What is theory?

A belief or principle that guides actions or behaviour.

An idea or set of ideas that is intended to explain something.

The set of principles on which a subject is based or of ideas that are suggested to explain a fact or event.

All of the above give different definitions of the theory

A good theory should satisfy the following except:

Be proved true.

Logical in its construction.

Clearly articulated.

Testable.

All the following statements are correct about the accounting theory except:

It could be a description, explanation or a prediction of accounting practice based on observations and/or logical reasoning.

In the theory, the logical reasoning in the form of a set of broad principles (1) provides a general framework of reference by which accounting practice can be evaluated and (2) guides the development of new practice and procedures.

If the theory exists, it means that the theory is correct.

There are often different theories on the same topic.

Why we cannot reach one specific accounting theory?

Because accounting is a precise uncontested technical exercise.

Because the role of accountants and accounting are changing due to changes in economic activities, societal expectations and developments in technology.

Because financial accounting is based on principles and the application of appropriate accounting and reporting requires professional judgments.

Because accounting issues need specific setting to be scientifically tested.

Research is the diligent and systematic enquiry or investigation into a subject in order to discover facts or principles. Which statement is not correct about the role of research in accounting?

Research is often repeated and adjusted, so that knowledge is expanding.

Most research studies will provide definitive answers.

Each research study should contribute to our understanding of the issue.

Research is only useful for natural sciences.

Which statement describes the difference between the conceptual framework and accounting standards:

The conceptual framework is specific requirements, while accounting standards are broad principles.

The conceptual framework is broad principles, while accounting standards are specific requirements.

The conceptual framework is issued by IFRS, while accounting standards are issued by IASB.

Accounting standards are issued to guide setters in developing the conceptual framework, while the conceptual framework is the application of accounting standards.

Principles-based accounting standards approach:

Does not provides specific guidance for every possible situation.

Provides specific guidance for every possible situation.

Is applicable to accounting measurements only.

Does not rely on a conceptual framework.

One of the rules-based standard approach disadvantages can be:

It allows for no manipulation because it is completed and perfect.

It allows for manipulation because it gives more options.

It is very complex because there are too details.

It is very simple because there are few details.

The cost of an item purchased 20 years ago is:

Verifiable however, it may not be relevant.

Relevant however, it may not be verifiable.

Verifiable since it represents what it could be sold for now.

Verifiable since it represents the cash flows it is expected to generate in the future.

In the Conceptual Framework, applying the enhancing qualitative characteristics:

Enhancing one qualitative characteristic have not to be diminished to maximize another qualitative characteristic.

All qualitative characteristics have to be satisfied.

All qualitative characteristics are consistent.

Is an iterative process that does not follow a prescribed order.

Which statant is correct about the concept of materiality:

It can be considered as aspect of relevance.

Information is material if omitting it or misstating it could influence decisions that users make on the basis of financial information about a specific reporting entity.

Materiality is an entity-specific aspect of relevance based on the nature or magnitude, or both, of the items to which the information relates in the context of an individual entitys financial report.

All of the above

If accounting information is highly correlated with the business decision, it is described to be:

Less value relevant.

More value relevant.

More reliable.

Less reliable.

Which of the following is NOT a key justification for accounting regulation?

Regulations tend to arise from crises, so resulting rules do not necessarily deal with the issues that caused the crisis.

Regulation is important because the market may fail to provide sufficient information.

Regulation is important for comparison and standardization.

Regulation is important to protect naive investors.

Which of the following is likely to influence accounting systems at a national level?

Political system.

Capital market structures.

Tax system.

All of the above.