Topic 2: acc theory

________ is a theory that makes predictions about real-world events and transforms them into accounting transactions.

• Legitimacy theory

• stakeholder theory

• Positive accounting theory

• agency theory

According to the bonus plan hypothesis, managers tend to choose accounting practices that could shift reported earnings from the future to the current period for __________.

• show efficiency of management skill

• to claim high bonuses

• to increase the number of shareholders

• to be legitimate in the eye of society

Why do some managers understate earnings or use accounting practices that could move the current earnings to the future? What is the theory that explains such events?

• to avoid increment in taxation rate, political cost hypothesis

• avoiding paying donations to political parties, political plan hypothesis

• to claim bonuses, bonus plan hypohesis

• to avoid debt covenants, debt covenants hyphothesi

What is the theory that describes the principle and agent relationship?

• Legitimacy theory

• stakeholder theory

• agency theory

• institutional theory

What are the two types of asymmetric information?

• information barrier and behaviour issue

• misintepration and missleadingmisinterpretation

• self-interest and unethical decisions

• adverse selection and moral hazard

Agency cost is a cost that involves the management's resolution effort with shareholders.

• TRUE

• FALSE

Following are mechanism to reduce agency cost EXECPT:

i. threat or take over

ii. profit sharing

iii. threat of firing

iv. maximise shareprice without any condition

v. involvement of shareholders

• i,ii.iii and v

• i, ii,iii, iv and v

• i, ii and iii only

• all of the above

_______ _ is a theory that explains management actions in changing the public's view of a company.

• stakeholder theory

• legitimacy

• institutional

• positive

Stakeholder theory emphasises the importance of all the related parties to the company so that the success of the company can be ensured.

• TRUE

• FALSE

_____________ theory that discusses the internal and external pressures.

• legitimacy

• stakeholder

• institutional

• agency