Chapter 11 – Worldwide Accounting Diversity and International Accounting Standards
1. In the United States, foreign companies filing annual reports with the SEC that are not prepared in
accordance with U.S. GAAP must:
A) Present financial statements that comply with international GAAP.
B) Conform with U.S. GAAP or present a reconciliation to U.S. GAAP.
C) Have a demonstrated need for capital to be used for operations in the U.S.
D) Use the U.S. dollar as their reporting currency.
E) Either use IFRS, or otherwise use foreign GAAP with a reconciliation to U.S. GAAP.
2. Which of the following is not a likely step to furthering convergence of FASB and IFRS?
A) FASB adopting an existing IASB Standard.
B) IASB adopting an existing FASB standard.
C) FASB and IASB issuing an identical standard.
D) FASB working with IASB to develop a new standard.
E) Realizing that identical standards, rather than similar standards, is not realistic.
3. All of the following are influences on the development of a country’s financial reporting practices
except:
A) The country’s legal system.
B) The country’s political system.
C) The taxation system.
D) The country’s cultural system.
E) The country’s level of inflation.
4. Which of the following is a pronouncement originally issued by the IASC and is not a pronouncement
originally issued by the IASB?
A) Business Combinations.
B) First-Time Adoption of IFRS.
C) Financial Instruments: Disclosures.
D) Interim Financial Reporting.
E) Operating Segments.
5. In countries of Latin America:
A) Accounting practice currently emphasizes political colonialism.
B) Accounting standards previously emphasized accounting highly inflationary economies.
C) Banks are the primary source of financing for companies.
D) Accounting standards focus are based on recent market economy reforms.
E) Accounting information is prepared to meet the needs of governmental planners.
6. Which of the following is not a way for a country to use IFRS?
A) Require foreign companies listed on that country’s stock exchange to use IFRS for consolidated
financial statements.
B) Allow foreign companies listed on that country’s stock exchange to use IFRS.
C) Permit its domestic companies listed on that country’s stock exchange to use IFRS.
D) Adopt IFRS as that country’s national GAAP.
E) All of these answer choices are correct.
7. Convergence of accounting standards would not occur by:
A) FASB adopting an existing IASB standard.
B) IASB adopting an existing FASB standard.
C) IASB issuing a new standard.
D) IASB and FASB jointly developing a new standard.
E) IASB and FASB each issuing a similar but not identical standard.
8. The types of differences that exist between IFRS and U.S. GAAP would not generally include:
A) Presentation differences.
B) Measurement differences.
C) Disclosure differences.
D) Comparability differences.
E) Classification differences.
9. Which of the following is not true about IFRS?
A) The IASB does not have the ability to enforce proper usage of IFRS.
B) IFRS is available to any organization or nation that wishes to use those standards.
C) IFRS is a comprehensive set of financial reporting standards.
D) IFRS includes only pronouncements issued by the IASB.
E) IFRS are considered as generally accepted accounting principles.
10. Which one of the following is not a background or qualification requirement for full-time IASB
members?
A) Professional competence.
B) Attain 10 years of auditing experience.
C) Practical experience.
D) Cease holding positions which might call into question their independence.
E) Sever relationship with former employers.
11. Which of the following is not an authoritative pronouncement of International Financial Reporting
Standards (IFRSs)?
A) International Financial Reporting Standards issued by the IASB
B) International Accounting Standards issued by the IASC and adopted by the IASB
C) Interpretations issued by the International Financial Reporting Interpretations Committee (IFRICs)
D) International Accounting Principles
E) Interpretations issued by the Standing Interpretations Committee (SICs) and adopted by the IASB
12. Which of the following is not a factor influencing a country’s financial reporting practices?
A) Providers of financing.
B) Inflation.
C) Legal system.
D) Gross National Product.
E) Political and economic ties.
13. Which of the following statements is false regarding a country’s legal system?
A) The two major types of legal systems are common law and codified Roman law.
B) Common law originated in the Roman jus civile.
C) Code law countries tend to have more statutes governing a wider range of human activity.
D) Accounting law is rather general in code law countries.
E) A nongovernmental organization is more likely to develop in a common law country than in a code
law country.
14. The most relevant factor in determining the purpose of financial reporting is:
A) The nature of the country’s financing system
B) The country’s current economic conditions
C) The ability to control inflation
D) A strong equity financing system which is more conservative, minimal disclosures, and tight tax laws.
E) A weak equity financing system which is less conservative, extensive disclosures and loose tax laws.
15. Which of the following is not a problem caused by diverse accounting practices across countries?
A) Preparation of consolidated financial statements.
B) Gaining access to foreign capital markets.
C) Lack of comparability of financial statements between companies in the same country.
D) Cost and expertise required of accounting staff who prepare consolidated financial statements.
E) Need for a company to maintain multiple sets of accounting records.
16. A U.S. company has many foreign subsidiaries and wants to convert its consolidated financial
statements from U.S. GAAP to IFRS. Which of the following items is not one of the likely accounting
issues to resolve for the opening IFRS balance sheet?
A) Inventory valuation.
B) Capitalizing development costs.
C) Bank overdrafts that are integral to cash management.
D) Goodwill calculation from acquisition of a subsidiary.
E) Liability for restructuring charges.
17. A U.S. company has many foreign subsidiaries and is converting its consolidated financial statements
from U.S. GAAP to IFRS. Which of the following items is not one of the likely accounting issues to
resolve for the conversion?
A) Measuring impairment.
B) Classifying preferred shares of stock.
C) Sale and leaseback gain recognition.
D) Measuring salaries expense.
E) Prior service cost recognition for defined benefit plans.
18. Foreign companies whose stock is listed on a U.S. stock exchange and using foreign GAAP other
than IFRS must file their annual report with the SEC on:
A) Form 8-A.
B) Form 10-A.
C) Form 16-K.
D) Form 20-F.
E) Form 20-K.
19. What international organization currently issues IFRS?
A) IASB.
B) IASC.
C) IOSCO.
D) FASB.
E) EU.
20. All of the following are ways a country may use IFRS except:
A) A country may require foreign companies listed on its domestic stock exchange to use IFRS.
B) A country may permit companies listed on its domestic stock exchange to use IFRS.
C) A country may permit foreign companies listed on a foreign stock exchange to use foreign GAAP.
D) A country may require companies listed on its domestic stock exchange to use IFRS in preparing
consolidated financial statements.
E) A country may adopt IFRS as its national GAAP.
21. All of the following are true regarding IASB members except:
A) IASB shall comprise 16 members, and up to 3 of those members may be part-time.
B) Full-time members must sever employment relationships with former employers.
C) Full-time members are not allowed to hold any position giving rise to perceived economic incentives
that might call their independence into question.
D) Part-time members must sever employment relationships with former employers.
E) Primary qualifications for IASB membership are professional competence and practical experience.
22. IFRS for SMEs differ from full IFRS in all of the following ways except:
A) IFRS for SMEs require significantly fewer disclosures.
B) Interim period reports need not be prepared when following IFRS for SMEs.
C) Recognizing and measuring assets are simplified when following IFRS for SMEs.
D) Segment reporting must be provided when following IFRS for SMEs.
E) IFRS for SMEs do not require earnings per share to be reported.
23. Which of the following is not an example of IFRS simplified for SMEs?
A) All borrowing costs are expensed as incurred.
B) All development costs are expensed as incurred.
C) Goodwill is amortized over its useful life.
D) There is a choice between using the cost model and the revaluation model for property, plant, and
equipment.
E) Actuarial gains and losses for defined benefit plans are recognized immediately.
24. IFRS for SMEs are primarily designed to meet the needs of:
A) Small Manufacturing Enterprises.
B) Governmental entities.
C) Companies whose shares of stock are not publicly traded.
D) Not-for-profit organizations.
E) Special Model Entities.
25. Which of the following is the organization that governs the IASB?
A) IASC.
B) IOSCO.
C) UNESCO.
D) IFRS Foundation.
E) IAS Service.
26. All of the following are simplified principles for recognizing and measuring assets, liabilities, income,
and expenses for SMEs under IFRS except:
A) Borrowing costs are expensed as incurred.
B) All development costs are expensed as incurred.
C) Actuarial gains and losses for defined benefit plans may be either recognized immediately or deferred
and amortized.
D) Goodwill is amortized over its useful life.
E) The cost model for property, plant, and equipment must be used.
27. Which of the following is a correct statement with regard to differences between IFRS and U.S.
GAAP?
A) Reporting a bank overdraft that is an integral part of a cash management policy is a recognition
difference.
B) Reporting LIFO inventory is a presentation difference.
C) Reporting past service cost for defined benefit pension plans is a measurement difference.
D) Reporting convertible debt is a recognition difference.
E) Reporting development costs is a classification difference.
28. Which of the following is not one of the steps to prepare IFRS statements for the first time?
A) Determine applicable IFRS accounting policies based on standards in force on the reporting date.
B) Recognize assets and liabilities required to be recognized under IFRS that were not recognized under
previous GAAP.
C) Derecognize assets and liabilities previously recognized that are not allowed to be recognized under
IFRS.
D) Reclassify items previously classified in a different manner from what is acceptable under IFRS.
E) Comply with most disclosure and presentation requirements.
29. Which of the following is not a step in preparing IFRS financial statements for the first time?
A) Determine applicable IFRS accounting policies based on standards in effect on the reporting date.
B) Determine applicable IFRS accounting policies based on the standards in effect on the opening balance
sheet date.
C) Recognize assets and liabilities required to be recognized under IFRS that were not recognized under
previous GAAP.
D) Derecognize assets and liabilities previously recognized that are not allowed to be recognized under
IFRS.
E) Measure assets and liabilities recognized on the opening balance sheet in accordance with IFRS.
30. A company is preparing financial statements using IFRS for the first time for the year ended
December 31, 2018. The “transition date” for reporting is
A) December 31, 2018.
B) December 31, 2017.
C) January 1, 2017.
D) January 1, 2018.
E) January 1, 2019.
31. According to IFRS, what is the amount recognized as a provision for loss contingency?
A) No amount will be recorded but an amount will be disclosed in the notes to the financial statements.
B) $110,000
C) $220,000
D) $235,000
E) $250,000
32. According to U.S. GAAP, what is the amount recognized as a provision for loss contingency?
A) No amount will be recorded but an amount will be disclosed in the notes to the financial statements.
B) $110,000
C) $220,000
D) $235,000
E) $250,000
33. According to U.S. GAAP, what is the amount recognized by Bugs, Inc. as a provision for loss
contingency?
A) No amount will be recorded but an amount will be disclosed in the notes to the financial statements.
B) $50,000
C) $60,000
D) $100,000
E) $150,000
34. In the conversion from U.S. GAAP financial statements to IFRS financial statements, what is the
amount of adjustment needed to adjust for the difference in accounting for a provision for loss
contingency?
A) $0
B) $50,000
C) $100,000
D) $150,000
E) $200,000
35. Of the following IFRS, which was the most recently issued?
A) First-Time Adoption of IFRS
B) Leases
C) Revenue from Contracts with Customers
D) Insurance Contracts
E) Financial Instruments: Disclosures
36. Which of the following is not a problem caused by diversity in accounting practices across countries?
A) Comparing companies in the same industry that are headquartered in different countries.