Question 1

The current-rate method avoids the paper gains or losses problem of the temporal method.

Accepted Answer

The current-rate method still results in paper gains or losses due to the translation of all balance sheet and income statement items at the current exchange rate, except for equity which is translated at historical rates. These gains or losses are recognized in other comprehensive income, not avoided.

Question 2

Multinational firms often organize as separate legal entities (i.e., companies)in different countries to gain advantages, such as limiting liability or taking advantage of local corporate tax regulations.

Accepted Answer

Multinational firms frequently establish separate legal entities in different countries to limit liability and exploit local corporate tax benefits, among other advantages. This structure allows them to manage risks and optimize their global tax liabilities more effectively.

Question 3

Most of the developed nations require consolidated statements so that losses can't be hidden under an unconsolidated subsidiary.

Accepted Answer

Consolidated financial statements combine the financial statements of a parent company and its subsidiaries, providing a comprehensive overview of the financial status of the entire group. This prevents companies from hiding losses in unconsolidated subsidiaries, ensuring greater transparency and accountability.

Question 4

Some large Chinese companies report results in both Chinese accounting standards and the IASB's standards to facilitate the Easy financial assessment of the companies by the investors.

Accepted Answer

Large Chinese companies often report their financial results using both Chinese accounting standards and the International Accounting Standards Board's (IASB) standards to make it easier for investors to assess and compare their financial health, especially for those investors who are more familiar with international standards.

Question 5

Some companies may gain greater efficiencies and stronger controls by making a move from the GAAP to the IFRS.

Accepted Answer

Moving from GAAP (Generally Accepted Accounting Principles) to IFRS (International Financial Reporting Standards) can offer companies greater efficiencies and stronger controls due to the global standardization of accounting practices, which can simplify reporting processes for multinational corporations and provide a more consistent basis for financial analysis and decision-making.

Question 6

The purpose of accounting is to communicate the organization's financial position to company managers, investors, banks, and the government.

Accepted Answer

Accounting provides detailed financial information that is crucial for decision-making by stakeholders such as company managers, investors, banks, and the government, helping them understand the organization's financial health and performance.

Question 7

The fourteen IASB representatives formulate the international reporting standards.For a standard to be approved, 85 percent of the board members must agree.

Accepted Answer

The International Accounting Standards Board (IASB) requires a simple majority of its members to agree for a standard to be approved, not 85 percent.

Question 8

The consolidated financial statement must reconcile all the investment and capital accounts as well as the firms' assets, liabilities, and operating accounts.

Accepted Answer

Consolidated financial statements combine the financial statements of a parent company with those of its subsidiaries, joint ventures, or associates, to present as if the group of companies is a single entity. This process involves reconciling all investment and capital accounts, as well as the firms' assets, liabilities, and operating accounts, to provide a comprehensive overview of the financial position and performance of the entire group.

Question 9

Governments use financial statements to ensure that the companies are paying their fair share of taxes.

Accepted Answer

Governments require companies to submit financial statements to assess their financial health and ensure they are paying the correct amount of taxes based on their earnings and financial activities.

Question 10

The disadvantage of raising capital in equity markets is that the firm has to repay the money at a specific time and at a specific interest rate.

Accepted Answer

Raising capital through equity markets does not involve repaying the money at a specific time and at a specific interest rate, unlike debt financing. Equity financing involves selling shares of the company, which does not require repayment.

Question 11

In countries where companies tend to rely more on banks for funding, accounting rules are framed such that assets are valued conservatively to protect a bank's investment.

Accepted Answer

In countries with a financial system that is more bank-oriented, accounting rules often emphasize conservative valuation of assets to ensure the protection of banks' investments, as banks are the primary source of funding and have a vested interest in the financial health of borrowing companies.

Question 12

Adherence to the IFRS' standards is mandatory in the United States.

Accepted Answer

In the United States, companies follow the Generally Accepted Accounting Principles (GAAP) set by the Financial Accounting Standards Board (FASB), not the International Financial Reporting Standards (IFRS).

Question 13

Some governments court foreign borrowers by offering low-interest loans or by offering lower corporate income tax to attract investment in their countries.

Accepted Answer

Governments often use incentives such as low-interest loans or reduced corporate income tax rates to attract foreign investment, aiming to stimulate economic growth, create jobs, and enhance technological capabilities within their countries.

Question 14

Investors and banks use financial statements to determine whether to invest in or loan capital to the firm.

Accepted Answer

Financial statements provide a comprehensive overview of a company's financial health, including its revenue, expenses, profitability, and cash flow, which investors and banks analyze to assess the risk and potential return of investing in or lending to the firm.

Question 15

An interim step toward the United States adopting IFRS would be to permit US firms that operate globally to file only under IFRS, rather than under both GAAP and IFRS, thereby reducing their financial-statement preparation costs.

Accepted Answer

Allowing US firms that operate globally to file only under IFRS instead of both GAAP and IFRS would indeed be an interim step toward the United States adopting IFRS, as it would simplify the financial reporting process for these companies and align their reporting more closely with international standards.

Question 16

Consolidating financial statements of subsidiaries located in different countries poses problems because of the different currencies used in different countries.

Accepted Answer

Consolidating financial statements from subsidiaries in different countries involves converting foreign currencies into the reporting currency, which can be complex due to fluctuating exchange rates and different accounting standards.

Question 17

Most IASB statements provide three acceptable alternatives since it is difficult to get an agreement while formulating the international reporting standards.

Accepted Answer

IASB statements typically aim for a single set of high-quality, understandable, enforceable, and globally accepted accounting standards, rather than providing multiple alternatives.

Question 18

Adopting different accounting standards makes it easier for investors or lenders to compare the financial health of two companies.

Accepted Answer

Adopting different accounting standards can make it more difficult to compare the financial health of two companies directly, as differences in standards can lead to variations in how financial elements are recognized, measured, and reported.

Question 19

In the United States and Great Britain, companies tend to rely more on banks for funding than on individual investors.

Accepted Answer

In the United States and Great Britain, companies tend to rely more on capital markets (e.g., issuing stocks and bonds) for funding than on banks, in contrast to some other countries where bank financing is more common.

Question 20

In countries like Switzerland, Germany, and Japan, accounting rules are designed to help individual investors.

Accepted Answer

In countries like Switzerland, Germany, and Japan, accounting rules have traditionally been more oriented towards protecting creditors and ensuring the stability of companies, rather than focusing on the transparency and information needs of individual investors.

Quiz 15: Understanding the Roles of Finance and Accounting in Global Competitive Advantage