Question 1

What U.S.term was equivalent to "inventories" as it was used in financial statements of companies located in the United Kingdom, prior to adoption of IFRS in 2005?
A)Operating assets
B)Consumables
C)Stocks
D)Merchandise

Accepted Answer

"Stocks" is the term used in the U.S. financial statements to refer to inventories, prior to adoption of IFRS in 2005.

Question 2

What language will be used for the quarterly reports submitted by foreign companies to the U.S.Securities and Exchange Commission?
A)The quarterly reports may be in the company's local language
B)English or German
C)English or one of the languages of the European Union
D)English only

Accepted Answer

A

Question 3

During the 1990's, a major problem in evaluating the financial statements of Eastern European companies that had been under the control of the Soviet Union was:
A)that the statements had been used for government planning rather than for private investors.
B)that few people spoke the languages in which the financial statements were written.
C)that East European currencies had been greatly devalued relative to the U.S.dollar.
D)that financial reporting had not been done since the Bolshevik Revolution.

Accepted Answer

The financial statements of Eastern European companies had been used primarily for government planning rather than for private investors, making it difficult to use them for evaluation purposes. This was due to the Soviet Union's centralized economic system, which focused on meeting state targets rather than fulfilling market requirements. As a result, financial statements were not prepared with transparency and completeness that would be necessary for investors.

Question 4

Which of the following is most likely to affect an analyst's ability to make meaningful comparisons of financial statement ratios for companies in different countries?
A)Differences in currency
B)Language differences
C)Diversity of accounting principles and practices
D)Mathematical degrees of magnitude

Accepted Answer

The diversity of accounting principles and practices (such as GAAP vs IFRS) can vary between countries, which can affect the way financial statements are prepared and presented. This makes it difficult for analysts to make meaningful comparisons of financial ratios between companies in different countries.

Question 5

Which is NOT one of the basic steps in financial statement analysis?
A)Prospective analysis
B)Accounting analysis
C)Translation analysis
D)Financial analysis

Accepted Answer

The three basic steps in financial statement analysis are accounting analysis, financial analysis, and prospective analysis. Translation analysis is not typically considered a basic step in financial statement analysis.

Question 6

Evaluating liquidity and solvency to assess a company's ability to meet its obligations is an example of:
A)cash flow analysis.
B)risk analysis.
C)ROI analysis.
D)accounting analysis.

Accepted Answer

Risk analysis involves evaluating a company's liquidity and solvency to determine its ability to meet short-term and long-term obligations, respectively.

Question 7

Some European companies do not report cost of goods sold as a separate expense item.What affect does this have on financial statement analysis?
A)It would not be possible to determine the company's total expenses.
B)Any measure that relies on knowing gross profit cannot be calculated.
C)Net income cannot be accurately calculated.
D)There is inadequate aggregation of financial information.

Accepted Answer

Cost of goods sold is necessary to calculate gross profit, and without knowing gross profit, any measure that relies on it (such as gross profit margin) cannot be accurately calculated. Other parts of the financial statements, such as total expenses and net income, may still be calculated even if cost of goods sold is not reported separately.

Question 8

Investing in several corporate stocks that have different characteristics is referred to as:
A)diversification.
B)portfolio consolidation.
C)asset translation.
D)income determination.

Accepted Answer

Diversification involves investing in a variety of different stocks that have different characteristics such as industry, size, growth potential, etc. This helps to spread the risk and reduces the potential impact of any one stock's performance on the overall portfolio. Portfolio consolidation, asset translation, and income determination are not related to diversification.

Question 9

Which of the following is a potential problem in analyzing foreign financial statements?
A)Language
B)Data accessibility
C)Terminology
D)All of the above pose potential problems.

Accepted Answer

All of the options (A, B and C) pose potential problems in analyzing foreign financial statements. Language can be a barrier in understanding the financial statements, while data accessibility may be limited due to differences in reporting requirements and regulations in different countries. Terminology used in financial statements can also differ across countries, making it difficult to compare and analyze financial data. Therefore, analysts must be aware of these potential challenges and take them into account when analyzing foreign financial statements.

Question 10

Lack of information about accounting methods used, operating segments, and interim financial results is a problem of:
A)disclosure.
B)relevance.
C)comparability.
D)format.

Accepted Answer

The lack of information about accounting methods, operating segments, and interim financial results is a problem of disclosure. Disclosure refers to the process of providing reliable and relevant financial information about a company's operations and financial position to users of financial statements. Without adequate disclosure, users may have difficulty understanding the company's financial performance and making informed decisions about investing in the company.

Question 11

If an analyst saw a "Monetary position loss" in a company's annual report, where would that company be located?
A)The Netherlands
B)Mexico
C)China
D)Sweden

Accepted Answer

"Monetary position loss" is a term that might be used in the context of countries experiencing significant currency devaluation or inflation issues. Mexico has had historical instances of currency devaluation, making it a plausible location for a company to report a "monetary position loss" due to the impact of currency fluctuations on its financial position.

Question 12

Which is NOT one of the common sources of distortions in financial statements?
A)Accounting standards that are inconsistent with economic reality
B)Estimation errors made by managers in applying accounting standards
C)Miscalculation of foreign currency translation
D)Management of earnings

Accepted Answer

Miscalculation of foreign currency translation is not one of the common sources of distortions in financial statements. The other options listed, namely inconsistent accounting standards, estimation errors by managers, and management of earnings, are all recognized sources of distortions in financial statements.

Question 13

Which of the following statements is true relative to accounting for leases internationally?
A)Operating lease disclosure for IFRS and U.S.GAAP is identical.
B)Some analysts believe that all leases must be restated as if they were operating leases.
C)Current rules under IFRS, U.S.GAAP, and other national accounting standards require leases to be capitalized under certain circumstances.
D)U.S.GAAP requires that future minimum lease payment disclosures be made for each of the next ten years and for all years thereafter.

Accepted Answer

Currently, under IFRS, U.S.GAAP, and other national accounting standards, leases are required to be capitalized under certain circumstances. The specific criteria for lease capitalization may vary slightly between these accounting standards, but capitalization is generally required for finance leases and leases that meet certain criteria related to transfer of ownership, bargain purchase options, and lease terms. Operating lease disclosure requirements may differ between IFRS and U.S.GAAP, but they are not identical. Option B is not a universally held belief, and option D is only applicable to U.S.GAAP, not internationally.

Question 14

Which of the following is a reason for analyzing the financial statements of foreign corporations?
A)Making credit decisions about foreign customers
B)Evaluating international business combinations
C)Diversifying an investment portfolio
D)All of the above are reasons for analyzing foreign financial statements.

Accepted Answer

Analyzing the financial statements of foreign corporations is important for making credit decisions about foreign customers, evaluating international business combinations, and diversifying an investment portfolio. Therefore, option D is the correct answer.

Question 15

Foreign companies listed on U.S.stock exchanges must reconcile their net income and stockholders' equity to U.S.GAAP.Which ratios can be calculated with the information provided in this reconciliation?
A)Operating profit margin
B)Asset turnover
C)Return on equity
D)Current ratio

Accepted Answer

The reconciliation of net income and stockholders' equity to U.S. GAAP provides the necessary information to calculate the return on equity ratio, which measures the profitability of a company by comparing its net income to its stockholders' equity. The other ratios listed require information on specific assets, liabilities or revenues, which cannot be obtained solely from the reconciliation. Therefore, C is the best choice.

Question 16

Which of the following is likely to affect an analyst's ability to make meaningful comparisons of financial statement ratios for companies in different countries?
A)Accounting diversity
B)Varying business traditions
C)Unique terminology
D)All of the above

Accepted Answer

Accounting diversity, varying business traditions, and unique terminology are all factors that can vary across different countries, making it more difficult to make accurate and meaningful comparisons of financial statement ratios.

Question 17

Which of the following is true about financial statement disclosure?
A)When account balances are aggregated, the analyst has the greatest amount of information.
B)The amount and types of financial statement disclosure vary widely from one country to another.
C)The concept of full disclosure has been universally adopted around the world.
D)An analyst can always disaggregate financial statement disclosures to obtain needed information.

Accepted Answer

The amount and types of financial statement disclosure vary widely from one country to another. Different countries have different regulations regarding financial statement disclosures, and some may require more or less disclosure than others. This can make it challenging for analysts to compare companies across different countries.

Question 18

Timeliness of financial statements varies across nations.Which of the following countries has financial statements issued closest to year-end (on average)?
A)Japan
B)Germany
C)Canada
D)Italy

Accepted Answer

Canada generally has a quicker turnaround for issuing financial statements post year-end compared to Japan, Germany, and Italy. This is due to efficient regulatory frameworks and reporting systems that prioritize timely financial disclosures.

Question 19

Why is investing in foreign companies an effective way to diversify an individual's investment portfolio?
A)Foreign economies are stronger than the U.S.economy.
B)Foreign stocks are less risky than the stocks of U.S.corporations.
C)Stock returns of companies in foreign companies are highly correlated with stock returns of U.S.companies.
D)Returns on foreign company stocks do not always change in the same direction as returns on U.S.stocks.

Accepted Answer

Investing in foreign companies is an effective way to diversify an individual's investment portfolio because the returns on foreign company stocks do not always change in the same direction as returns on U.S. stocks. This means that if the U.S. stock market experiences a downturn, an individual's portfolio may still perform well if they have invested in foreign companies that are not affected by the same factors. This can help to reduce overall risk in the portfolio and potentially increase returns.

Question 20

Which of the following statements is NOT true concerning reasons for analyzing foreign financial statements?
A)It is important to determine the financial stability of foreign suppliers.
B)The stock returns of foreign corporations are nearly perfectly correlated with returns on U.S.stocks.
C)In a global economy, managers may use foreign competitors as benchmarks for evaluating performance.
D)Managers should determine the financial health of foreign customers before extending credit.

Accepted Answer

The statement that stock returns of foreign corporations are nearly perfectly correlated with returns on U.S. stocks is not true. While global markets may influence each other to some extent, there are many factors, such as economic and political conditions and exchange rates that can cause significant differences between stock returns of companies from different countries.

Quiz 10: Analysis of Foreign Financial Statements

What U.S.term was equivalent to "inventories" as it was used in financial statements of companies located in the United Kingdom, prior to adoption of IFRS in 2005?

What language will be used for the quarterly reports submitted by foreign companies to the U.S.Securities and Exchange Commission?

During the 1990's, a major problem in evaluating the financial statements of Eastern European companies that had been under the control of the Soviet Union was:

Which of the following is most likely to affect an analyst's ability to make meaningful comparisons of financial statement ratios for companies in different countries?

Which is NOT one of the basic steps in financial statement analysis?

Evaluating liquidity and solvency to assess a company's ability to meet its obligations is an example of:

Some European companies do not report cost of goods sold as a separate expense item.What affect does this have on financial statement analysis?

Investing in several corporate stocks that have different characteristics is referred to as:

Which of the following is a potential problem in analyzing foreign financial statements?

Lack of information about accounting methods used, operating segments, and interim financial results is a problem of:

If an analyst saw a "Monetary position loss" in a company's annual report, where would that company be located?

Which is NOT one of the common sources of distortions in financial statements?

Which of the following statements is true relative to accounting for leases internationally?

Which of the following is a reason for analyzing the financial statements of foreign corporations?

Foreign companies listed on U.S.stock exchanges must reconcile their net income and stockholders' equity to U.S.GAAP.Which ratios can be calculated with the information provided in this reconciliation?

Which of the following is likely to affect an analyst's ability to make meaningful comparisons of financial statement ratios for companies in different countries?

Which of the following is true about financial statement disclosure?

Timeliness of financial statements varies across nations.Which of the following countries has financial statements issued closest to year-end (on average) ?

Why is investing in foreign companies an effective way to diversify an individual's investment portfolio?

Which of the following statements is NOT true concerning reasons for analyzing foreign financial statements?