ACCTG 124 CONTEMPORARY ISSUES IN ACCOUNTING 2

FINAL EXAMINATION

PART 1: MULTIPLE CHOICE

1. Normative accounting theories and research seek to:
a. Describe what is normal, or generally accepted, practice
b. Prescribe particular approaches not driven by existing practices
c. All of the given options are correct.
d. Explain and predict particular phenomena based on observation
2. Which of the following statements is true?
a. All of the given options are correct
b. The profit figure is an objective measure of performance
c. Measures of profit ignore many social and environmental externalities caused by the
firm
d. The company has reported a record profit, therefore it is automatically worthy of
support
3. Which of the following is a reason why accounting, and accountants, can be considered very
powerful?
a. The output of the accounting process impacts on many decisions which can result in
transfers of funds, and therefore wealth
b. The provision of purported objective information provides users with a source of power
to drive changes to Corporations behavior
c. The emphasis on profitability measures provides support to profitable companies which
may not be worthy of support under other measures
d. All of the given options are correct
4. One criticism of Positive Accounting Theory is that it tells us nothing about:
a. Whether the practice or method being used is the most efficient
b. Which method a firm should use
c. Whether the practice or method being used is the most equitable
d. All of the given options are correct.
5. All liability accounts have credit balances. The accounts receivable account is a liability
account. Therefore, the accounts receivable account has a credit balance. Which of the
following statements is correct with respect to the above argument?
a. The argument follows a logical and clear reasoning.
b. The classification of accounts receivable is consistent with the observed classification of
receivables
c. The conclusion reached is clearly true
d. The argument is illogical
6. Which of the following arguments supports the view that regulation is not necessary,
particularly to the extent that it currently exists?
a. Markets for information are not efficient and therefore produce a sub-optimum amount
of information, given the problem of 'free riders'
b. Investors need protection from fraudulent organizations that may produce misleading
information
c. Accounting information is like any other good, and people will be prepared to pay for it
to the extent that it has a use.
d. Information asymmetry exists because not everyone has the same power over resources
to obtain the information they need
7. Which of the following statements is true about accounting measurements such as profits and
assets?
a. They are subject to professional judgment
b. They are based on hard, objective, evidence
c. They would not vary if prepared by different accountants, providing they were based on
the same set of accounting standards
d. All of the given options are correct
8. Statement 1: All the fixed assets in the company are more than 10 years old. Statement 2: Some
of the fixed assets in the company are plant and machinery. Assuming that Statement 1 and 2
are true, which of the following is correct based on logical deduction?
a. Most plant and machinery in the company is more than 10 years old
b. All plant and machinery in the company is more than 10 years old
c. Very little of the plant and machinery in the company is more than 10 years old
d. No plant and machinery in the company is more than 10 years old
9. The qualitative characteristics of financial reports that make information useful to users are:
a. Comparability
b. Understandability, reliability and comparability
c. Understandability
d. Reliability
10. Theories and models in the social sciences differ from theories in the pure sciences because:
a. -A number of theories may be available to describe, or provide a different perspective
on, a particular phenomenon.
b. Not all theories in social science have predictions that can be tested.
c. Theories about human behavior cannot be expected to apply all the time, like some
natural science theories.
d. All of the given options are correct.
11. Which of the following is not necessarily a benefit of harmonization and convergence?
a. Increased relevance, functionality and appropriateness for all countries
b. Improved understanding and interpretation of financial reports by users in different
countries
c. Increased comparability and consistency
d. Lower preparation costs for companies that have to produce different financial reports
in different countries
12. Which of the following is not assumed by the 'market for managers argument' for reducing or
eliminating regulation?
a. The managerial labour market operates efficiently
b. Information about past management performance will be known by other prospective
employers
c. Information about past management performance will not be fully impounded in future
salaries
d. Managers are not approaching retirement
13. The process of adopting international accounting standards in Australia did not Include:
a. An initial period of harmonization where AASB standards were made to be compatible
with the IAS's, but with some divergence allowed where appropriate
b. A Corporate Law and Economic Reform Program (CLERP) Report, in 1997, outlining the
rationale and benefits for Australia of adopting international accounting standards
c. A decision by the FRC in 2002 that Australia would adopt accounting standards issued by
the IASNB, and no divergence was to be acceptable
d. Opposition from the Australian Stock Exchange
14. 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
15. Regulators often cite investor protection as a basis for more stringent regulation and financial
reporting requirements enacted after a financial crisis. What is not a reason for this?
a. To protect investors in the interests of the public
b. To respond to lobbying by those affected by losing money
c. To look as if the regulators are doing something that seems to be a problem, and
therefore maintain their position as regulators
d. All of the given options are correct
16. Which of the following may be the result of direct or indirect economic and social consequences
of a proposed accounting standard?
a. Increased lobbying to maximize the expected positive economic benefits from the
standard
b. Increased lobbying to minimize the expected negative economic and social
consequences from the standard
c. Impact on managerial decisions to optimize the reported numbers
d. All of the given options are correct
17. The type of business ownership and financing system, and the taxation system, influence the
nature of accounting practice in different countries. Which of the following describes the
institutional influence more conducive to the increasing scale of globalized business and
development of international accounting standards?
a. Outsider systems, where finance is mainly provided by external shareholders, and
where the tax system is separate from the accounting system
 b. Insider systems, where finance is mainly provided by family owners, banks and
government, and the tax system dominates the accounting system
c. Outsider systems, where finance is mainly provided by family owners, banks and
government, and the tax system is separate from the accounting system
d. Insider systems, where finance is mainly provided by external shareholders, and where
the tax system dominates the accounting system
18. The free-market perspective of accounting regulation suggests that accounting information:
a. Should be provided free of charge
b. Should be free of considerations and lobbying of the market
c. Should be provided like any other good that is subject to demand and supply
d. Will require regulation to avoid underproduction of information
19. Which of the following is an influence on the nature of accounting practice in different countries
a. Accidents in history, such as stock-market crashes
b. The strength of the accounting profession
c. Religion
d. All of the given options are correct
20. Which of the following best describes the basis of the accounting measurement model in use
today?
a. Historical cost accounting
b. Current cost accounting
c. Historical cost, except where conceptual frameworks and accounting standards allow
deviation from it
d. A mixed method accounting mode
21. 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
22. A limitation of Current Cost Accounting does not include the fact that:
a. Replacement costs are easily determined, and therefore the preparation cost is low
b. Replacement costs do not reflect what it would be worth if the firm decided to sell it
c. CCA assumes assets would in fact be replaced, or replaced with that type of asset and
not another
d. There are too many versions of current cost accounting, making it confusing to
preparers
23. Which of the following is not a reason why alternative methods have not gained acceptance or
been formally implemented?
a. The arguments for the alternative methods were not logical.
b. There appeared to be more interest when inflation was a problem than when it was not.
c. Some alternative models were likely to incur significant costs, negative economic
consequences and impacts.
d. Lack of support by the public or the government, and eventually by the accounting
profession.
24. The reasons the promotion of alternative accounting models to historical cost did not succeed
include:
a. There was a lack of agreement as to which model was the best
b. The fact that such a change would have been extremely radical and costly
c. The fact that such a change would create huge economic consequences, and therefore
those affected would lobby to protect their self-interest
d. All of the given options are correct.
25. How would the deprival value of an asset be determined?
a. It is the present value of the future cash flows to be generated by the asset, except
where the current replacement cost or net selling price is less than that value
b. It is the net selling price, except where the value to the business (present value) is less,
or the current replacement cost greater
c. It is the current replacement cost, where the present value is less than the current
replacement cost and greater than the net selling price
d. It is the value to the business of the asset (present value), within the bounds that this
value is not less than the net selling price or greater than its current replacement cost
26. What is included in 'income' according to the IASB Conceptual Framework?
 a. All events that result in an increase in the net assets of the reporting entity, other than
owner contributions
b. All events that result in an increase in the net assets of the reporting entity
c. Events that relate to the central operations of the entity
d. All of the given options are correct
27. Which of the following statements is correct under our current accounting standards?
a. Many assets can, or must, be measured at historical cost
b. Inventory must be measured at cost, or net realizable value if it is lower
c. Property, plant and equipment can be valued at cost where an entity has adopted the
'cost model' fora class of property, plant and equipment-
d. All of the given options are correct
28. Which of the following statement is correct in relation to International Accounting Research?
a. This research are inclined ins the second half of the twentieth century due to
harmonization.
b. Agency are contracting theory underlies much of this research.
c. It often adopts a social welfare prospective
d. It includes research into differences in accounting practices and also considers
contextual and cultural influences on financial accounting
29. What is the best way to use observation to test a theory?
a. Try and find observations that confirm a theory
b. Search for instances that do not fit with or disprove the theory
c. Try to find instances that both confirm and disprove the theory and work out which
outweighs the other
d. Make as many observations as possible
30. A normative theory is on which:
a. Describes and explains what is currently happening
b. Predicts what might happen
c. Prescribe or makes recommendation as to what should happen
d. Is often referred to as empirical theory