Accounting Theory
Chapter Exam Questions
Course Introduction
Accounting Theory explores the conceptual frameworks and underlying principles that govern the practice of accounting. The course examines the evolution and development of accounting thought, including historical perspectives, contemporary debates, and the influence of regulatory bodies. Students will analyze various accounting models, measurement theories, and the application of ethical considerations in accounting standards. Through critical evaluation of academic research and real-world case studies, the course aims to deepen understanding of how accounting information impacts decision making, financial reporting, and the broader social and economic environment.
Recommended Textbook
Ethical Obligations and Decision Making in Accounting Text and Cases 2nd Edition by Mintz
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Page 2
Chapter 1: Ethical Reasoning Implications for Accounting
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Sample Questions
Q1) The ancient Greeks thought of the virtues as characteristics of behavior that:
A)Could lead to a good life
B)Make up the "six pillars of character"
C)Support the rights theory
D)All of the above
Answer: A
Q2) When an employee is given a job evaluation, he has a right to expect
A)Fair, but honest evaluations
B)Glowing reports
C)360 degree evaluations from everyone in the firm
D)Evaluations of technical, not personal skills
Answer: A
Q3) The most important duty of public accounting is to the:
A)Securities Exchange Commission
B)Current stockholders
C)Management
D)Investing public
Answer: D
Q4) Why do ethicists consider integrity to be the foundation of ethical behavior?
Answer: Answer will vary
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Chapter 2: Accountants Ethical Decision Process and Professional Judgment
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Sample Questions
Q1) Kevin Lowe's ethical dilemma in the "Eating Time" case can best be described as whether to:
A)Inform his supervisor about a lack of diligence of other staff accountants
B)Date another staff member of the CPA firm
C)Devote time on an audit and not charge it to the job
D)Quit his job because he can't meet the firm's expected quality of work
Answer: C
Q2) The results of studies indicate that CPAs reason primarily at:
A)Stages 1 and 2
B)Stages 2 and 3
C)Stages 3 and 4
D)Stages 4 and 5
Answer: C
Q3) At which stage of Kohlberg's view on ethical development is an individual's actions influenced by group norms?
A)Stage 1
B)Stage 2
C)Stage 3
D)Stage 4
Answer: C
Page 4
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Chapter 3: Corporate Governance and Ethical Management
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Sample Questions
Q1) The board of directors in the Hollinger case violated its:
A)Financial reporting responsibilities
B)Code of ethics
C)Fiduciary obligations
D)All of the above
Answer: C
Q2) Section 404 of the Sarbanes-Oxley Act requires that management:
A)Assess the company's internal controls
B)Certify the financial statements
C)Disclose all executive compensation
D)All of the above
Answer: A
Q3) The stakeholder view emphasizes the obligations of management to:
A)The shareholders
B)The shareholders and creditors
C)All parties impacted by corporate decisions in a significant way
D)The board of directors
Answer: C
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Chapter 4: Aicpa Code of Professional Conduct
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Sample Questions
Q1) Steve Morris, CPA, performs audits for nonpublic clients.Describe the independence obligations of Steve that apply to the performance of professional services for audit clients.
Q2) Which was the ethical concern in the PeopleSoft case?
A)Family relationships between PeopleSoft and EY
B)Nonattest services for PeopleSoft by EY
C)Independence in appearance and fact
D)Managerial services for PeopleSoft by EY
Q3) The SEC's position on independence can best be characterized as:
A)Proscribing certain financial interests with the client
B)Proscribing certain business relationships with the client
C)Restricting the provision of certain nonaudit services to audit clients
D)All of the above
Q4) A common requirement/effect of the commissions and contingent fees rule is:
A)A CPA who accepts such a payment always violates independence
B)The CPA must disclose the acceptance of such a payment to the client
C)A CPA is prohibited from accepting such a form of payment when engaged in attest services for a client
D)All of the above
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Chapter 5: Audit Responsibilities and Accounting Fraud
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Sample Questions
Q1) Under which of the following set of circumstances might the auditors disclaim an opinion?
A)The financial statements contain a departure from generally accepted accounting principles, the effect of which is material
B)There is a client scope restriction that precludes the auditors' compliance with generally accepted auditing standards
C)There has been a material change between periods in the method of the application of accounting principles
D)Differences with management that lead to trust issues on the part of the auditor
Q2) In the Imperial Valley Thrift & Loan case, each of the following were reasons for the going concern issue except for:
A)The magnitude of loan losses
B)Insufficient equity capital
C)Operating losses over an extended period of time
D)Questions about the collectability of outstanding loans
Q3) Explain the auditors' responsibilities to assess fraud including the role of professional judgment.
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Chapter 6: Legal and Regulatory Obligations in an Ethical Framework
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Sample Questions
Q1) Which of the following would normally be considered sufficient to demonstrate due care on the part of the auditor?
A)The auditor had its work reviewed by another audit firm
B)The auditor cites adherence to generally accepted auditing standards (GAAS)
C)No omissions or misstatements have been found in the client's financial statements
D)The auditor signs a statement expressing its unqualified opinion as to the fairness of the financial statements
Q2) Distinguish between an auditor's legal liability under common law and statutory law.Cite specific cases to support your Answer.
Q3) Which of the provisions of the Sarbanes Oxley Act do you think is the most important? Why did you choose that particular provision?
Q4) A privity relationship means that
A)A party may be a user of the financial statements
B)A party may sue if fraud has taken place
C)A party's financial liability is limited
D)A party has a contractual obligation
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Page 8
Chapter 7: Earnings Management and the Quality of Financial Reporting
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Sample Questions
Q1) In surveys of managers, which technique to manage earnings was considered most acceptable?
A)Changing inventory valuation in order to influence earnings
B)Accounting manipulation
C)Manipulating operating decisions
D)Establishing cookie jar reserves
Q2) What is the original motivation by FASB on SPEs?
A)To establish a mechanism to encourage companies to invest in needed assets while keeping related debt of its books.
B)To keep the large amount of debt off the books.
C)To sell non-producing assets to the SPE.
D)To select which assets to sell to the SPEs affecting the gain.
Q3) Which of the following is NOT a technique used by Enron to manage earnings?
A)Used reserves to increase earnings when reported amounts were too low.
B)Deliberately over stated the allowance for uncollectible and adjusted it downward in future years.
C)Used mark-to-market estimates to inflate earnings in violation of GAAP.
D)Selected which operating assets to "sell" to the SPEs, affecting the gain on transfer and earnings effect.
Page 9
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Chapter 8: International Financial Reporting: Ethics and Corporate Governance Considerations
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Sample Questions
Q1) Full-IFRS permits the revaluation of property, plant, and equipment while IFRS for SMEs does not.In the U.S., the cost method (less amortization) must be used.From a conceptual framework perspective, is it possible to justify the use of the revaluation technique? Be sure to describe relevant concepts in answering this question.Why do you think IFRS for SMEs does not permit revaluation while full-IFRS does? Are these inconsistent requirements?
Q2) Compare and contrast corporate governance provisions in the U.S.with those in Germany? Where differences exist, evaluate whether you think the U.S.system is preferable or the German system.
Q3) The number of countries that are expected to adopt IFRS as their home country standards by 2011 is:
A)117
B)150
C)167
D)200
Q4) It has been said that there is more conformity in international auditing standards around the world than on international financial reporting standards.Why do you think this may be the case?
Page 10
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