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Unformatted text preview: EAT1S10 ©CGA-Canada, 2010 Page 1 of 5 CGA-CANADA ACCOUNTING THEORY & CONTEMPORARY ISSUES [AT1] EXAMINATION September 2010 Marks Time: 3 Hours Note: All references to the Handbook refer to the CICA Handbook . 20 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. The Securities and Exchange Commission (SEC) of the United States has issued some quantitative requirements for disclosing risks faced by companies. One of the quantitative risk disclosure forms the SEC requires is “sensitivity analysis.” Which of the following describes what is meant by sensitivity analysis in the context of quantitative risk disclosure? 1) Estimates of the impact of changes in commodity prices, interest rates, and foreign exchange rates on a firm’s net income, cash flows, and fair values 2) Estimates of the impact of changes in investment policies on a firm’s net income, cash flows, and fair values 3) Estimates of the impact of changes in investment policies on a firm’s discretionary accruals 4) Estimates of the impact of changes in research and development policies on a firm’s net income, cash flows, and fair values b. Which of the following statements best describes the effect on investors if share prices are fully informative? 1) Investors would stop acquiring financial information. 2) There are noise traders in the market. 3) Insider trading would no longer be a concern. 4) The management discussion and analysis section of the annual report would provide useful information. c. To estimate the stock price reaction to annual earnings announcements, what important assumption do researchers make? 1) Investors’ earning expectations equal the previous year’s actual earnings. 2) Securities markets are efficient. 3) The use of wide windows surrounding the annual earnings announcement dates facilitates the isolation of earnings announcement effects from other effects that might also influence stock prices. 4) Unexpected earnings fully explain changes in stock prices surrounding annual earnings announcement dates. Continued... EAT1S10 ©CGA-Canada, 2010 Page 2 of 5 d. Which of the following statements is most consistent with the statement that predictions of the interest group theory provide a better explanation of the actual standard setting process than do predictions of the public interest theory?...
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