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INT ACCT Midterm
| Question | Answer |
|---|---|
| What financial reporting issues arise for a company as a result of making a foreign direct investment? | Both conversion of foreign GAAP to parent company GAAP and translation of foreign currency to parent company reporting currency |
| What taxation issues arise for a company as a result of making a foreign direct investment? | Both taxation of the investee's income by the host country and taxation of the investee's income by the investor's home country |
| What are some of the issues that arise in evaluating and maintaining control over foreign operations? | Deciding whether to evaluate performance on the basis of foreign currency or parent company reporting currency and whether to factor out of the performance measure items over which the foreign operation's manager has no control |
| Why might a company want its stock listed on a stock exchange outside of its home country? | To both obtain capital in that country and to have "acquisition currency" in that country |
| Which of the following were used by the United Nations in 2023 to measure the multinationality of companies? | Ratio of foreign sales to total sales Ratio of foreign assets to total assets Ratio of foreign employees to total employees |
| What would be the advantages of having a single set of financial reporting standards used worldwide? | Reducing the cost of preparing consolidated financial statements Reducing the cost of gaining access to capital in foreign countries Facilitating the analysis and comparison of financial statements of competitors and ptential acquisitions |
| Is it valid to compare the profit margins calculated for Apple incorporated and Tesco PLC across these companies in assessing relative probability? | No |
| What are the two common methods used internationally for the order in which assets are listed on the balance sheet? | Assets in order of liquidity, beginning with cash, and assets in reverse order of liquidity, beginning with intangible assets |
| Who are the major providers of capital financing for business enterprises? | Equity investors, banks, family members, and government |
| What are the problems of accounting diversity? | Preparation of consolidated financial statements Access to foreign capital markets Comparability of financial statements |
| Differences in legal systems used in various countries have been cited as one reason for diversity in accounting practices. What are the major types of legal systems? | Common law and code law |
| What is likely to be the source of accounting standards in common law countries? | Non-government entities such as the FASB |
| In countries such as the US, there is great demand for public disclosure of accounting information. What is the reason for this? | Businesses rely heavily on financing through issuance of stock to the public |
| What is the EU's objective in requiring the use of IFRS? | Financial statements prepared by firms in different countries are comparable. |
| Today, several countries still do not permit domestic-listed companies to use IFRS. One of them is: | The US |
| What is IASB's main objective? | To develop a set of high-quality standards for financial reporting by companies at the international level. |
| When did the SEC lift its requirement of foreign companies to reconcile their IFRS financial statements using US GAAP in order to list their share son the US stock exchange? | November 2007 |
| From a practical standpoint, what is the goal of accounting standards harmonization? | Reducing the conflict among national accounting standards |
| What is accounting convergence? | Convergence means developing high-quality standards in partnership with national standard-setters |
| Harmonization of accounting standards? | The reduction of alternative while retaining a high degree of flexibility in accounting practices |
| What is believed to by true about accounting convergence by proponents of convergence? | Convergence would help to raise the quality of accounting practices internationally |
| In addition to the IASC, which organization was considered to be one of the two most important forces in efforts to harmonize accounting standards? | The EU |
| To create an appropriate mix of members of the IASB, since 2018 the board includes | a diverse geographical balance of members |
| What types of differences can cause issues between IFRS and US GAAP? | Measurement, alternatives available, and disclosure |
| In what way does IAS 16 (PP&E) differ from US GAAP concerning fixed asset measurement subsequent to initial recognition? | IAS 16 allows for upward revaluation of the asset based on fair value |
| How does IAS 38 (intangible assets) differ from US GAAP with respect to development costs? | US GAAP does not allow capitalization of development costs, whereas IAS 38 allows capitalization of these costs |
| When an entity chooses the revaluation model as its accounting policy for measuring PP&E, which statement is correct? | When an asset is revalued, the entire class of PP&E to which that asset belongs must be revalued |
| Under IFRS, an asset is considered to be impaired when its carrying amount is greater than its: | recoverable amount |
| The term provision as it is used in IAS 37, is most closely related to what term in US GAAP? | Contingent liability, where the outflow of resources is probable |
| Under IAS 37, how are contingent liabilities treated in the financial statements? | They are disclosed in the notes of the financial statements when there is more than a remote possibility of an outflow of resources |
| What is a contingent asset? | It is a probable asset, arising from past events, whose existence is yet to be confirmed definitively by a future event |
| According to IAS 37, how should contingent assets be recognized? | They should be disclosed in the notes to the financial statements if the inflow of resources is probable |
| IFRS 15, Revenue from Contracts with Customers, covers which types of revenues? | Sale of goods, rendering of services, and royalties |
| Under IFRS 15, Revenue from Contracts with Customers, what are the steps to be applied in the recognition of revenue across a wide range of transactions and industries? | Identify the contract with a customer, identify the separate performance obligations in the contract, and determine the transaction price |
| IAS 32 defines a financial instrument as: | Any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity |
| What are the three levels of International Accounting? | General level, Supranational accounting, and Company Level |
| What are the two ways of foreign direct investment? | Acquisition and greenfield investments |
| What are the steps for financial reporting for a foreign operation? | Conversion from local standards to US GAAP, and translate from local currency to US dollars |
| What is cross listing? | stocks listed and traded on several foreign stock exchanges |
| What are the main reasons for accounting diversity? | Legal systems, basis for taxation, providers of financing, national culture, accounting values, inflation, and political and economic ties |
| IASB follows what kind of approach? | Principles-based approach |
| What is goodwill? | An intangible asset that is associated with the purchase of one company by another |
| IAS 16 vs ASC 360: Relevance-Reliability Trade Off | IASB uses fair value, relevance over reliability. FASB uses cost method, reliability over relevance |
| IAS 38 vs ASC 350: Intangible Assets | Both IAS 38 and ASC 350 recognize intangible assets initially at cost |
| IAS 38 vs ASC 350: R&Ds | IAS 38: internal research expenditure is expensed as it is incurred. ASC 350: internal R&D expenditure is expensed as it is incurred |
| IAS 41 vs ASC 905: Biological Assets | IAS 41: Biological assets are living animals or plants that are capable of biological transformation or harvest into either agricultural produce. ASC 905: applicable only to agricultural producers and cooperatives, and does not us the term biological ass |
| What is impairment? | Impairment occurs when the book value of asset is not recoverable |
| IAS 36 vs ASC 350: Impairment of Assets | Under both standards, companies must test annually for impairment |
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