ca_exm_at1_2011-06 - CGA-CANADA ACCOUNTING THEORY &...

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EAT1J11 ©CGA-Canada, 2011 Page 1 of 6 CGA-CANADA ACCOUNTING THEORY & CONTEMPORARY ISSUES [AT1] EXAMINATION June 2011 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. Which of the following statements correctly describes hedge accounting for fair value hedges? 1) Gains and losses on the hedged item and gains and losses on the hedging instrument are both recorded in net income. 2) Gains and losses on the hedged item and gains and losses on the hedging instrument are both recorded in other comprehensive income. 3) Gains and losses on the hedged item are recorded in net income and gains and losses on the hedging instrument are recorded in other comprehensive income. 4) Gains and losses on the hedged item and gains and losses on the hedging instrument are not recognized. b. Which of the following statements explains the finding by Elliot and Hanna (1996) that earnings response coefficients of firms that frequently record large unusual and non-recurring expenses are smaller than firms that do not record such expenses? 1) These expenses tend to inflate reported future core earnings. 2) These expenses tend to reduce reported future core earnings. 3) These expenses reduce firm risk. 4) These expenses reflect low growth. c. Under which of the following circumstances do managers, who are paid a bonus as a proportion of net income, have incentive to undertake income-increasing discretionary accruals? 1) When net income is not correlated with share prices 2) When net income is negatively correlated with share prices 3) When net income is above bogey but is below cap 4) When net income is above cap d. Dechow (1994) examined opportunistic versus efficient contracting aspects of earnings management. She found that net income is more highly correlated with stock returns than cash flows. Which of the following statements describes one implication of the above finding? 1) Securities markets are efficient. 2) Managerial bonuses are based on net income. 3) Earnings management reflects managerial opportunism. 4) Earnings management reflects efficient contracting. Continued. ..
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EAT1J11 ©CGA-Canada, 2011 Page 2 of 6 e. Researchers have argued that voluntary disclosures reduce information asymmetry and increase market liquidity. Which of the following statements describes the consequences of increased market liquidity? 1)
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ca_exm_at1_2011-06 - CGA-CANADA ACCOUNTING THEORY &...

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