ca_exm_at1_2008-06 - CGA-CANADA ACCOUNTING THEORY...

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©CGA-Canada, 2008 Page 1 of 6 CGA-CANADA ACCOUNTING THEORY & CONTEMPORARY ISSUES [AT1] EXAMINATION June 2008 Marks Time: 3 Hours Note: All references to the Handbook refer to the CICA Handbook . 30 Question 1 Select the best answer for each of the following unrelated items. Answer each of these items in your examination booklet by giving the number of your choice. For example, if the best answer for item (a) is (1), write (a)(1) in your examination booklet. If more than one answer is given for an item, that item will not be marked. Incorrect answers will be marked as zero. Marks will not be awarded for explanations. Note: 2 marks each a. One implication of market efficiency in the semi-strong form is that investing is fair game. The phrase “investing is fair game” is properly described by which of the following statements? 1) Investors can “game” the market and obtain higher than expected returns. 2) Investors cannot earn returns on their investments that are greater than the risk-adjusted expected returns for a security or a portfolio of securities. 3) Unexpected information affects stock prices very quickly. 4) Insiders cannot take advantage of private information to earn higher than expected returns. b. Which of the following statements correctly reflects the notion that investors are price protected in an efficient market? 1) Regulators monitoring efficient markets ensure that no investor loses money on their investment in securities. 2) Investors in an efficient market are protected from accounting manipulations undertaken by managers because security prices in an efficient market do not change when managers change accounting methods used to prepare a firm’s financial statements. 3) Investors can trust an efficient market to price securities in such a way that all publicly available information is reflected in the security price. 4) Certain market participants are able to predict future stock prices. c. In an important article, Sloan (1996) reported that a market’s response to firms’ earnings announcements is not related to the relative proportion of cash flow versus accruals component in earnings. This is cited as evidence of market inefficiency for which of the following reasons? 1) Earnings persistence is not related to how markets react to earnings announcements. 2) Earnings that have a higher proportion of accruals in earnings have lower persistence and should lead to lower market reactions to earnings announcements. 3) Earnings that have a higher proportion of accruals in earnings have higher persistence and should lead to higher market reactions to earnings announcements. 4) Market reaction was not found in the study to be different for good versus bad news earnings announcements. Continued.
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This note was uploaded on 06/10/2011 for the course ACCT 1204 taught by Professor Chang during the Spring '11 term at Nanjing University.

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ca_exm_at1_2008-06 - CGA-CANADA ACCOUNTING THEORY...

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