Deck 9: The International Accounting Environment

Question 1

Translation of a foreign entity's financial statements into the reporting currency of a domestic entity is typically done

A)to determine if the foreign entity is properly applying IFRS.
B)because the domestic entity has economic losses due to transactions denominated in the foreign entity's currency.
C)to enable a parent company to include its foreign subsidiary's financial statements in its consolidation.
D)to determine if the foreign entity is more profitable than the domestic entity.

Answer 1

C
A foreign subsidiary's financial statements must be translated into the parent company's currency in order to be included in the parent's consolidation.

Question 2

Describe the concept of convergence as it pertains to the FASB and IASB and describe the ways in which this may be accomplished.

Answer 2

Convergence means that the FASB and IASB will work together to develop standards rather than the FASB merely agreeing to adopt IFRS. In essence, this will be a collaborative effort whereby IFRS may converge with U.S. GAAP, U.S. GAAP may converge with IFRS, or an entirely new standard may be generated. The parties have agreed to move toward common standards in areas that are not in need of significant improvement. If a standard is in need of significant change or improvement, the Boards will work together to develop a new common standard.

Question 3

One of the challenges facing U. S. companies adopting IFRS is:

A)the costs incurred to do so.
B)the subjectivity introduced into financial reporting.
C)certain areas exist where convergence may not be achieved.
D)All of the above.

Answer 3

D
It is expected that some U. S. companies will incur significant costs to adopt IFRS. In addition, since IFRS is more principles-based than U. S. GAAP, which is more rules-based, some subjectivity will be introduced into financial reporting. Finally, some areas, such as the LIFO method of accounting for inventory, exist where it is not known whether convergence will be achieved.

Question 4

RWB Corporation, a U. S. based company, sold inventory to a German company on June 5 for 12,000 euros, when $1 was equal to 1.20 euros. The company received 12,000 euros in payment on August 4 when $1 was equal to 1.25 euros. RWB's measurement currency is the U. S. dollar. RWB Corporation:

A)should record the sale for $9,600.
B)is exposed to an economic loss on the transaction.
C)has an economic gain on the transaction.
D)should record the sale for 12,000 euros.

Question 5

Explain the goal of harmonization of accounting standards. Why is this so important to multinational companies?

Question 6

The process of expressing a subsidiary's financial statement amounts denominated in a foreign currency into amounts measured in the reporting currency of its parent company is referred to as:

A)redenomination of financial statements.
B)foreign currency translation.
C)currency consolidation.
D)foreign currency transaction.

Question 7

Explain the factors which have lead to the differences in accounting standards among nations.

Question 8

A U.S. company purchases medical lab equipment from a Japanese company. The Japanese company requires payment in Japanese yen. In this transaction, the yen would be referred to as the ___________ currency.

A)measurement
B)denominated
C)purchasing
D)selling

Question 9

Which of the following is true regarding the Securities and Exchange Commission requirements from foreign companies seeking to sell securities on U.S. stock markets?

A)The companies must reconcile their financial statements to U.S. GAAP.
B)The companies must reconcile their financial statements to U.S. tax regulations.
C)The companies must provide financial statements prepared according to U.S. GAAP.
D)The companies may file financial statements prepared in accordance with IFRS without reconciliations to U.S. GAAP.

Question 10

RWB Corporation, a U. S. based company, bought inventory from a German company on June 5 for 12,000 euros, when $1 was equal to 1.20 euros. The company settled its payable with 12,000 euros on August 4 when $1 was equal to 1.25 euros. RWB's measurement currency is the U. S. dollar. RWB Corporation:

A)should record the inventory for $9,600.
B)is exposed to an economic loss on the transaction.
C)has an economic gain on the transaction.
D)should record the inventory for 12,000 euros.

Question 11

Which of the following is not a responsibility of the International Accounting Standards Board (IASB)?

A)To advise political bodies to enact legislation regulating international business.
B)To establish a single set of international financial reporting standards.
C)To achieve convergence of national accounting standards and IFRS.
D)All are objectives of the IASB.

Question 12

Describe the complexities stemming from U. S.-based companies operating in an international environment.

Question 13

A U.S. company purchases medical lab equipment from a Japanese company. The Japanese company requires payment in Japanese yen. In this transaction, the dollar would be referred to as the ___________ currency.

A)measurement
B)denominated
C)purchasing
D)selling

Question 14

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