Theory of efficient markets
Free market economists would argue that markets function best without government intervention, and that maximum efficiency is achieved by allowing forces of supply and demand to dictate market behaviour.
What is one of the aims of government intervention?
A. Assist market development and promote economic growth
B. Markets lead by the capitalist
C. Opportunities only for established companies
‘When the information is available to everyone, the information may be sold to certain people. Other people who did not pay for it cannot be easily excluded from using the information.’
This phenomenon is referred to as ______?
A. Free-rider problem
B. Free-driver problem
C. Free-customer problem
Why does the regulatory board still be needed even though there is a free market for accounting information?
I- Users are unable to agree on what they want II - Accountants will disagree on procedure to derive the information III- If the information of the company can be compared with others, the value of the information is greatly enhanced.
A. I and II
B. II and III
C. I and III
D. All of the above
Agency Theory
“To study contracts between principals and agents and to predict the economic consequences of standards” is a framework of
A. Theory of efficient markets
B. Agency theory
C. Theory of regulation
Demand for stewardship information relates to the desire to :
i- Motivate the agent ii- Distribute risk efficiently iii- To obtain power
A. i and ii
B. ii and iii
C. All of the above
The theories of regulation relevant to accounting and auditing
Which are the theories that are relevant to financial reporting?
I. Theory of efficient market II. Agency theory III. Industrial theory IV. Theory of regulation
B. I, II and IV
C. II, III and IV
D. I, III and IV
Theory of Regulation
Which of the following theories are not included in the theories of regulation?
A. Regulation capture theory
C. Public interest theory
D. Private interest theory
Public Interest Theory
Government regulation is required in the ‘public interest’ whenever there is market failure (inefficiency) due to:
I- lack of competition II- barriers to entry III- information asymmetry Iv- public-good products
A. I only
B. I, III and IV only
C. II and III only
D. All above
One of the regulation relating to application of public interest theory is
A . The Sarbanes-Oxford Act (US, 2002)
B. Accounting Standards Review Board (AUS, 1984)
C. Malaysia Accounting Standard Board
Private Interest Theory
Choose the right statement
A. Private interest theorists believe there is a market regulation with different supply and demand forces operating as in the capital market.
B. The theory came out as a response to satisfaction with explanations provided by both the public interest and the capture theories.
C. George Stigler’s challenge were on the basic that governments have one basic resource which ‘is not shared even with citizens’ and regulatory activity reflects the relative political power of interest groups
Regulatory Capture Theory
Which of the following conditions must be met before the regulatory agency capture is pronounced?
I- There is complexity of information and product. II- The regulatory agency has maximum resources in compare with the the industry it is regulating III- The regulated industry controls the information needed for regulation IV- There is a small number of client entities
A. I, II and III
C. I, III and IV
D. II, III and IV
Based on the situation listed below, capture theory will not occur in which situation?
A. Regulated entities in control the regulation and the regulatory agency
B. Regulated entities failed in coordinating the regulatory body’s activities
C. Regulated entities neutralised or ensure non-performance by the regulating bodies.
Which of the following are the definition of ‘sector neutral standard’ ?
A. A set of accounting standard that give benefits to the public sector
B. A set of auditing standard that give benefits to the private sector
C. A set of auditing standard that five benefits to the public sector
D. A set of accounting standard that suitable for both public and private sector
Potential market failure occurs when there is a failure of one of the conditions necessary for the best operation of a competitive market. Which of the conditions are true?
A. The ‘private-good’ nature of some products
B. There is no lack of market competition
C. The ‘public-good’ nature of some product
D. There is no barriers to enter the market
