1)

Which one of the following is a central assumption of PositiveAccounting Theory?

a.

Financial statements will be audited regardless of legalrequirements.

b.

The interests of principals and agents are not aligned.

c.

Firms seek to maximize profits.

d.

Individuals act solely on the basis of self-interest.

2)

Which type of hypothesis in positive accounting theory is builton agency relationship where one party (a principal) delegates somedecision making authority to another party (the agent)?

a.

The accounting theory

b.

The normative theory

c.

None of these.

d.

The bonus plan theory

3)

How does accounting help the capital allocation process attractcapital investment?

a.

Provides timely, relevant information.

b.

Encourages entrepreneurship.

c.

Helps in planning and decision –making.

d.

Promotes productivity.

4)

The International Accounting Standard Board’s mission is todevelop the IFRS and to bring some advantages to the financialmarkets. Identify the advantages of the mission:

a.

To attain efficiency worldwide.

b.

To make the people accountable for their actions

c.

All of these.

d.

To provide transparency in the conduct of its affairs.

5)

In Enron and WorldCom cases, the US GAAP failed to becomeeffective. This led to the rules vs. principles debate back oncenter stage. Which among the following is correct regarding theassumptions of principle based accounting standards.

a.

However, it is said that they are easier to manipulate becausethere are no hard rules. They also leave too much tointerpretation.

b.

All of these statements are correct.

c.

They are believed to yield a less complex financial reportingparadigm that is more responsive to emerging issues.

d.

Principle-based accounting standards are broad and require morejudgment by both companies and auditors.

6)

The ability to document the research work done by the researcherrequires :

a.

Communication

b.

All of these.

c.

Ability to defend the research

d.

Documentation

7)

Which one of the following is a fundamental quality of usefulaccounting information?

a.

Relevance

b.

Neutrality

c.

Materiality

d.

Understanability

8)

There are several areas of self-interest that drives companiesto embrace more effective governance and without which they tend tobe weak and sluggish. Which one of the following does not lead toeffective governance?

a.

It will assist in establishing and strengthening theindependence and objectivity of the directors and the internal andexternal auditors.

b.

It also helps to assure effectiveness and integrity of acompany’s business processes.

c.

It helps to instill trust in customers and vendors.

d.

Effective governance helps to minimize reputational risks.

9)

In determining ‘independence’ with respect to any auditengagement, the ultimate decision as to whether or not the auditoris independent must be made by the:

a.

Auditor.

b.

Public.

c.

Client.

d.

Audit committee.

10)

Capital maintenance means that:

a.

The money capital at the end of the accounting period is thesame as at the beginning

b.

The owner has not taken home any of the business assets

c.

The non-current assets of the business are maintained in anexcellent state of repair

d.

All assets of the business are maintained in an excellent stateof repair