Questions:

Question 4.

a. In your own words, explain why accounting earnings do not capture all the information contained in share prices. (6 marks)

b. Event studies are a method of testing the reaction of share prices to accounting information. Provide an example, hypothetical or real, of when an event study might be used to examine this relationship. (4 marks)

Question 5.

As humans, we are cognitively overloaded and must regularly make decisions when faced with uncertainty. People often rely on heuristics to make decisions. Choose TWO (2) of the following heuristics to discuss and describe how each might be used to make an accounting, auditing, or investment decision:

i. Representativeness

ii. Availability

iii. Anchoring and adjustment.

Question 6. Long answer question =

Different stakeholders want different information from financial reports. Discuss what TWO (2) key stakeholders are looking for from financial reports and how the current measurement approach impacts their ability to make decisions.