Which of the following is NOT a factor influencing the probability that an auditor will
detect an accounting error?
A. Competence of the auditor
B. Quality review and monitoring
C. Financial reporting requirements
D. Independence of the auditor
Answer:
Which of the following statements is true about applying the arm’s-length standard for
transfer pricing?
A. A unique transfer price will be objectively determined using the arm’s-length
concept.
B. Since a range of transfer prices would conform to the arm’s-length concept,
taxpayers can minimize taxes by choosing a transfer price at one end of the range.
C. The arm’s-length concept is accepted worldwide as the optimal transfer pricing
model.
D. Purchasing divisions prefer the arm’s-length standard for transfer pricing over
alternative methods.
Answer:
Under a joint exposure draft issued by the IASB and FASB in 2010, what is one of the
most significant proposals?
A. IFRS and U.S. GAAP would have identical quantifiable criteria for lease
classification.
B. Leases would no longer be classified as finance or operating.
C. Lessors would recognize income immediately at the inception of the lease.
D. There would be no lease disclosure required in the notes to the financial statements.
Answer:
Rive Rouge Confections Company incurred €5,000,000 to determine if chocolate could
be made to resist melting by adding certain inert minerals to the mixture. According to
IAS 38, how should Rive Rouge record this cost?
A. It should be capitalized as a deferred development cost.
B. It should be treated as a cost of products it currently markets.
C. It should be expensed currently.
D. It should be amortized over 20 years.
Answer:
Which of the following is a reason a company might cross-list itself on a foreign stock
exchange?
A. It wants to hedge against currency fluctuations.
B. It is less expensive than listing itself solely on a domestic exchange.
C. It wants to obtain acquisition currency for acquiring a foreign company.
D. It is required for accomplishing foreign direct investment.
Answer:
Which of the following is true of the performance evaluation measures adopted by
Japanese and U.S. MNCs?
A. The performance evaluation measures adopted by Japanese and U.S. MNCs are very
similar in nature.
B. Unlike U.S. MNCs that assign responsibilities to the individual, Japanese companies
assign responsibility to the group.
C. Japanese companies use balanced scorecard for performance evaluations, whereas
U.S. companies don’t.
D. Budget variances are used for evaluating performance in Japanese MNCs, whereas
U.S. managers view these variances as providing information that can be used to
improve performance.
Answer:
When setting transfer prices among international subsidiaries, the corporation must:
A. make sure that the total tax is minimized.
B. ensure that the transfer prices are acceptable to the taxing authorities in the countries
involved.
C. do whatever it takes to make taxes paid in the United States as low as possible.
D. follow the transfer pricing policy used for domestic transfers.
Answer:
According to IAS 1, which of the following is the overriding principle that must be
followed while preparing IFRS-based financial statements?
A. Going concern
B. Fair presentation
C. Revenue recognition
D. Comparative information
Answer:
Dividends received from companies in countries other than one’s home country are
classified as:
A. operating income.
B. exempt income.
C. foreign source income.
D. taxable income.
Answer:
Financial statements in the United Kingdom are supposed to provide a “true and fair
view” of the firm’s financial position and results of operations. How does U.K. GAAP
define “true and fair view?”
A. Objective, free from bias
B. Statements must comply with accounting standards
C. Relevant
D. U.K. GAAP does not specifically define “true and fair view.”
Answer:
The income of a foreign subsidiary is not taxable until dividends are distributed to the
U.S. parent unless:
A. Subpart F income is present.
B. the income from subsidiary exceeds 10 million.
C. extraordinary gains and losses form a part of the income.
D. the subsidiary is situated in a China.
Answer:
What term is used to refer to the probability that an accounting error or irregularity is
detected and reported?
A. Accounting risk
B. Audit risk
C. Audit quality
D. Transaction risk
Answer:
It is generally believed that the 1997 financial crisis in East Asia was partly due to
accounting factors in that part of the world. Which of the following accounting values
was lacking in that part of the world and thereby contributed to the crisis?
A. Professionalism
B. Statutory control
C. Uniformity
D. Transparency
Answer:
In the Nobes classification of accounting systems, micro-based accounting systems are
oriented toward:
A. government economics.
B. business practices.
C. tax laws.
D. code law.
Answer:
Under IAS 39, Financial Instruments: Recognition and Measurement, which of the
following terms describes the removal of a financial asset or liability from the balance
sheet when certain appropriate criteria have been met?
A. Decoupling
B. Extinguishment
C. Derecognition
D. Reversal
Answer:
Which of the following statements is believed to be true about accounting convergence
by proponents of convergence?
A. Convergence would not affect the feelings of nationalism.
B. Convergence is desirable because there is very little difference among capital
markets in different countries.
C. Convergence would help to raise the quality of accounting practices internationally.
D. None of the above statements is true.
Answer:
Which of the following statements is true of intrinsic value of options?
A. When the option strike price is more than the spot rate, the intrinsic value is zero.
B. When the option strike price is equal to the spot rate, the intrinsic value is positive.
C. When the option strike price is less than the spot rate, the intrinsic value is zero.
D. When the option strike price is more than the spot rate, the intrinsic value is
negative.
Answer:
Under U.S. GAAP, what method of amortizing discounts or premiums on forward
contracts must be used?
A. Weighted average method or accelerated method
B. Sum of digit method only
C. Effective interest rate method or straight line method
D. Straight line method only
Answer:
What is the primary difference between a cash flow hedge and a fair value hedge?
A. The fair value hedge must completely offset the variability in the cash flow from the
foreign currency receivable or payable.
B. The cash flow hedge can only be used to offset potential foreign currency losses on
accounts receivable.
C. The cash flow hedge must completely offset the variability in cash flow from the
foreign currency receivable or payable.
D. The fair value hedge can only be used to offset the variability in cash flow from
long-term fixed assets related to foreign currency fluctuations.
Answer:
What currency is used in Mexico?
A. Peseta
B. Peso
C. Mexican dollar
D. Bolivar
Answer:
Excellent Inc. is located in the U.S., but it has subsidiaries in Japan. When the yen
depreciates relative to the U.S. dollar, what is the direction of the translation adjustment
to consolidate Excellent’s financial statements?
A. When there is net asset exposure, the translation adjustment will be positive.
B. There will be no adjustment necessary unless the difference is realized.
C. When there is net liability exposure, the translation adjustment will be positive.
D. The direction of the adjustment is indeterminate.
Answer:
Which of the following is true about reconciling foreign financial statements to U.S.
GAAP?
A. A 10% increase in income when converting to U.S. GAAP means that stockholder’s
equity will increase by 10% after converting to U.S. GAAP.
B. A 10% increase in income when converting to U.S. GAAP means that stockholder’s
equity will increase by 20% after converting to U.S. GAAP.
C. A 10% increase in income when converting to U.S. GAAP means that stockholder’s
equity will decrease by 10% after converting to U.S. GAAP.
D. None of the above statements is true.
Answer:
The possibility of loss due to unexpected changes in currency values or interest rates is
called:
A. economic risk.
B. business risk.
C. financial risk.
D. political risk.
Answer:
Historically, which industry is found most at risk for a transfer pricing adjustment?
A. Consumer packaged goods
B. Pharmaceuticals
C. Petroleum
D. Manufacturing
Answer:
Under IAS 12, Income Taxes, how is the relationship between a hypothetical tax
expense based on statutory rates and reported tax expense based on the effective tax rate
explained?
A. A numerical reconciliation between tax expense based on the statutory rate in the
home country and tax expense based on the effective tax rate must be presented.
B. A numerical reconciliation between tax expense based on the weighted-average
statutory rate across jurisdictions in which the company pays income taxes and tax
expense based on the effective tax rate must be presented.
C. Both (A) and (B) can be acceptable explanations.
D. Neither (A) nor (B) are acceptable explanations.
Answer:
Under U.S. GAAP, what is the proper treatment of unrealized foreign exchange losses?
A. They should be deferred on the Balance Sheet until the cash is paid.
B. They should not be recognized until cash is received to complete the transaction.
C. They should be recorded on the Income Statement in the period the exchange rate
changes.
D. They should be deferred on the Balance Sheet until an offsetting foreign exchange
gain is realized.
Answer:
What is the limitation of using the net present value for evaluating capital investment
alternatives?
A. Ignores the time value of money
B. Does not consider cash flows
C. Cannot be used to compare projects of different size
D. All of the above are limitations of the net present value method.
Answer:
Which financial statement is provided by virtually all corporations worldwide?
A. Statement of Cash Flows
B. Statement of Changes in Financial Position
C. Balance Sheet
D. Statement of Changes in Non-current Assets
Answer:
What power is given to the Internal Revenue Service (IRS) under code section 482?
A. Power to eliminate intercompany transactions
B. Authority to audit international transfer prices
C. Authority to impose tariffs on foreign imports
D. All of the above
Answer:
The number of companies involved in international trade has grown significantly in
recent years. What percent of U.S. exporters are relatively small companies (i.e. less
than 500 employees)?
A. Less than 5%
B. 10%
C. 25%
D. More than 90%
Answer:
In some countries, financial accounting and tax accounting are so closely related that
there is very little need to account for deferred income taxes. Which of the following
countries has a financial accounting system that is most different from its tax laws?
A. United States of America
B. Japan
C. Germany
D. France
Answer:
What is the role of accounting in formulating strategy?
A. Quantifying opportunities and threats
B. Preparing budgets
C. Making estimates of costs and benefits of various alternatives
D. All of the above
Answer:
What term is used to describe the relationships between a company’s management, its
board, shareholders, and other stakeholders that create a structure through which the
objectives of the company are set, attained, and monitored?
A. Management control
B. Corporate governance
C. Internal auditing
D. Government regulation
Answer:
A _____ combines financial measures of past performance with nonfinancial measures
of the drivers of future performance to provide management with a road map for
creating shareholder value.
A. profit center
B. balanced scorecard
C. cost driver
D. operating budget
Answer: