Graduate Accounting Seminar Practice Exam - 493 Verified Questions
Chapter 3: Role of Theory in Accounting Regulation
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Sample Questions
Q1) In which of these countries does taxation law have the greatest influence on financial accounting?
A)Australia
B)US
C)UK
D)France
Answer: D
Q2) Regulatory capture has been found to be particularly pronounced in which of the following situations?
A)Where there are a large number of client entities
B)The regulated industry controls the information needed for regulation
C)The information and product lack complexity
D)The regulated industry has minimal resources compared to the regulatory agency
Answer: B
Q3) International Standards on Auditing (ISA)are developed by the IASB.
A)True
B)False
Answer: False
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Chapter 4: Theory Underpinning Accounting Standards
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Q1) The IASB Framework includes four principal qualitative characteristics,understandability,relevance,reliability and comparability (paragraphs 24-42).Explain the meaning of each of these characteristics and discuss the changes in the list of characteristics that is proposed by the Framework exposure draft.
Q2) Under the IASB Framework exposure draft,the qualitative characteristic:
A)Reliability has been replaced with faithful representation
B)Reliability has been replaced with trustworthiness
C)Timeliness has been replaced with exactness
D)Relevance has been replaced with significance
Q3) Discuss the effects on accounting reporting of the movement in the early 1960's from a stewardship objective to a decision-usefulness objective.
Q4) Discuss the strengths and weaknesses of principles-based accounting standards compared to rule-based standards.
Q5) Since its conceptual framework was first published in 1989 no new standards have been issued by the IASB that conflict with the Framework.
A)True
B)False
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Page 6
Chapter 5: Measurement
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Q1) Emma has collected data on the ages of students in a third year accounting course.The data has been group into the following age ranges:
0-18
19-24
24-30
31-35
35+
Which of these measurement scales would her data be measured on?
A)Nominal
B)Ordinal
C)Interval
D)Ratio
Q2) What is the main problem in determining accuracy in accounting?
A)The measurement is not reliable
B)The measurement does not give precise results
C)The true value of the measurement is not known
D)There is no repetition of operations in the measurement
Q3) A nominal scale ranks the objects in question with respect to a given property.
A)True
B)False
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Chapter 6: Accounting Measurement Systems
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Q1) Which of the following use of measurement concepts is not correct according to the international accounting standards?
A)Measurement of provisions is determined by the expected present value method
B)The residual value of an asset should be calculated as its discounted value
C)Property,plant and equipment may be valued at historical cost or revalued amount
D)Financial statements of an entity that operates in a hyperinflationary economy are adjusted using a general price level index
Q2) The argument that is descriptive of exit price accounting is:
A)It takes into account the opportunity cost of holding assets
B)The values of non-monetary assets are adjusted to measure changes in the market selling prices of those assets
C)When considering the financial position of the firm and the results of the firm's operations changes in the general purchasing power of money is taken into account
D)All of the above
Q3) Sterling defines profit as the difference between capital at two points in time.
A)True
B)False
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Chapter 7: Assets
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Q1) The statement concerning auditing and fair value that is true is:
A)Using fair values for assets could appear more attractive to management and more risky for auditors during periods of rising asset values
B)Further research is needed on the auditing of fair values
C)Auditors will have to become valuers
D)All of the above are true
Q2) The statement concerning the measurement of tangible assets that is not true is:
A)The traditional approach has been to measure tangible assets at historical cost
B)IAS 16 requires the use of the revaluation model for subsequent measurement of tangible assets
C)IAS 16 permits the use of a current value measurement model for tangible assets
D)None of the statements are untrue,i.e.all are true statements
Q3) The use of a current value model for intangible assets is:
A)Common
B)Mandatory
C)Rare
D)Prohibited
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Chapter 9: Revenue
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Q1) If revenue for 2010 is understated then:
A)Profit for 2010 is understated and net assets are overstated
B)Profit for 2010 is overstated and net assets are overstated
C)Profit for 2010 is understated and net assets are understated
D)None of the above
Q2) Where revenue is not recognised until cash is received it is possible that the revenue recognition criteria 'substantial completion' has not been met prior to this event.
A)True
B)False
Q3) Explain why the point of sale ' is selected as being generally the most appropriate time to measure and record revenue ' J.Godfrey,et el,'Accounting Theory',7<sup>th</sup> Ed.p.306.
Q4) Which of these is not a suggestion of the IASB/FASB joint project on financial statement presentation?
A)Multiple income statements
B)Separate disclosure of performance and remeasurement
C)The fact that an item is not realised will not preclude it from being included in the income statement
D)All are suggestions
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Chapter 10: Expenses
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Q1) For an outflow to be recognised as an expense it must be probable that the outflow of future economic benefits has occurred or the expense must be able to be measured with reliability.
A)True
B)False
Q2) Under the FASB's Concept Statement No 6,the statement that is correct is:
A)There is no distinction between expenses and losses
B)Losses are regarded as always arising outside the course of the ordinary activities of the entity
C)The treatment of losses is similar to that of the Framework
D)All of the statements are correct
Q3) The Framework in relation to conservatism:
A)Explicitly states that conservatism is a bias to be avoided
B)Requires that no profits be anticipated but all losses must be anticipated
C)Is not explicit about the application of conservatism
D)Because of conservatism requires a higher standard of evidence for the recognition of expenses than for revenue
Q4) The Framework links the definition of expenses to their relationship to revenue.
A)True
B)False
Page 12
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Chapter 11: Positive Theory of Accounting Policy and Disclosure
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Q1) Explain and discuss why,under signalling theory,it is predicted that firms will disclose more information than is demanded.
Q2) Managers and shareholders have differing incentives regarding the firm.The statement regarding incentives that is true is:
A)Because shareholders' investment portfolios can be widely diversified they are less likely to want to undertake risky projects than managers
B)A manager can fully diversify his/her risk by investing in other firms
C)Managers may hold off paying dividends to owners in order to 'empire build'
D)We would expect the horizon problem to lessen as a manager's age increases
Q3) Under signalling theory it is predicted that firms will disclose less information than is demanded.
A)True
B)False
Q4) Who were generally regarded as the pioneers in developing the agency theory?
A)Alchian and Demsetz
B)Jensen and Meckling
C)Smith and Warner
D)Whittred and Zimmer
Page 13
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Chapter 12: Capital Market Research
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Q1) The factor that has an incorrect association or relation with the earning response coefficients (ERC)is:
A)There is a negative association between financial leverage and the ERC
B)Industries with the greatest perceived outcome uncertainty would have the smallest ERCs
C)High-growth firms will have higher ERCs compared to low-growth firms
D)Risk negatively affects the ERC
Q2) Which of these is true with respect to information transfer research?
A)The research is based on the premise that positive profits for one firm in an industry reflects improved conditions in that industry
B)The variance of abnormal returns for competing firms decreases when another firm in the same industry makes a profit announcement
C)There are significant price reactions by non-announcing firms to early announcers sales and profit changes
D)B and C only
Q3) Explain what accounting researchers mean by the market 'being efficient'.
Q4) 'There is increasing evidence that markets can be fooled by accounting numbers'.' J.Godfrey,et el,'Accounting Theory',7<sup>th</sup> Ed.p.442.Discuss.
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Page 14
Chapter 13: Behavioural Research
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Q1) Briefly explain the Brunswik lens model and what factors make it a better predictor of the event of interest than the person from whom the model was derived.
Q2) Research shows that investors react as though they perceive auditor independence as impaired when auditors receive non-audit service revenue from their audit clients even if actual auditor independence is not affected.
A)True
B)False
Q3) Which of these is true of the research evidence obtained in the literature regarding the presentation of financial information?
A)Decision makers are readily able to use information presented in a graphical format
B)On the whole,research evidence does not suggest that accounting report formats influence decision-making
C)The question the decision maker is answering and the form of presentation interactively affect performance
D)The theory regarding which forms of information presentation are most appropriate is well developed
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Chapter 14: Emerging Issues in Accounting and Auditing
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Q1) The statement that is not true in relation to the internationalisation of auditing standards is:
A)Many multinational firms voluntarily choose to have their financial statements audited according to international accounting standards
B)Auditing standards are being internationalised for the same reasons as accounting standards were internationalised
C)In the past the International Auditing and Assurance Standards Board (IAASB)has been praised for its independence from the auditing profession
D)None of the statements are untrue,i.e.all are true statements
Q2) The statement concerning the XBRL system of reporting that is not true is:
A)It was developed by the IASB
B)It is required to be used by the largest companies to file their reports
C)It is hoped that it will allow much faster analysis of company financial data by a wider group of users,with less error.
D)None of the statements is untrue,i.e.all are true statements
Q3) What,in your opinion,was the role of fair value accounting in the Global Financial Crisis?
Q4) Discuss how social accounting differs from financial accounting.
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