Political Economy of Accounting
Final Exam Questions
Course Introduction
The Political Economy of Accounting examines how accounting practices and standards are influenced by broader social, economic, and political forces. This course explores the ways in which accounting serves not only as a technical tool for financial reporting and decision-making but also as a mechanism for power, control, and resource allocation within organizations and society. Topics include the role of regulatory bodies, the impact of lobbying and special interests, the interplay between accounting and corporate governance, and the consequences of accounting policies on public and private sectors. Through case studies and critical analysis, students will develop an understanding of the contested and evolving nature of accounting in a global context.
Recommended Textbook
Accounting Theory Conceptual Issues in a Political and Economic Environment 9th Edition by Harry
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Chapter 1: An Introduction to Accounting Theory
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Q1) Which of the following methods of valuing an asset is based on the amount that would be paid for it in markets where the asset would ordinarily be acquired?
A)Replacement cost
B)Entry value
C)Exit value
D)Both a and b
Answer: D
Q2) Throughout the financial history of the United States, current value has been the accepted valuation system for published financial statements.
A)True
B)False
Answer: False
Q3) The terms calculation and measurement both refer to the valuation of a real phenomena or attribute.
A)True
B)False
Answer: False
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Chapter 2: Accounting Theory and Accounting Research
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Q1) Which of the following characteristics does \(\underline{not}\) apply to the decision-model approach to research?
A)It asks what information is needed for making decisions.
B)It asks what information users want.
C)It concentrates on what information is useful for particular decisions.
D)It has a normative and deductive orientation.
Answer: B
Q2) Critical accounting research assumes a sharp separation between the researcher and his or her field of investigation.
A)True
B)False
Answer: False
Q3) Of the research methods discussed in the text, the critical accounting approach is the closest to the standard-setting function.
A)True
B)False
Answer: False
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Chapter 3: Development of Institutional Structure of Financial Accounting
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Q1) The Committee on Accounting Procedures (CAP) represented the profession's first sustained attempt to develop workable financial accounting rules.
A)True
B)False
Answer: True
Q2) The FASB has made more extensive use of research than did its predecessors.
A)True
B)False
Answer: True
Q3) An important role of the AICPA is to curb "shopping for accounting principles."
A)True
B)False
Answer: True
Q4) Congress has recently been concerned with the laxity of auditors in detecting and disclosing fraud.
A)True
B)False
Answer: True
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Chapter 4: The Economics of Financial Reporting Regulation
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Q1) What are the arguments against regulation of financial reporting?
Q2) An argument supporting accounting regulation is that the production costs of mandatory reporting requirements may be small since most of the basic information is produced as a by-product of internal accounting systems.
A)True
B)False
Q3) Which of the following theories argues that the group being regulated eventually comes to use the regulatory process to promote its own self-interest?
A)Lifecycle theory
B)Agency theory
C)Signalling theory
D)Contracting theory
Q4) The present financial disclosure system imposes costs on users rather than the companies themselves.
A)True
B)False
Q5) Accounting regulation prevents fraud.
A)True
B)False
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Chapter 5: Postulates, Principles, and Concepts
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Q1) Discuss the residual equity theory and its assumptions. Include a description of the accounting equation used and how income would be computed.
Q2) Who are residual equity holders?
A)Preferred stockholders
B)Managers
C)Bondholders
D)Common stockholders
Q3) Which of the following is not a true statement regarding ARS 1 and ARS 3?
A)The authors were commissioned to find postulates and principles that would lead to a measure of true income.
B)The postulates were not complete and could not exclude all value systems other than the one prescribed in the principles.
C)The authors were able to identify a single concept of income that was superior to others.
D)Nothing is said about the users of accounting information and what their needs and abilities might be.
Q4) Distinguish between input-oriented principles and output-oriented principles and list at least three principles in each category.
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Chapter 6: The Search for Objectives
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Q1) The Trueblood report noted that, during the short run, cash flows are a better predictor of cash-generating power than are earnings.
A)True
B)False
Q2) Which of the following documents expressed the opinion that a choice among accounting valuation systems could not be made because of the diversity of users?
A)"Objectives of Financial Statements" (Trueblood Committee Report)
B)"Basic Concepts and Accounting Principles Underlying Financial Statements of Business Enterprises" (APB Statement 4)
C)"A Statement of Basic Accounting Theory" (ASOBAT)
D)"Statement of Accounting Theory and Theory Acceptance" (SATTA)
Q3) The major objectives of financial statements are:
A)capital maintenance measurement and adaptability.
B)accountability and adaptability.
C)predictive ability and accountability.
D)capital maintenance and predictive ability.
Q4) List and define the four standards for evaluating accounting that are at the heart of ASOBAT.
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Chapter 7: The Fasbs Conceptual Framework
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Q1) The conceptual framework is an attempt to provide a metatheoretical structure for financial accounting.
A)True
B)False
Q2) Codification is a justification of the standard-setting process itself rather than of the individual standards that result from that process.
A)True
B)False
Q3) Which of the following is not true regarding the FASB's conceptual framework?
A)It is supposed to embody a system of interrelated objectives.
B)It is an attempt to provide a metatheoretical structure for financial accounting.
C)It establishes generally accepted accounting principles.
D)It includes seven statements of financial accounting concepts.
Q4) The conceptual framework maintains that accounting reports should become the only relevant source of information about enterprises.
A)True
B)False
Q5) Discuss the criticisms that of SFAC No. 6?
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Chapter 8: Usefulness of Accounting Information to
Investors and Creditors
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Q1) Which of the following statements is\(\underline{not}\) supported by empirical evidence from capital market research?
A)Accounting earnings appear to have information content and to affect security prices.
B)Alternative accounting policies with no apparent direct or indirect cash flow consequences to the firm do not seem to affect security prices.
C)There are no incentives to choose certain alternative accounting policies over others because there are never cash consequences.
D)Accounting-based risk measures correlate with market risk measures, suggesting that accounting numbers are useful for risk assessment.
Q2) The assumption of the capital asset pricing model is that individual securities are priced solely on unsystematic risk.
A)True
B)False
Q3) Discuss the results of the study by Loh and Mian as they relate to the importance of earnings forecasting.
Q4) What are the weaknesses of capital market research?
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Chapter 9: Uniformity and Disclosure: Some Policy-Making
Directions
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Q1) How does the concept of uniformity relate to comparability in the accounting literature?
Q2) An event, as defined in SFAC No. 6, is "a happening of consequence to an entity."
A)True
B)False
Q3) Environmental conditions are elements beyond managerial control.
A)True
B)False
Q4) What is meant by relevant circumstances? Describe the two types of relevant circumstances.
Q5) What is Regulation FD, and how does it relate to the disclosure of information?
Q6) Viewing each interim period as a separate period standing on its own is called: A)the integral view.
B)the disjointed view. C)the discrete view. D)the linked view.
Q7) Whenever possible, flexibility should be used in formulating accounting policy. A)True
B)False
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Chapter 10: International Accounting
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Q1) The term International Financial Reporting Standard (IFRS) refers to:
A)the new numbered series of pronouncements that the IASB is issuing.
B)the entire body of IASB pronouncements, including International Accounting Standards issued between 1973 and 2001.
C)both a and b.
D)none of the above.
Q2) Which of the following is true regarding American securities exchanges?
A)The US and the UK have a system of reciprocity in place for listing the securities on one another's stock exchanges.
B)The SEC does not allow foreign companies that do not use U.S. GAAP to be listed on American stock exchanges.
C)Most Japanese firms listed for trading on American securities exchanges use U.S. GAAP.
D)Canadian companies may list existing shares for trading on American stock exchanges, but may not list new stock issues.
Q3) The United States is not a member of the G4 +1.
A)True
B)False
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Chapter 11: The Balance Sheet
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Q1) Which one of the following measurement bases applies to receivables?
A)Historical cost
B)An approximation of net realizable value
C)Selling price through factoring
D)Discounted present value
Q2) Although the revenue-expense approach is the basic orientation of current financial reporting practice, some specific accounting standards reflect an asset-liability approach.
A)True
B)False
Q3) A constructive obligation is one that is implied rather than expressly written.
A)True
B)False
Q4) Unrealized capital adjustments in owners' equity are becoming more prevalent as a result of SFAC No. 130 on comprehensive income.
A)True
B)False
Q5) Explain how assets and liabilities should be classified on the balance sheet. What are the problems with this classification method?
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Chapter 12: The Income Statement
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Q1) Which one of the following summary indicators is the most used?
A)Return on investment
B)Earnings per share
C)Debt-to-equity ratio
D)Current ratio
Q2) SFAS No. 130 allows all but which of the following regarding comprehensive income?
A)Reporting comprehensive income in a combined statement of financial performance
B)Reporting comprehensive income in a separate statement of comprehensive income which would begin with net income
C)Reporting comprehensive income within a statement of changes in equity
D)Not reporting comprehensive income
Q3) Return on investment is the most-used summary indicator to date.
A)True
B)False
Q4) A major problem with SFAS No. 114 is that it applies only to creditors, while debtors are still governed by SFAS No. 15.
A)True
B)False
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Chapter 13: Statement of Cash Flows
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Q1) In the cash flow statement, cash is defined as:
A)quick assets.
B)literal cash on hand or on demand deposit, plus cash equivalents.
C)literal cash on hand or on demand deposit, plus marketable securities.
D)all of the above.
Q2) Which of the following methods starts with accrual income and adjusts it for the non-cash items it contains?
A)The indirect method
B)The direct method
C)Both a and b
D)None of the above
Q3) Which of the following is true about the Statement of Cash Flows (SCF)?
A)The SCF is more subject to manipulation than the income statement.
B)Cash flow from financing activities is considered to be the most important part of the SCF.
C)Classification rules prevent manipulation of cash flows from operating activities on the SCF.
D)Flexibility in applying classification rules on the SCF allows companies in the same industry to give vastly different perspectives.
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Chapter 14: Income Taxes and Financial Accounting
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Q1) Which of the following is not a true statement regarding SFAS No. 109?
A)It maintained a comprehensive allocation orientation.
B)It requires a matching orientation.
C)It has an asset-liability viewpoint.
D)It retained the mandatory nature of income tax allocation.
Q2) With the new form of equities approach, the credit arising under income tax allocation represents a subordinated equity investment in the firm by the federal government.
A)True
B)False
Q3) What are the arguments for discounting deferred tax liabilities?
Q4) Under which of the following methods must allocation take place as long as timing differences arise, despite the possibility of relevant circumstantial differences?
A)Comprehensive allocation
B)The net-of-tax method
C)Partial allocation
D)The new form of equities method
Q5) Explain how the matching concept is applied in tax allocation and how this differs from other applications of matching.
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Chapter 15: Pensions and Other Postretirement Benefits
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Q1) Which of the following accounting standards began a shift toward an asset-liability orientation in pension reporting?
A)APB Opinion 8
B)SFAS No. 87
C)SFAS No. 106
D)SFAS No. 132
Q2) Describe the two broad types of pension plans and identify how they differ from one another.
Q3) What was the main argument of ARB 47?
A)ERISA did not create a pension liability except in the likelihood of plan termination.
B)The cost of providing pension benefits should be spread over the remaining service life of employees.
C)Pension expense should be computed using any one of five acceptable accumulated benefit methods, regardless of cash contributions.
D)The balance sheet should report unfunded vested benefits.
Q4) SFAS No. 87 is no longer in effect, having been replaced by SFAS 132.
A)True
B)False
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Chapter 16: Leases
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Q1) Which of the following is \(\underline{not}\) one of the criteria that have been suggested for lease capitalization?
A)Lessee builds up a material equity in the leased property.
B)Lessee pays costs normally incident to ownership.
C)Lease is between related parties.
D)Lease agreement is cancelable.
Q2) Which of the following is \(\underline{not}\) a characteristic of a true lease?
A)Government agencies recognized the lessee as the owner of the leased asset.
B)The rentals charged under leasing plans without an option to purchase approximate the rentals charged under plans with such an option.
C)The lessor retains the right to inspect the equipment during the term of the lease.
D)There is no mention of interest as a factor in rental charges.
Q3) It was in the 1940s that accounting policy-makers first responded to the lease accounting problem.
A)True
B)False
Q4) Describe the two types of capital leases that exist from the lessor's point of view.
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Chapter 17: Intercorporate Equity Investments
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Q1) Which of the following does not apply to the Bretton Woods Agreement of 1944?
A)The developments surrounding the agreement have heightened the importance of how translation of foreign-based operations should be handled.
B)It established controlled exchange rates worldwide.
C)It allowed monetary authorities to buy or sell gold or foreign exchange with the intent of maintaining an allowable exchange rate fluctuation.
D)It collapsed in 1971 resulting in freer and more volatile exchange rate fluctuations.
Q2) A _________ occurs when the shares of two or more subsidiaries are distributed to the combinor's shareholders in exchange for all of the parent's shares with the parent then liquidated.
A)spin-off
B)split-off
C)split-up
D)sell-off
Q3) The essence of SFAS No. 142 is that goodwill must now be amortized over 40 years.
A)True
B)False
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