37. Which statement is correct as it relates to diverse accounting practices across countries?
A) Gaining access to foreign capital markets is relatively easy and inexpensive once the financial
statements are converted to the local currency of the country where the financing is desired.
B) U.S. GAAP is acceptable worldwide wherever IFRS has not been adopted.
C) To have stock listed on a U.S. stock exchange, all financial statements submitted to the SEC must be
prepared either using U.S. GAAP or using IFRS.
D) Stock analysts specializing in industry coverage can compare financial statements regardless of
various national or international accounting standards used by companies being compared.
E) Translating financial statements of various currencies into one common currency for consolidation
purposes does not resolve the problem of diversity of accounting practices across countries.
39. When measuring assets and liabilities recognized on the opening balance sheet in accordance with
first-time adoption of IFRS, the reporting company must:
A) Use its current valuation method and disclose the method in the notes to the financial statements.
B) Retrospectively apply applicable IASB standards to each asset and liability reported on the opening
balance sheet.
C) Prospectively apply applicable IASB standards to each asset and liability reported on the opening
balance sheet.
D) Recognize the difference in measurement, and disclose it in the notes to the financial statements as a
change in accounting estimate.
E) Retrospectively apply applicable IASB standards to each asset and liability reported on the opening
balance sheet and recognize the amount of change in the income statement.
40. The FASB-IASB convergence project on leases resulted in the following:
A) Lease accounting will be the same under IFRS and under U.S. GAAP in that lessors and lessees will
capitalize all leases as finance leases and treat them as such in the measurement of income.
B) Lessor and lessee accounting will be the same under IFRS and under U.S. GAAP in that lessors will
capitalize all leases and lessees will capitalize some leases as finance leases but treat others as operating
leases.
C) Lease accounting will differ in that under IFRS lessees will capitalize some leases as finance leases
and others as operating leases, while under U.S. GAAP lessees will capitalize all leases as finance leases
but treat them as traditional operating leases in the measurement of net income.
D) Lease accounting will be similar under IFRS and U.S. GAAP for lessees but will differ for lessors in
their treatment of the measurement of net income.
E) Lease accounting will differ for lessees in that, under IFRS, all leases will be treated as finance leases
both on the balance sheet and in the measurement of net income, and under U.S. GAAP lessees will
capitalize operating leases on the balance sheet similar to finance leases but will treat them as traditional
operating leases in the measurement of income.
41. The most recent FASB-IASB convergence projects include:
A) Leases, Research and Development, Revenue Recognition, and Fair Value Measurement.
B) Leases, Revenue Recognition, Fair Value Measurement, and Joint Ventures.
C) Insurance Contracts, Post-Employment Benefits, Income Taxes and Impairment
D) Insurance Contracts, Income Taxes, Leases, and Revenue Recognition.
E) Revenue Recognition, Leases, Insurance Contracts, and Income Taxes.
42. Why do countries have their own unique set of financial reporting practices?
43. State the two major types of legal systems used around the world and briefly describe their
differences.
44. The major providers of financing in some countries are stockholders, while other countries
predominantly use banks as the main financing source. What difference does it make to accounting
disclosures in comparing a company from one of each of those countries?
45. What problems are caused by diverse accounting practices?
46. What is the IOSCO?
47. What are the four types of authoritative pronouncements that make up the International Financial
Reporting Standards (IFRS)?
48. What does the IASB’s Conceptual Framework for Financial Reporting state as the objective of
general purpose financial reporting?
49. What are the four different ways IFRS can be used by a country?
50. What are the two primary methods used by countries to incorporate IFRS into their financial reporting
requirements for listed companies?
51. With regard to IFRS, what does SME refer to, and what is the significance with regard to financial
reporting requirements?
52. What are some examples of accounting treatments under IFRS for SMEs for recognizing and
measuring assets, liabilities, income, and expenses?
53. What are the steps to be taken in preparing IFRS financial statements for the first time?
54. What two reconciliations are required by IFRS 1 for first-time IFRS Adopters?
55. What is the significance of the “Norwalk Agreement?”
56. In the 2012 Financial Staff Report issued by the SEC, what were some of the unresolved issues
identified that prevented the SEC from requiring IFRS usage?
57. What are recognition differences in financial reporting and what would be an example of a
recognition difference between IFRS and U.S. GAAP?
58. What are measurement differences in financial reporting and what would be an example of a
difference between IFRS and U.S. GAAP??
59. Prepare the journal entry for the 2017 depreciation expense for Dowa, Ltd. based on IFRS accounting
principles.
60. Prepare the journal entry for the 2017 depreciation expense for Ide Corp. based on U.S. GAAP.
61. Prepare the journal entry to convert the 2017 Dowa, Ltd. financial statements from IFRS to U.S.
GAAP.
62. On December 31, 2017, Carter Corp. a foreign subsidiary of Barter Corp., had a bank overdraft of
$20,000 on one of its bank accounts. Bank overdrafts are an integral part of Carter’s cash management
policy.
1) Prepare the journal entry to convert the foreign subsidiary from its IFRS financial statements to
U.S.GAAP financial statements.
2) Briefly explain why this journal entry is required.
63. Principal Company is a U.S.-based company that prepares its consolidated financial statements in
accordance with U.S. GAAP. Principal reported net income of $ 2,600,000 in 2018 and stockholders’
equity of $12,000,000 at December 31, 2018. Principal wants to determine the reporting impact of
switching to IFRS. The following three items would create differences in financial reporting:
1) At December 31, 2018, management had determined that a contingent liability was reasonably
possible with regard to a defective product and Principal disclosed an amount of $80,000 for this
possibility. However, under IFRS, the likelihood of occurrence of an outflow of resources to settle the
liability was considered probable. (Ignore income tax.)
2) Principal acquired a building at the beginning of 2016 at a cost of $5,000,000. The building has an
estimated useful life of 20 years, an estimated residual value of $1,000,000, and is being depreciated on a
straight-line basis. On January 1, 2018, the building has a fair value of $5,500,000. There is no change in
the estimated useful life or residual value. In a switch to IFRS, Principal would use the revaluation model
in IAS 16 to determine the carrying value of property, plant, and equipment subsequent to acquisition.
3) In 2018, Principal incurred $800,000 of research and development for a new product, of which 35%
relates to development activities subsequent to the point at which criteria indicating the creation of an
intangible asset had been met. As of the end of 2018, development of the new product had not been
completed.
Required:
1) Prepare a schedule reconciling net income under U.S. GAAP to net income under IFRS for the year
ended December 31, 2018.
2) Prepare a schedule reconciling stockholders’ equity under U.S. GAAP to stockholders’ equity under
IFRS at December 31, 2018.
