Practice exam questions

Practice Question 1 …………………….……………………………….…….. (~18 marks)

“Critical accounting theory is just a waste of time – it isn’t practical enough,

and it doesn’t help my business be more efficient and make more profit”

Critically evaluate this statement. In your analysis, ensure you explain what critical accounting
theory is, and provide some examples from the course.

Practice Question 2 …………………….……………………………….…….. (~18 marks)

Imagine that upon completion of your ANU degree, you go into business manufacturing and
selling trendy sneakers. A family friend provides you with some start-up capital for your
business but is not involved in the day-to-day running of the business. You set up a business
account with a local supplier to purchase raw materials (leather, rubber, thread, etc) on credit.
You choose to focus on designing the sneakers; you hire a manager to purchase equipment,
place orders for supplies, employ staff, manufacture and sell the sneakers.

Based on the information above, answer the following:

(a) Identify and explain three (3) different agency relationships in your business.
(b) Identify and explain three (3) different types of agency costs that may arise in this
business.
Practice Question 3…………………….……………………………….…….. (~18 marks)

“Every policy choice represents a trade-off among differing individual preferences, and possibly among
alternative consequences, regardless of whether the policy-makers see it that way or not. In this sense,
accounting policy choices can never be neutral. There is someone who is granted his preference, and
someone who is not.” Critically evaluate this statement.
 Think carefully about the question and plan your response before starting to write, so as to
and ensure your written response is concise, well-formulated and clearly structured
 We want you to show your understanding of theory and concept from the course and apply
them to this question.
 Therefore, a brief introduction/conclusion can help to summarise your argument.
 Try to have good expression and writing so your marker can understand your answer.
Tip: a good way to ‘critically evaluate’ is to think about any theory/ arguments/ examples/
ideas you might have that support this statement, and then think about any theory/
arguments/ examples/ ideas that would refute this statement.

Notes for Practice Question 1 …………………….……………………………….……..

A possible approach to answering (note: you don’t have to cover all of these, a good answer
might just touch on a few of these points, and make them in more detail; and you could offer
your response in a different structure if you wished):
 Define what critical accounting is, providing an example (e.g. Hines’ paper on reality) and
explaining what she looked at, her contribution.
 This quote does not seem to support critical accounting theory. Explain some forms of
critique of critical accounting theory – too removed, too abstract, too theoretical, etc.
 You could hypothesise that the speaker comes from a positivist, or normative perspective –
and explain that they view the world differently to critical theory. Could provide a
(hypothetical) example of a positivist approach which might focus on observing/explaining
what makes businesses profitable, which can be seen to more directly benefit businesses.
 Then provide a critique of the statement, which focuses on what critical accounting theory
can offer – i.e. it highlights things that are hidden, encourages us to think about
assumptions, shows who has power and how they maintain it. These are important things
that are not necessarily considered in normative/positive theory.
 An example of how critical accounting theory is actually useful to business owners – e.g.
economic interest group theory/ regulatory capture theory provide insight into the actual
process of creating regulation, and how it is shaped by powerful groups. These standards
indirectly have an influence on businesses and their ability to make money (e.g. they define
what an asset is, how to record expenses/revenue) and they may reflect the interests of
some powerful group. These things might actually have a large influence on profit
measures (consider, for example, if you could no longer record a type of income because an
accounting standard changed because of lobbying).
 Could also make point that critical perspectives are important in a democracy, and can be
emancipatory and address structural power inequities in society. i.e. our jobs as citizens is
not to just make loads of profit, but to make society better, etc…
ALWAYS double check the question before you move on, make sure you have done
everything asked (e.g. have you defined critical theory, have you provided examples?)
Notes for Practice Question 2 …………………….……………………………….……..

 There are at least four different agency relationships here, including:

o You (principal) – Manager (agent)
o Family friend (principal) – You (agent)
o You/Manager (principal) – Staff (agent)
o Supplier (principal) – You/Manager/Business (agent)
 For full marks on part (a) you would need to identify three of these relationships and
ensure you carefully explain why it is an AGENCY relationship for EACH, i.e.
o Clearly identify who is the principal, and who is the agent
o Clearly explain how decision-making authority has been delegated from
principal to agent
o Explain conflict of interests between principal/agent
o Explain how information is asymmetrical or incomplete
 For full marks for part (b) you would need to identify ALL of the three types of agency
costs – monitoring, bonding, residual, and for EACH
o Explain/define what they are and how they come about
o Apply to the question, you would have to imagine how these could apply here
(e.g for monitoring costs: your family friend may ask for regular accounts or
auditing to check on how their money is being spent, etc…)
 ALWAYS double check the question before you move on, make sure you have done
everything asked (i.e. when we set this as an exam question in 2019, many students
failed to answer part b)

Notes for Practice Question 3 …………………….……………………………….……..

When answering this question, please think about the nature of the standard setting process
(what is involved?
For example:
· Different party makes submissions
· Each party’s arguments have different credibility  affect regulator differently
· Regulator rely on these supports, so rely more on some individuals rather than other
individuals

Then, we may want to consider the economic and social consideration for standard setting
· Consider economic and social implications
· Weight costs against benefits some regulation can be good for one but not good for the
society as a whole

Of course, we should also consider the private interests

· Regulators want to be reappointment or election, so can be captured by votes or money
· Private interest theory of regulation/ capture theory
· Public interest theory of regulation
Financial statements are not objective
· Not every submission carries the same weight (some submitted by people who have the
expertise)
· Even though the accounting standard is good, it may not be executed due to the overall
costs and benefits.
· Accountant decides what to be discussed (See in the history)
· regulator can be captured (in history)