Deck 19: International Accounting and Finance Issues

Question 1

From an accounting perspective,countries with strong equity markets and shareholder orientations tend to be ________.

A) macro-uniform systems
B) micro-based systems
C) law-based systems
D) tax-based systems

Answer 1

B

Question 2

The accounting principle that relates to more,rather than less,extensive footnotes in reports is known as ________.

A) secrecy
B) measurement
C) conservatism
D) transparency

Answer 2

D

Question 3

At Cooper Industries,Jake is responsible for evaluating potential acquisitions abroad,managing cash flow,tax planning,and internal auditing.Which of the following is most likely Jake's position at Cooper?

A) CEO
B) treasurer
C) regulator
D) controller

Answer 3

D

Question 4

Which of the following statements is most likely true about secrecy and transparency in accounting?

A) Japanese firms are usually as transparent as U.S. firms.
B) German companies tend to be less transparent than British companies.
C) Secrecy and transparency refer to the degree of caution companies display in valuing assets.
D) Companies that list on stock exchanges are highly transparent because of stockholder audits.

Question 5

Which term refers to how companies value assets such as inventory?

A) measurement
B) conservatism
C) disclosure
D) optimism

Question 6

The accounting value that illustrates how companies are more liberal in their recognition of income is ________.

A) optimism
B) transparency
C) income-based accounting
D) measurement

Question 7

International accounting firms,such as Deloitte and KPMG,have the most influence on ________.

A) international and domestic tax laws
B) public record disclosure rules
C) global auditing practices
D) domestic legal systems

Question 8

A major reason for the Parmalat accounting scandal is that the firm ________.

A) sold milk in countries without a license
B) used U.S. GAAP standards instead of IFRS
C) used off-balance-sheet financing to hide debts
D) transferred most of its assets to banks in Switzerland

Question 9

In which quadrant of a disclosure/assessment matrix for accounting systems would you most likely find less-developed Latin countries?

A) conservatism and secrecy
B) transparency and conservatism
C) secrecy and transparency
D) optimism and secrecy

Question 10

In addition to hiding losses,Parmalat engaged in financial statement fraud to ________.

A) pay shareholders
B) bribe government officials
C) support family-owned businesses
D) avoid paying high export/import tariffs

Question 11

How would you classify the accounting values of companies from the United States and the United Kingdom in terms of their measurement and disclosure of financial information?

A) secret and transparent
B) transparent and optimistic
C) secret and conservative
D) conservative and optimistic

Question 12

Which accounting systems are shaped more by government practice?

A) macro-uniform accounting systems
B) micro-based systems
C) pragmatic business practice systems
D) business economic theory systems

Question 13

Hoffman Electronics is a U.S.company.Which balance sheet format is most likely used by Hoffman?

A) assets + liabilities = reserves
B) assets = liabilities + shareholders' equity
C) noncurrent assets + current assets - current liabilities - noncurrent liabilities = shareholders' equity
D) current assets - current liabilities = fixed assets - noncurrent liabilities = capital and reserves

Question 14

Larson Shoes is a British company.Which balance sheet format is most likely used by Larson?

A) assets + liabilities = shareholders' equity
B) liabilities + shareholders' equity = assets
C) noncurrent assets + current assets - current liabilities - noncurrent liabilities = shareholders' equity
D) noncurrent assets - net current assets = liabilities + capital and reserves

Question 15

Suzanne,an investor,tends to invest in corporations that are headquartered in countries that value financial transparency.A firm based in which of the following countries would most likely appeal to Suzanne?

A) Japan
B) Germany
C) Switzerland
D) United Kingdom

Question 16

The degree of caution companies display in valuing assets and recognizing income is known as ________.

A) conservatism
B) transparency
C) measurement
D) disclosure

Question 17

The financial reports and information provided by businesses is primarily used by all of the following EXCEPT ________.

A) educators
B) investors
C) creditors
D) lenders

Question 18

German companies like Deutsche Bank and Daimler Chrysler have been relatively optimistic and transparent in their financial reporting compared with many Germanic companies because ________.

A) German accounting standards have always been optimistic and transparent
B) they adopted U.S. Generally Accepted Accounting Standards
C) they do not have to adopt International Accounting Standards
D) most of their revenues are from the United States and United Kingdom

Question 19

The accounting value that relates to issues such as how to present financial information and discuss financial results is known as ________.

A) measurement
B) conservatism
C) disclosure
D) optimism

Question 20

Germany's accounting system has historically been a ________ system.

A) micro-pragmatic
B) macro-pragmatic
C) law-based
D) tax-based

Question 21

Assume a U.S.company sells merchandise to a French customer for $200,000 when the exchange rate is $1.5 per euro.At the end of the month,the euro is trading at 1.47,and in the middle of the next month when payment is received,the exchange rate is 1.53.If the U.S.company receives payment in dollars,what is the value of the sale at the end of the month for the U.S.company?

A) $200,000
B) $294,000
C) $300,000
D) $306,000

Question 22

The standard-setting organization tasked with the challenge of determining one set of accounting standards that can be used worldwide is the ________.

A) Global Financial Accounting Standards Board
B) International Organization of Securities Commissions
C) International Financial Reporting Committee
D) International Accounting Standards Board

Question 23

From the perspective of the classification of accounting systems,German and Japanese companies tend to be ________.

A) micro-based countries
B) strong equity market countries
C) weak equity market countries
D) pragmatic business countries

Question 24

Assume a U.S.company purchases equipment from a German supplier for €37,500 when the exchange rate at the time of the transaction is $1.5 per euro,or €0.667 per dollar.The U.S.company doesn't have to pay the German supplier until the end of the month,at which time the euro is now worth only $1.49 per euro or €0.671 per dollar.According to U.S.GAAP,the equipment would be valued at ________.

A) $25,167
B) $25,000
C) $56,250
D) $55,875

Question 25

GAAP usage differences increase the problems associated with ________.

A) trading foreign stock
B) establishing e-commerce
C) identifying emerging markets
D) raising capital in different countries

Question 26

Garrison Industries,a global firm,provides financial information in its annual reports in more than one currency.Garrison Industries is most likely ________.

A) trying to provide information to users from different countries
B) providing footnotes to clarify its accounting practices
C) implementing global reporting requirements
D) altering its losses to show gains

Question 27

Which of the following is true concerning the International Accounting Standards Board?

A) The IASB is an EU institution designed to harmonize accounting standards among EU member countries.
B) The EU has voted to not adopt IFRS issued by the IASB so that it will not hurt its own convergence efforts.
C) The IASB and the FASB of the United States are working closely to harmonize accounting standards.
D) FASB has been ordered by the SEC to not work with the IASB in setting accounting standards.

Question 28

For U.S.companies,foreign-currency-denominated receivables and payables give rise to exchange gains and losses ________.

A) at the end of each accounting period
B) only when the dollar strengthens against the foreign currency
C) only when the dollar weakens against the foreign currency
D) whether the transactions are denominated in dollars or the foreign currency

Question 29

The process of combining financial statements of different subsidiaries into one statement is known as ________.

A) conversion
B) translation
C) consolidation
D) recognition

Question 30

If a U.S.-based MNE translates its German subsidiary's financial statements from euros into dollars using the current-rate method,how would it recognize translation gains and losses?

A) Gains and losses would be taken to the income statement.
B) Gains and losses would be recognized on the balance sheet in owners' equity.
C) Gains and losses are not recognized since the financial statements are in dollars.
D) There are transaction gains and losses but not translation gains and losses.

Question 31

Financial statements typically include ________.

A) accompanying footnotes, a balance sheet, and a cash-flow statement
B) translations into the languages of every country where the company lists shares
C) different currency results to reflect the different countries where the company has investments or generates revenues
D) different reports detailing the differences in generally accepted accounting principles used by the company in different countries

Question 32

How do U.S.companies recognize transaction gains and losses in the financial statements?

A) They are recognized as gains and losses in the income statement.
B) They are recognized as gains and losses in owners' equity.
C) Gains are recognized in the income statement, but losses are not.
D) Losses are recognized in the income statement, but gains are recognized in owners' equity.

Question 33

A major force leading to the convergence of accounting standards is ________.

A) a shareholder orientation towards FDI
B) the global separation of capital markets
C) MNEs' needs for foreign capital
D) pressures from the EU

Question 34

The translation method used when the functional currency is the parent currency is the ________.

A) current-rate method
B) temporal method
C) translate-restate method
D) consolidation method

Question 35

According to the accounting concept of mutual recognition,________.

A) companies are required to reconcile financial statements to local GAAP
B) a country would accept financial statements of foreign companies prepared according to the GAAP of the foreign country if a company wanted to list its shares on that country's stock exchange
C) companies would have to mutually agree to use GAAP issued by the IASB
D) companies would have to recast their financial statements in terms of local GAAP

Question 36

Translation of foreign currency financial statements is best described as ________.

A) the process of restating foreign currency financial statements from one currency into another
B) the process of combining financial statements of different subsidiaries into one statement
C) the conversion of foreign currencies into the U.S. dollar
D) easier when the foreign currency is the euro

Question 37

Coca-Cola has subsidiaries all over the world.The process of combining the results of its far-flung operations into one set of financial statements for investors is known as ________.

A) combination
B) translation
C) consolidation
D) unification of results

Question 38

The global integration of capital markets ________.

A) is a major force leading to the convergence of accounting standards
B) is a counterforce to regional political and economic harmonization
C) is being led by the strengthening of worldwide unions rather than investors
D) highlights the importance of maintaining differences in accounting worldwide

Question 39

Assume that a U.S.-based MNE has operations in Germany and that the revenues and expenses are mostly incurred in Euros.Which translation method is the MNE most likely to use?

A) current-rate method
B) temporal method
C) translate-restate method
D) consolidation method

Question 40

According to the translation process in the United States,________.

A) companies first translate their statements into dollars, and then recast their financial statements consistent with U.S. GAAP
B) companies recast their financial statements consistent with U.S. GAAP, and then translate them into U.S. dollars
C) companies only need to worry about the translation process because local operations take place in a local GAAP environment
D) companies translate foreign currency financial statements only if the dollar is weakening against the local currency

Question 41

Under the current-rate method of translation,any gain or loss is known as a(n)________.

A) liability
B) foreign-exchange
C) annual net income
D) accumulated translation adjustment

Question 42

The balanced scorecard is ________.

A) an average of foreign-exchange rates
B) an approach to performance measurement
C) used widely by U.S. firms but not European firms
D) not very successful at linking financial and nonfinancial performance

Question 43

The most common approach to translate budgets and compare a budget with actual performance uses the ________.

A) spot rate
B) forecast rate
C) historical exchange rate
D) temporal exchange rate

Question 44

Which of the following is conducive to low transfer prices from the parent company to a foreign subsidiary and high transfer prices to the parent company from a foreign subsidiary?

A) political instability
B) restrictions on profit or dividend remittances
C) restrictions in the subsidiary country on the value of imported products
D) desire to mask the profitability of the foreign subsidiary to keep competitors out

Question 45

Which legislation triggered many foreign MNEs to exit the New York Stock Exchange?

A) Davis-Bacon Act
B) Sarbanes-Oxley Act
C) Norris-LaGuardia Act
D) McCarran-Ferguson Act

Question 46

Budget versus actual comparisons,followed by some form of ROI,are most likely used by ________ MNEs.

A) Japanese
B) American
C) British
D) German

Question 47

Transfer prices are ________.

A) always based on production costs
B) the prices on goods transferred from one country to another
C) regulated by the United Nations so as to avoid manipulation
D) often used to minimize taxation

Question 48

________ is an approach to performance measurement that closely links the strategic and financial perspectives of a business.

A) Transfer pricing
B) Budget to actual
C) The balanced scorecard
D) Return on investment

Question 49

Which of the following perspectives would LEAST likely be considered in a balanced scorecard?

A) financial
B) customer
C) industry standards
D) learning and growth

Question 50

What is the LEAST likely reason that MNEs set arbitrary transfer prices?

A) take advantage of tax differences between countries
B) achieve economies of scale on a global level
C) circumvent national controls
D) manipulate profits

Question 51

An exchange rate variance results from ________.

A) setting the budget at the actual exchange rate at that time and final performance at the rate used when the budget was set
B) translating the budget and actual performance at the forecasted exchange rate
C) translating the budget at the projected exchange rate and final results at the actual exchange rate
D) translating the budget using the current-rate method and actual results at the new current-rate method

Question 52

Vanessa,a manager at an MNE,has been given the task of measuring the firm's performance by using the balanced scorecard approach.Which of the following would be best for Vanessa?

A) review financial and nonfinancial factors broadly
B) create a multidomestic strategy for the future
C) closely compare industry and firm standards
D) calculate the firm's return on investment

Question 53

Which term refers to the combination of external and internal mechanisms implemented to safeguard the assets of a company and protect shareholders' rights?

A) consolidation
B) transfer pricing
C) balanced scorecard
D) corporate governance

Question 54

As a Japanese MNE,Sony is more likely to use ________ to evaluate performance of its foreign operations.

A) quality targets
B) market share
C) ROI
D) sales

Question 55

Using the same exchange rate to set the budget and monitor results ________.

A) allows management to focus on operating variances instead of exchange-rate variances
B) enables management to focus on both operating and exchange-rate variances
C) is an illegal reporting method according to the FASB
D) is the only method that can be used in Europe

Question 56

The most preferred exchange rate used by British MNEs to translate the budget is the ________.

A) current-rate method
B) temporal method
C) budgeted rate
D) forecast rate

Question 57

The price on the sale of goods from one member of a corporate family to another is known as a ________.

A) transfer price
B) sale/resale price
C) global price
D) multidomestic price

Question 58

Matt manages the sales unit at Global Electronics but has no control over input costs.The primary purpose of the sales division is to sell goods produced by another division at Global Enterprises.What is the most appropriate performance evaluation measure for Matt's division?

A) market share
B) profitability
C) net income as a percentage of sales
D) inventory costs as a percentage of sales

Question 59

Which of the following is one of the benefits of using the balanced scorecard approach?

A) It helps managers avoid using only one measure of performance.
B) It avoids using financial drivers so that it can focus on nonfinancial drivers.
C) It avoids using nonfinancial drivers so that it can focus on financial drivers.
D) It is separate from the strategic management system so that it can focus on financial measures.

Question 60

Gavin Pharmaceuticals is a U.S.-based MNE.Which of the following is probably Gavin's most important metric when evaluating the firm's performance?

A) foreign sales
B) market share
C) return on investment
D) sales revenue budget

Question 61

Currency is a major issue in financial reporting because companies must decide in which currency to present their financial information to the general public.

Question 62

A typical U.S.company uses the following balance sheet format: assets = liabilities + shareholders' equity.

Question 63

When using the current-rate method to translate foreign currency financial statements into the parent currency,translation gains and losses are recognized in comprehensive income.

Question 64

Both the form and content of financial statements are currently the same in most countries due to the convergence of accounting implemented by the International Accounting Standards Board.

Question 65

Germanic and Japanese companies tend to be more optimistic than U.S.and U.K.companies.

Question 66

According to U.S.GAAP,companies recognize transaction gains and losses in the income statement.

Question 67

U.S.and U.K.companies tend to be more transparent than Japanese companies.

Question 68

The Financial Accounting Standards Board and International Accounting Standards Board allow firms to use the current-rate method or the temporal method to translate foreign currency financial statements into the currency of the parent company.

Question 69

When recording the value of a purchase denominated in a foreign currency,the company is required to use the spot rate when payment is made,as long as it is made 30 days or more in the future.

Question 70

U.S.-based MNEs are not permitted to set budgets and monitor results using the same exchange rate.

Question 71

The Netherlands is an example of a country that is micro-based from an accounting perspective,as opposed to macro-uniform based.

Question 72

The global integration of capital markets is a major force leading to the convergence of accounting standards.

Question 73

Germanic countries tend to be more transparent than the United States and the United Kingdom in terms of financial reporting due to their reliance on bank financing.

Question 74

The International Accounting Standards Board is composed of international securities regulators and is attempting to harmonize accounting standards through issuing International Financial Reporting Standards.

Question 75

From an accounting perspective,countries with strong equity markets and shareholder orientations tend to be macro-uniform systems.

Question 76

Consolidation of financial statements is the process of restating foreign subsidiary financial statements into the GAAP of the parent company.

Question 77

According to the accounting concept of mutual recognition,companies are required to reconcile financial statements to local GAAP.

Question 78

Translation of foreign currency financial statements is the process of restating foreign currency financial statements from one currency into another.

Question 79

Japanese companies are more likely to use sales as a measure of performance evaluation of foreign operations than income-based measures.

Question 80

The degree of caution companies display in valuing assets and recognizing income is known as conservatism.