Question 1

Research has found that the use of rules of thumb such as representativeness,availability,and anchoring and adjustment have improved the quality of decision making for auditors and accountants."

Accepted Answer

Research indicates that reliance on heuristics or rules of thumb like representativeness, availability, and anchoring and adjustment can often lead to biases and errors in judgment, potentially impairing the quality of decision-making for auditors and accountants.

Question 2

The statement that is correct is:
A)Human judgement theory is particularly relevant to auditing
B)Contracting theory in accounting has been eclipsed in recent years by behavioural research
C)The Brunswik lens model was first developed by accounting researchers and then was later used by other disciplines
D)All of the statements are correct

Accepted Answer

Human judgement theory is especially relevant to auditing because it focuses on how auditors make decisions and judgments, as well as the factors that influence those decisions. This theory has been extensively studied and has practical applications in the auditing profession.

B is incorrect because contracting theory still plays a significant role in accounting research, and its influence has not been eclipsed by behavioural research.

C is incorrect because the Brunswik lens model was first developed by psychologist Egon Brunswik and later applied to accounting by accounting researchers.

Therefore, the correct answer is A.

Question 3

Which research question would not be answered using behavioural accounting research?
A)How does the stock market react to the disclosure of upward asset revaluations?
B)How does a bank loan officer decide whether to grant a loan to a client?
C)How does an auditor judge the riskiness of an audit client?
D)What are the most useful accounting disclosures for users of financial reports?

Accepted Answer

A) focuses on the stock market's reaction to financial disclosures, which is more aligned with financial accounting research rather than behavioural accounting research. Behavioural accounting research typically examines the human aspects of accounting, such as decision-making processes, rather than market reactions.

Question 4

The consequence of anchoring and adjustment is that there is a possibility of insufficient adjustment when a circumstance changes.

Accepted Answer

Anchoring and adjustment refers to the cognitive bias where a person uses an initial piece of information (the anchor) as a reference point for making subsequent judgments or estimates. However, this can lead to insufficient adjustment from the anchor when there is new information or circumstances that should warrant a significant change in judgment or estimate. Therefore, the consequence of anchoring and adjustment is that there is a possibility of insufficient adjustment when a circumstance changes, making option A true.

Question 5

Research shows that investors react as though they perceive auditor independence as impaired when auditors receive non-audit service revenue from their audit clients even if actual auditor independence is not affected.

Accepted Answer

This statement is true. Studies have found that investors view non-audit service fees paid to auditors by their audit clients as a potential threat to auditor independence, even when there is no actual impairment of independence. This perception can lead to reduced confidence in the audit and financial reporting process. As a result, many companies now limit the amount of non-audit services that can be provided to audit clients to help mitigate potential conflicts of interest.

Question 6

The higher the beta in the Brunswik lens regression model,the more important the information cues will be to a person in making decisions.

Accepted Answer

This is because a higher beta value indicates stronger relationship or dependence between the predictor variable (information cues) and the outcome variable (decision-making). Thus, when beta is high, the information cues will have a greater impact on the person's decision-making process.

Question 7

Behavioural accounting research is considered important to economic practitioners for the following reasons,except:
A)The findings of BAR can lead to efficiencies in the work practices of accountants and other professionals
B)BAR can provide valuable insights into the ways different types of decision makers react to particular items of accounting information
C)BAR can potentially provide useful information to accounting regulators
D)Other accounting research schools such as capital market and agency theory are not useful for accounting information research

Accepted Answer

The statement "Other accounting research schools such as capital market and agency theory are not useful for accounting information research" is incorrect. Capital market research and agency theory are also important research schools in accounting, and their findings can be used in conjunction with behavioral accounting research.

Question 8

The Brunswik lens model always outperforms the process tracing model in any decision-making scenario.

Accepted Answer

This statement is not necessarily true. Whether the Brunswik lens model outperforms the process tracing model depends on the specific decision-making scenario and the available data. Both models have their strengths and limitations and may perform better or worse depending on the context. Therefore, it is important to evaluate the appropriateness and effectiveness of each model for the specific task at hand.

Question 9

According to the literature it does not appear that accounting information presentation affects decision-making.

Accepted Answer

There is conflicting evidence in the literature regarding the impact of accounting information presentation on decision-making. Some studies suggest that the format and layout of financial statements can affect users' judgments and decisions, while others do not find any significant effect. Overall, the answer is not clear-cut and may depend on various factors such as the complexity of the information, the cognitive abilities of the users, and the context in which the decisions are made.

Question 10

Which of these accounting research types can be called 'normative' research?
A)Behavioural research
B)Capital market research
C)Agency theory
D)None can be called normative research

Accepted Answer

Normative research focuses on prescribing optimal accounting practices rather than describing or explaining them. None of the options listed (A: Behavioural research, B: Capital market research, C: Agency theory) are examples of normative research; they are all empirical in nature, aiming to observe, explain, or predict accounting phenomena rather than prescribe what should be.

Question 11

The statement that is true with respect to the Brunswik lens model is:
A)The results of research using this model can be used to train decision makers to change the weightings they give to different information cues
B)It has provided insights into the stability of human judgement over time
C)It is not as good as process tracing methods at predicting the event of interest
D)A and B

Accepted Answer

Option A is true as the Brunswik lens model provides information on the importance of different information cues which can be used to train decision makers in changing their weightings. Option B is also true because the Brunswik lens model highlights the stability of human judgment over time. Option C is false as the Brunswik lens model is designed to predict the event of interest by identifying important cues. Therefore, options A and B are correct and the answer is D.

Question 12

Which of these is not a model relied heavily on in applying human judgement theory to accounting issues?
A)The Brunswik lens model
B)The process tracing model
C)The efficient market model
D)The probabilistic judgement model

Accepted Answer

The efficient market model is not a model that is relied heavily on in applying human judgement theory to accounting issues. The other options, the Brunswik lens model, the process tracing model, and the probabilistic judgement model, are all models that are used to analyze and explain human judgement in accounting.

Question 13

In behavioural research a model used in situations where initial predictions need to be adjusted in light of additional information is:
A)The Brunswik lens model
B)Process tracing
C)The probabilistic judgement paradigm
D)None of the above

Accepted Answer

The probabilistic judgement paradigm is used in situations where initial predictions are adjusted based on new information, reflecting how people update their beliefs probabilistically.

Question 14

One of the limitations of using CART models is that when there is lot of data available for analysis it becomes difficult to derive simple rules to train other analysts.

Accepted Answer

When there is a large amount of data available for analysis, CART models may generate complex decision trees with numerous nodes and branches, which can be difficult for other analysts to understand and interpret. Therefore, it can be challenging to derive simple rules from these models that can be easily used by other analysts.

Question 15

One of the limitations of BAR is that it is not useful for revealing the systematic errors made by all decision makers in specific contexts.

Accepted Answer

Behavioral Analysis of Risk (BAR) is specifically designed to identify and analyze the systematic errors (biases) that decision makers often make in specific contexts, thereby helping to understand and mitigate these errors in decision-making processes.

Question 16

Consider the following linear equation model regarding an accountant's judgements regarding the likelihood of business failure:
Likelihood of Insolvency/Solvency= constant + 0.1 Net profit + 0.3 Cash flow + 0.15 Acid test ratio + 0.25 Debt to Equity ratio + other information cues + error
According to the model which of the following statements is correct?
A)The accountant considers the debt to equity ratio to be a relatively more important information cue regarding insolvency than the cash flow
B)The Acid test ratio has a higher beta weight than net profit
C)The accountant will only consider net profit,cash flow,acid test ratios and debt to equity ratios when making judgements on business solvency
D)The acid test ratio is the least important information cue for the accountant in making his solvency judgement

Accepted Answer

The beta weights indicate the relative importance of each variable in the model. A higher beta weight means that the variable has a stronger impact on the outcome. Therefore, according to the model, the Acid test ratio has a higher beta weight than net profit, which means it is considered to be more important in predicting business failure.

Note that none of the other statements can be inferred from the model. It is possible that the accountant considers other information cues besides the ones listed in the model, and the error term accounts for other factors that may affect the likelihood of insolvency/solvency.

Question 17

The statement that is true is:
A)The objective of behavioural accounting research (BAR)is to explain why people behave as they do
B)Capital market research investigates how information is actually processed by market participants
C)BAR,capital market research,and agency theory are normative accounting theories
D)Agency theory makes no assumptions about people's behaviours

Accepted Answer

The answer of The statement that is true is:
A)The objective...

Question 18

Behavioural accounting research is similar to research using agency theory in that it focuses on individual managers and firms and is derived from the discipline of economics.

Accepted Answer

While behavioural accounting research also focuses on individual managers and firms, it is derived from psychology and sociology rather than economics. Agency theory, on the other hand, is purely based on economics.

Question 19

Libby and Zimmer found a negative correlation between accuracy of judgement and confidence.

Accepted Answer

Libby and Zimmer actually found a positive correlation between accuracy of judgment and confidence, indicating that higher confidence was associated with more accurate judgments.

Question 20

One of the limitations of the Brunswick lens model is that decision makers often have difficulty explaining all the steps they go through.

Accepted Answer

The answer of One of the limitations of the Brunswick...

Quiz 13: Behavioural Research

Research has found that the use of rules of thumb such as representativeness,availability,and anchoring and adjustment have improved the quality of decision making for auditors and accountants."

The statement that is correct is:

Which research question would not be answered using behavioural accounting research?

The consequence of anchoring and adjustment is that there is a possibility of insufficient adjustment when a circumstance changes.

Research shows that investors react as though they perceive auditor independence as impaired when auditors receive non-audit service revenue from their audit clients even if actual auditor independence is not affected.

The higher the beta in the Brunswik lens regression model,the more important the information cues will be to a person in making decisions.

Behavioural accounting research is considered important to economic practitioners for the following reasons,except:

The Brunswik lens model always outperforms the process tracing model in any decision-making scenario.

According to the literature it does not appear that accounting information presentation affects decision-making.

Which of these accounting research types can be called 'normative' research?

The statement that is true with respect to the Brunswik lens model is:

Which of these is not a model relied heavily on in applying human judgement theory to accounting issues?

In behavioural research a model used in situations where initial predictions need to be adjusted in light of additional information is:

One of the limitations of using CART models is that when there is lot of data available for analysis it becomes difficult to derive simple rules to train other analysts.

One of the limitations of BAR is that it is not useful for revealing the systematic errors made by all decision makers in specific contexts.

The statement that is true is:

Behavioural accounting research is similar to research using agency theory in that it focuses on individual managers and firms and is derived from the discipline of economics.

Libby and Zimmer found a negative correlation between accuracy of judgement and confidence.

One of the limitations of the Brunswick lens model is that decision makers often have difficulty explaining all the steps they go through.