Ch05 tb rankin

Testbankto accompany

Contemporary Issues in Accounting

Michaela Rankin, Patricia Stanton, Susan McGowan, Matthew Tilling, Kimberly

Ferlauto & Carol Tilt

Prepared byMatt Tilling

© John Wiley & Sons Australia, Ltd 2012

Testbank to accompany Contemporary Issues in Accounting

Chapter 5 Theories in accounting

Multiple Choice Questions

1. Theories in accounting can help us to understand the decisions of:

a. Financial information preparersb. Financial information usersc. Financial information regulators*d. All of the above

Correct answer: d Learning Objective 5.1 ~ Evaluate how theories can enhance our understanding of accounting practice.

2. Accounting theory helps us understand accounting better as:

a. A fundamental part of the natural universe *b. A human endeavourc. A random process d. A representation of truth

Correct answer: b Learning Objective 5.1 ~ Evaluate how theories can enhance our understanding of accounting practice.

3. A normative theory

a. Is completely divorced from realityb. Describes, explains or predicts activities*c. Is based on what should be the case given a certain objectived. Only focuses on normal activities

Correct answer: c Learning Objective 5.2 ~ Identify the types of theories used in accounting.

© John Wiley & Sons Australia, Ltd 2012 5.1


4. A positive theory

a. Is completely divorced from reality*b. Describes, explains or predicts activitiesc. Is based on what should be the case given a certain objectived. Only focuses on rewarding activities

Correct answer: b Learning Objective 5.2 ~ Identify the types of theories used in accounting.

5. Which of these is NOT an assumption on which positive accounting theory is based?

a. People are rational b. People are wealth maximisers *c. People prefer to act altruisticallyd. None of the above, i.e. they are all assumptions of positive accounting theory?

Correct answer: c Learning Objective 5.3 ~ Explain the general tenets of positive accounting theory and examine how it explains accounting practice and disclosures.

6. According to agency theory the following are examples of bonding costs:

a. Auditing the financial reportsb. Putting in place operating rules*c. Linking remuneration to performance d. All of the above

Correct answer: c Learning Objective 5.3 ~ Explain the general tenets of positive accounting theory and examine how it explains accounting practice and disclosures.

7. Which of the following has been identified as a problem in owner-manager relationships?

a. Short-term focus b. Risk aversionc. Dividend retention*d. All of the above

Correct answer: d Learning Objective 5.3 ~ Explain the general tenets of positive accounting theory and examine how it explains accounting practice and disclosures.



8. Which of the following has been identified as a problem in owner-lender relationships?

a. Dividend retention *b. Asset substitutionc. Over-investmentd. All of the above

Correct answer: b Learning Objective 5.3 ~ Explain the general tenets of positive accounting theory and examine how it explains accounting practice and disclosures.

9. Which of the following is NOT an important role for accounting in the agency relationship?

*a. Identifying excessive perquisite consumptionb. Signalling good news to the marketc. Determining performanced. Protecting lenders’ interests

Correct answer: a Learning Objective 5.3 ~ Explain the general tenets of positive accounting theory and examine how it explains accounting practice and disclosures.

10. A key underlying assumption of Institutional Theory is that people are:

a. Self-interested*b. Likely to conform to external normsc. Risk-adversed. All of the above

Correct answer: b Learning Objective 5.4 ~ Explain institutional theory and examine how it explains organisational structures.



11. According to institutional theory which of the following statements is NOT true about corporate social and environmental disclosure

a. It will be heavily influenced by regulationb. Well organised external stakeholders will lead to increased disclosure*c. Within industries the nature of the disclosure is likely to diverge over timed. None of the above, i.e. they are all true.

Correct answer: c Learning Objective 5.4 ~ Explain institutional theory and examine how it explains organisational structures.

12. Legitimacy theory argues thatdisclosure practice.

*a. Organisations can only continue to exist if they demonstrate values consistent with society at large.

b. Organisations should focus on wealth maximisation for their ownersc. The business of business is businessd. Consumers are only interested in minimising costs to themselves.

Correct answer: a Learning Objective 5.5 ~ Explain legitimacy theory and examine how it explains accounting

13. Which of the following is NOT one of the four ways an organisation can obtain or maintain organisational legitimacy according to Lindblom?

disclosure practice.

a. Change perceptions of society, without changing its own behaviourb. Manipulate perceptions by deflecting attention from societal concernsc. Change its behaviour*d. None of the above, i.e. they are all ways an organisation can obtain or maintain

legitimacy

Correct answer: d Learning Objective 5.5 ~ Explain legitimacy theory and examine how it explains accounting



14. Stakeholder theoryaccounting disclosure practice.

a. Is completely different to legitimacy theoryb. Focuses on government power *c. Has both a normative and positive version d. All of the above

Correct answer: c Learning Objective 5.6 ~ Explain stakeholder theory and examine how it prescribes and explains

15. Which of the following is NOT considered a stakeholder according to the managerial branch of stakeholder theory?

accounting disclosure practice.

a. Communities*b. Competitorsc. Customersd. None of the above, i.e. they are all considered stakeholders

Correct answer: b Learning Objective 5.6 ~ Explain stakeholder theory and examine how it prescribes and explains

16. According to stakeholder theory accounting informationaccounting disclosure practice.

a. is seen as largely advertising b. is unimportant to most stakeholdersc. is usually misleading*d. is an important way to communicate with stakeholders

Correct answer: d Learning Objective 5.6 ~ Explain stakeholder theory and examine how it prescribes and explains



17. The central proposition of contingency theory is:accounting disclosure practice.

a. Institutional norms drive organisational structure.b. Organisational performance is largely random and poorly understood*c. Organisational performance depends on the fit between organisational context and

structure.d. Organisations are simply a nexus of contractual agreements.

Correct answer: c Learning Objective 5.7 ~ Explain contingency theory and examine how it prescribes and explains

18. Contingency theory proposes thataccounting disclosure practice.

a. Accounting policies are likely to be consistent within industries.b. Size is not an important factor when considering management accounting

systems.c. Shareholder needs drive accounting system choices.*d. No universally consistent accounting system can apply to all organisations.

Correct answer: d Learning Objective 5.7 ~ Explain contingency theory and examine how it prescribes and explains

19. Agency theory would hold that managers on compensation contracts which have bonuses tied to a current measure of performance would prefer to:

a. Be indifferent to expensing or capitalising transactionsb. Expense transactions rather than capitalise them.c. Smooth income using either expensing or capitalising.*d. Capitalise transactions rather than expense them.

Correct answer: d Learning Objective 5.8 ~ Outline the different decisions made by accounting practitioners.



20. Which of the following theories have been used to explain voluntary disclosure in the annual report?

a. Stakeholder Theoryb. Legitimacy Theoryc. Institutional Theory*d. All of the above

Correct answer: d Learning Objective 5.8 ~ Outline the different decisions made by accounting practitioners.


Ch05 tb rankin

Economy & Finance

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