Question 1

Which of the following is a fundamental assumption of public interest theory?&#10;A)Regulation is costly.&#10;B)People rationally advance their own self-interest.&#10;C)Economic markets are fragile.&#10;D)There is an efficient market.

Accepted Answer

Public interest theory assumes that economic markets are fragile and require regulation to protect the public interest and ensure fair outcomes.

Question 2

Disadvantage of principles-based standards is:&#10;A)They supply broad guidelines.&#10;B)They allow mangers to select policies that may not reflect the substance of a transaction.&#10;C)They allow accountants to use professional judgement.&#10;D)All of the above.

Accepted Answer

The disadvantage of principles-based standards is that they allow managers to select policies that may not reflect the substance of a transaction. This is because principles-based standards provide broad guidelines that rely on the professional judgement of accountants and managers. While this can lead to flexibility and adaptability in accounting practices, it can also result in inconsistencies and subjectivity in financial reporting. Therefore, principles-based standards need to be supplemented with specific rules and guidance to ensure consistent and reliable financial reporting.

Question 3

One of the advantages of principles-based standard is:&#10;A)They do not improve representational faithfulness of financial statements.&#10;B)They allow for no professional judgement.&#10;C)They are generally simpler.&#10;D)None of the above.

Accepted Answer

Principles-based standards provide general guidance that is flexible and adaptable to various circumstances, making them generally simpler than rules-based standards. Choices A and B are incorrect because principles-based standards do improve representational faithfulness of financial statements and allow for professional judgement.

Question 4

Which of the following is NOT a function of the AASB? standard setting.&#10;A)Participate in the development of international accounting standards.&#10;B)Making accounting standards.&#10;C)Promoting international accounting standards.&#10;D)Enforcing compliance with accounting standards.

Accepted Answer

The AASB's main function is to set accounting standards; enforcing compliance with those standards falls under the jurisdiction of regulatory bodies such as ASIC. The other options (A, B, and C) correctly identify the AASB's role in standard-setting and promoting international accounting standards.

Question 5

Which of the following is NOT a key element of regulation?&#10;A)Regulation should be biased.&#10;B)An intention to intervene.&#10;C)A restriction on choice.&#10;D)The exercise of control.

Accepted Answer

Regulation should not be biased as it should be impartial and fair. The other three options (B, C, and D) are all key elements of regulation - it requires an intention to intervene, restricts choices in some way, and involves the exercise of control over the regulated activity or industry.

Question 6

Which of the following is a fundamental assumption of Capture Theory?&#10;A)Regulation is costly.&#10;B)People rationally advance their own self-interest.&#10;C)Economic markets are fragile.&#10;D)The market is an efficient market.

Accepted Answer

Capture Theory assumes that individuals and groups will rationally pursue their own self-interest, which could result in private interests dominating public policies or regulations. This is a core assumption of the theory, as an understanding of these self-interested motivations is necessary to identify instances of regulatory capture. The other options, while potentially relevant to regulations and markets, are not foundational assumptions of Capture Theory.

Question 7

Which of the following was identified as a benefit when Australia accepted the international harmonisation of its accounting standards?&#10;A)Reporting costs would be lowered.&#10;B)International comparability of financial statements would increase.&#10;C)The cost of capital would decrease.&#10;D)All of the above.

Accepted Answer

Accepting the international harmonisation of accounting standards has several benefits including lowering reporting costs, increasing comparability of financial statements internationally, and decreasing the cost of capital. Therefore, the correct choice is D - all of the above.

Question 8

Which of the following groups benefits most from rules based accounting regulation?&#10;A)Shareholders.&#10;B)Managers.&#10;C)Auditors.&#10;D)Accountants.

Accepted Answer

Auditors benefit most from rules-based accounting regulation because it provides clear guidelines and criteria for evaluating companies' financial statements, reducing ambiguity and the potential for misinterpretation.

Question 9

The Financial Reporting Council (FRC)are responsible for:&#10;A)Appointing board members to the AASB.&#10;B)Broad oversight of the standard-setting process.&#10;C)Providing strategic direction and advice to the AASB.&#10;D)all of the above.

Accepted Answer

The Financial Reporting Council (FRC) is responsible for all of the above tasks, including appointing board members to the AASB, oversight of the standard-setting process and providing strategic direction and advice to the AASB.

Question 10

Which of the following is a fundamental assumption of Bushfire theory?&#10;A)People are not influenced by media when it comes to regulation.&#10;B)People are proactive when it comes to regulation.&#10;C)People are reactive when it comes to regulation.&#10;D)People are apathetic when it comes to regulations.

Accepted Answer

Bushfire theory assumes that people are reactive when it comes to regulation, meaning they are more likely to take action after a disruptive event occurs, such as a bushfire, rather than being proactive and taking preventative measures beforehand.

Question 11

Which of the following is NOT a disadvantage of regulation?&#10;A)It can restrict communication.&#10;B)It can be difficult to reverse.&#10;C)It leads to standardisation.&#10;D)It can be difficult to determine the optimal regulations.

Accepted Answer

The answer of Which of the following is NOT a...

Question 12

Which if the following is an advantage of rules-based accounting standards?&#10;A)Can cover most situations.&#10;B)Reduced complexity of standards.&#10;C)Reduced opportunities for earnings management through judgements.&#10;D)Improve representational faithfulness of financial statements.

Accepted Answer

The answer of Which if the following is an advantage...

Question 13

Which of the following has NOT been identified as a problem with Australia accepting the international harmonisation of its accounting standards?&#10;A)Too few countries have adopted international accounting standards.&#10;B)IFRS standards tend to be more complex.&#10;C)Compromises sometimes need to be made when creating standards.&#10;D)None of the above,they are all problems.

Accepted Answer

The answer of Which of the following has NOT been...

Question 14

Which of the following is NOT an advantage of accounting regulation?&#10;A)Reduced lobbying to produce favourable outcomes.&#10;B)Increased efficiency in allocating capital.&#10;C)Cheaper production of accounting disclosure.&#10;D)Increased public confidence.

Accepted Answer

The answer of Which of the following is NOT an...

Question 15

Which of the following have been blamed for the Global Financial Crisis?&#10;A)Auditor-Client relationships.&#10;B)Corporate governance structures.&#10;C)Accounting standards.&#10;D)All of the above.

Accepted Answer

The answer of Which of the following have been blamed...

Question 16

One of the rules-based standard disadvantages can be:&#10;A)They allow for no manipulation.&#10;B)They can be very complex.&#10;C)They can be very simple.&#10;D)None of the above.

Accepted Answer

The answer of One of the rules-based standard disadvantages can...

Question 17

Research into accounting regulation:&#10;A)Supports capture theory.&#10;B)Is extensive.&#10;C)Shows that accounting is independent of political influence.&#10;D)Looks after the interests of a wide range of stakeholders.

Accepted Answer

The answer of Research into accounting regulation:&#10;A)Supports capture theory.&#10;B)Is extensive.&#10;C)Shows...

Question 18

Signalling Theory postulates that:&#10;A)Regulation is largely unnecessary.&#10;B)Non-disclosing entities will do better in the market for finance.&#10;C)Regulation decreases the cost of capital.&#10;D)Financial reporting is a pointless activity.

Accepted Answer

The answer of Signalling Theory postulates that:&#10;A)Regulation is largely unnecessary.&#10;B)Non-disclosing...

Question 19

Which of the following can the AASB NOT do when adopting IFRSs?&#10;A)Require additional disclosure.&#10;B)Change or remove requirements that are seen as anti-competitive.&#10;C)Change words to take into account Australian legislation.&#10;D)Limit the number of optional treatments.

Accepted Answer

The answer of Which of the following can the AASB...

Question 20

Which of the following groups have been criticised for their failure to respond to exposure drafts?&#10;A)Large Australian companies.&#10;B)Auditors.&#10;C)Academics.&#10;D)Analysts.

Accepted Answer

The answer of Which of the following groups have been...

Deck 3: Standard Setting