Question 1

Which of the following bonus schemes would be appropriate for the managers of a biotechnology research company?

Accepted Answer

A)  A market-based bonus scheme, as it is more appropriate to reward the manager in terms of the market value of the firm's securities, which are assumed to be influenced by expectations about the net present value of expected future cash flows, and the manager will be given an incentive to increase the value of the firm. 
B)  A fixed basis scheme, so that the managers would not take great risks, reject risky projects, and be reluctant to take on optimal levels of debt as it may be beneficial to those with equity in the firm. 
C)  An accounting-based bonus scheme as this will be in the interest of the manager, as that manager will potentially receive greater rewards and will not have to bear the costs of the perceived opportunistic behaviours. 
D)  A combination of fixed basis and accounting-based scheme, as assuming that self-interest drives the actions of the managers, it may be necessary to put in place remuneration schemes that reward the managers in a way that is, at least in part, tied to the performance of the firm. 
A)  A market-based bonus scheme, as it is more appropriate to reward the manager in terms of the market value of the firm's securities, which are assumed to be influenced by expectations about the net present value of expected future cash flows, and the manager will be given an incentive to increase the value of the firm. 
B)  A fixed basis scheme, so that the managers would not take great risks, reject risky projects, and be reluctant to take on optimal levels of debt as it may be beneficial to those with equity in the firm. 
C)  An accounting-based bonus scheme as this will be in the interest of the manager, as that manager will potentially receive greater rewards and will not have to bear the costs of the perceived opportunistic behaviours. 
D)  A combination of fixed basis and accounting-based scheme, as assuming that self-interest drives the actions of the managers, it may be necessary to put in place remuneration schemes that reward the managers in a way that is, at least in part, tied to the performance of the firm. A

Question 2

Which of the following is a problem with Positive Accounting Theory?

Accepted Answer

A)  It is not testable. 
B)  It has been empirically discredited. 
C)  It contributes little to improving accounting practice. 
D)  None of the given options are correct. 
A)  It is not testable. 
B)  It has been empirically discredited. 
C)  It contributes little to improving accounting practice. 
D)  None of the given options are correct. C

Question 3

A contribution of Positive Theory is that it enables us to understand:

Accepted Answer

A)  Why interest groups expend resources lobbying for or against particular standards 
B)  Why a manager adopts particular accounting techniques over others 
C)  The effect accounting standards have on different groups and resource allocation 
D)  All of the given options are correct. 
A)  Why interest groups expend resources lobbying for or against particular standards 
B)  Why a manager adopts particular accounting techniques over others 
C)  The effect accounting standards have on different groups and resource allocation 
D)  All of the given options are correct. D

Question 4

Which of the following is not true about Positive Accounting Theory?

Accepted Answer

A)  A positive theory seeks to explain and predict particular phenomena. 
B)  A positive theory focuses on the relationships between various individuals and how accounting is used to assist in the functioning of these relationships. 
C)  A positive theory prescribes how a particular practice should be undertaken. 
D)  All of the given options are correct. 
A)  A positive theory seeks to explain and predict particular phenomena. 
B)  A positive theory focuses on the relationships between various individuals and how accounting is used to assist in the functioning of these relationships. 
C)  A positive theory prescribes how a particular practice should be undertaken. 
D)  All of the given options are correct.

Question 5

The 'debt/equity hypothesis' of Positive Accounting Theory predicts which of the following?

Accepted Answer

A)  The higher the firm's debt/equity ratio, the more likely managers are to use accounting methods that lower income. 
B)  The lower the firm's debt/equity ratio, the more likely managers are to use accounting methods that increase income. 
C)  The higher the firm's debt/equity ratio, the more likely managers are to use accounting methods that increase income. 
D)  None of the given options are correct. 
A)  The higher the firm's debt/equity ratio, the more likely managers are to use accounting methods that lower income. 
B)  The lower the firm's debt/equity ratio, the more likely managers are to use accounting methods that increase income. 
C)  The higher the firm's debt/equity ratio, the more likely managers are to use accounting methods that increase income. 
D)  None of the given options are correct.

Question 6

According to Positive Accounting Theory,using stock prices to determine bonuses:

Accepted Answer

A)  Increases the likelihood of management disclosing good news 
B)  Increases the likelihood of management disclosing of bad news 
C)  Increases the likelihood of management disclosing both good and bad news 
D)  Has no effect on the likelihood of management disclosures 
A)  Increases the likelihood of management disclosing good news 
B)  Increases the likelihood of management disclosing of bad news 
C)  Increases the likelihood of management disclosing both good and bad news 
D)  Has no effect on the likelihood of management disclosures

Question 7

The 'bonus plan hypothesis' of Positive Accounting Theory suggests managers of firms with bonus plans tied to reported income are more likely to use accounting methods that:

Accepted Answer

A)  Increase prior period reported income 
B)  Increase current period reported income 
C)  Increase future period reported income 
D)  None of the given options are correct. 
A)  Increase prior period reported income 
B)  Increase current period reported income 
C)  Increase future period reported income 
D)  None of the given options are correct.

Question 8

The 'efficiency perspective' of Positive Accounting Theory suggests that firms will:

Accepted Answer

A)  Adopt the accounting methods that require the least resources to implement 
B)  Adopt the accounting methods that result in the highest reported earnings 
C)  Adopt the accounting methods that result in the lowest reported earnings 
D)  Adopt the accounting methods that best reflect the underlying economic performance of the entity 
A)  Adopt the accounting methods that require the least resources to implement 
B)  Adopt the accounting methods that result in the highest reported earnings 
C)  Adopt the accounting methods that result in the lowest reported earnings 
D)  Adopt the accounting methods that best reflect the underlying economic performance of the entity

Question 9

To test whether accounting information is useful,researchers such as Ball and Brown tested whether share prices responded to:

Accepted Answer

A)  Expected earnings announcements 
B)  Forecast earnings announcements 
C)  Unexpected earnings announcements 
D)  All of the given options are correct. 
A)  Expected earnings announcements 
B)  Forecast earnings announcements 
C)  Unexpected earnings announcements 
D)  All of the given options are correct.

Question 10

Which of the following is correct in respect of Positive Accounting Theory?

Accepted Answer

A)  The opportunistic perspective is ex-post, and the efficiency perspective is ex-ante. 
B)  The opportunistic perspective is ex-ante, and the efficiency perspective is ex-post. 
C)  Both the opportunistic and efficiency perspectives are ex-ante. 
D)  Both the opportunistic and efficiency perspectives are ex-post. 
A)  The opportunistic perspective is ex-post, and the efficiency perspective is ex-ante. 
B)  The opportunistic perspective is ex-ante, and the efficiency perspective is ex-post. 
C)  Both the opportunistic and efficiency perspectives are ex-ante. 
D)  Both the opportunistic and efficiency perspectives are ex-post.

Question 11

The key theory that underpins Positive Accounting Theory is:

Accepted Answer

A)  The Efficient Markets Hypothesis 
B)  Agency theory 
C)  Normative ethical theory 
D)  None of the given options are correct. 
A)  The Efficient Markets Hypothesis 
B)  Agency theory 
C)  Normative ethical theory 
D)  None of the given options are correct.

Question 12

Which of the following is a central assumption of Positive Accounting Theory?

Accepted Answer

A)  Individuals act solely on the basis of self-interest. 
B)  Firms seek to maximise profits. 
C)  The interests of principals and agents are not aligned. 
D)  Financial statements will be audited regardless of legal requirements. 
A)  Individuals act solely on the basis of self-interest. 
B)  Firms seek to maximise profits. 
C)  The interests of principals and agents are not aligned. 
D)  Financial statements will be audited regardless of legal requirements.

Question 13

Which of the following statements is true regarding the origins and development of Positive Accounting Theory?

Accepted Answer

A)  Positive research in accounting started coming to prominence around the mid-1960s, and appeared to become the dominant research paradigm within financial accounting in the 1970s and 1980s. 
B)  The introduction of positive research into accounting represented a paradigm shift from normative research to positive research. 
C)  Currently, almost all papers in Accounting Review and most other leading academic journals are positive research-based. 
D)  All of the given options are correct. 
A)  Positive research in accounting started coming to prominence around the mid-1960s, and appeared to become the dominant research paradigm within financial accounting in the 1970s and 1980s. 
B)  The introduction of positive research into accounting represented a paradigm shift from normative research to positive research. 
C)  Currently, almost all papers in Accounting Review and most other leading academic journals are positive research-based. 
D)  All of the given options are correct.

Question 14

Watts and Zimmerman's Positive Accounting Theory is:

Accepted Answer

A)  One of several normative theories of accounting 
B)  One of several positive theories of accounting 
C)  One of several critical theories of accounting 
D)  None of the given options are correct. 
A)  One of several normative theories of accounting 
B)  One of several positive theories of accounting 
C)  One of several critical theories of accounting 
D)  None of the given options are correct.

Question 15

Which of the following is not an example of a Positive Accounting Theory or research?

Accepted Answer

A)  True income theories 
B)  Legitimacy Theory 
C)  Costs associated with increased wage claims 
D)  The cost of remaining largely unnoticed by government regulatory agencies 
A)  True income theories 
B)  Legitimacy Theory 
C)  Costs associated with increased wage claims 
D)  The cost of remaining largely unnoticed by government regulatory agencies

Question 16

Which of the following is an example of political costs under the PAT perspective?

Accepted Answer

A)  Wage and salary deductions paid to unions 
B)  Contributions to political parties 
C)  Costs associated with increased wage claims 
D)  The cost of remaining largely unnoticed by government regulatory agencies 
A)  Wage and salary deductions paid to unions 
B)  Contributions to political parties 
C)  Costs associated with increased wage claims 
D)  The cost of remaining largely unnoticed by government regulatory agencies

Question 17

Which of the following is the main advantage of using accounting earnings instead of share prices to determine bonuses?

Accepted Answer

A)  Share prices are influenced by market forces that are outside the control of management. 
B)  Accounting information is independently audited. 
C)  Accounting information is unbiased. 
D)  Share prices may be manipulated by managers engaging in insider trading. 
A)  Share prices are influenced by market forces that are outside the control of management. 
B)  Accounting information is independently audited. 
C)  Accounting information is unbiased. 
D)  Share prices may be manipulated by managers engaging in insider trading.

Question 18

Which of the following parties desire the firm to take the most risks?

Accepted Answer

A)  Managers 
B)  Debtholders 
C)  Owners 
D)  All parties desire the firm to take the same level of risk. 
A)  Managers 
B)  Debtholders 
C)  Owners 
D)  All parties desire the firm to take the same level of risk.

Question 19

The principal's expectation of opportunistic behaviour by his or her agent results in lower payments to:

Accepted Answer

A)  The agent 
B)  The principal 
C)  The principal and the agent 
D)  Neither the principal nor the agent 
A)  The agent 
B)  The principal 
C)  The principal and the agent 
D)  Neither the principal nor the agent

Question 20

The 'political cost hypothesis' of Positive Accounting Theory suggests which of the following?

Accepted Answer

A)  Large firms are more likely to use accounting choices that reduce reported profits. 
B)  Small firms are more likely to use accounting choices that reduce reported profits. 
C)  Neither large nor small firms are more likely to use accounting choices that reduce reported profits. 
D)  Both large and small firms are more likely to use accounting choices that reduce reported profits. 
A)  Large firms are more likely to use accounting choices that reduce reported profits. 
B)  Small firms are more likely to use accounting choices that reduce reported profits. 
C)  Neither large nor small firms are more likely to use accounting choices that reduce reported profits. 
D)  Both large and small firms are more likely to use accounting choices that reduce reported profits.

Which of the following bonus schemes would be appropriate for the managers of a biotechnology research company?

Which of the following is a problem with Positive Accounting Theory?

A contribution of Positive Theory is that it enables us to understand:

Which of the following is not true about Positive Accounting Theory?

The 'debt/equity hypothesis' of Positive Accounting Theory predicts which of the following?

According to Positive Accounting Theory,using stock prices to determine bonuses:

The 'bonus plan hypothesis' of Positive Accounting Theory suggests managers of firms with bonus plans tied to reported income are more likely to use accounting methods that:

The 'efficiency perspective' of Positive Accounting Theory suggests that firms will:

To test whether accounting information is useful,researchers such as Ball and Brown tested whether share prices responded to:

Which of the following is correct in respect of Positive Accounting Theory?

The key theory that underpins Positive Accounting Theory is:

Which of the following is a central assumption of Positive Accounting Theory?

Which of the following statements is true regarding the origins and development of Positive Accounting Theory?

Watts and Zimmerman's Positive Accounting Theory is:

Which of the following is not an example of a Positive Accounting Theory or research?

Which of the following is an example of political costs under the PAT perspective?

Which of the following is the main advantage of using accounting earnings instead of share prices to determine bonuses?

Which of the following parties desire the firm to take the most risks?

The principal's expectation of opportunistic behaviour by his or her agent results in lower payments to:

The 'political cost hypothesis' of Positive Accounting Theory suggests which of the following?

Introduction to Financial Accounting Theory

The Financial Reporting Environment

The Regulation of Financial Accounting

International Accounting

Measurement Issues: Accounting for the Effects of Changing Prices and Market Conditions

Normative Theories of Accounting: The Case of Conceptual Framework Projects

Unregulated Corporate Reporting Decisions: Considerations of Systems-Oriented Theories

Extending Corporate Accountability: The Incorporation of Social and Environmental Factors Within External Reporting

Reactions of Capital Markets to Financial Reporting

Reactions of Individuals to Financial Reporting: An Examination of Behavioural Research in Accounting

Critical Perspectives of Accounting

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Exam 7: Positive Accounting Theory

Which of the following bonus schemes would be appropriate for the managers of a biotechnology research company?

Which of the following is a problem with Positive Accounting Theory?

A contribution of Positive Theory is that it enables us to understand:

Which of the following is not true about Positive Accounting Theory?

The 'debt/equity hypothesis' of Positive Accounting Theory predicts which of the following?

According to Positive Accounting Theory,using stock prices to determine bonuses:

The 'bonus plan hypothesis' of Positive Accounting Theory suggests managers of firms with bonus plans tied to reported income are more likely to use accounting methods that:

The 'efficiency perspective' of Positive Accounting Theory suggests that firms will:

To test whether accounting information is useful,researchers such as Ball and Brown tested whether share prices responded to:

Which of the following is correct in respect of Positive Accounting Theory?

The key theory that underpins Positive Accounting Theory is:

Which of the following is a central assumption of Positive Accounting Theory?

Which of the following statements is true regarding the origins and development of Positive Accounting Theory?

Watts and Zimmerman's Positive Accounting Theory is:

Which of the following is not an example of a Positive Accounting Theory or research?

Which of the following is an example of political costs under the PAT perspective?

Which of the following is the main advantage of using accounting earnings instead of share prices to determine bonuses?

Which of the following parties desire the firm to take the most risks?

The principal's expectation of opportunistic behaviour by his or her agent results in lower payments to:

The 'political cost hypothesis' of Positive Accounting Theory suggests which of the following?

Introduction to Financial Accounting Theory

The Financial Reporting Environment

The Regulation of Financial Accounting

International Accounting

Measurement Issues: Accounting for the Effects of Changing Prices and Market Conditions

Normative Theories of Accounting: The Case of Conceptual Framework Projects

Unregulated Corporate Reporting Decisions: Considerations of Systems-Oriented Theories

Extending Corporate Accountability: The Incorporation of Social and Environmental Factors Within External Reporting

Reactions of Capital Markets to Financial Reporting

Reactions of Individuals to Financial Reporting: An Examination of Behavioural Research in Accounting

Critical Perspectives of Accounting

Filters