Deck 9: The International Accounting Environment

Question 1

Which of the following factors has NOT influenced the development of accounting practices in various nations?

A) the political environment
B) economic development
C) cultural background
D) all of these factors have influenced the development of accounting practices

Answer 1

D

Question 2

How does a multinational corporation differ from a domestic firm involved in international business?

Answer 2

A multinational firm has operations in several countries. These firms are involved regularly in manufacturing and/or distribution in a variety of nations. Multinational firms participate in international sales, labor, and capital markets.
Domestic firms involved in international business participate in foreign markets to a lesser degree. For example, a firm may be involved in sales only on an international level. Another firm may be involved in sales, labor, and capital marketing, but only occasionally.

Question 3

Which of the following is not an objective of the International Accounting Standards Board (IASB)?

A) to establish legally enforceable accounting standards to govern international business
B) to formulate and publish accounting standards to be observed in the presentation of financial statements
C) to work for the harmonization of accounting standards
D) all are objectives of the IASB

Answer 3

A

Question 4

The International Accounting Standards Board (IASB) works to formulate international accounting standards that are adopted by each country

A) when approved by the IASB.
B) when accepted by the majority of IASB member countries.
C) on a voluntary basis.
D) only after acceptance by 2/3 of IASB member countries.

Question 5

A manufacturer produced a good with a value of 300, the retailer added 140 to the value of the good. Assuming the value added tax rate is 10% the final price to the consumer would be

A) 470
B) 484
C) 517
D) 454

Question 6

Which of the following accounting situations is treated virtually identically under both U.S. and International accounting standards?

A) earnings per share
B) Inventory
C) plant, property and equipment
D) business combinations

Question 7

A value added tax generally results in

A) taxes applied only at the wholesale level.
B) taxes applied at each stage, from production to final sale.
C) taxes applied only at the retail level.
D) double taxation of distributions to owners.

Question 8

A manufacturer produced a good with a value of 250, the retailer added 125 to the value of the good. Assuming the value added tax rate is 15% the net value added tax due to the government by the retailer is

A) 37.50
B) 18.75
C) 56.25
D) 0

Question 9

The Internal Revenue Code regulates transfer pricing in the United States by encouraging the use of a transfer price that

A) reflects what the price would have been if the underlying transaction was between unrelated parties.
B) shifts all income to the United States based company.
C) maximizes parent taxable income regardless of where the parent corporation is incorporated.
D) shifts all income to the highest income tax jurisdiction.

Question 10

The most significant difference between accounting principles used in Brazil and those employed in the United States is

A) accounting for inflation.
B) depreciation accounting.
C) the fact that consolidated financial statements are not issued in Brazil.
D) the fact that Brazilian corporations do not pay income tax.

Question 11

The Securities and Exchange Commission requires foreign companies seeking to sell securities on U.S. stock markets to

A) reconcile its financial statements to U.S. GAAP.
B) reconcile its financial statements to U.S. tax regulations.
C) provide financial statements prepared according to U.S. GAAP.
D) provide investors details of differences between U.S. accounting standards and International accounting standards.

Question 12

Parent Corporation is located in a country with an income tax rate of 40%. Subsidiary Company is located in a country with an income tax rate of 25%. The best tax strategy for the enterprise would be to set the transfer prices on sales of goods from the subsidiary to the parent at a price that is

A) higher than the price that would be in effect for unrelated parties in an arms length transaction.
B) lower than the price that would be in effect for unrelated parties in an arms length transaction.
C) equal to the price that would be in effect for unrelated parties in an arms length transaction.
D) transfer prices do not affect overall tax paid.

Question 13

Which of the following would not be an advantage to American investors that would result from the harmonization of accounting standards?

A) Financial information will be more comparable.
B) Accounting principles will be more responsive to economic reality.
C) Accounting principles will be more responsive to national politics.
D) Firms will not be at an accounting advantage or disadvantage when seeking capital.

Question 14

The main difference between U.S. accounting standards and international accounting standards when accounting for plant, property and equipment is

A) international accounting standards require the use of current fair value with changes recognized in equity only.
B) U.S. accounting standards do not allow the write-down of assets due to impairment.
C) international accounting standards allow plant, property and equipment to be stated at current fair value with changes recognized in income or equity.
D) U.S. accounting standards allow plant, property and equipment to be stated at current fair value with changes recognized in income or equity.

Question 15

Which of the following statements best differentiates multinational firms from domestic firms?

A) Multinational firms have overseas sales offices.
B) Multinationals engage in both importing and exporting.
C) Multinational firms have one or more plant(s) in a foreign country.
D) Multinational business people make use of worldwide sales, capital, and labor markets.

Question 16

How does the International Federation of Accountants (IFAC) differ from the International Accounting Standards Board (IASB)?

A) Adherence to IFAC standards is not voluntary.
B) The IFAC is concerned with financial reporting standards only.
C) The IFAC is dominated by the European Community (EC).
D) The IFAC is more concerned with encouraging the harmonization of accounting principles than with standard setting.

Question 17

Why would a U.S. manufacturing firm select a foreign site for one of its plants?

A) The site is closer to the product market area
B) Labor costs are more favorable
C) The foreign country's tax environment is more attractive
D) All of these factors could influence a firm's decision to manufacture overseas.

Question 18

Which of the following has not led to an increase in the demand for audited financial statements?

A) growth in the corporate form of business
B) an increase in global capital needs
C) an increase in investor bases
D) an increase in global tax rates

Question 19

Which of the following accounting methods, commonly employed in the United States, is discouraged by the IASB?

A) the general expensing of research and development costs
B) LIFO inventory valuation
C) capitalization of certain leases
D) disclosure of related-party transaction

Question 20

Which of the following accounting areas is NOT significantly affected by international activity?

A) overhead allocation
B) recognition principles
C) auditing standards
D) all are significantly affected

Question 21

Explain the goal of harmonization of accounting systems.

Question 22

What are the two primary approaches to the harmonization of accounting standards? Which method would be more beneficial, and why?

Question 23

U.S. accounting standards allow for several methods of accounting for similar transactions. In many other countries, only one method is allowed. Having discussed the various influences on accounting standards around the world, why do you think the U.S. standards are more likely to allow diversity?

Question 24

Why is the availability of comparable accounting statements important to multinational firms?

Question 25

Describe some driving forces for the international development of accounting.

Question 26

A common method of taxation is the value added tax (VAT). Provide a description of how this tax is applied.

Question 27

Given the political nature of accounting standards setting in the U.S., what approach would you suggest to convince a U.S. policy maker of the need for international standards?

Question 28

An issue that affects comparability between multinational corporations is the treatment of transfer pricing. Provide a description of transfer pricing and discuss the problems it creates.