1. State the two findings of the research conducted by Ball and Brown in 1968 into the information content of earnings announcements and the implications of these findings for financial reporting...

1. State the two findings of the research conducted by Ball and Brown in 1968 into the information content of earnings announcements and the implications of these findings for financial reporting XXXXXXXXXXOutline the agency relationship that applies to equity (manager/owner relationship) and the costs associated with this relationship which contracting can attempt to overcome 3. Differentiate the ‘ethical’ and ‘managerial’ perspectives of stakeholder theory XXXXXXXXXXDefine the Efficient Market Hypothesis and explain its relevance to both streams of capital market research in accounting XXXXXXXXXXExplain why unexpected accounting earnings and abnormal share price returns are expected to be related and identify to which stream of capital markets research this relates XXXXXXXXXXExplain why the book value of a company is expected to differ from the market value of that company XXXXXXXXXXDiscuss four (4) limitations of behavioural research in accounting XXXXXXXXXXDefine financial instruments and provide an example XXXXXXXXXXZedbo Ltd incurred substantial costs associated with the upgrade of manufacturing technology this year. Drawing upon Watts and Zimmerman’s debt hypothesis, explain whether you would expect Zedbo Ltd to expense or capitalise this cost XXXXXXXXXXDefine protocol analysis XXXXXXXXXXWhat is a theory? Explain XXXXXXXXXXDistinguish between inductive and deductive theories XXXXXXXXXXBriefly define a normative theory and provide an example. EXAM COVER SHEET NOTE: This exam paper may be RETAINED by the student EXAMINATION DETAILS Course Code: ACCT1077 Course Description: Accounting Theory Date of exam: XX/XX/XXX Start time of exam: XX:XX Duration of exam: 3:15 Total number of pages (incl. this cover sheet) 3 pages ALLOWABLE MATERIALS AND INSTRUCTIONS TO CANDIDATES 1. Write your full name and student number on each examination booklet together with the number of examination books used. Students must not write during reading time. 2. This is a CLOSED BOOK Exam. 3. Commence each question on a new page. Carry out the instructions on the front cover of the examination script book and the front of this exam paper. 4. Calculators are not allowed. 5. Bi-lingual dictionaries are not allowed. 6. The examination paper contains questions in two sections: Section A Question one is Section A is compulsory. Section B Answer any three of the four question in Section B 7. Attempt all questions and all parts of the chosen questions. 8. Grammar and expression will be taken into account when assessing answers. 9. This examination paper adds to 60 marks and comprises 60% of the total marks allocated in this course. To obtain a pass in this course, you must achieve at least 50 marks overall and obtain at least 50% of the total marks on this examination paper XXXXXXXXXXSECTION A There is one (1) question in Section A. You must answer QUESTION ONE. It is compulsory. The question must be answered in your Examination Booklet. NB: Be sure to develop your answers fully. QUESTION ONE In the past, some directors and executives needed to be more vigilant regarding the basic controls surrounding asset protection such as physical inspection and the proper accounting for values of the assets. As an example, the National Safety Council of Victoria, which involved a fraud of over $200m in loans against largely non-existing assets. Many of the weak controls and valuation methods of assets used by some directors and executives were: • Reliance on the asset register to provide proof of existence • Use of historical cost figures to determine present day values • Use of desktop reviews without physical inspection of the assets. The introduction of International Financial Reporting Standards (“IFRS”) has tightened up these weak practices REQUIRED: Comment on how the IFRS have remedied many of the weaknesses relating to physical assets XXXXXXXXXXmarks) SECTION B There are four (4) questions in Section B. You must select and answer any three (3) questions. If you answer all four questions in Section B only the first three will be marked. QUESTION TWO Historically there have been two main models of financial accounting (ie Anglo-American and continental European models) adopted internationally. Discuss each model and highlight the differences between the two of them XXXXXXXXXXmarks XXXXXXXXXXQUESTION THREE a) What accounting theories offer an explanation as to why do some companies provide financial and non-financial information over and above what is mandated by company regulators? Discuss. b) Capital Market Research and Behavioural Research are very different accounting research paradigms. Compare and contrast these different paradigms with the use of examples XXXXXXXXXX = 15 marks XXXXXXXXXXQUESTION FOUR (a) What is the underlying rationale of positive accounting theory (“PAT”)? (b) The origins of PAT are based in Agency Theory. There are many costs associated with Agency theory. Describe and explain the costs of Agency Theory XXXXXXXXXXc) What role does accounting information play in the reduction of Agency Costs? XXXXXXXXXX = 15 marks XXXXXXXXXXQUESTION FIVE Social and Environmental Accounting Fully discuss the theories that explain why an entity will make social and environmental disclosure.