Professional Accounting Theory
Midterm Exam
Course Introduction
Professional Accounting Theory explores the fundamental principles, concepts, and frameworks underlying the practice and evolution of accounting in a professional context. The course examines the theoretical foundations that inform accounting standards, policies, and ethical guidelines, analyzing how these theories influence decision-making, financial reporting, and regulatory compliance. Through critical evaluation of key accounting theories, students will gain an understanding of their practical application to complex business scenarios and the broader impacts on stakeholders, society, and the global financial environment. The course emphasizes the development of analytical and critical thinking skills necessary to navigate and contribute to the ongoing debates and advancements within the accounting profession.
Recommended Textbook
Financial Accounting Theory 4th Edition by Craig Deegan
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12 Chapters
359 Verified Questions
359 Flashcards
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Chapter 1: Introduction to Financial Accounting Theory
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Sample Questions
Q1) Which of the following statements is correct about generalising the findings of a study to the general population,based on particular samples?
A) It is not possible to make generalisations unless you study the entire population.
B) It is possible to make generalisations as long as the sample is representative of the population.
C) It is possible to make generalisations as long as the sample includes at least 50 per cent of the population.
D) It is possible to make generalisations if the sample is representative, and its size allows statistical inferences to be made.
Answer: D
Q2) A theory that predicts that,if certain conditions are met then particular accounting practices will be observed,is an example of:
A) Positive Accounting Theory
B) Negative Accounting Theory
C) Normative Accounting Theory
D) Descriptive Accounting Theory
Answer: A
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Chapter 2: The Financial Reporting Environment
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Sample Questions
Q1) Which of the following statements is true about accounting measurements such as profits and assets?
A) They are subject to professional judgment.
B) They would not vary if prepared by different accountants, providing they were based on the same set of accounting standards.
C) They are based on hard, objective, evidence.
D) All of the given options are correct.
Answer: A
Q2) What is the minimum level of accounting knowledge that readers of financial statements are assumed to possess,according to most professional accounting bodies around the world?
A) None
B) A level of knowledge sufficient to understand the financial reports properly
C) A sound working knowledge
D) An expert level of knowledge
Answer: B
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Chapter 3: The Regulation of Financial Accounting
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Sample Questions
Q1) Which of the following propositions is not true if we accept the notion that accounting regulation is considered to be the output of a political process?
A) Financial accounting is objective, neutral and apolitical.
B) Standard-setting bodies encourage affected parties to make submissions on draft versions of the proposed accounting standards.
C) Many decisions that are made are the outcome of compromise.
D) If the social welfare impact of accounting policies were ignored, the basis for the existence of a regulatory body would disappear.
Answer: A
Q2) A pro-regulatory perspective would argue that accounting information will be provided.
A) Freely, to protect the public interest
B) According to the forces of demand and supply
C) To reduce the costs of capital
D) To reduce uncertainty about the firm
Answer: A
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Chapter 4: International Accounting
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Sample Questions
Q1) From a practical standpoint,what is the goal of accounting standards harmonisation or convergence?
A) Creating one set of standards used throughout the world
B) Reducing the conflict among national accounting standards
C) Producing accounting standards that are unique for each country
D) Forcing compliance with IASB regulations
Q2) According to Gray (1988),the higher a country ranks in terms of individualism and the lower it ranks in terms of uncertainty avoidance and power distance,the more likely it is to rank highly in terms of:
A) Optimism
B) Professionalism
C) Uniformity
D) Transparency
Q3) The decision that Australia would adopt international accounting standards issued by the IASB was made by:
A) The Australian Accounting Standards Board
B) The Federal Government Treasurer
C) The Financial Reporting Council
D) The International Accounting Standards Board
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Page 6
Chapter 5: Measurement Issues: Accounting for the Effects of Changing
Prices and Market Conditions
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Sample Questions
Q1) Which of the following is not a valid criticism of historical cost accounting?
A) It is not relevant in times of changing prices.
B) It is not logical to add assets together that have been purchased in different periods, with dollars of different purchasing power.
C) It understates profit in times of rising prices.
D) It distorts the current year's operating results by including the current year's income, holding gains that accrued in previous periods.
Q2) In the historical cost model there is an assumption that the monetary unit is fixed and constant over time.Which of the following components of the modern economy makes the assumption less valid than it was at the time the model was developed?
A) Specific price-level changes, occasioned by such things as technological advances and shifts in consumer preferences
B) General price-level changes (inflation)
C) Physical operating capital maintenance perspective
D) All of the given options are correct.
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Chapter 6: Normative Theories of Accounting: The Case of Conceptual Framework Projects
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Sample Questions
Q1) Which of the following appears to be most influential in developing the objectives of financial reporting as well as a number of other concepts that have been used as a basis for most conceptual framework projects?
A) Accounting Principles Board (APB) Statement No 4 (1970)
B) The Trueblood Report (1973)
C) The Corporate Report (UK) (1976)
D) The Stamp Report (1980)
Q2) Which characteristic of information,when omitted or misstated,could influence economic decisions taken by users on the basis of financial statements?
A) Relevance
B) Reliability
C) Materiality
D) Comparability
Q3) Conceptual frameworks provide prescription so they are considered to be:
A) Normative theories of accounting
B) Positive theories of accounting
C) Decision usefulness theory of accounting
D) None of the given options are correct.
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Chapter 7: Positive Accounting Theory
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Sample Questions
Q1) Positive Accounting Theory suggests that bonus schemes benefit:
A) Only managers
B) Only owners
C) Both managers and owners
D) Neither managers nor owners
Q2) Which of the following is the main advantage of using accounting earnings instead of share prices to determine bonuses?
A) Share prices are influenced by market forces that are outside the control of management.
B) Accounting information is independently audited.
C) Accounting information is unbiased.
D) Share prices may be manipulated by managers engaging in insider trading.
Q3) To test whether accounting information is useful,researchers such as Ball and Brown tested whether share prices responded to:
A) Expected earnings announcements
B) Forecast earnings announcements
C) Unexpected earnings announcements
D) All of the given options are correct.
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Chapter 8: Unregulated Corporate Reporting Decisions:
Considerations of Systems-Oriented Theories
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Q1) Which of the following is not true about Political Economy Theory?
A) The perspective embraced is that society, politics and economics are separable, and economic issues can be meaningfully investigated in the absence of considerations about the political, social and institutional framework in which the economic activity takes place.
B) By considering the political economy, a researcher is able to consider broader (societal) issues that impact on how an organisation operates and what information it elects to disclose.
C) Political Economy Theory has been divided into two broad streams: 'classical' and 'bourgeois'.
D) The political economy perspective perceives accounting reports as social, political and economic documents.
Q2) The rate of institutional isomorphism is increased when firms:
A) Are highly dependent on the institutional environment
B) Exist under high uncertainty or ambiguous goals
C) Rely extensively on professionals
D) All of the given options are correct.
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Page 10
Chapter 9: Extending Corporate Accountability: The
Incorporation of Social and Environmental Factors Within External Reporting
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Sample Questions
Q1) The prevalence of social and environmental reporting is:
A) Declining
B) Increasing
C) Stable
D) None of the given options are correct.
Q2) Which of the following is false?
A) Many companies believe that social and environmental objectives can be achieved without sacrificing profitability.
B) Many companies believe that social and environmental issues are becoming more important to their customers.
C) Many companies believe that consideration of social and environmental issues is necessary for profitable growth.
D) None of the given options are false.
Q3) The 'triple bottom line' framework refers to three key areas,which are:
A) Economic/financial, cultural and ethical
B) Ethical, economic/financial and environmental
C) Economic/financial, leadership and social
D) Economic/financial, social and environmental
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Chapter 10: Reactions of Capital Markets to Financial Reporting
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Q1) Post-earnings announcement 'drift' is:
A) Consistent with the strong-form efficient markets hypothesis
B) Consistent with the semi-strong-form efficient markets hypothesis
C) The predictability of returns following earnings announcements
D) The predictability of abnormal returns following earnings announcements
Q2) Capital markets research is used to:
A) Investigate share price reaction to the disclosure of financial information
B) Investigate how share prices react to particular government announcements
C) Investigate how share prices react to companies winning particular awards
D) All of the given options are correct.
Q3) The book value is generally less than the market value of a firm because:
A) Capital markets are not strong-form efficient
B) Certain intangibles may not meet the asset recognition criteria
C) Assets may be overvalued by unethical managers
D) The market values of assets are difficult to measure
Q4) Capital markets research assumes that markets are:
A) Semi-strong-form efficient
B) Strong-form efficient
C) Weak-form efficient
D) Inefficient
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Chapter 11: Reactions of Individuals to Financial Reporting:
An Examination of Behavioural Research in Accounting
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Sample Questions
Q1) 'Heuristics' are:
A) Rules
B) Cues
C) Behaviours
D) Decisions
Q2) Which of the following is not a branch of behavioural research?
A) Managerial control systems
B) Stakeholder management systems
C) Accounting information systems design
D) Organisational sociology
Q3) Behavioural research is concerned with how:
A) Individuals behave when provided with particular items of information
B) Individuals should behave when provided with particular items of information
C) Firms behave when provided with particular items of information
D) Firms should behave when provided with particular items of information
Q4) Which of the following is not an example of secondary data?
A) Data collected through survey
B) Data collected through qualitative methodologies
C) Published printed sources
D) Organisational records
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Chapter 12: Critical Perspectives of Accounting
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Sample Questions
Q1) Critical researchers interpret the post-Enron increase in mandatory corporate reporting as primarily benefiting:
A) Society, as corporations are required to improve their level of disclosure
B) Corporations, as confidence will be restored to financial markets
C) Employees, as fewer companies will go bankrupt
D) Accountants, as demand for accounting services will increase
Q2) Broadly speaking,critical researchers have been:
A) Successful in identifying problems in accounting practices but unsuccessful in changing practices
B) Successful in exposing problems in accounting practices and successful in changing practices
C) Unsuccessful in exposing problems in accounting practices but successful in changing practices
D) Unsuccessful in exposing problems in accounting practices and unsuccessful in changing practices
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