Deck 1: Introduction

Question 1

No systemic theory of accounting was devised from the time of Pacioli in the 15^th century until the opening of the 19^th century.

Answer 1

True

Question 2

The period 1800 - 1955 has been labelled the empirical period in accounting development.

Answer 2

True

Question 3

An example of a positive accounting theory is the bonus plan hypothesis.This predicts that managers who are not remunerated via bonus plans use profit-increasing accounting methods more than managers who are remunerated via bonus plan.

Answer 3

False

Question 4

The current Australian conceptual framework consists of SAC 1,SAC 2,SAC 3,and SAC 4.

Question 5

The statement that best defines what is meant by a theory is:

A)A coherent set of hypothetical,conceptual and pragmatic principles forming the general framework for a field of inquiry
B)A deductive system of statements of decreasing generality
C)A set of ideas used to explain real-world observations
D)All of the above

Question 6

The main purpose of accounting theory is to prescribe accounting rules for practitioners.

Question 7

Behavioural research,which is concerned with the broader sociological implications of accounting numbers and the associated actions of 'key players' as they react to accounting information,was first used in an accounting context in the 1980s.

Question 8

The development of a conceptual framework has solved the problem of inconsistency in the application of accounting in practice.

Question 9

While the accounting profession has sought to use accounting theories to unify accounting practice and make it more useful,academics use accounting theories to understand the role and impact of accounting information.Therefore,academic research on accounting is not useful for professional practice.

Question 10

The normative period of accounting theory ended because empirical testing proved the theories developed during this period to be false.

Question 11

Which of these would be an example of normative research (research based upon a normative theory)?

A)A researcher,through observation,documents the breeding cycle of the gnat
B)An economist develops a method of using last month's share market prices to predict unemployment levels
C)In order to ensure consistency in schooling outcomes an education researcher recommends that all final year school students undertake the same six subjects for assessment purposes
D)An accounting researcher predicts that auditors will perform faster audits when the audit materials are presented in graphical rather than tabular form

Question 12

During the normative period of accounting theory development,theorists were concerned with explaining and understanding current accounting practice.

Question 13

An example of an inconsistency in accounting practice is for a company to depreciate some of its assets using the straight-line method and some using the reducing-balance method.

Question 14

The rapid increase in demand for both management accounting and financial accounting information in the 1800s can be explained by:

A)The rapid development of technology during this time
B)The 'birth' of the corporation
C)Increasing separation of business management from ownership
D)All of the above

Question 15

The 'debt hypothesis' predicts that the larger the firm's debt to equity ratio,the more likely it is that the firm's manager will select accounting procedures that shift reported profits from future periods to current periods - this is to reduce the likelihood of the firm technically breaching its debt covenants.The theory underlying this hypothesis would be a positive theory.

Question 16

Which of these characteristics is the least important for an accounting theory to be considered acceptable?

A)How well the accounting theory has been constructed
B)How acceptable the implications of the accounting theory are
C)How prescriptive the accounting theory is in relation to accounting practice
D)How well the accounting theory explains and predicts reality

Question 17

The ultimate objective of international accounting standards is to make all countries use the same standards so that there are no differences in reported information across international reporting boundaries.

Question 18

As a result of accounting prescription being developed in a haphazard way there are follow-on inconsistencies in practice.

Question 19

The statement that best defines the term 'empirical analysis' is:

A)Reasoning from the general to specific statements
B)Testing the truth of a proposition by observing a subset of real world observations or events
C)Understanding practices,activities or behaviour based upon direct observations and/or experience
D)Actions undertaken by interested parties to influence the actions or outcomes of decisions made by others

Question 20

Which of these is an era of accounting theory development during which the emphasis was on providing an overall framework to explain and develop accounting practice by using the empirical analysis method?

A)The general scientific period
B)The pre-scientific period
C)The practical approach period
D)The normative period

Question 21

"Many accounting prescriptions on how to account were developed to resolve problems as they arose. ,hence the theory underlying those prescriptions also developed in a largely unstructured manner.This has led to inconsistencies in practice".J.Godfrey,et el,'Accounting Theory',7^th Ed.p.5.Discuss the quotation,including in your discussion at least three examples of inconsistencies in accounting practice.

Question 22

Select the pair of periods of accounting theoretical development that are based on a similar approach.

A)The general scientific and the positive periods
B)The normative and positive periods
C)The general scientific and the normative periods
D)None of the above

Question 23

Which of the following arguments are reasons why normative theories cannot be empirically tested?
i.It is impossible to demonstrate empirically what ought to be
ii.Normative theories are based on value judgements
iii.There is no access to empirical data sets

A)i,iii
B)i,ii
C)ii,iii
D)i,ii,iii

Question 24

The statement that is not descriptive of positive theories is,

A)They are descriptive rather than prescriptive
B)They avoid making value-laden judgements
C)They explain why people behave in a certain manner
D)Their primary concern is developing policy recommendations for accounting practice

Question 25

In which of the following situations would you probably not apply a behavioural theory if you wanted to undertake accounting research?

A)You want to know whether investors use disclosures when deciding whether to invest in a firm
B)You are interested in understanding the effect of unexpected earnings announcements by firms on share prices
C)You want to know what factors loan managers consider when assessing the riskiness of a new client firm
D)You want to determine whether individuals are quicker at analysing financial information using graphs or tables

Question 26

The research question that is most unlikely to be tested using positive methodology is:

A)Which firms are more likely to use straight-line depreciation rather than diminishing-balance depreciation?
B)Is the quantitative data derived from given sets of operations,based on an overall accounting theory,useful to users of financial statements?
C)How do changes in tax rules affect a firm's leverage position?
D)Are firms with more intangible assets more likely to repurchase their shares?

Question 27

'The positive and normative approaches to accounting theory are not incompatible.' Explain and discuss.

Question 28

The two groups that dominated the normative period of accounting theory development were:

A)The proponents of historical cost accounting and the conceptual framework proponents
B)The critics of historical cost accounting and the conceptual framework opponents
C)The proponents of historical cost accounting and the conceptual framework opponents
D)The critics of historical cost accounting and the conceptual framework proponents

Question 29

Behavioural accounting research is concerned with the broader sociological implications of accounting numbers.As such it is mainly concerned with the reactions of which of the following groups to accounting numbers?

A)Auditors and managers
B)Shareholders and government
C)Creditors
D)All of the above

Question 30

Which of the following is not regarded as a period of accounting theory development?

A)The normative period
B)The pre-scientific period
C)The positive accounting theory period
D)The mixed development period

Question 31

The major focus of the normative accounting theories during the period 1956 - 1970 was:

A)Refining accounting practices
B)The impact of changing prices on the value of assets and the calculation of profit
C)Providing explanations of accounting practices
D)The broader sociological implications of accounting numbers

Question 32

Give a brief overview of the development of accounting theory in:
.the pragmatic period (1800-1955)
.the normative period (1956-1970)
.the positive period (1970's-2000 )

Question 33

Which of these is one of the two main factors that prompted the demise of the normative period of accounting research?

A)The availability of financial economic principles and testing methods
B)Severe criticisms from positive accounting theorists
C)The resurgence of behavioural research
D)The increased popularity of a conceptual framework

Question 34

Compare and contrast the normative approach to accounting theory with the positive approach.

Question 35

The statement that best describes the interaction of academic and professional research interests with respect to accounting theory,is:

A)Academic and professional research interests are incompatible as academic research centres on positive theories which are not prescriptive
B)Academic researchers use positive accounting theories whereas the accounting profession uses normative theories
C)While accounting profession researchers seek normative (prescriptive)theories for accounting practice,these theories are not incompatible with academic (positive)theories which can be used to advise accounting professionals in the development of prescriptive practices
D)None of the above