What is the basis for Morgan Stanley Dean Witter’s “Apples to Apples” system for
financial statement analysis?
A. Adjustments needed to compare companies within a single country
B. Adjustments needed to compare international companies within specific industries
C. Adjustments needed to compare companies in specific countries to U.S. companies
D. Adjustments needed to compare the performance of international brokerage firms
Answer:
How should stock options be accounted for under IASB standard on stock options
(IFRS 2)?
A. Since their value is not determinable until a future date, they are not recorded, but
only disclosed in the notes to the financial statements.
B. A compensation expense is recorded based on the value of the options expected to
vest as of the date the options are granted.
C. An expense is recorded only if a market value for the options exists on the date the
options are granted.
D. The options are recorded as a liability for the value of the stock at the exercise date.
Answer:
How should discounts or premiums on forward contracts be treated if the derivative is
hedging a foreign-currency-denominated asset?
A. Carried on the balance sheet until the contract is completed
B. Included in income in the period the derivative is acquired
C. Amortized over the life of the forward contract
D. None of the above
Answer:
_____ describes a process in which a resident of Country A uses a corporation in
Country B to get the benefit of Country B’s tax treaty with Country C.
A. Capital budgeting
B. Tax holiday
C. Treaty shopping
D. Bona fide residence test
Answer:
When would the balance sheet exposure arising from the current rate method become
realized?
A. It is realized once the financial statements of the foreign operation and the parent
are consolidated.
B. It is realized any time the historical exchange rate is different from the spot rate at
the balance sheet date.
C. It is realized when the foreign operation is sold at book value and the proceeds are
converted into parent company currency.
D. It can never be realized because it is only the result of the choice of accounting
methods and does not reflect real exposure.
Answer:
Using the comparable profits method of transfer pricing, the transfer price is determined
by:
A. referring to an objective measure of profitability earned by uncontrolled taxpayers
on comparable, uncontrolled sales.
B. adding a standard profit margin to the operating expenses of the buying division.
C. dividing a reasonable amount of profit between the selling and buying divisions.
D. comparing the normal profits of the selling and buying divisions and basing the
price on the highest margin.
Answer:
Japanese companies’ attitude toward information for disclosure to outsiders can be
described in what way?
A. They believe in the principles of full disclosure.
B. The Emperor has mandated full disclosure.
C. Banking scandals have encouraged full disclosure.
D. They are generally reluctant to provide such information.
Answer:
Who may bring civil litigation against an auditor?
A. Only the client company
B. Only shareholders
C. The client company and shareholders
D. It depends on a country’s laws governing auditor liability
Answer:
Which of the following is a reason for foreign direct investment?
A. To reduce costs of doing business
B. To protect domestic markets
C. To protect foreign markets
D. All of the above
Answer:
What is the international norm for determining tax jurisdiction?
A. Residence takes precedence over source
B. Citizenship takes precedence over residence
C. Source takes precedence over residence
D. Domestic takes precedence over foreign
Answer:
Which of the following is a limitation of cost-based transfer pricing?
A. Determining which measure of cost to use
B. Lack of incentive for selling division to control cost
C. Inefficiencies in one unit may be transferred to another unit
D. All of the above
Answer:
What is “hedge accounting?”
A. Any record keeping related to purchase, sale, or valuation of derivatives.
B. Recording options and other derivatives on the Balance Sheet.
C. Matching gains or losses from hedging with losses or gains from the risk being
hedged.
D. Using multiple accounting methods to offset the effect of foreign currency
exchange.
Answer:
Which of the following statements is true about pooling of interests method of
accounting for business combinations?
A. The pooling of interests method is no longer acceptable under IFRS.
B. Goodwill arises only when the pooling of interests method is used for business
combinations.
C. Pooling of interests is used for international consolidations but never for domestic
consolidations.
D. The purchase method is used only when less than 100% of an entity’s voting shares
are acquired.
Answer:
In what way should operating leases be accounted for under IAS 17?
A. The lease payments should be capitalized and shown on the balance sheet as an
asset.
B. The lease payments must be expensed by the lessee as they are incurred.
C. IAS 17 is flexible, allowing both capitalization and expensing of operating lease
costs.
D. The lessee capitalizes the operating lease and the lessor expenses the lease.
Answer:
Cost-plus method is most appropriate when:
A. there are comparable uncontrolled sales and the related buyer merely distributes the
goods it purchases.
B. the related buyer acts as a sales subsidiary.
C. the related buyer does not add substantial value to the product.
D. the related buyer does more than simply distribute the goods it purchases.
Answer:
What approach is taken by the United States of America relative to taxing income?
A. Citizenship only
B. Residence only
C. Both citizenship and residence
D. None of the above
Answer:
Which is NOT one of the common sources of distortions in financial statements?
A. Accounting standards that are inconsistent with economic reality
B. Estimation errors made by managers in applying accounting standards
C. Miscalculation of foreign currency translation
D. Management of earnings
Answer:
Why is corporate income tax in Germany based on financial accounting income?
A. Germany had rules for financial accounting before it had a corporate income tax.
B. The German Accounting Standards Board has more authority than the Bundestag.
C. German financial accounting standards reflect true economic income.
D. Germany was following the practice set by the United Kingdom.
Answer:
Which of the following is a limitation of using commercial databases to access foreign
company financial statements?
A. Information may be lost when a standard financial statement format is imposed on
foreign statements.
B. Errors may occur during data entry.
C. Notes to the financial statements may not be included, or only partially included.
D. All of the above are limitations.
Answer:
Foreign exchange risk arises when:
A. business transactions are denominated in foreign currencies.
B. sales are made to customers in a domestic country.
C. goods or services purchased from suppliers in a foreign country are denominated in
domestic currency.
D. auditing reports are prepared in a foreign currency.
Answer:
On what SEC form must foreign corporations with shares listed on U.S. stock
exchanges present a reconciliation of net income and stockholders’ equity to U.S.
GAAP?
A. Form 10-Q
B. Form 10-K
C. Form 20-F
D. Form 8-Q
Answer:
Some European companies do not report cost of goods sold as a separate expense item.
What affect does this have on financial statement analysis?
A. It would not be possible to determine the company’s total expenses.
B. Any measure that relies on knowing gross profit cannot be calculated.
C. Net income cannot be accurately calculated.
D. There is inadequate aggregation of financial information.
Answer:
Which of the following is the primary role of an internal auditor?
A. To ensure the adoption of IFRS by all foreign companies
B. To prepare the financial statements of the company
C. To uncover errors, inefficiencies, and fraud
D. The prepare the financial budgets for the company
Answer:
On December 1, 20×1 Pimlico made sales to a customer in India and recorded Accounts
Receivable of 10,000,000 rupees. The customer has until March 1, 20×2 to pay. On
December 1, 20×1, Pimlico paid $500 for a put option to sell rupees at a strike price of
$2.30 per 100 rupees on March 1, 20×2, which was the spot rate on December 1, 20×1.
On December 31, 20×1, the spot rate was $2.80 per 100 rupees and the option premium
was $0.004 per 100 rupees.
What is the fair value of the option on December 31, 20×1?
A. $0
B. $500
C. $400
D. $10,000
Answer:
Under both the temporal method and the current rate method, what exchange rate
should be used to translate a foreign subsidiary’s dividends into parent company
currency?
A. Current rate
B. Historical rate
C. Average rate
D. Any of the above methods can be used under both the temporal and current method.
Answer:
How can a multinational enterprise incorporate its perception of high level of risk into
its capital budgeting process?
A. Conservative estimates of cash inflows
B. Liberal estimates of expected cash outflows
C. High discount rate
D. All of the above
Answer:
A recent survey of multinational corporations found that the Sarbanes-Oxley Act had
the effect of increasing the percentage of U.S. companies with a financial expert on the
audit committee from 65% to:
A. 67%
B. 70%
C. 75%
D. 95%
Answer:
Which of the following is true about the IASB standards on statement of cash flows?
A. Cash flow statements are not required under the IASB standards.
B. Operating cash flows must be determined using the “direct method only.”
C. Operating cash flows may be combined with financing cash flows.
D. IAS 7 requires essentially the same information in the statement of cash flows as
U.S. GAAP.
Answer:
In a 2002 PriceWaterhouseCoopers survey, which factor did CFOs consider most
important in contributing to long-term shareholder return?
A. Current financial results
B. Operating efficiency
C. Product and service quality
D. Innovation
Answer:
What is another term for “balance sheet exposure?”
A. Transaction exposure
B. Exchange exposure
C. Translation exposure
D. Negative exposure
Answer:
Which of the following items in the balance sheet is subject to accounting exposure?
A. Only assets
B. Only liabilities and owners’ equity
C. All accounts translated at historical exchange rates
D. All accounts translated at current exchange rates
Answer: