Deck 14: International Accounting

Question 1

Multinationals have to convert the financial statements from one currency to another and reconcile the different accounting standards and formats between countries.

Answer 1

True

Question 2

Geographic proximity, rather than culture, seems to play an important role in the development of accounting standards.

Answer 2

False

Question 3

The field of international accounting has grown steadily more complex over the years partly due to increases in trade and foreign investments.

Answer 3

True

Question 4

By U.S. generally accepted accounting principles (GAAP), an order received today from overseas will be recorded in foreign currency on the date of the order.

Question 5

Most countries use December 31 as the year-end closing of their books.

Question 6

In the United States, the Securities and Exchange Commission (SEC) has usually accepted the guidelines established by the FASB for recording international transactions.

Question 7

In the United Kingdom, the Accounting Standards Board (ASB) of the Financial Reporting Council (FRC) set the standards for UK companies for recording international transactions.

Question 8

FASB #52 allows companies to record changes in the balance sheet of their subsidiaries as unrealized losses or gains.

Question 9

The new global accounting standards, termed the International Financial Reporting Standards (IFRS) does not consider gains and losses related to exchange rate changes as unrealized till the company is sold, similar U.S. GAAP accounting standards.

Question 10

Under the temporal method, monetary accounts such as cash, accounts receivables, and debt are translated at the current exchange rate when accounts of overseas subsidiaries are consolidated.

Question 11

IFRS and U.S. GAAP standards can result in the reporting of different profits and losses for companies.

Question 12

U.S. GAAP accounting standards is more principles-based while the new international financial reporting standards (IFRS) is more rules-based.

Question 13

Withholding taxes are additional taxes imposed by countries when subsidiaries repatriate money to their parent companies.

Question 14

Most countries double tax the profits of companies that conduct business overseas.

Question 15

The approach known as "playing-field taxes" adopts the stance that all businesses in a country, whether they operate domestically or overseas, should face the same level of minimum taxation.

Question 16

Whenever a company repatriates income to its home country, the foreign country usually imposes an additional tax, termed the "withholding tax."

Question 17

Another tax that most companies face overseas is the value-added tax (VAT) or the sales tax, both of which are considered direct taxes.

Question 18

A sales tax is collected at the end of the product cycle or at the final stage of delivery of the goods or services.

Question 19

In the case of value-added tax (VAT), taxes are collected at the last stage of the production process as well as from the final customer.

Question 20

The total proceeds received by the taxing authority for either sales tax or value-added tax is the same if the tax rate is the same.

Question 21

When a company goes global, the preparation of financial statements must address the following:

A) translate the financial statements from one currency to another
B) reconcile the different accounting standards and formats between the two countries
C) provide explanations for the difference in reported figures
D) A and B
E) A and B and C

Question 22

The accounting standards of the United States is more in common with

A) Japan
B) France
C) Canada
D) Germany
E) United Kingdom

Question 23

Assume a U.S. company purchases €200,000 worth of goods on January 1, 2009 when the exchange rate was $1.50/€. When the payment is made three months later, the exchange rate is $1.75/€.

A) The company will record a loss of $50,000 on payment date.
B) The company will record a gain of $50,000 on payment date
C) The company will record a loss of $25,000 on payment date.
D) The company will record a loss of $25,000 on payment date
E) The company will record a gain of $50,000 on purchase date.

Question 24

A U.S. company has purchased a plant in the United Kingdom in the beginning of the year for £10 million when the pound was $1.50/£. At the end of the year the pound depreciated to $1.25/£.

A) the U.S. company will have to report a realized loss of $2.5 million.
B) the U.S. company will have to report a realized gain of $2.5 million.
C) the U.S. company will have to report a unrealized loss of $2.5 million.
D) the U.S. company will have to report a unrealized gain of $2.5 million.
E) the U.S. company will report neither a gain or a loss.

Question 25

In the United States, the standards for financial accounting and reporting are determined by

A) International Accounting Standards Board
B) Securities and Exchange Commission
C) Accounting Standards Committee
D) Financial Accounting Standards Board
E) Financial Reporting Council

Question 26

Under the current method

A) monetary assets only are translated at market rates
B) all assets and liabilities are translated at the exchange rates on the date of translation
C) monetary liabilities only are translated at market rates
D) all assets and liabilities are translated at historical exchange rates
E) monetary assets and liabilities are translated at historical rates

Question 27

In the Citigroup study, the main differences between IFRS and U.S. GAAP occurred because of the differences in treatment of the following, except

A) taxes
B) pensions
C) inventories
D) goodwill and tangibles
E) financial instruments

Question 28

The Organization for Economic Cooperation and Development (OECD) listed the following benefits to companies if IFRS is implemented, except

A) Enhanced competitiveness
B) higher costs of capital
C) Better access to capital, including from foreign sources
D) Improved management information for decision making
E) Ease of using one consistent reporting standard in subsidiaries from different countries

Question 29

The United States taxes the dividends of U.S. companies that are located abroad

A) based on the principle of quid pro quo, i.e., to have same taxes as the country in which the company is located
B) based n the principle that capital should flow to regions where owners can maximize their returns
C) based on the principle that lower taxes encourage foreign direct investment
D) based on the principle that different tax rates in another country should not be a factor in taxing a company's profits
E) based on the principle of leveling the playing field between domestic and foreign companies.

Question 30

The European Union

A) taxes the dividends of its companies located abroad based on the tax equalization principle
B) taxes the dividends of its companies located abroad resulting in double taxation
C) taxes the dividends of its companies located abroad based on the principle of level playing field
D) does not tax the dividends of its companies located abroad
E) taxes the dividends of its companies located abroad at preferential rates

Question 31

Withholding taxes are usually applied to the following except:

A) dividends repatriated to the parent company
B) interest income paid to parent company
C) loan principal sent back to parent company
D) royalties paid to parent company
E) none of the above

Question 32

Value-added tax

A) is another form of a direct tax
B) is collected at the final stage of the product cycle i.e., when it is sold to final consumer
C) is collected at each stage of the production process and the final customer
D) will not be the same final amount as a sales tax even if the tax rate is the same
E) is the same as withholding tax

Question 33

Sales tax

A) is taxed on the profits of overseas subsidiaries of U.S. companies
B) is the same as withholding tax
C) is the same at value added tax (VAT)
D) is a form of direct tax
E) is a form of indirect tax

Question 34

Taxes throughout the globe has been reducing gradually partly because

A) of a recent United Nations agreement
B) of a desire to lure foreign direct investment by many countries
C) of a desire to equalize corporate and withholding taxes
D) it is required by the new international financial reporting standards (IFRS)
E) of a desire to equalize direct and indirect taxes

Question 35

The following is true for the International Financial Reporting Standards (IFRS) except

A) The first push for the IFRS began in 1973
B) European Union mandated in 2002 to implement IFRS as of January 1, 2005
C) The parent organization of IFRS is the International Accounting Standards Committee
D) FASB of the United States and the IASB pledged their best efforts to reconcile and reach common platforms of the different accounting standards in 2002 under the Norwalk agreement
E) Less than 20 countries have adopted the IFRS as of 2008

Question 36

What are two major differences between domestic and international accounting?

Question 37

Why can accounting for international executives be complicated? Describe an example?

Question 38

Assume a U.S. company purchases equipment from Germany for €500,000 today payable in three months. The exchange rate today is $1.50/£ and in three months it will be $2.00/£. How will the company record the transactions on order date and payment date?

Question 39

How are exchange rate treated under the current and temporal methods of exchange rate translation in international accounting? Which method is favored by the new International Financial Reporting Standards (IFRS)?

Question 40

What is the International Financial Reporting Standards and how successful has been its implementation?

Question 41

What do the accounting scandals of Enron, Parmalat, and WorldCom have in common? What is the likelihood of preventing such scandals in the future?

Question 42

How does Europe and the United States differ in the tax treatment of dividends received by parent companies from their overseas subsidiaries?