Question 1

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

Accepted Answer

Financial statements provide information about a company's revenue, expenses, and profits, which inform taxation decisions by governments. By examining a company's financial statements, the government can ensure that they are paying their fair share of taxes.

Question 2

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

Accepted Answer

When consolidating financial statements of subsidiaries located in different countries, the different currencies used in different countries pose problems. Currency conversion and the use of appropriate exchange rates are important to ensure accurate financial reporting.

Question 3

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 to file only under IFRS would indeed reduce their financial-statement preparation costs, making it an interim step toward the adoption of IFRS by the US.

Question 4

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

Accepted Answer

Most developed nations have regulatory requirements for companies to provide consolidated financial statements. Consolidated statements combine the financial information of a parent company and its subsidiaries, allowing for a more accurate representation of a company's financial performance and preventing losses from being hidden under an unconsolidated subsidiary.

Question 5

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

Accepted Answer

The purpose of accounting is to provide financial information to various parties including company managers, investors, banks, and the government in order to facilitate decision-making and communicate the organization's financial position.

Question 6

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 7

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

Some governments do use these strategies to attract foreign investment.

Question 8

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 where companies rely more on banks for funding, accounting rules are often framed in a way that assets are valued conservatively to protect the bank's investment. This is because banks are more concerned with the ability of a company to repay a loan, rather than the company's potential for growth or profitability. Therefore, conservative asset valuation gives banks a more accurate picture of a company's financial position and reduces their risk of lending.

Question 9

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

Some large Chinese companies do indeed report results in both Chinese accounting standards and the IASB's standards to provide investors with a clear understanding of their financial position. This helps ensure transparency and comparability of financial information for investors.

Question 10

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 11

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 12

Premium pricing,bank fees,and interest payments are costs associated with the current-rate method of foreign-currency translation.

Accepted Answer

Premium pricing, bank fees, and interest payments are not directly related to the current-rate method of foreign-currency translation, which involves converting financial statements of a foreign subsidiary into the parent company's currency using the current exchange rate.

Question 13

Adhering to GAAP as well as IFRS helps companies in creating globally shared service center for accounting,rather than having accounting departments in different regions.

Accepted Answer

The answer of Adhering to GAAP as well as IFRS...

Question 14

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

Accepted Answer

While not all companies may benefit from making the switch from GAAP to IFRS, some may see advantages in terms of streamlined processes and better alignment with global accounting standards. However, each company's individual circumstances must be evaluated to determine if the move would be beneficial.

Question 15

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

Accepted Answer

Financial statements provide important information about a firm's financial health, including its profitability, liquidity, and solvency. Investors and banks use this information to evaluate the potential risks and rewards of investing in or lending capital to the firm.

Question 16

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 17

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

This statement is true. Multinational firms often establish legal entities in different countries to take advantage of various benefits and opportunities, such as reducing liability and optimizing tax strategies.

Question 18

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

Accepted Answer

The purpose of the consolidated financial statement is to present the financial position and performance of a group of companies as if they were a single entity. Therefore, it is necessary to reconcile all the investment and capital accounts, as well as the firms' assets, liabilities, and operating accounts in order to prepare an accurate and comprehensive picture of the group's financial situation.

Question 19

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.

Question 20

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

This statement is false. When a company raises capital through equity markets, it is through the sale of stocks, not loans. Unlike debt capital, equity capital does not require repayment at a specific time or interest rate. Instead, investors acquire ownership in the company and share in its profits and losses.

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