Professional Documents
Culture Documents
to accompany
Contemporary Issues in
Accounting
Prepared by
Matt Tilling
Correct answer: a
Learning Objective 8.1 ~Explain the role of capital market research for accounting.
Correct answer: b
Learning Objective 8.1 ~Explain the role of capital market research for accounting.
3. Which of the following is NOT one of the three key assumptions underlying capital
markets research:
Correct answer: d
Learning Objective 8.1 ~Explain the role of capital market research for accounting.
a. None of them
b. i. and iv. only
c. i., ii. and iv. only
*d. All of them
Correct answer: d
Learning Objective 8.1 ~Explain the role of capital market research for accounting.
Correct answer: b
Learning Objective 8.2 ~ Differentiate between an event study and an association study.
6. The kind of study used to examine how quickly accounting measures capture changes
in the information that is reflected in share prices over a given period is:
a. An events study
*b. An association study
c. A qualitative study
d. A normative study
Correct answer: b
Learning Objective 8.2 ~ Differentiate between an event study and an association study.
Correct answer: a
Learning Objective 8.3 ~ Outline the relationship between accounting measures of financial
performance and share prices.
8. It has been found that prices often lead earnings. Why is this thought to be the case:
Correct answer: d
Learning Objective 8.3 ~ Outline the relationship between accounting measures of financial
performance and share prices.
9. What phenomenon has been suggested as one of the most puzzling anomalies in
accounting research and calls into question the efficient markets hypothesis?
a. Income smoothing
*b. Post-earnings announcement drift
c. Signalling theory
d. Big bath write-offs
Correct answer: b
Learning Objective 8.3 ~ Outline the relationship between accounting measures of financial
performance and share prices.
10. Which of the following has been found to suggest that the users of financial
statements are either unwilling or unable to unravel the effects of earnings
management?
Correct answer: d
Learning Objective 8.3 ~ Outline the relationship between accounting measures of financial
performance and share prices.
12. Which of the following is NOT a finding or assumption of capital markets research?
Correct answer: c
Learning Objective 8.4 ~ Identify findings of capital market research relevant to accounting.
Correct answer: b
Learning Objective 8.4 ~ Identify findings of capital market research relevant to accounting.
14. Value relevance studies attempt to assess the role of which qualitative characteristic
of the Conceptual Framework?
a. Relevance
b. Faithful representation
*c. Relevance and faithful representation
d. None of the above
Correct answer: b
Learning Objective 8.5 ~ Explain the role of information and information intermediaries in
capital markets.
15. Which of the following is NOT one of the three assumptions underlying value
relevance literature?
*a. Accounting earnings are not highly associated with equity market value
changes
b. Equity users are the dominant users of financial reports
c. Share prices adequately represent investors' use of information in valuing
equity securities
d. Share-price-based tests can measure relevance and reliability as defined by
accounting bodies.
Correct answer: c
Learning Objective 8.5 ~ Explain the role of information and information intermediaries in
capital markets.
Correct answer: a
Learning Objective 8.6 ~ Distinguish between behavioural finance findings and mainstream
finance findings.
17. Value relevance research suggests which measurement model best links share price
and accounting information?
a. Accrual accounting
*b. Fair value accounting
c. Historic cost accounting
d. Cash accounting
Correct answer: b
Learning Objective 8.6 ~ Distinguish between behavioural finance findings and mainstream
finance findings.
18. Accounting studies testing market efficiency have conclusively found that
Correct answer: b
Learning Objective 8.7 ~
19. Which of the following is not an anomaly that has been noted to the efficient markets
hypothesis
*a. Market prices appear to react to more than just accounting information
b. Returns of firms followed by analysts are superior to those that are not
c. Investor interest varies according to the market the share is traded in
d. The returns of small listed firms appear to be smaller than those of larger
firms
Correct answer: d
Learning Objective 8.7 ~ Discuss how behavioural research contributes to an understanding
of decision making.
Correct answer: a
Learning Objective 8.7 ~ Discuss how behavioural research contributes to an understanding
of decision making.