ca_exm_at1_2009-03

ca_exm_at1_2009-03 - CGA-CANADA ACCOUNTING THEORY &...

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EAT1M09 ©CGA-Canada, 2009 Page 1 of 5 CGA-CANADA ACCOUNTING THEORY & CONTEMPORARY ISSUES [AT1] EXAMINATION March 2009 Marks Time: 3 Hours Note: All references to the Handbook refer to the CICA Handbook . 28 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. Which of the following statements applies to the efficient contracting version of positive accounting theory? 1) Earnings management is not necessarily unethical. 2) Firms should design managerial compensation contracts with a high proportion of compensation based on net income. 3) Debt contracts typically contain covenants based on accounting variables. 4) Financial reporting should not be conservative. b. Which of the following statements best captures the meaning of the decision usefulness approach to financial reporting? 1) The decision usefulness approach helps standard setters design successful accounting standards. 2) The decision usefulness approach ensures that accountants and auditors behave ethically. 3) The decision usefulness approach encourages the supply of useful information to investors. 4) The decision usefulness approach supports principles-based accounting standards. c. Which of the following statements about the fundamental value of a share is correct? 1) The fundamental value of a share is the share’s price on an efficient market. 2) The fundamental value of a share is the share’s price on an efficient market with no inside information. 3) The fundamental value of a share is the share’s price if investors are behaviourally biased. 4) The fundamental value of a share is the share’s price if there is no opportunistic manager behaviour. d. Accounting standards now require firms to recognize an expense on the grant date for executive stock options (ESOs), based on the fair value of the ESO at that time. However, it is difficult to measure this expense reliably. Which of the following ways to measure ESO expense on the grant date is the most reliable? 1) Intrinsic value of the option 2) Black/Scholes value of the option 3) Black/Scholes value of the option using the expected exercise date 4) Black/Scholes value of the option at the actual exercise date Continued. ..
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EAT1M09 ©CGA-Canada, 2009 Page 2 of 5 e. Which of the following statements is the best reason why expensing of ESOs has economic consequences? 1)
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ca_exm_at1_2009-03 - CGA-CANADA ACCOUNTING THEORY &...

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