Contemporary Issues in accounting MCQ PDF

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Multiple choice quiz answers Week 1 1. Normative accounting theories and research seek to: - Describe what is normal, or generally accepted, practice - Prescribe particular approaches not driven by existing practices - All of the given options are correct. - Explain and predict particular phenomena based on observation 2. Which of the following statements is true? - All of the given options are correct - The profit figure is an objective measure of performance - Measures of profit ignore many social and environmental externalities caused by the firm - 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? - The output of the accounting process impacts on many decisions which can result in transfers of funds, and therefore wealth - All of the given options are correct - The provision of purported objective information provides users with a source of power to drive changes to corporations behaviour - The emphasis on profitability measures provides support to profitable companies which may not be worthy of support under other measures 4. One criticism of Positive Accounting Theory is that it tells us nothing about: - Whether the practice or method being used is the most efficient - All of the given options are correct. - Which method a firm should use - Whether the practice or method being used is the most equitable 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? -

The argument follows a logical and clear reasoning. The classification of accounts receivable is consistent with the observed classification of receivables The conclusion reached is clearly true 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? - Markets for information are not efficient and therefore produce a sub-optimum amount of information, given the problem of 'free riders' - Investors need protection from fraudulent organisations that may produce misleading information - Accounting information is like any other good, and people will be prepared to pay for it to the extent that it has a use. - 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? - They are subject to professional judgment - They are based on hard, objective, evidence - They would not vary if prepared by different accountants, providing they were based on the same set of accounting standards - 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? -

Most plant and machinery in the company is more than 10 years old All plant and machinery in the company is more than 10 years old Very little of the plant and machinery in the company is more than 10 years old 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: -

Comparability Understandability, reliability and comparability Understandability Reliability

10. Theories and models in the social sciences differ from theories in the pure sciences because: - A number of theories may be available to describe, or provide a different perspective on, a particular phenomenon. - Not all theories in social science have predictions that can be tested. - Theories about human behaviour cannot be expected to apply all the time, like some natural science theories. - All of the given options are correct. Week 2

1. Which of the following is not necessarily a benefit of harmonisation and convergence? -

Increased relevance, functionality and appropriateness for all countries Improved understanding and interpretation of financial reports by users in different countries Increased comparability and consistency Lower preparation costs for companies that have to produce different financial reports in different countries

2. Which of the following is not assumed by the 'market for managers argument' for reducing or eliminating regulation -

The managerial labour market operates efficiently Information about past management performance will be known by other prospective employers Information about past management performance will not be fully impounded in future salaries Managers are not approaching retirement

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

An expense A liability An owner's equity An asset

4. The process of adopting international accounting standards in Australia did not Include: - An initial period of harmonisation where AASB standards were made to be compatible with the IAS's, but with some divergence allowed where appropriate - A Corporate Law and Economic Reform Program (CLERP) Report, in 1997, outlining the rationale and benefits for Australia of adopting international accounting standards - A decision by the FRC in 2002 that Australia would adopt accounting standards issued by the IASNB, and no divergence was to be acceptable - Opposition from the Australian Stock Exchange 5. Which of the following statements is true about accounting regulation? - It is a set of prescribed rules that provides authoritative direction - It is developed by an independent authoritative body that has been given the power to govern how financial statements are to be prepared - It incorporates a basis for monitoring and enforcing compliance with the specific regulatory requirements - All of the given options are correct

6. 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?

- To protect investors in the interests of the public - To respond to lobbying by those affected by losing money - To look as if the regulators are doing something that seems to be a problem, and therefore maintain their position as regulators - All of the given options are correct 7. Which of the following may be the result of direct or indirect economic and social consequences of a proposed accounting standard? - Increased lobbying to maximise the expected positive economic benefits from the standard - Increased lobbying to minimise the expected negative economic and social consequences from the standard - Impact on managerial decisions to optimise the reported numbers - All of the given options are correct 8. 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 globalised business and development of international accounting standards? - Outsider systems, where finance is mainly provided by external shareholders, and where the tax system is separate from the accounting system - Insider systems, where finance is mainly provided by family owners, banks and government, and the tax system dominates the accounting system - Outsider systems, where finance is mainly provided by family owners, banks and government, and the tax system is separate from the accounting system - Insider systems, where finance is mainly provided by external shareholders, and where the tax system dominates the accounting system 9. The free-market perspective of accounting regulation suggests that accounting information: -

Should be provided free of charge Should be free of considerations and lobbying of the market Should be provided like any other good that is subject to demand and supply Will require regulation to avoid underproduction of information

10. Which of the following is an influence on the nature of accounting practice in different countries - Accidents in history, such as stock-market crashes - The strength of the accounting profession - Religion - All of the given options are correct Week 3

1. Which of the following best describes the basis of the accounting measurement model in use today? - Historical cost accounting - Current cost accounting - Historical cost, except where conceptual frameworks and accounting standards allow deviation from it - A mixed method accounting model

2. 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? - Specific price-level changes, occasioned by such things as technological advances and shifts in consumer preferences - General price-level changes (inflation) - Physical operating capital maintenance perspective - All of the given options are correct 3. Assuming a price index calculated 104.5 in 2013, compared with 100 in 2012, for a bundle of goods, what is the current purchasing power of every dollar, compared to 2012? -

95.5 cents in every dollar, on average 95.69 cents in every dollar, on average 96.5 cents in every dollar, on average $1.045 in every dollar, on average

4. Which of the following is not a possible limitation with CPPA accounting? - The prices of the goods and services included in the general price index may not be reflective of the price movements (inflation) specific to that particular industry. - The information is simple, and easily understood by users. - Research has shown that the information provided by CPPA may not be decision-relevant. - Users might think that the price-level adjusted amounts might reflect the specific value of specific assets. 5. A limitation of Current Cost Accounting does not include the fact that: -

Replacement costs are easily determined, and therefore the preparation cost is low Replacement costs do not reflect what it would be worth if the firm decided to sell it CCA assumes assets would in fact be replaced, or replaced with that type of asset and not another There are too many versions of current cost accounting, making it confusing to preparers

6. Which of the following is not a reason why alternative methods have not gained acceptance or been formally implemented?

- The arguments for the alternative methods were not logical. - There appeared to be more interest when inflation was a problem than when it was not. - Some alternative models were likely to incur significant costs, negative economic consequences and impacts. - Lack of support by the public or the government, and eventually by the accounting profession. 7. The reasons the promotion of alternative accounting models to historical cost did not succeed include: - There was a lack of agreement as to which model was the best - The fact that such a change would have been extremely radical and costly - The fact that such a change would create huge economical consequences, and therefore those affected would lobby to protect their self-interest - All of the given options are correct.

8. How would the deprival value of an asset be determined? - 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 - It is the net selling price, except where the value to the business (present value) is less, or the current replacement cost greater - It is the current replacement cost, where the present value is less than the current replacement cost and greater than the net selling price - 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 9. What is included in 'income' according to the IASB Conceptual Framework? - All events that result in an increase in the net assets of the reporting entity, other than owner contributions - All events that result in an increase in the net assets of the reporting entity - Events that relate to the central operations of the entity - All of the given options are correct 10. Which of the following statements is correct under our current accounting standards? - Many assets can, or must, be measured at historical cost - Inventory must be measured at cost, or net realisable value if it is lower - Property, plant and equipment can be valued at cost where an entity has adopted the 'cost model' for a class of property, plant and equipment - All of the given options are correct.

Week 4 1. What is the definition of a 'conceptual framework'? - A conceptual framework is a set of prescriptions of what accounting should be. - A conceptual framework is a structured positive theory of accounting - A conceptual framework is a coherent system of objectives and fundamentals that are expected to lead to consistent standards. - A conceptual framework is a group of independent concepts on specific accounting issues, that are grouped together to provide a single reference. 2. What is the purpose of developing a conceptual framework? - To provide a coherent structure to accounting practice which had developed in an ad hoc way. - To guide standard-setters to develop standards based on the same concepts and principles, rather than in a piecemeal approach. - To guide users where there is no accounting standard covering an issue. - All of the given options are correct. 3. On what criteria is a 'reporting entity', as defined in SAC 1, dependent? - Whether there are users that are dependent on the reports to make or evaluate resource decisions - Professional judgment providing some guidelines to help make a decision - Whether there are users that are dependent on the reports to make or evaluate resource decisions, and professional judgment provides some guidelines to help make a decision - The Corporations Law based on measures of gross revenue, dollar value of assets and the number of employees 4. Which of the following is a qualitative characteristic of financial information in general purpose financial reports, if they are to be useful? - Understandability - Comparability - Reliability - All of the given options are correct 5. Which characteristic of information, when omitted or misstated, could influence economic decisions taken by users on the basis of financial statements? - Relevance - Reliability - Materiality - Comparability 6. Which of the following is a characteristic of reliability? - It influences economic decisions. - It represents faithfully what it purports to represent. - It provides predictive value and feedback to confirm or correct earlier expectations. - None of the given options are correct.

7. Which of the following is true in relation to expenses, according to the IASB Conceptual Framework? - Expenses are restricted to transactions and events relating to 'ongoing major or central operations'. - There is no reference to matching of revenue and expenses in the Conceptual Framework. - Expenses would not include losses that were not under the control of the entity, such as uninsured losses of assets from flood - None of the given options are correct. 8. Which of the following is not a perceived advantage in developing a conceptual framework project? - Standard-setters will be less accountable for their decisions. - Setting accounting standards will be more economical, despite the resources needed to develop the conceptual framework and standards. - It will result in a reduced number of accounting standards where issues are covered by the conceptual framework - It will provide a defence and enhance the legitimacy of the accounting profession. 9. Which of the following is a characteristic of relevance? - It influences economic decisions. - It represents faithfully what it purports to represent. - It provides predictive value and feedback to confirm or correct earlier expectations - None of the given options is correct 10. Over time, a number of objectives have been attributed to information provided within financial statements. Which of the following is not an objective of financial statements? -

To enable outsiders to assess the stewardship of management. To provide information to users that is useful for making and evaluating decisions about the allocation of scarce resources. To enable reporting entities to demonstrate accountability between the entity and those parties to which the entity is deemed to be accountable To help managers to maximise their own wealth and the wealth of the organisation

Week 5 1. The 'bonus plan hypothesis' of Positive Accounting Theory suggests managers of firms with bonus plans tied to reported income are more likely to use accounting methods that: - Increase prior period reported income - Increase current period reported income - Increase future period reported income - None of the given options are correct. 2. The 'debt/equity hypothesis' of Positive Accounting Theory predicts which of the following? -

The higher the firm's debt/equity ratio, the more likely managers are to use accounting methods that lower income. The lower the firm's debt/equity ratio, the more likely managers are to use accounting methods that increase income. The higher the firm's debt/equity ratio, the more likely managers are to use accounting methods that increase income. None of the given options are correct.

3. The 'political cost hypothesis' of Positive Accounting Theory suggests which of the following? - Large firms are more likely to use accounting choices that reduce reported profits. - Small firms are more likely to use accounting choices that reduce reported profits. - Neither large nor small firms are more likely to use accounting choices that reduce reported profits. - Both large and small firms are more likely to use accounting choices that reduce reported profits.

4. Which of the following is the main advantage of using accounting earnings instead of share prices to determine bonuses? - Share prices are influenced by market forces that are outside the control of management. - Accounting information is independently audited. - Accounting information is unbiased. - Share prices may be manipulated by managers engaging in insider trading

5. According to Positive Accounting Theory, the existence of debt covenants: -

Can be explained from an efficiency perspective, and gives management an incentive to manipulate accounting information from an opportunistic perspective - Can be explained from an opportunistic perspective, and gives management an incentive to manipulate accounting information from an efficiency perspective - Can be explained from both efficiency and opportunistic perspectives - Cannot be explained 6. Which of the following is not true about Positive Accounting Theory?

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A positive theory seeks to explain and predict particular phenomena. A positive theory focuses on the relationships between various individuals and how accounting is used to assist in the functioning of these relationships. A positive theory prescribes how a particular practice should be undertaken All of the given options are correct.

7. It is common practice for managers to be rewarded in a way that is tied to the profits of the firm, the sales of the firm, or the return on assets. That is, their remuneration is based on the output of the accounting system. - Bonus schemes tied to the performance of the firm will be put in place to align the interests of the owners and the managers. - Rewarding managers on the basis of accounting profits may induce them to manipulate accounting numbers. - There would be limited incentives fo...