Deck 19: International Accounting and Finance Issues

Question 1

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.

Answer 1

B

Question 2

Three major areas of concern when providing financial information to the larger investing community are language, currency, and the ________ on which financial statements are based.

A)shareholders' equity
B)exchange rates
C)underlying GAAP
D)corporate strategy

Answer 2

C

Question 3

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

Answer 3

C

Question 4

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

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

Question 5

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 6

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 7

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

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

Question 8

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

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

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 11

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 12

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

Question 13

What is the role of the controller in an MNE? What are some of the challenges that a controller faces in an international environment?

Question 14

The internal financial reports provided by controllers are primarily used by all of the following EXCEPT ________.

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

Question 15

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 16

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 17

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 18

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 19

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 20

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 21

All of the following forces are leading to convergence of accounting standards around the world EXCEPT ________.

A)global integration of capital markets
B)need of MNE's to raise capital outside of their home markets
C)pressure from investors for more uniform standards
D)regional and political harmonization

Question 22

Which of the following countries would be most likely to be classified as high secrecy and conservatism?

A)Vietnam
B)Chile
C)Turkey
D)Honduras

Question 23

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

Question 24

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 25

Sources of influence on accounting standards and practices include all of the following EXCEPT ________.

A)capital markets
B)regulatory environment
C)cultural environment
D)levels of exports

Question 26

In 2002, the ________ required adoption of International Financial Reporting Standards (IFRS)by 2005.

A)EU
B)SEC
C)ASB
D)GAAP

Question 27

German companies like Deutsche Bank and DaimlerChrysler 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 28

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 29

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 30

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 31

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

Question 32

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 33

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

Question 34

How do cultural values such as optimism, conservatism, transparency, and secrecy affect country differences in accounting systems?

Question 35

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 36

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

Question 37

What factors influence international accounting practices? What forces are leading to the global convergence of accounting practices?

Question 38

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

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

Question 39

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 40

Cultural differences in accounting include all of the following EXCEPT ________.

A)secrecy
B)transparency
C)optimism
D)language

Question 41

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 42

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 43

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

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

Question 44

What are the four main ways that financial statements differ from country to country? What role has the IASB played in establishing global accounting standards?

Question 45

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

Question 46

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 47

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 48

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

Question 49

In regards to accounting, what is the impact of the SEC and Sarbanes-Oxley Act on international business?

Question 50

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 51

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 52

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 53

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

Question 54

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 55

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 56

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 57

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

Question 58

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 59

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 60

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 61

The United States should NOT be subject to IFRS for all of the following reasons EXCEPT ________.

A)the United States should have the most stringent reporting standards
B)GAAP is less comprehensive than IFRS
C)retraining would be necessary for publicly traded firms
D)there is more than one set of IFRS

Question 62

Which legislation has forced companies to establish more stringent internal controls over their financial reporting?

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

Question 63

U.S.-based MNEs do not like to use the balanced scorecard for evaluation performance because it does not take into consideration international differences.

Question 64

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

Question 65

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 66

When analyzing a project's capital budget, if the ________ is positive, then the project is considered positive.

A)payback period
B)internal rate of return
C)net present value (NPV)
D)cash flow

Question 67

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 68

The ________ is the number of years it will take a firm to recover from its initial investment.

A)rate of return
B)accumulated translation adjustment
C)remittance period
D)payback period

Question 69

A company can hedge their foreign-currency risk by using ________ financial contracts such as forward contracts and options.

A)cash flow
B)multidomestic
C)lead
D)derivative

Question 70

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

Question 71

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 72

________ is an important cash-management strategy that reduces transaction costs by coordinating cash inflows and outflows among subsidiaries.

A)Net present value
B)Capital budgeting
C)Forecasting
D)Netting

Question 73

A ________ strategy is when a company collects foreign-currency receivables before they are due when the foreign currency is expected to weaken.

A)lead
B)lag
C)global price
D)hedging

Question 74

Which of the following is NOT a method of capital budgeting in a global context?

A)payback period
B)net present value
C)internal rate of return
D)non-discount method

Question 75

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

Question 76

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 77

A condition that is conducive to low transfer prices from the parent company to the subsidiary and high transfer prices from the subsidiary to the parent company is where the corporate in-come tax is lower in the subsidiary's country than in the parent country.

Question 78

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 79

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 80

Compare the two major approaches used to translate foreign currency financial statements, and explain how translation gains and losses are reported under these two approaches.