Question 1

The rules under IFRS for property, plant, and equipment differ from U.S. GAAP because:

Accepted Answer

The rules under IFRS for property, plant, and equipment differ from U.S. GAAP because IFRS allows for the revaluation of property, plant, and equipment, while U.S. GAAP prohibits it. Additionally, under U.S. GAAP, property, plant, and equipment are recorded at historical cost and are subject to periodic depreciation, while under IFRS, property, plant, and equipment can be revalued to fair value and are subject to either depreciation or impairment testing.

Question 2

The reason some people are concerned about the possibility for earnings management under IFRS is:

Accepted Answer

The principles-based system might lead preparers of financial statements to try and justify specific accounting outcome based on commercial drivers

Question 3

Secret reserves are designed to conceal the true financial position and earnings, which are different than shown on the balance sheet and income statement. The best statement of how secret reserves are related to fraud and ethics is:

Accepted Answer

A

Question 4

A "secret" or "hidden" reserve can occur when a company does one or more of the following

Accepted Answer

A "secret" or "hidden" reserve can occur when a company intentionally overstates or understates the value of their assets and/or liabilities. This can be done by deliberately measuring an asset at an unsubstantiated high or low value, as well as setting up overstated accrual liabilities. Therefore, all of the choices mentioned (A, B, and C) can contribute to creating a secret reserve.

Question 5

The Norwalk agreement refers to:

Accepted Answer

The Norwalk Agreement was a commitment between the FASB and IASB to work towards the convergence of U.S. GAAP and international accounting standards.

Question 6

The SEC is now calling the movement of U.S. GAAP to IFRS:

Accepted Answer

The SEC refers to the movement of U.S. GAAP to IFRS as "Condorsement," which is a blend of convergence and endorsement.

Question 7

The difference between provisions and reserves can best be characterized as:

Accepted Answer

Provisions are recognized as liabilities in the balance sheet and charged against profits in the income statement. Reserves, on the other hand, are created out of profits and are set aside for specific purposes. Therefore, provisions are a liability item and reserves are a shareholders' equity item.

Question 8

Lease standards in the U.S. can be manipulated to achieve the desired goal of:

Accepted Answer

All of the choices are correct because lease standards in the U.S. can be manipulated to achieve the desired goal of determining lease payments at their present values to record an asset instead of an expense, determining lease payments at their present values to record an expense instead of an asset, and emphasizing form over substance.

Question 9

In the U.S., the word "reserve" always means:

Accepted Answer

In the context of finance and accounting, the word "reserve" typically refers to a provision set aside by a company to cover future expenses or losses, such as a reserve for bad debt or a reserve for warranty claims. Therefore, the correct choice is C, provision.

Question 10

Gray uses Hofstede's cultural values to identify four widely recognized accounting values; these values include all of the following except for:

Accepted Answer

The answer of Gray uses Hofstede's cultural values to identify...

Question 11

The SEC study of a principles-based system identifies each of the following characteristics that should guide standards setting except for:

Accepted Answer

The SEC study suggests that a principles-based system should not minimize the detail and structure so that the standard can be operationalized and applied on a consistent basis. In fact, the study suggests that standards should provide sufficient guidance to ensure consistent application while allowing for judgment and flexibility. Therefore, option D is not a characteristic that should guide standards setting in a principles-based system. Choices A, B, and C are consistent with the SEC study's recommendations.

Question 12

Gray's study uses secrecy as the preference for confidentiality and restrictions on disclosures; this is associated with all of the following except:

Accepted Answer

Gray's study found that cultures with higher power distance, lower individualism, and higher uncertainty avoidance tend to prefer secrecy and restrictions on disclosures. However, there was no correlation found between secrecy preference and masculinity.

Question 13

The relatively more principles-based IFRS standards requires each of the following except for:

Accepted Answer

The IFRS standards do require professional judgment in applying the concepts of substance over form, true and fair view override, and present fairly. Therefore, option D is incorrect as it states the opposite.

Question 14

A common set of accounting standards on an international level can help to achieve each of the following except for:

Accepted Answer

A common set of accounting standards helps in understanding, investment, and implementation, but enforcement is typically the responsibility of individual countries' regulatory bodies, not the standards themselves.

Question 15

Given that IFRS is not currently required in the U.S., foreign companies that list their stock on the New York Stock Exchange must:

Accepted Answer

Foreign companies that list their stock on the NYSE have the option to either reconcile their financial statements to U.S. GAAP or use IFRS. They are not required to use U.S. GAAP or IFRS, but they must provide reconciliation to demonstrate consistency with U.S. GAAP for their financial statements.

Question 16

A study by the SEC notes that imperfections exist when standards are established on either a rules-based or a principles-based basis only. The SEC recommends that standards should have all of the following characteristics except:

Accepted Answer

The SEC recommends that standards should not enumerate exceptions from the standard as it can lead to confusion and create loopholes for entities to circumvent the intent of the standard.

Question 17

IFRS tends to be more ____________ than U.S. GAAP.

Accepted Answer

IFRS is generally considered to be more principles-based than U.S. GAAP, which is more rules-based. Principles-based accounting standards provide more flexibility and room for judgment and interpretation than rules-based standards.

Question 18

The IFAC, IAESB and IESBA ethical principles are similar to those in the AICPA Code except for:

Accepted Answer

The AICPA Code includes the principle of presenting information in a "true and fair view," which is not explicitly stated in the IFAC, IAESB and IESBA ethical principles. However, they do have a similar principle of professional behavior requiring the communication of information in a "clear and understandable manner." The principles of integrity, objectivity, and professional competence are consistent across all codes.

Question 19

The U.K. Bribery Act is enforced by the Serious Fraud Office (SFO); the agency has provided a list of corruption indicators. These include all of the following except for:

Accepted Answer

Agreeing to contracts favorable to the organization is not listed as a corruption indicator by the SFO. The other three choices (abnormal cash payments and lavish gifts, private meetings with contractors, and unexplained preference for certain contractors) are all listed as indicators that could suggest bribery or corrupt behavior.

Question 20

One problem of a more principles-based system that was pointed out in an SEC study is that they:

Accepted Answer

The SEC study points out that one problem of a more principles-based system is that it may present enforcement problems. This is because principles-based systems provide more flexibility and discretion to individuals or firms to interpret and apply the principles, which can make it difficult for regulators to enforce compliance consistently. While principles-based systems are generally objectives-oriented, they are not always rules-based and may use more flexible and subjective approaches such as professional judgment or expert opinion. Bright-line tests, on the other hand, are more specific and objective rules-based tests, which are not typically associated with principles-based systems.

Quiz 8: International Financial Reporting: Ethics and Corporate Governance Considerations