Financial Accounting Theory

• Please answer Multiple choice questions
• instruction for four essay questions

1. Required reference (this is the main reference for the all questions)

Deegan, C 2014, Financial Accounting Theory, 4thedn, McGraw-Hill, Sydney.

1. Other references

Henderson, S., Peirson, G. &Herbohn, K., Issues in Financial Accounting, 14th Edition, (2011) Prentice Hall, Melbourne.

Jones, S., & A.R. Belkaoui, Accounting Theory, 3rd Edition, (2010) Cengage Learning, Melbourne.

Godfrey, J., Hodgson, A., Tarca, A., Hamilton, J. & Holmes, S. &., Accounting Theory, 7th Edition (2010) Wiley & Sons, Melbourne.

1. Journals:

Accounting & Finance; Australian Accounting Review; Abacus; Journal of Accounting and Public Policy; Journal of Accounting & Economics; Accounting, Organizations and Society; Accounting Horizons; Accounting, Auditing and Accountability Journal

1. Any sentence referenced to the the specific law, regulation or theory has to be supported by a definition and explain
2. There is no word limit however the answer should be above 500 word for each part of any section marked 5, and be above 800 word for each section marked 10 , the answer to each section should be supported by examples and theory and law and regulation satisfy the requirements and the allocated mark.
3. the whole word count should be above 5000 words

PART A – Multiple Choice Questions (1mark x 20 = 20 Marks)

This section contains 20 multiple choice questions. Answer all questions.

1. Critical researchers accuse financial accounting of:

• Being open to manipulation by self-interested managers.
• Reinforcing unequal distributions of wealth and power.
• Being irrelevant to management decision-making.
• Giving inaccurate predictions of share price movements.

2. Critical researchers believe that accounting information:

• Is neutral and unbiased.
• Benefits neither the rich nor poor.
• Is used by the elite to maintain their power.
• Challenges existing social orders.

3. Critical researchers believe:

• They are objective and neutral, but that non-critical researchers are biased and partisan.
• They are biased and partisan, but that non-critical researchers are objective and neutral.
• That both critical and non-critical researchers are objective and neutral.
• That both critical and non-critical researchers are biased and partisan.

4. Critical researchers interpret the post-Enron increase in mandatory corporate reporting as primarily benefiting:

• Society, as corporations are required to improve their level of disclosure.
• Corporations, as confidence will be restored to financial markets.
• Employees, as fewer companies will go bankrupt.
• Accountants, as demand for accounting services, will increase.

 

 

5. Behavioural research is concerned with how:

• Individuals behave when provided with particular items of information.
• Individuals should behave when provided with particular items of information.
• Firms behave when provided with particular items of information.
• Firms should behave when provided with particular items of information.

6. Which of the following statements is true when comparing behavioural research with capital markets research?

• Both behavioural research and capital markets research assess the aggregate effect of financial reporting.
• Both behavioural research and capital markets research analyse individual responses to financial reporting.
• Behavioural research analyses individual responses to financial reporting, while capital markets research assesses the aggregate effect of financial reporting.
• Capital markets research analyses individual responses to financial reporting, while behavioural research assesses the aggregate effect of financial reporting.

7. Which of the following statements is not true about behavioural research?

• There can ultimately be a normative component to behavioural research.
• Behavioural research can be classified as positive research because it seeks to explain particular actions or behaviours.
• Behavioural research is typically grounded in organisational theory and theories from psychology and sociology.
• Behavioural research is an example of economics-based theories where assumptions about what motivates human actions are made and such motivations are attributed to all individuals.

8. Capital markets research assumes that markets are:

• Semi-strong-form efficient
• Strong-form efficient
• Weak-form efficient
• Inefficient

9. Semi-strong-form market efficiency means that the information reflected in security prices is:

• All publicly available financial information.
• All public and private information.
• All publicly available information.
• All information about past prices and trading volumes.

10. Semi-strong-form market efficiency suggests security prices will change when:

• Unexpected earnings results are announced.
• Earnings results are announced.
• Cash flow results are announced.
• All of the given options are correct.

11. According to the findings of capital markets research, the existence of post-announcement abnormal returns for a given firm suggests that for firms in the same industry:

• Subsequent post-announcement abnormal returns will increase.
• Subsequent post-announcement abnormal returns will decrease.
• There will be no effect on subsequent post-announcement abnormal returns.
• It is impossible to predict the effect on subsequent post-announcement abnormal returns.

12. The book value is generally less than the market value of a firm because:

• Capital markets are not strong-form efficient.
• Certain intangibles may not meet the asset recognition criteria.
• Assets may be overvalued by unethical managers.
• The market values of assets are difficult to measure.

13. Which of the following best describes the view taken by Milton Friedman in relation to the role of companies?

• Companies are an integral part of society, and as such should adopt the highest ethical principles.
• Companies, as part of society, should act in the interests of the harmonisation of society and the environment.
• Companies should detach themselves from the environment and focus on maximising the benefits to society.
• Companies should distance themselves from the community in which they operate and focus solely on maximising the returns to shareholders.

14. Which of the following statements relating to Stakeholder Theory explain why companies disclose social and environmental information:

• Disclosures are linked to providing evidence that an entity is complying with the expectations of society.
• Disclosure depends on the expectations of powerful stakeholders, if the managerial perspective of Stakeholder Theory is embraced.
• Disclosure depends on positive wealth implications.
• Organisations will adopt particular practices because of institutional pressures.

 

15. Empirical findings consistent with Legitimacy Theory would be increased disclosure of:

• Environmental good news, immediately following prosecutions for breaches of environmental standards.
• Environmental bad news, immediately following prosecutions for breaches of environmental standards.
• Environmental good news, immediately preceding prosecutions for breaches of environmental standards.
• Environmental bad news, immediately preceding prosecutions for breaches of environmental standards.

16. The moral perspective of Stakeholder Theory holds that all stakeholders have the right to be treated fairly by an organisation:

• Provided this improves the organisation’s financial performance.
• Regardless of the impact on the organisation’s financial performance.
• Because, in the long run, this will improve the organisation’s financial performance.
• Because unfair treatment will result in public backlash.

17. Managerial Stakeholder Theory suggests that annual reports will be used to:

• Gain the support of powerful stakeholders.
• Report on the activities of management with respect to each stakeholder.
• Explain why profits may have been sacrificedin order to respect the minimum rights of some stakeholders.
• To achieve social legitimacy by explaining how the company upheld the social contract.

18. Institutional Theory suggests which of the following?

• While organisational structures are initially varied, they are gradually homogenised by competition, the state and professions.
• While organisational structures are initially homogenous, they are gradually varied by competition, the State and professions.
• The organisational structure is determined by institutional factors such as management style and organisational culture.
• The organisational structure is determined by the organisation’s most powerful stakeholders.

19. Which statement describes the relationship between Institutional Theory (IT), Legitimacy Theory (LT) and Stakeholder Theory (ST)?

• IT is a normative theory while LT and ST are positive theories.

(B)   IT is a more detailed version of LT, and is broadly consistent with ST.

• The mechanisms IT suggests firms will use to align the perceptions of their performance with society’s values could include the mechanisms suggested by LT and ST.

20. An organisation disclosing social and environmental information because a competitor was gaining a competitive advantage by doing so, is an example of:

• Mimetic isomorphism
• Coercive isomorphism
• Normative isomorphism
• Positive isomorphism