C3 The Regulation of Financial Reporting

There are three theory regulations except ____________.

• Private interest theory

• Public interest theory

• Theory of efficient market

• Capture theory

Advocates of which theory would argue that the government is best able to develop accounting standards because it has greater enforcement powers, and is more likely to be less responsive to pressures from interest groups?

• Capture theory

• Private interest theory

• Economic interest theory

• Public interest theory

The free-market perspective of accounting regulation suggests that accounting information ____________.

• Will require regulation to avoid underproduction of information

• Should be provided like any other good that is subject to demand and supply

• Should be free of considerations and lobbying of the market

• Should be provided free of charge

Which of the following propositions is not true if we accept the notion that accounting regulation is considered to be the output of a political process?

• Many decisions that are made are the outcome of compromise

• If the social welfare impact of accounting policies were ignored, the basis for the existence of a regulatory body would disappear

• Standard-setting bodies encourage affected parties to make submissions on draft versions of the proposed accounting standards

• Financial accounting is objective, neutral and apolitical

The rationale that 'Regulators will only propose and support regulation which leads to favourable outcomes for themselves, perhaps in terms of their re-election' is true for ____________.

• Capture theory of regulation

• Economic interest theories of regulation

• Public Interest theory of regulation

• None of the given options are correct

In the process of introducing regulation, the organisations that are subject to the regulation will ultimately come to control the regulators.

 

This statement denotes ____________.

• Economic interest group theory

• Capture theory

• Private interest theory

• Public interest theory

Which of the following best describes the process of setting accounting standards?

• An exclusive process where the AASB sets the agenda and determines which standards to issue and what requirements they will contain

• An inclusive process where standards are proposed from various interested parties for approval by the AASB

• A technical process where accounting experts determine the most technically correct and logical standards to issue

• A political process where the constituency affected either socially or economically by a proposed AASB standard has influence on the final outcome

According to some free-market theorists, there are private economics-based incentives for the organisation that will ensure that credible information will be provided.

 

Which of the following assumptions is not consistent with this?

• Shareholders will assume managers will act opportunistically and so, in the absence of

  safeguards, will pay less for shares

• Lenders will price protect, in that the higher the preserved risk, the higher will be the cost of loan funds demanded

• Managers will provide true and correct information for fear of not being rewarded, or fired for not doing so

• All of the given options are correct

Which of the following is not true about the economic (private) interest theory of regulation?

• Regulation serves the private interests of particular parties, including politicians, who are seeking re-election

• Regulation tends to protect and maintain the ability of those with the power and financial wealth to afford to buy lobbying power and votes, and suppresses the ability of others without it

• Regulation serves the private interest of politically-effective groups

• Unlike public interest theory, regulation is not considered to be a commodity that is subject to the principles of supply and demand

The principal’s expectation of opportunistic behaviour by his or her agent results in lower payments to ____________.

• The agent

• The principal

• The principal and the agent

• Neither the principal nor the agent