Chapter 3 - The regulation of financial accounting theory - P3 | Take the Quiz

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

Which of the following statements is true about accounting regulation?

A. It is a set of prescribed rules that provides authoritative direction

B. It is developed by an independent authoritative body that has been given the power to govern how financial statements are to be prepared.

C. It incorporates a basis for monitoring and enforcing compliance with the specific regulatory requirements.

D. All of the given options are correct.

Which of the following statements is not true about the economics-based perspective of 'rationality' or 'self-interest' in explaining the behaviour of managers?

A. Managers will work in their own self-interest unless constrained to do otherwise.

B. Managers are opportunistic and in the absence of safeguards will reduce the amount they will pay for shares.

C. Managers work towards maximising the benefits of all stakeholders

D. None of the given options are correct.

Which of the following arguments is used in support of reducing accounting regulation?

A. Accounting information is like any other good, and the forces of supply and demand should be allowed to operate so that the optimal amount of accounting information is produced.

B. The capital market operates quite efficiently, and will impose penalties on managers who elect to provide biased information about an organisation's financial performance and position

C. Individuals act in their own self-interest and will use the given regulation to maximise their own wealth.

D. All of the given options are correct.

Which of the following statements does not describe why accounting regulation is needed?

A. If a process is regulated, even though people might not understand the regulation they are more likely to have confidence in it

B. Regulation is put in place to protect the favoured positions of those with capital.

C. Regulation is put in place so that the interest of the public is served

D. If the financial system is regulated, the resulting increased community confidence will lead to a reduced cost of capital for all firms.

Which of these arguments support the anti-regulation perspective?

A. Private economic-based incentives

B. Market for managers

C. Market for lemons

D. All of the given options are correct.

The rationale that 'Regulators will only propose and support regulation which leads to favourable outcomes for themselves, perhaps in terms of their re-election' is true for:

A. Public Interest theory of regulation

B. Capture theory of regulation

C. Economic interest theories of regulation

D. None of the given options are correct.

Under IFRS 2 and AASB 2 the fair value of share options has to be classified as:

A. An expense

B. A liability

C. An owner's equity

D. An asset

A lemon market will be produced:

A. By asymmetry of information, in which no buyers can accurately assess the value of a product through examination before a sale is made and all sellers can more accurately assess the value of a product prior to sale.

B. By a deficiency of effective public quality assurances—by reputation, regulation and/or effective guarantees or warranties.

C. Where either a continuum of seller qualities exists or the average seller type is sufficiently low so that buyers are pessimistic about the seller's quality

D. All of the given options are correct

Chapter 3 - The regulation of financial accounting theory - P3

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