Question

1. Financial statements are regulated by?

a. Accounting standards and audit

b. The accounting profession

c. Legislation and accounting standards

d. Legislation, accounting standards and audit

2.Accounting standards reflect?

a. The basic principles generally accepted by the accounting profession

b. How a particular company standardises its financial statements from year to year

c. A consensus between international and USA standard-setting agencies

d. Laws that govern how financial statements are presented

3. Compared with the production of financial statements for shareholders, management accounting information is most commonly?

a. Supplemented by non-financial information

b. More frequent

c. Disaggregated to business unit level

d. All of the above

4. Agency theory is predominantly concerned with?

a. Shareholders appointing agents to manage the business

b. Contractual relationships between shareholders and directors and managers

c. Directors preparing contracts for various business functions

d. Managers appointing agents to carry out various business functions

5. Shareholders and directors and managers have access to different kinds of information. In agency theory, this is termed?

a. Information asymmetry

b. Sharing rule

c. Moral hazard

d. Adverse selection

Answer 1

1. Legislation , Accountind standard and audit.

The two main regulatory bodies of financial statement are the "Law" and the "Accounting Profession" with the Accounting Standards Board usually known as ASB. In UK, most of the legislation related to the publishing of accounts is embodied in the Companies Act 1985 and 1989 which are concerned with the accounts of the limited liability companies only. The Companies Act 1989 is the main frame which the companies and accountants have to follow. All the financial statement drawn up under the act 1989 must present a true and fair view and its function is to protect all the users of the financial reports and statements. The second and the most important regulatory body is the accounting profession. The standard setters should be aware of the information needed by all users of financial reports and should know the impact and the outcome of a different accounting method on the needs of those users. The standard setters should also be able to resolve the conflicts which exist between the needs of different user.

2. The basic principles generally accepted by the accounting profession

An accounting standard is a common set of principles, standards and procedures that define the basis of financial accounting policies and practices. Accounting standards improve the transparency of financial reporting in all countries. In the United States, the Generally Accepted Accounting Principles form the set of accounting standards widely accepted for preparing financial statements. International companies follow the International Financial Reporting Standards, which are set by the International Accounting Standards Board and serve as the guideline for non-U.S. GAAP companies reporting financial statements.

3. . Disaggregated to business unit level

4. Managers appointing agents to carry out various business functions

Agency theory is a principle that is used to explain and resolve issues in the relationship between business principals and their agents. Most commonly, that relationship is the one between shareholders, as principals, and company executives, as agents.

5. Information asymmetry

Information asymmetry is an imbalance between two negotiating parties in their knowledge of relevant factors and details. Typically, that imbalance means that the side with more information enjoys a competitive advantage over the other party.