"In relation to political relationships, the following is true, except:" Political cost hypothesis: Managers of larger entities are more likely to prefer accounting policies that reduce profit. Political costs refer to wealth transfers imposed on an entity e.g. the government may impose a new tax on businesses in a particular industry. "Lobby groups often target larger, more profitable firms." Political cost hypothesis: Managers of larger entities are more likely to prefer accounting policies that increase profit.
Question
"In relation to political relationships, the following is true, except:" Political cost hypothesis: Managers of larger entities are more likely to prefer accounting policies that reduce profit. Political costs refer to wealth transfers imposed on an entity e.g. the government may impose a new tax on businesses in a particular industry. "Lobby groups often target larger, more profitable firms." Political cost hypothesis: Managers of larger entities are more likely to prefer accounting policies that increase profit.
Solution
The statement that is not true in relation to political relationships is: "Political cost hypothesis: Managers of larger entities are more likely to prefer accounting policies that increase profit."
This is incorrect because the political cost hypothesis suggests that managers of larger entities are more likely to prefer accounting policies that reduce profit, not increase it. This is because larger entities are often subject to greater scrutiny and regulation, and reducing profit can help to mitigate these political costs.
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