Question 1

When preparing a statement of cash flows, IFRS allows companies to report cash outflows from interest payments as either operating or financing cash flows, while U.S. GAAP requires these outflows to be reported as only operating activities.

Accepted Answer

IFRS allows flexibility in reporting interest payments as either operating or financing cash flows, while U.S. GAAP requires these outflows to be reported only as operating activities.

Question 2

The primary objective of the IASB is to develop accounting standards in the U.S.

Accepted Answer

The Financial Accounting Standards Board develops accounting standards in the U.S., while the IASB's primary objective is to develop a single set of high-quality, understandable and enforceable global accounting standards.

Question 3

Under U.S. GAAP, development expenditures are capitalized, while under IFRS, these expenditures must be expensed immediately.

Accepted Answer

U.S. GAAP requires immediate expensing, while IFRS allows capitalization.

Question 4

For countries whose tax standards are closely tied to financial reporting standards (Continental Europe and Japan), accounting earnings tend to be lower so companies can minimize tax payments.

Accepted Answer

In these countries, financial reporting standards and tax standards are closely linked, which means that accounting earnings tend to be lower to reduce tax payments. This is because companies are required to use specific accounting methods that may not fully reflect their actual performance, but are more favorable for tax purposes.

Question 5

In countries where debt financing is more common (Japan) compared to equity financing, there is greater emphasis on reporting the ability of the company to earn profits for its investors rather than the ability to repay debt.

Accepted Answer

In countries where debt financing is more common (Japan) compared to equity financing, there is less emphasis on reporting the ability of the company to earn profits, and greater emphasis on the ability of a company to repay debt.

Question 6

When preparing a statement of cash flows, IFRS allows companies to report cash inflows from interest and dividends as either operating or investing cash flows, while U.S. GAAP requires these inflows to be reported as only operating activities.

Accepted Answer

This statement is true. IFRS allows companies to report cash inflows from interest and dividends as either operating cash flows or investing cash flows, while U.S. GAAP requires these inflows to be reported as only operating activities.

Question 7

Describe at least five reasons why accounting practices differ across countries. Which reason do you think is most important? Explain why.

Accepted Answer

The answer of Describe at least five reasons why accounting...

Question 8

Some countries are more secretive (Brazil and Switzerland), leading to fewer financial disclosures.

Accepted Answer

Countries such as Brazil and Switzerland have been known to have more secretive banking systems, which can lead to fewer financial disclosures.

Question 9

Below are seven reasons for differences in accounting practices among countries. For each reason, at least two options are provided. For each reason, select the option that best describes Germany.

Accepted Answer

The answer of Below are seven reasons for differences in...

Question 10

Suppose a company pays interest of $10,000 for the year on borrowed amounts due in two years. Under IFRS, what is the most the company can report as cash outflows from financing activities?

Accepted Answer

Under IFRS, interest paid can be classified as either operating or financing activities. Therefore, the company can report the full $10,000 as cash outflows from financing activities.

Question 11

By late 2007, over 100 jurisdictions, including China, Australia, and all of the countries in the European Union (EU), either require or permit the use of IFRS.

Accepted Answer

This statement is true. As of late 2007, over 100 jurisdictions, including China, Australia, and all of the countries in the European Union (EU), either require or permit the use of IFRS.

Question 12

The Norwalk Agreement formalizes the commitment between the FASB and IASB to the convergence of U.S. GAAP and IFRS.

Accepted Answer

The Norwalk Agreement is a formal agreement between the FASB and IASB to work together to improve and converge U.S. GAAP and IFRS.

Question 13

Below are seven reasons for differences in accounting practices among countries. For each reason, at least two options are provided. For each reason, select the option that best describes the United States.

Accepted Answer

The answer of Below are seven reasons for differences in...

Question 14

Under IFRS, inventory write-downs due to using the lower-of-cost-or-market rule are allowed to be reversed in a future year if the market value subsequently increases.

Accepted Answer

Inventory write-downs can be reversed under IFRS if the market value subsequently increases. This is allowed as long as the reversal does not exceed the original write-down amount.

Question 15

In common law countries (such as the U.S., the U.K., and Canada), greater emphasis is placed on public information than in code law countries (such as France and Germany).

Accepted Answer

In common law countries, precedents and case law are important sources of law, which require public information to be readily available for reference and analysis. In contrast, code law countries rely on comprehensive legal codes, making public information comparatively less significant.

Question 16

Convergence of accounting practices is expected to increase the flow of investment across borders.

Accepted Answer

Convergence of accounting practices would lead to greater harmonization and consistency in financial reporting, making it easier for investors to compare and evaluate companies across borders. This, in turn, could increase the flow of investment across borders.

Question 17

More economically developed economies (the U.S. and the U.K.) have a need for more complex accounting standards.

Accepted Answer

More complex accounting standards are required for countries with more complex and diverse transactions and financial instruments. Therefore, economically developed economies like the U.S. and U.K. require more complex accounting standards to deal with the complexities and diversity of their financial transactions.

Question 18

The FIFO inventory method is not allowed under IFRS.

Accepted Answer

The LIFO method is not allowed under IFRS.

Question 19

How is the organization responsible for standard setting in the U.K. different from that in France? Which of these organizations is closer to the FASB in the U.S.?

Accepted Answer

The answer of How is the organization responsible for standard...

Question 20

IFRS allows, but does not require, revaluation of property, plant and equipment to fair value.

Accepted Answer

IFRS allows entities to revalue their property, plant and equipment to fair value, but it is not a requirement. Revaluations must be made with sufficient regularity to ensure that the carrying amount does not differ materially from fair value.

Quiz 15: International Financial Reporting Standards