Exam 11: Positive Theory of Accounting Policy and Disclosure

The following arguments are philosophical criticisms of positive accounting theory,except:

The bonus plan hypothesis and the debt hypothesis are predictions developed under the efficient contracting approach.

Managers and shareholders have differing incentives regarding the firm.The statement regarding incentives that is true is:

Which statement is not true in relation to asset substitution as described in the shareholders-debtholders agency relationship?

Which of these management actions might be considered under the efficient contracting perspective?

The statement that does not relate to the information perspective on accounting policy choice is:

The situation where a manager protects against bearing agency costs by paying the agent according to the level of costs expected is called:

DeAngelo argues that larger auditors,such as those commonly referred to as the 'Big 4',are of lower quality than other auditors because larger auditors have 'more to lose' by failing to report a discovered breach in a particular client's record.

Which of these is not an underlying assumption of positive accounting theory?

The more politically sensitive a firm,the more likely it is that the firm will understate its profits to prevent negative wealth transfers

Distinguish between the ex ante efficient contracting approach and ex post opportunism.

The size hypothesis predicts that the larger the firm,the more likely that managers will choose accounting methods that will move reported profits from future periods to current periods.

In the oil and gas industry the full costing method would be preferred under the size hypothesis.

It may be appropriate to remunerate a manger using reported profits under which of these circumstances?