Question 1

Which of these is true with respect to the efficient market hypothesis?

Accepted Answer

A) The semi-strong form of market efficiency is the most directly related to the accounting profession 
B) Market efficiency means that all information has been correctly presented by a firm and properly interpreted by decision makers 
C) Market efficiency implies that investors can predict future events with absolute precision 
D) All of the above are true 
A) The semi-strong form of market efficiency is the most directly related to the accounting profession 
B) Market efficiency means that all information has been correctly presented by a firm and properly interpreted by decision makers 
C) Market efficiency implies that investors can predict future events with absolute precision 
D) All of the above are true A

Question 2

You have been given the following one period market model for Acme Ltd for the calendar quarter ending June 2010:
ΑAcme = 3.0% RAcme = 10 %
ΒAcme = 0.6 Rm = 7%
What is the error during this period of time?

Accepted Answer

A) 3% 
B) 2.8% 
C) 0% 
D) 1.8% 
A) 3% 
B) 2.8% 
C) 0% 
D) 1.8% B

Question 3

Which of these is true with respect to information transfer research?

Accepted Answer

A) The research is based on the premise that positive profits for one firm in an industry reflects improved conditions in that industry 
B) The variance of abnormal returns for competing firms decreases when another firm in the same industry makes a profit announcement 
C) There are significant price reactions by non-announcing firms to early announcers sales and profit changes 
D) B and C only 
A) The research is based on the premise that positive profits for one firm in an industry reflects improved conditions in that industry 
B) The variance of abnormal returns for competing firms decreases when another firm in the same industry makes a profit announcement 
C) There are significant price reactions by non-announcing firms to early announcers sales and profit changes 
D) B and C only C

Question 4

The factor that has an incorrect association or relation with the earning response coefficients (ERC)is:

Accepted Answer

A) There is a negative association between financial leverage and the ERC 
B) Industries with the greatest perceived outcome uncertainty would have the smallest ERCs 
C) High-growth firms will have higher ERCs compared to low-growth firms 
D) Risk negatively affects the ERC 
A) There is a negative association between financial leverage and the ERC 
B) Industries with the greatest perceived outcome uncertainty would have the smallest ERCs 
C) High-growth firms will have higher ERCs compared to low-growth firms 
D) Risk negatively affects the ERC

Question 5

If the 'sufficient conditions' outlined by Fama are met for an efficient market then it is impossible,on average,to earn economic profits by trading on security information.

Accepted Answer

A) True 
 B)False

Question 6

It is true of the Australian study by Brown which replicated Ball and Brown's original 1968 study that:
i.There was more of a price adjustment in the announcement month than in the original study
ii.There was less of a price adjustment in the announcement month than in the original study
iii.In Australia annual reports are a more important source of information about companies than they are in the United States
iv.In Australia annual reports are a less important source of information about companies than they are in the United States

Accepted Answer

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

Question 7

The hypothesis that assumes that the capital market only reacts to accounting changes that have cash-flow consequences is the:

Accepted Answer

A) Differential information hypothesis 
B) No-effects hypothesis 
C) Mechanistic hypothesis 
D) Efficient market hypothesis 
A) Differential information hypothesis 
B) No-effects hypothesis 
C) Mechanistic hypothesis 
D) Efficient market hypothesis

Question 8

The item that is not a variant of earnings management under the opportunistic perspective is:

Accepted Answer

A) Debt covenant 
B) Equity offerings 
C) Fraud 
D) Signalling 
A) Debt covenant 
B) Equity offerings 
C) Fraud 
D) Signalling

Question 9

Which research questions would you not expect to be addressed using a positive accounting theory philosophy?

Accepted Answer

A) What costs and benefits will the adoption of IASs have for Australian companies? 
B) Should the adoption of IASs be compulsory for listed Australian companies? 
C) What will be the effect of IAS adoption on share prices? 
D) Why are firms continuing to use historical cost accounting? 
A) What costs and benefits will the adoption of IASs have for Australian companies? 
B) Should the adoption of IASs be compulsory for listed Australian companies? 
C) What will be the effect of IAS adoption on share prices? 
D) Why are firms continuing to use historical cost accounting?

Question 10

The development of positive accounting theory can be broken down into two stages,the first stage being literature that sought to explain and predict accounting behaviour.

Accepted Answer

A) True 
 B)False

Question 11

Who first used the variance of abnormal return as an index of information content of profit announcements?

Accepted Answer

A) Ball 
B) Brown 
C) Beaver 
D) Fama 
A) Ball 
B) Brown 
C) Beaver 
D) Fama

Question 12

Positive accounting theory is aimed at prescribing how the world should work rather than providing an understanding of how the world does work.

Accepted Answer

A) True 
 B)False

Question 13

Which of these is not the theoretical argument set out by Bowen,Burgstahler and Daley with respect to profits and cash flow as explanatory variables for price?

Accepted Answer

A) Both profits and cash flow are individually and incrementally important 
B) Both profits and cash flow are individually important,but profits are more incrementally important 
C) Both profits and cash flow are individually important,but cash flow is more incrementally important 
D) Both profits and cash flow are individually important,but neither is incrementally important 
A) Both profits and cash flow are individually and incrementally important 
B) Both profits and cash flow are individually important,but profits are more incrementally important 
C) Both profits and cash flow are individually important,but cash flow is more incrementally important 
D) Both profits and cash flow are individually important,but neither is incrementally important

Question 14

Outline the arguments that have been raised to explain why a firm's size is a factor in the responsiveness of share price and the volume of trade to profit announcements.

Accepted Answer

There are several arguments that have be

Question 15

Ball and Brown's study 'An empirical evaluation of accounting income numbers',found that competing information pre-empted the information in annual reports by about:

Accepted Answer

A) 35% 
B) 65% 
C) 85% 
D) 90% 
A) 35% 
B) 65% 
C) 85% 
D) 90%

Question 16

Explain what accounting researchers mean by the market 'being efficient'.

Accepted Answer

Accounting researchers refer to the mark

Question 17

A conclusion drawn from Ball and Brown's information content studies is:

Accepted Answer

A) 85-90% of the price adjustments to the change in profit of firms occur before the announcement month 
B) There is significant information content in the profit figure,however accounting is not the only source of information about firms 
C) Quarterly accounting profits are a timely source of information for the capital market 
D) A and B 
A) 85-90% of the price adjustments to the change in profit of firms occur before the announcement month 
B) There is significant information content in the profit figure,however accounting is not the only source of information about firms 
C) Quarterly accounting profits are a timely source of information for the capital market 
D) A and B

Question 18

The research finding that does not undermine the assumption of capital markets efficiency is:

Accepted Answer

A) Abnormal returns can be earned by trading on accounting information that is private 
B) Financial analysts are fooled by profit figures and are optimistic in their forecasts 
C) The presence of post-announcement drift 
D) Failure of the market to recognise profit manipulation 
A) Abnormal returns can be earned by trading on accounting information that is private 
B) Financial analysts are fooled by profit figures and are optimistic in their forecasts 
C) The presence of post-announcement drift 
D) Failure of the market to recognise profit manipulation

Question 19

One explanation for differences in the earnings response coefficient across firms is that earnings announcements by large firms have more information content than earnings announcements by small firms.

Accepted Answer

A) True 
 B)False

Question 20

Jensen argues that positive accounting theory precedes normative accounting theory.

Accepted Answer

A) True 
 B)False

Which of these is true with respect to the efficient market hypothesis?

You have been given the following one period market model for Acme Ltd for the calendar quarter ending June 2010: Α_Acme= 3.0% R_Acme= 10 % Β_Acme= 0.6 R_m= 7% What is the error during this period of time?

Which of these is true with respect to information transfer research?

The factor that has an incorrect association or relation with the earning response coefficients (ERC)is:

If the 'sufficient conditions' outlined by Fama are met for an efficient market then it is impossible,on average,to earn economic profits by trading on security information.

The hypothesis that assumes that the capital market only reacts to accounting changes that have cash-flow consequences is the:

The item that is not a variant of earnings management under the opportunistic perspective is:

Which research questions would you not expect to be addressed using a positive accounting theory philosophy?

The development of positive accounting theory can be broken down into two stages,the first stage being literature that sought to explain and predict accounting behaviour.

Who first used the variance of abnormal return as an index of information content of profit announcements?

Positive accounting theory is aimed at prescribing how the world should work rather than providing an understanding of how the world does work.

Which of these is not the theoretical argument set out by Bowen,Burgstahler and Daley with respect to profits and cash flow as explanatory variables for price?

Outline the arguments that have been raised to explain why a firm's size is a factor in the responsiveness of share price and the volume of trade to profit announcements.

Ball and Brown's study 'An empirical evaluation of accounting income numbers',found that competing information pre-empted the information in annual reports by about:

Explain what accounting researchers mean by the market 'being efficient'.

A conclusion drawn from Ball and Brown's information content studies is:

The research finding that does not undermine the assumption of capital markets efficiency is:

One explanation for differences in the earnings response coefficient across firms is that earnings announcements by large firms have more information content than earnings announcements by small firms.

Jensen argues that positive accounting theory precedes normative accounting theory.

Introduction

Accounting Theory Construction

Role of Theory in Accounting Regulation

Theory Underpinning Accounting Standards

Measurement

Accounting Measurement Systems

Assets

Liabilities and Owners Equity

Revenue

Expenses

Positive Theory of Accounting Policy and Disclosure

Behavioural Research

Emerging Issues in Accounting and Auditing

Filters

Exam 12: Capital Market Research

Which of these is true with respect to the efficient market hypothesis?

You have been given the following one period market model for Acme Ltd for the calendar quarter ending June 2010: ΑAcme = 3.0% RAcme = 10 % ΒAcme = 0.6 Rm = 7% What is the error during this period of time?

Which of these is true with respect to information transfer research?

The factor that has an incorrect association or relation with the earning response coefficients (ERC)is:

If the 'sufficient conditions' outlined by Fama are met for an efficient market then it is impossible,on average,to earn economic profits by trading on security information.

The hypothesis that assumes that the capital market only reacts to accounting changes that have cash-flow consequences is the:

The item that is not a variant of earnings management under the opportunistic perspective is:

Which research questions would you not expect to be addressed using a positive accounting theory philosophy?

The development of positive accounting theory can be broken down into two stages,the first stage being literature that sought to explain and predict accounting behaviour.

Who first used the variance of abnormal return as an index of information content of profit announcements?

Positive accounting theory is aimed at prescribing how the world should work rather than providing an understanding of how the world does work.

Which of these is not the theoretical argument set out by Bowen,Burgstahler and Daley with respect to profits and cash flow as explanatory variables for price?

Outline the arguments that have been raised to explain why a firm's size is a factor in the responsiveness of share price and the volume of trade to profit announcements.

Ball and Brown's study 'An empirical evaluation of accounting income numbers',found that competing information pre-empted the information in annual reports by about:

Explain what accounting researchers mean by the market 'being efficient'.

A conclusion drawn from Ball and Brown's information content studies is:

The research finding that does not undermine the assumption of capital markets efficiency is:

One explanation for differences in the earnings response coefficient across firms is that earnings announcements by large firms have more information content than earnings announcements by small firms.

Jensen argues that positive accounting theory precedes normative accounting theory.

Introduction

Accounting Theory Construction

Role of Theory in Accounting Regulation

Theory Underpinning Accounting Standards

Measurement

Accounting Measurement Systems

Assets

Liabilities and Owners Equity

Revenue

Expenses

Positive Theory of Accounting Policy and Disclosure

Behavioural Research

Emerging Issues in Accounting and Auditing

Filters

You have been given the following one period market model for Acme Ltd for the calendar quarter ending June 2010: Α_Acme= 3.0% R_Acme= 10 % Β_Acme= 0.6 R_m= 7% What is the error during this period of time?