QUESTION 1:

What is the difference between a positive and a normative theory of financial accounting, and is one better than the other?

QUESTION 2:

What is an agency relationship and what is an agency cost? How can agency costs be reduced?

QUESTION 3:

Would managers who have negotiated debt contracts with accounting-based covenants based around 'rolling GAAP' be relatively more likely to lobby an accounting standard-setter about a proposed accounting standard than would a manager from a firm who has negotiated accounting-based debt covenants that use 'frozen GAAP'? Why or why not?

QUESTION 4:

If senior managers within a company were rewarded by way of accounting-based bonus plans then would they, or the owners/shareholders (or both), prefer the use of conservative accounting methods? Explain the reasoning for your answer.

QUESTION 5

In the article entitled "Earnings management through real activities manipulation" Roychowdhury considers three specific manipulation methods. Briefly explain why these three methods are reasonable choices for management to consider.