Deck 11: International Financial Reporting Standards

Question 1

Which statement below concerning the accountability and funding of the IASC Foundation is correct?

A)The IASC Foundation independence is assured through a system of voluntary contributions from firms in the accounting profession.
B)The IASC Foundation is not controlled by any national securities regulators.
C)The SEC considers the accountability and funding mechanisms for the IASC Foundation to be satisfactory.
D)Appointments of IASC Foundation Trustees must be approved by the SEC.

Answer 1

B

Question 2

The roles of the IASC Foundation include

A)establishing global standards for financial reporting.
B)coordinating the filing requirements of stock exchange regulatory agencies.
C)financing IASB operations.
D)all of the above are roles of the IASC Foundation.

Answer 2

C

Question 3

IFRS and US GAAP differ with regard to financial statement presentation in all of the following except:

A)IFRS generally requires that assets be listed in order of increasing liquidity while US GAAP requires that assets be listed in order of decreasing liquidity.
B)US GAAP requires expenses to be listed by function while IFRS requires expenses to be listed by nature.
C)IFRS prohibits extraordinary items which are allowed by US GAAP.
D)IFRS requires two years of comparative income statements while under US GAAP, three years of income statements are required.

Answer 3

B

Question 4

Property, plant and equipment are valued at

A)historical cost under both IFRS and US GAAP.
B)historical cost or revalued amounts under both IFRS and US GAAP.
C)revalued amounts under IFRS.
D)historical cost under US GAAP while IFRS allows the assets to be valued at either historical cost or revalued amounts.

Question 5

Accounting terminology that differs between IFRS and US GAAP include all of the following except:

A)the use by IFRS of "turnover" for revenue.
B)the use by IFRS of "share premium" for additional paid-in-capital.
C)the use by IFRS of "other capital reserves" for retained earnings.
D)the use by IFRS of "issued capital" for common stock.

Question 6

Use the following information to answer the next three questions.
On January 1, 2013, BelgianAir purchases an airplane for €14,400,000.The components of the airplane and their useful lives are as follows:
$\begin{array}{|c|c|c|}\hline \text { Component } & \text { Cost } & \text { Usefull life } \\\hline \text { Frame } & € 7,200,000 & 24 \text { years } \\\hline \text { Engine } & 4,800,000 & 20 \text { years } \\\hline \text { Other } & 2,400,000 & 10 \text { years } \\\hline\end{array}$ BelgianAir uses the straight-line method of depreciation.The asset is assumed to have no salvage value.

-Under IFRS, the entry to record the acquisition of the airplane would include

A)a debit to Asset/ Airplane of €14,400,000.
B)a debit to Asset/ Airplane frame of €14,400,000.
C)a debit to Asset/ Airplane engine of €4,800,000.
D)cannot be determined from the information given.

Question 7

The major difference between IFRS and US GAAP in accounting for inventories is that

A)US GAAP prohibits the use of specific identification.
B)IFRS requires the use of the LIFO cost flow assumption.
C)US GAAP prohibits the use of the LIFO cost flow assumption
D)US GAAP allows the use of the LIFO cost flow assumption.

Question 8

Which of the following statements is true regarding the IASC?

A)The IASC is a public-sector, not-for-profit organization.
B)The IASC is accountable to an international securities regulator.
C)The IASC is a stand-alone, private-sector organization.
D)The IASC funds the operations of the IASB through filing fees paid to national securities regulators.

Question 9

In accounting for liabilities, IFRS interprets "probable" as

A)likely.
B)more likely than not.
C)somewhat possible.
D)possible and not remote.

Question 10

Use the following information to answer the next three questions.
On January 1, 2013, BelgianAir purchases an airplane for €14,400,000.The components of the airplane and their useful lives are as follows:
$\begin{array}{|c|c|c|}\hline \text { Component } & \text { Cost } & \text { Usefull life } \\\hline \text { Frame } & € 7,200,000 & 24 \text { years } \\\hline \text { Engine } & 4,800,000 & 20 \text { years } \\\hline \text { Other } & 2,400,000 & 10 \text { years } \\\hline\end{array}$ BelgianAir uses the straight-line method of depreciation.The asset is assumed to have no salvage value.

-Under IFRS, the entry to record depreciation expense on the asset at December 31, 2014 will include a credit to accumulated depreciation of

A)€1,440,000.
B)€1,200,000
C)€800,000.
D)€600,000.

Question 11

The goals of the International Accounting Standards Committee include all of the following except:

A)To improve international accounting.
B)To formulate a single set of auditing standards to be applied in all countries.
C)To promote global acceptance of its standards.
D)To harmonize accounting practices between countries.

Question 12

Use the following information to answer the next three questions.
On January 1, 2013, BelgianAir purchases an airplane for €14,400,000.The components of the airplane and their useful lives are as follows:
$\begin{array}{|c|c|c|}\hline \text { Component } & \text { Cost } & \text { Usefull life } \\\hline \text { Frame } & € 7,200,000 & 24 \text { years } \\\hline \text { Engine } & 4,800,000 & 20 \text { years } \\\hline \text { Other } & 2,400,000 & 10 \text { years } \\\hline\end{array}$ BelgianAir uses the straight-line method of depreciation.The asset is assumed to have no salvage value.

-Under US GAAP, the entry to record depreciation expense on the asset at December 31, 2014 will include

A)a credit to accumulated depreciation of €1,200,000.
B)a debit to depreciation expense of €1,440,000
C)a debit to depreciation expense of €800,000.
D)a credit to accumulated depreciation of €600,000.

Question 13

In accounting for research and development costs.

A)the general rule under both US GAAP and IFRS is that research and development costs should be expensed as incurred .
B)IFRS generally expenses all research and development costs while US GAAP expenses research costs as incurred but capitalizes development costs once technological and economic feasibility has been demonstrated.
C)US GAAP generally expenses all research and development costs while IFRS expenses research costs as incurred but capitalizes development costs once technological and economic feasibility has been demonstrated.
D)both US GAAP and IFRS expense research costs as incurred but capitalize development costs once technological and economic feasibility has been demonstrated.

Question 14

Which of the following is true about the FASB after the mandatory adoption of IFRS by US companies?

A)The FASB will serve in an advisory capacity to the IASB.
B)The FASB will remain the designated standard-setter for US companies, but incorporate IFRS into US GAAP.
C)The role of the FASB post-IFRS adoption has not been determined.
D)The FASB will cease to exist.

Question 15

SFAS No.162, the Accounting Standards Codification, is directed to

A)auditors.
B)Boards of Directors.
C)securities regulators.
D)entities.

Question 16

One difference between IFRS and GAAP in valuing inventories is that

A)IFRS, but not GAAP, allows reversals so that inventories written down under lower-of-cost-or-market can be written back up to the original cost .
B)GAAP defines market value as replacement cost where IFRS defines market as the selling price.
C)GAAP strictly adheres to the historical cost concept and does not allow for write-downs of inventory values while IFRS embraces fair value.
D)IFRS, but not GAAP, requires that inventories be valued at the lower of cost or market.

Question 17

Benefits of the FASB Accounting Standards Codification (ASC) include all of the following except:

A)increases the independence of the FASB.
B)aids in the convergence of US GAAP with IFRS.
C)reduces time and effort required to research accounting issues.
D)clearly distinguishes between authoritative and non-authoritative guidance.

Question 18

The amount of a long-lived asset impairment loss is generally determined by comparing

A)the asset's carrying amount and its fair value under US GAAP.
B)the asset's carrying amount and its discounted future cash flows less cost to sell under IFRS.
C)the asset's carrying amount and its undiscounted future cash flows under US GAAP.
D)the asset's carrying amount and its undiscounted future cash flows less disposal cost under IFRS.

Question 19

Accounting under IFRS and US GAAP is similar for all of the following topics except:

A)changes in estimates.
B)related party transactions.
C)research and development costs.
D)changes in methods.

Question 20

Milestones in the transition plan for mandatory adoption of IFRS by US companies include all of the following except:

A)Improvements in accounting standards.
B)Limited early adoption of IFRS in an effort to enhance comparability for US investors
C)Mandatory use of IFRS by US entities.
D)All of the above are milestones in the transition plan for mandatory adoption of IFRS by US companies.

Question 21

Do you think there are companies that develop comprehensive ethics and compliance pro-grams programs for mid- and lower-level employees and ignore upper-level executives and managers?

Question 22

List some of the major differences in accounting between IFRS and U.S.GAAP.
Business Ethics Question from the Textbook
A vice president of marketing for your company has been charged with embezzling nearly $100,000 from the company.The vice president allegedly submitted fraudulent vendor invoices in order to receive payments.As the vice president of marketing for the company, the vice president is authorized to approve the payment of invoices submitted by third-party vendors who did work for the company.After the activities were uncovered, the company responded by stating: "All employees are accountable to our ethics guidelines and procedures.We do not tolerate violations of our ethics policy and will consistently enforce these policies and procedures."

Question 23

As mentioned in Chapter 1, the project on business combinations was the first of several joint projects undertaken by the FASB and the IASB in their move to converge standards globally.Nonetheless, complete convergence has not yet occurred, and there are those who believe it to be a poor idea.Discuss the reasons for and against global convergence.

Question 24

How does the FASB view its role in the development of an international accounting system? Currently, two members of the IASB board were affiliated with the FASB.Comment on what effect this might have on the likelihood that the U.S.standard setters will accept the new IASB statements, if any?

Question 25

Use the following information to answer the next three questions.
Bruges Electronics Inc.offers one model of laptop computer for £1000 and a two-year warranty for £250.The retailer, as part of a Boxing Day promotion, offers a limited-time offer for the laptop, including delivery and the two-year warranty for £1,180.The cost of the computer to Bruges is £700.Any warranty repairs are assumed to be done ratably over time.Bruges accounts for transactions using the customer consideration model.
In the first twelve months following the sale, Bruges incurred £980 of costs servicing the computers under warranty.
In the first twelve months following the sale, Bruges would reduce the Contract liability - warranty account by

A)£784.
B)£980
C)£1,180.
D)£1,380.

Question 26

Use the following information to answer the next three questions.
Bruges Electronics Inc.offers one model of laptop computer for £1000 and a two-year warranty for £250.The retailer, as part of a Boxing Day promotion, offers a limited-time offer for the laptop, including delivery and the two-year warranty for £1,180.The cost of the computer to Bruges is £700.Any warranty repairs are assumed to be done ratably over time.Bruges accounts for transactions using the customer consideration model.
In the first twelve months following the sale, Bruges incurred £980 of costs servicing the computers under warranty.
In the first twelve months, Bruges would record warranty expense of

A)£784.
B)£980
C)£1,180.
D)£1,380.

Question 27

Describe the attitude of the FASB toward the IASB (International Accounting Standards Board).

Question 28

Under IFRS, the criteria to determine whether a lease should be capitalized include

A)the present value of the minimum lease payments is 90% or more of the fair value of the asset at the inception of the lease.
B)the term of the lease is 75% or more of the economic life of the asset.
C)the term of the lease is equal to substantially all of the economic life of the asset.
D)the present value of the minimum lease payments is equal to substantially all of the fair value of the asset at the inception of the lease.

Question 29

Significant differences between IFRS and Chinese GAAP include all of the following except:

A)Chinese GAAP allows the use of LIFO while IFRS prohibits it.
B)Chinese GAAP has different related party disclosure requirements.
C)Chinese GAAP follows the cost principle while IFRS allows for revaluations and recoveries of impairment losses.
D)Chinese GAAP uses the equity method of accounting for jointly controlled entities while IFRS also allows proportionate consolidation.

Question 30

How would you evaluate the internal controls of the company?

Question 31

Why is the SEC, once so reluctant to accept IAS, now very willing to allow firms using IFRS to is-sue issue securities in the U.S.stock market without reconciling to U.S.GAAP?

Question 32

All of the following are options for non-US companies who wish to list securities on a US exchange except:

A)The company can use either IFRS or their local GAAP.
B)If a company uses their local GAAP they must reconcile net income and shareholders' equity or fully disclose all financial information required of US companies.
C)If a company uses their local GAAP they must reconcile net income and shareholders' equity and fully disclose all financial information required of US companies
D)The company must file a form 20-F with the SEC.

Question 33

New terminology introduced under the joint IFRS- US GAAP Customer Consideration (Allocation) Model includes all of the following except:

A)revenue recognition voids.
B)contract rights.
C)net contract asset/ liability.
D)performance obligations.

Question 34

What is the rationale for the harmonization of international accounting standards?

Question 35

Use the following information to answer the next three questions.
Bruges Electronics Inc.offers one model of laptop computer for £1000 and a two-year warranty for £250.The retailer, as part of a Boxing Day promotion, offers a limited-time offer for the laptop, including delivery and the two-year warranty for £1,180.The cost of the computer to Bruges is £700.Any warranty repairs are assumed to be done ratably over time.Bruges accounts for transactions using the customer consideration model.
In the first twelve months following the sale, Bruges incurred £980 of costs servicing the computers under warranty.
Bruges sells ten laptops to Brussels Inc.under the limited-time promotion.Upon delivery of the laptops to Brussels, Bruges will recognize revenue of

A)£9,300.
B)£9,440
C)£10,000.
D)£11,800.

Question 36

In recent months, virtually every topic that has come to the attention of the standard setters has been undertaken as a joint effort of the FASB and the IASB rather than as an individual effort by one of the two boards.List and discuss some of the joint projects that fall into this category.

Question 37

Is it an ethical issue if companies are not forth-coming concerning fraudulent activities of top executives in an effort to minimize negative publicity?

Question 38

Discuss the types of ADRs that non-U.S.companies might use to access the U.S.markets.