Accounting Theory
Chapter Exam Questions
Course Introduction
Accounting Theory explores the concepts, principles, and frameworks that form the foundation of accounting practices. The course examines the development and rationale behind various accounting standards, the role of regulation, ethical considerations, and approaches to financial reporting. Students will analyze historical and contemporary issues in accounting theory, evaluate different theoretical perspectives, and understand how theory influences the formulation and application of accounting standards in a global context. Emphasis is placed on critical thinking and the ability to apply theoretical insights to real-world accounting problems.
Recommended Textbook
Contemporary Issues in Accounting 2nd Edition by Michaela Rankin
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Page 2
Chapter 1: Contemporary Issues in Accounting
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Sample Questions
Q1) How can theories be of benefit in accounting?
A)they assist us in describing and explaining current accounting practice only.
B)they assist us to improve accounting practice and they provide principles to take into account when taking action or making decisions.
C)they help to identify problems and deficiencies with current accounting practice but do not assist us in improving accounting practice.
D)they assist us to predict and improve accounting practice only.
Answer: B
Q2) An example of how theory can help to identify problems and deficiencies with current accounting practice and improve accounting practice is:
A)corporate social responsibility theory.
B)the conceptual framework for accounting.
C)agency theory and the conceptual framework for accounting.
D)corporate social responsibility theory and the conceptual framework for accounting.
Answer: D
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Chapter 2: The Conceptual Framework for Financial Reporting
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Q1) The accounting conceptual framework is what kind of theory?
A)Positive.
B)Abstract.
C)Normative.
D)Emergent.
Answer: C
Q2) It is argued that the Conceptual Framework is descriptive,not prescriptive,because:
A)It simply describes accounting principles as currently practiced and applied.
B)Its purpose is to try to improve practice rather than simply reflecting and giving approval to existing accounting principles and practice.
C)It describes what should happen in practice.
D)None of the above.
Answer: A
Q3) Which of the following questions does the Conceptual Framework NOT answer?
A)What type of information should be included in financial reports?
B)Who are financial reports for?
C)What is the purpose of the financial reports?
D)What exact measurement basis should be used in financial reports?
Answer: D
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Chapter 3: Standard Setting
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Q1) Which of the following is a fundamental assumption of Bushfire theory?
A)People are not influenced by media when it comes to regulation.
B)People are proactive when it comes to regulation.
C)People are reactive when it comes to regulation.
D)People are apathetic when it comes to regulations.
Answer: C
Q2) Disadvantage of principles-based standards is:
A)They supply broad guidelines.
B)They allow mangers to select policies that may not reflect the substance of a transaction.
C)They allow accountants to use professional judgement.
D)All of the above.
Answer: B
Q3) Which of the following has NOT been identified as a problem with Australia accepting the international harmonisation of its accounting standards?
A)Too few countries have adopted international accounting standards.
B)IFRS standards tend to be more complex.
C)Compromises sometimes need to be made when creating standards.
D)None of the above,they are all problems.
Answer: A
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Chapter 4: Measurement
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Sample Questions
Q1) Information produced using fair value as the measurement base is considered:
A)Less Neutral.
B)More relevant.
C)More faithfully represented.
D)All of the above.
Q2) Which of the following is NOT a limitation of measurement in accounting?
A)It is impossible to compare entities over a period of time.
B)There is little agreement on what measurement methods should be used.
C)Measurement can be quite subjective.
D)There are some accounting items that are not easily measured.
Q3) Which of these is a defence of current cost accounting?
A)It specifically recognises future technological changes in profit determination.
B)It is the most objective of the proposed accounting methods.
C)Relevant current events of the accounting period should be accounted for to maintain the usefulness of accounting information for decision-making.
D)All of the above are defences.
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Chapter 5: Theories in Accounting
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Q1) A normative theory:
A)Is based on what should be the case given a certain objective.
B)Is completely divorced from reality.
C)Describes,explains or predicts activities.
D)Only focuses on normal activities.
Q2) Which of the following theories have been used to explain voluntary disclosure in the annual report?
A)Institutional Theory.
B)Stakeholder Theory.
C)Legitimacy Theory.
D)All of the above.
Q3) Agency theory would hold that managers on compensation contracts which have bonuses tied to a current measure of performance would prefer to:
A)Smooth income using either expensing or capitalising.
B)Be indifferent to expensing or capitalising transactions.
C)Expense transactions rather than capitalise them.
D)Capitalise transactions rather than expense them.
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Chapter 6: Products of the Financial Reporting Process
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Q1) Income smoothing:
A)Is only possible when sufficient profits are regularly made.
B)Aims to produce a steady growth in the profit stream.
C)Transfers wealth from new shareholders to management.
D)All of the above.
Q2) AASB 134 Interim Reporting mandates:
A)That interim financial reports should be prepared at least once per year.
B)The minimum contents of interim financial reports.
C)Who must prepare interim financial reports.
D)All of the above.
Q3) Manipulation of reported earnings:
A)Affects wealth transfers between the company and others.
B)Can be both legal and illegal.
C)Includes income smoothing.
D)All of the above.
Q4) What is NOT one of the key elements of control?
A)Influence over returns.
B)Ownership.
C)Variable returns.
D)None of the above,i.e.they are all elements of control.
Page 8
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Chapter 7: Corporate Governance
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Q1) Which of the following statements is most correct?
A)Corporate governance not relevant to family entities.
B)Corporate governance is only relevant to listed entities.
C)Corporate governance is only relevant to developed economies.
D)Corporate governance is relevant to most companies globally.
Q2) Which of the following is NOT one of the ASX's Principles of Corporate Governance?
A)Establish an audit committee.
B)The majority of directors should be executive.
C)Promote ethical and responsible decision making.
D)Ensure level and composition of remuneration is sufficient and reasonable.
Q3) Which of the following is NOT an example of corporate governance practice?
A)Formation of a nominating committee to identify potential new directors.
B)Codes of conduct for directors.
C)Requirements that most board directors be independent.
D)None of the above,i.e.they are all examples of corporate governance.
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Chapter 8: Capital Markets Research and Accounting
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Sample Questions
Q1) One of the criticisms of capital markets research is:
A)It is only normative research.
B)It focuses too much on social preferences.
C)It is mainly focussed on US data.
D)It is mainly qualitative.
Q2) Value relevance studies have shown that:
A)Losses are strongly associated with a firms ability to generate future cash flows.
B)Reported earnings are good measures of value-relevant events.
C)Any relationship between accounting earnings and share returns is weak.
D)None of the above.
Q3) Which of the following is not an anomaly that has been noted to the efficient markets hypothesis?
A)Investor interest varies according to the market the share is traded in.
B)Market prices appear to react to more than just accounting information.
C)Returns of firms followed by analysts are superior to those that are not.
D)The returns of small listed firms appear to be smaller than those of larger firms.
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Chapter 9: Earnings Management
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Q1) Why does income smoothing generally lead to a higher share value?
A)It is perceived as increasing the chance of insolvency.
B)It reduces the perceived risk of the company.
C)It leads to higher perceived income.
D)None of the above.
Q2) Which of the following would be considered fraudulent accounting?
A)Liberal credit terms and estimation of provision for doubtful debts.
B)Recognising revenue when services are prepaid but only partially performed.
C)Capitalising advertising costs.
D)Restating useful life and residual value of non-current assets upwards.
Q3) Earnings management:
A)Has a range of meanings.
B)Is illegal.
C)Is considered to always be harmful to shareholders.
D)None of the above.
Q4) Research into IPOs and earnings management have indicated:
A)The market does discover upwards earning management.
B)Investors expect upwards earning management.
C)Firms do not engage in upwards earnings management.
D)None of the above.
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Chapter 10: Fair Value Accounting
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Q1) Why does the new definition focus on an exit price when valuing and asset or liability?
A)It introduces the concept of an external party into the transaction.
B)It focuses on the current value.
C)It is specific to the item being considered.
D)All of the above.
Q2) When fair valuing a motor vehicle which of the following is least likely to be important?
A)Colour.
B)Age.
C)Make and model.
D)Kilometres travelled.
Q3) Where there is a difference between fair value at initial recognition and cost,assuming no other standard prohibits it,the entity should?
A)Immediately adjust the value and recognise profit or loss.
B)Ignore the difference as there should be no day one gain or loss.
C)Amortise the difference over the useful life of the item.
D)Pay more or less for the item to make the figures equal.
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Chapter 11: Sustainability and Environmental Accounting
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Q1) Stakeholder power is general considered to relate to which of the following factors?
A)How vocal they are prepared to be.
B)The degree of control they have over resources required by the organisation.
C)The amount of impact the organisation has on them.
D)None of the above.
Q2) The UN's Principles of Responsible Investment have main been adopted by which types of organisations?
A)Institutional Investors.
B)Governments.
C)Mining Companies.
D)Builders.
Q3) An EMS is a:
A)Ecological Maintained Source.
B)Environmental Management System.
C)Emissions Measurement Scheme.
D)Ethical Mission Statement.
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Chapter 12: International Accounting
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Q1) Which of the following is NOT considered a challenge for international business operations when faced with accounting diversity?
A)It reduces access to international investments.
B)National accounting regimes are inferior to international accounting.
C)It is costly to restate financial statements.
D)None of the above,i.e.they are all a challenge.
Q2) In Australia IFRSs are required to be used by:
A)All listed entities.
B)Consolidated entities only.
C)All reporting entities.
D)Multinational Entities.
Q3) One significant barrier to the adoption of international accounting standards in Islamic countries has been:
A)Refusal to compartmentalise religious and secular life.
B)The requirement to pay zakat (a religious levy).
C)The prohibition on charging interest.
D)All of the above.
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