Question 1

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 is true. Multinational firms often establish separate legal entities in different countries to take advantage of various benefits and to protect their assets and interests.

Question 2

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 3

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 that is useful in making economic decisions. This information is communicated through financial statements to managers, investors, banks, and the government.

Question 4

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 5

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 and performance, which can help investors and banks make decisions about investing or lending capital.

Question 6

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

Permitting US firms to file only under IFRS would reduce their financial-statement preparation costs and is a possible intermediate step towards adopting IFRS in the US.

Question 7

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

The disadvantage of raising capital in equity markets is that the firm has to give up ownership and control to shareholders and investors, but there is no obligation to repay the money or pay interest.

Question 8

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

Accepted Answer

The answer of Premium pricing, bank fees, and interest payments...

Question 9

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 10

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

Accepted Answer

Financial statements provide information on a company's income, expenses, and taxes paid, which allows governments to verify that a company is following tax regulations and paying the correct amount of taxes.

Question 11

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

Accepted Answer

Consolidated statements are required by most developed nations to prevent companies from hiding losses under unconsolidated subsidiaries. Consolidated statements provide a comprehensive view of a company's financial position, combining the financial information of all its subsidiaries into a single report. This ensures transparency and accuracy in financial reporting.

Question 12

Some large Chinese companies report results in both Chinese accounting standards and the IASB's standards to facilitate the 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 make it easier for investors to evaluate their finances.

Question 13

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 14

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

Accepted Answer

When financial statements of subsidiaries located in different countries are consolidated, the different currencies used in those countries need to be converted to a common currency for the purposes of consolidation. This can pose problems due to exchange rate fluctuations and differences in accounting standards for translation of foreign currency transactions.

Question 15

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 banks are the primary source of funding for companies, accounting rules are designed to protect the bank's investment by valuing assets more conservatively. This ensures that the bank is not at risk of losing its investment if the company experiences financial difficulties.

Question 16

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 17

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

Accepted Answer

This is true. The purpose of a consolidated financial statement is to provide a comprehensive picture of the financial position and performance of an entire group of companies, including the investment and capital accounts, as well as the assets, liabilities, and operating accounts of each company within the group. The consolidated statement should reconcile all of these accounts to ensure accuracy and completeness.

Question 18

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

Accepted Answer

This statement is true. The IFRS is a set of accounting standards that allows for greater flexibility and consistency in financial reporting across international borders, which can result in increased efficiencies and stronger controls for some companies.

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

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

This statement is true. Some governments use these tactics to attract foreign investment and stimulate their economy.

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