Deck 19: Accounting in the International Business

Question 1

Auditing standards are rules for preparing financial statements and define what useful accounting information is.

Answer 1

False

Question 2

An investor based in the Middle East buying Exxon Mobil Corporation stock through the New York Stock Exchange would be an example of transnational financing.

Answer 2

False

Question 3

Since banks are the major providers of capital in countries like Germany,financial accounting practices involve overvaluing assets and valuing liabilities conservatively.

Answer 3

False

Question 4

Since 2001,the U.S.requires that goodwill associated with acquisitions has to be amortized against earnings.

Question 5

The International Accounting Standards Board was formed in March 2001 to replace the International Accounting Standards Committee.

Question 6

Transnational investment occurs when a firm based in one country enters another country's capital market to raise capital from the sale of stocks or bonds.

Question 7

Similarities in the accounting systems of countries are sometimes due to the countries' close political and/or economic ties.

Question 8

Current cost accounting adjusts all items in a financial statement to factor out the effects of inflation.

Question 9

According to Hofstede,countries such as Britain,the United States and Sweden are characterized by high uncertainty avoidance.

Question 10

Developed nations tend to have small,complex organizations,whose accounting problems are far more difficult than those of large organizations.

Question 11

Accounting information is the means by which firms communicate their financial position to the providers of capital.

Question 12

The impact of the IASB standards has probably been least noticeable in the United States because of policy directives that direct U.S.public companies to adhere to domestic standards.

Question 13

The IASB has enough regulatory muscle to enforce its standards.

Question 14

In the United States and Great Britain,the financial accounting system is oriented toward providing individual investors with the information they need to make decisions about purchasing or selling corporate stocks and bonds.

Question 15

In the United States,banks are the most important source of external capital for business enterprises.

Question 16

When one company acquires another in a takeover,the value of the goodwill is calculated as the amount paid for a firm above its book value.

Question 17

EU directives have the power of law and so it can be assumed that the EU has a better chance of harmonizing accounting standards than the IASB.

Question 18

The IASB has developed accounting standards for firms seeking stock listings in global markets.

Question 19

Accounting is shaped by the environment in which it operates.

Question 20

In the United States,government regulations require firms to publish detailed information about their training and employment policies.

Question 21

Foreign subsidiaries operate in uniform environments.

Question 22

According to Lessard and Lorange,the ending rate is the spot exchange rate forecast for the end of the budget period.

Question 23

Without consolidated financial statements,a multinational firm could conceal losses in an unconsolidated subsidiary.

Question 24

A consolidated financial statement combines the separate financial statements of two or more companies to yield a single set of financial statements as if the individual companies were really one.

Question 25

Managers should use the ending rate to translate the budget and the initial rate to translate actual performance data.

Question 26

Firms pursuing the global strategy and the transnational strategy disperse each value creation activity to its optimal location in the world.

Question 27

It is possible that a multinational's balance sheet may not balance when it uses the temporal method to translate the accounts of a foreign subsidiary.

Question 28

Transactions among the members of a corporate family are not included in consolidated financial statements.

Question 29

Foreign subsidiaries of multinational firms normally keep their accounting records and prepare their financial statements in US dollars.

Question 30

Many firms find it disadvantageous to organize as a set of separate legal entities.

Question 31

According to Lessard and Lorange,the three exchange rates that can be used to translate foreign currencies into the corporate currency are the historical rate,the spot rate,and the forward rate.

Question 32

The purpose of consolidated financial statements is to provide accounting information about a group of companies that recognize their economic interdependence.

Question 33

According to Statement 52,"Foreign Currency Translation," the functional currency of an integral subsidiary is to be the home currency.

Question 34

Subunit goals are determined solely by the head office.

Question 35

The balance sheet is the main instrument of financial control.

Question 36

Transfer price must be considered when setting budgets and evaluating a subsidiary's performance.

Question 37

The subsidiaries of a multinational company are separate legal entities as well as separate economic entities.

Question 38

Under a current rate method,the exchange rate at the balance sheet date is used to translate the financial statements of a foreign subsidiary into the home currency of the multinational firm.

Question 39

Most international businesses require all budgets and performance data within the firm to be expressed in the "corporate currency," which is normally the home currency.

Question 40

Managers of foreign subsidiaries should never be evaluated in local currency terms.

Question 41

According to Hofstede,which of the following countries is characterized by low uncertainty avoidance?

A)Greece
B)Sweden
C)Japan
D)Mexico

Question 42

The historic cost principle:

A)assumes the currency unit used to report financial results is not losing its value due to inflation.
B)records sales,purchases,and the like at an adjusted transaction price and makes minor adjustments in the amounts later.
C)does not affect accounting in the area of asset valuation.
D)overestimates a firm's assets if inflation is high.

Question 43

Which of the following observations is true of the financial accounting system of countries such as Switzerland,Germany,and Japan?

A)Historically,individual investors satisfied most of the capital needs of businesses.
B)Banks play an insignificant role in satisfying the capital needs of businesses.
C)Government regulations do not mandate any public disclosure of a firm's financial position.
D)Assets are valued conservatively and liabilities are overvalued.

Question 44

The technical process by which an independent person gathers evidence for determining if financial accounts conform to required accounting standards and if they are also reliable is known as:

A)an accounting guideline.
B)an operating procedure.
C)standardization.
D)an audit.

Question 45

Historically,financial reports prepared by firms in Germany:

A)tended to contain less information than those of British or U.S.firms.
B)tended to contain all information required by individual investors.
C)did not make any public disclosure of a firm's financial position.
D)overvalued assets and undervalued liabilities.

Question 46

Developed nations tend to have far more sophisticated accounting practices than less developed countries because:

A)they have large organizations whose accounting problems are more straightforward than those of small organizations.
B)the workforce in these countries is highly educated and skilled and can perform complex accounting functions.
C)their accounting practices have been inherited from their former colonial rulers.
D)their financial systems are highly controlled by their respective governments and other international regulatory bodies.

Question 47

A key accounting problem faced by international businesses but that does not confront purely domestic businesses is:

A)the lack of consistency in the accounting standards of different countries.
B)the consistent,inaccurate filing of profit-and-loss statements by all international businesses.
C)the total lack of the accounting functions in international firms.
D)international firms not reporting their income to the government.

Question 48

_____ refers to the extent to which cultures socialize their members to accept ambiguous situations.

A)Noblesse oblige
B)Uncertainty avoidance
C)Social interaction
D)Cultural dilemma

Question 49

Identify the country where historically the national government has been a more important provider of capital,which has influenced accounting practices.

A)United States
B)France
C)Germany
D)Switzerland

Question 50

Until recently,which of the following accounting practices has been true?

A)Japanese law generally allowed revaluation.
B)Dutch standards prohibited revaluation and prescribes historic cost.
C)Capitalization of financial leases was required practice in France.
D)German accountants have treated depreciation as a liability.

Question 51

Identify the country whose accounting practices have not been influenced by the U.S.accounting system.

A)Canada
B)Mexico
C)Philippines
D)Germany

Question 52

Identify the incorrect statement regarding the differences in the treatment of goodwill across countries.

A)When one company acquires another in a takeover,the value of the goodwill is calculated as the amount paid for a firm above its book value.
B)Accounting rules in many countries allow acquiring firms to deduct the value of goodwill from the amount of equity or net worth reported on their balance sheet.
C)Since 2001,the U.S.requires that goodwill associated with acquisitions has to be amortized against earnings.
D)In the United States,until recently goodwill has had to be deducted from the profits of the acquiring firm over as much as 40 years.

Question 53

Transnational _____ occurs when a firm based in one country enters another country's capital market to raise capital from the sale of stocks or bonds.

A)financing
B)development
C)sale
D)investment

Question 54

Any advantage,such as a trademark or brand name that enables a firm to earn higher profits than its competitors is best known as a firm's:

A)operating advantage.
B)proprietary advantage.
C)core competency.
D)goodwill.

Question 55

Which of the following statement about the external sources of capital is not true?

A)A country's accounting system tends to reflect the relative importance of individual investors,banks,and government as providers of capital.
B)The three main external sources of capital for businesses are individual investors,banks,and government.
C)In most advanced countries,only one of the main sources of external capital is important.
D)The importance of each source of capital varies from country to country.

Question 56

Which of the following are rules for preparing financial statements and define what useful accounting information is?

A)Financial standards
B)Auditing standards
C)Accounting standards
D)Operating standards

Question 57

Which of the following is not one of the main variables that influence the development of a country's accounting system?

A)The relationship between individuals and social groups
B)Political and economic ties with other countries
C)The level of inflation
D)The prevailing culture in a country

Question 58

This accounting method adjusts all items in a financial statement-assets,liabilities,costs,and revenues-to factor out the effects of inflation.

A)Current cost accounting
B)Operating profit method
C)Historic cost principle
D)Economic accounting

Question 59

In the United States,_____ are the major source of external capital.

A)individual investors
B)banks
C)government
D)retained earnings

Question 60

Identify the incorrect statement pertaining to accounting information.

A)It is often referred to as "the language of business."
B)It is means by which firms report their income to the government.
C)It is consistent and standard across all countries.
D)It enables the providers of capital to assess the value of their investments.

Question 61

Lessard and Lorange refer to company-generated forecasts of future spot rates as the:

A)ending rate.
B)future rate.
C)domestic rate.
D)internal forward rate.

Question 62

In which of the following combinations of the Lessard-Lorange model is it possible that the ending spot exchange rate used to evaluate performance against the budget might be quite different from the initial spot exchange rate used to translate the budget?

A)II
B)IE
C)EE
D)PP

Question 63

An investor based in Japan buying General Motors stock through the NYSE would be an example of:

A)transnational financing.
B)transnational development.
C)transnational sale.
D)transnational investment.

Question 64

Which of the following methods translates assets valued in a foreign currency into the home-country currency using the exchange rate that exists when the assets are purchased?

A)Temporal method
B)Current rate method
C)Operating cost accounting method
D)Historic cost principle

Question 65

Under the _____,the exchange rate at the balance sheet date is used to translate the financial statements of a foreign subsidiary into the home currency of the multinational firm.

A)temporal method
B)current rate method
C)operating cost accounting method
D)historic cost principle

Question 66

According to Statement 52,"Foreign Currency Translation," issued by the Financial Accounting Standards Board:

A)the functional currency of a self-sustaining foreign subsidiary is to be the currency of its parent company.
B)the balance sheet of a self-sustaining foreign subsidiary is translated into the local currency using the exchange rate in effect at the end of the firm's financial year.
C)the income statement of a self-sustaining foreign subsidiary is translated using the average exchange rate for the firm's financial year.
D)the functional currency of an integral subsidiary is to be the local currency.

Question 67

A Danish firm raising capital in London must issue financial reports that serve the needs of its British investors in addition to its Danish financial reports.This is an example of:

A)global financial analysis.
B)multinational fiscal coverage.
C)international capital documentation.
D)transnational financial reporting.

Question 68

Firms pursuing _____ business strategies disperse each value creation activity to its optimal location in the world.

A)localization and transnational
B)global and localization
C)transnational and global
D)localization and international

Question 69

The _____ writes the generally accepted accounting principles (GAAP)that govern the financial statements of U.S.firms.

A)Office of Economic Analysis
B)US Securities and Exchange Commission
C)International Accounting Standards Board
D)Financial Accounting Standards Board

Question 70

The International Accounting Standards Board:

A)has no power to enforce its standards.
B)was formed to replace the Financial Accounting Standards Board.
C)has 120 members responsible for the formulation of new financial reporting standards.
D)requires approval from 80 percent of its 120 members to issue a new standard.

Question 71

Which of the following is typically not a main step in the control process by which a corporate headquarters controls subunits within the organization?

A)Head office and subunit management jointly determine subunit goals for the coming year.
B)Head office monitors subunit performance against the agreed goals only at the end of the year.
C)If a subunit fails to achieve its goals,the head office intervenes in the subunit to learn why the shortfall occurred.
D)If a subunit fails to achieve its goals,the head office can take appropriate corrective action if required.

Question 72

Which of the following statements is true regarding the European Union (EU)and its influence on accounting standards?

A)Adoption of the directives issued by the EU is voluntary and member states are not obligated to incorporate them into their own national laws.
B)The EU may have a better chance of achieving harmonization than the IASB.
C)The EU requires that the financial accounts issued by publicly listed companies in the EU are to be in accordance with European standards.
D)The objective of the requirements of the EU is to ensure the financial positions of companies from different member states are represented according to their national laws.

Question 73

Foreign subsidiaries of multinational firms normally:

A)keep their accounting records in the currency of the country in which they are located.
B)do not prepare their financial statements.
C)prepare their financial statements in US dollars.
D)keep their accounting records in US dollars.

Question 74

To date,the impact of the IASB standards has probably been least noticeable in the United States because:

A)compliance is voluntary.
B)most IASB standards have been consistent with opinions already articulated by the U.S.Financial Accounting Standards Board (FASB).
C)significant differences exist between the IASB standards and generally accepted accounting principles.
D)most U.S.companies already use IASB standards to report their results.

Question 75

Many firms find it advantageous to organize as a set of separate legal entities or subsidiaries because of all of the following reasons except:

A)it limits their total legal liability.
B)to take advantage of corporate tax regulations.
C)of legal requirements in the countries in which they do business.
D)subsidiaries are all separate economic entities.

Question 76

Which among the following combinations of the Lessard-Lorange model is considered illogical and unreasonable?

A)Translating the budget using the projected rate and actual performance using the initial rate
B)Translating the budget using the initial rate and actual performance using the initial rate
C)Translating the budget and actual performance using the projected rate
D)Translating the budget and actual performance using the ending rate

Question 77

Consolidated financial statements:

A)provide accounting information about a group of companies that recognize their economic interdependence.
B)record transactions among the members of a corporate family.
C)show assets,liabilities,revenues,and expenses of members of a corporate family.
D)issue individual financial statements for the parent company and each subsidiary.

Question 78

A German firm raising capital by selling stock through the London Stock Exchange is an example of:

A)transnational financing.
B)transnational development.
C)transnational sale.
D)transnational investment.

Question 79

A _____ combines the separate financial statements of two or more companies to yield a single set of financial statements as if the individual companies were really one.

A)complied financial statement
B)harmonized financial statement
C)consolidated financial statement
D)operating financial statement

Question 80

Which of the following statements is true regarding assessing the performance of a foreign subsidiary and its managers?

A)It is inappropriate to compare subsidiaries against each other on the basis of return on investment (ROI).
B)Foreign subsidiaries operate in widely similar economic,political,and social conditions.
C)Managers should be evaluated in local currency terms after making allowances for items over which they have no control.
D)The evaluation of a subsidiary should be combined with the evaluation of its manager.