding activities and costs.

Explain and discuss why the firm can be described as a 'nexus of contracts.

The change that will increase reported profit (assuming inflation) is:

The statement in relation to issues for auditors in relation to agency theory that is not true is:

Distinguish between the ex ante efficient contracting approach and ex post opportunism.

Quiz 11: Positive Theory of Accounting Policy and Disclosure

Explain and discuss why,under signalling theory,it is predicted that firms will disclose more information than is demanded.

The following arguments are philosophical criticisms of positive accounting theory,except:

The statement that is true is:

'Politically sensitive firms are likely to understate profits' ' J.Godfrey,et el,'Accounting Theory',7th Ed.p.384.Explain why this may be so and which firms are likely to be 'politically sensitive'.

Which of these research findings is not true?

The statement that is correct concerning Australia is:

Traditional conservatism in accounting means:

The statement that does not relate to the information perspective on accounting policy choice is:

Which of these is not the reason why there is generally less demand and incentive for the production of information in political markets than in capital markets?

Outline how the demand for auditing can be explained by agency theory as part of monitoring and bonding activities and costs.

Explain and discuss why the firm can be described as a 'nexus of contracts.

The change that will increase reported profit (assuming inflation) is:

The statement in relation to issues for auditors in relation to agency theory that is not true is:

Distinguish between the ex ante efficient contracting approach and ex post opportunism.

'Politically sensitive firms are likely to understate profits' ' J.Godfrey,et el,'Accounting Theory',7^th Ed.p.384.Explain why this may be so and which firms are likely to be 'politically sensitive'.