International Business, 14e (Daniels et al.)
Chapter 18 International Accounting Issues
1) A major reason for the Parmalat accounting scandal is that the firm ________.
A) sold milk in countries without a license
B) used U.S. GAAP standards instead of IFRS
C) used off-balance-sheet financing to hide debts
D) transferred most of its assets to banks in Switzerland
2) In addition to hiding losses, Parmalat engaged in financial statement fraud to ________.
A) pay shareholders
B) bribe government officials
C) support family-owned businesses
D) avoid paying high export/import tariffs
3) At Cooper Industries, Jake is responsible for evaluating potential acquisitions abroad, managing cash
flow, tax planning, and internal auditing. Which of the following is most likely Jake’s position at
Cooper?
A) CEO
B) treasurer
C) regulator
D) controller
4) Hoffman Electronics is a U.S. company. Which balance sheet format is most likely used by Hoffman?
A) assets + liabilities = reserves
B) assets = liabilities + shareholders’ equity
C) noncurrent assets + current assets – current liabilities – noncurrent liabilities = shareholder’s equity
D) current assets – current liabilities = fixed assets – noncurrent liabilities = capital and reserves
5) The financial reports and information provided by businesses is primarily used by all of the following
EXCEPT ________.
A) educators
B) investors
C) creditors
D) lenders
6) Larson Shoes is a British company. Which balance sheet format is most likely used by Larson?
A) assets + liabilities = shareholders’ equity
B) liabilities + shareholders’ equity = assets
C) noncurrent assets + current assets – current liabilities – noncurrent liabilities = shareholders’ equity
D) noncurrent assets – net current assets = liabilities + capital and reserves
7) International accounting firms, such as Deloitte and KPMG, have the most influence on ________.
A) international and domestic tax laws
B) public record disclosure rules
C) global auditing practices
D) domestic legal systems
8) The accounting value that relates to issues such as how to present financial information and discuss
financial results is known as ________.
A) measurement
B) conservatism
C) disclosure
D) optimism
9) Which term refers to how companies value assets such as inventory?
A) measurement
B) conservatism
C) disclosure
D) optimism
10) The degree of caution companies display in valuing assets and recognizing income is known as
________.
A) conservatism
B) transparency
C) measurement
D) disclosure
11) How would you classify the accounting values of companies from the United States and the United
Kingdom in terms of their measurement and disclosure of financial information?
A) secret and transparent
B) transparent and optimistic
C) secret and conservative
D) conservative and optimistic
12) The accounting value that illustrates how companies are more liberal in their recognition of income
is ________.
A) optimism
B) transparency
C) income-based accounting
D) measurement
13) Suzanne, an investor, tends to invest in corporations that are headquartered in countries that value
financial transparency. A firm based in which of the following countries would most likely appeal to
Suzanne?
A) Japan
B) Germany
C) Switzerland
D) United Kingdom
14) Which of the following statements is most likely true about secrecy and transparency in accounting?
A) Japanese firms are usually as transparent as U.S. firms.
B) German companies tend to be less transparent than British companies.
C) Secrecy and transparency refer to the degree of caution companies display in valuing assets.
D) Companies that list on stock exchanges are highly transparent because of stockholder audits.
15) In which quadrant of a disclosure/assessment matrix for accounting systems would you most likely
find less-developed Latin countries?
A) conservatism and secrecy
B) transparency and conservatism
C) secrecy and transparency
D) optimism and secrecy
16) German companies like Deutsche Bank and Daimler Chrysler have been relatively optimistic and
transparent in their financial reporting compared with many Germanic companies because ________.
A) German accounting standards have always been optimistic and transparent
B) they adopted U.S. Generally Accepted Accounting Standards
C) they do not have to adopt International Accounting Standards
D) most of their revenues are from the United States and United Kingdom
17) The accounting principle that relates to more, rather than less, extensive footnotes in reports is
known as ________.
A) secrecy
B) measurement
C) conservatism
D) transparency
18) Germany’s accounting system has historically been a ________ system.
A) micro-pragmatic
B) macro-pragmatic
C) law-based
D) tax-based
19) Which accounting systems are shaped more by government practice?
A) macro-uniform accounting systems
B) micro-based systems
C) pragmatic business practice systems
D) business economic theory systems
20) From an accounting perspective, countries with strong equity markets and shareholder orientations
tend to be ________.
A) macro-uniform systems
B) micro-based systems
C) law-based systems
D) tax-based systems
21) From the perspective of the classification of accounting systems, German and Japanese companies
tend to be ________.
A) micro-based countries
B) strong equity market countries
C) weak equity market countries
D) pragmatic business countries
22) Financial statements typically include ________.
A) accompanying footnotes, a balance sheet, and a cash-flow statement
B) translations into the languages of every country where the company lists shares
C) different currency results to reflect the different countries where the company has investments or
generates revenues
D) different reports detailing the differences in generally accepted accounting principles used by the
company in different countries
23) Garrison Industries, a global firm, provides financial information in its annual reports in more than
one currency. Garrison Industries is most likely ________.
A) trying to provide information to users from different countries
B) providing footnotes to clarify its accounting practices
C) implementing global reporting requirements
D) altering its losses to show gains
24) GAAP usage differences increases the problems associated with ________.
A) trading foreign stock
B) establishing e-commerce
C) identifying emerging markets
D) raising capital in different countries
25) According to the accounting concept of mutual recognition, ________.
A) companies are required to reconcile financial statements to local GAAP
B) a country would accept financial statements of foreign companies prepared according to the GAAP
of the foreign country if a company wanted to list its shares on that country’s stock exchange
C) companies would have to mutually agree to use GAAP issued by the IASB
D) companies would have to recast their financial statements in terms of local GAAP
26) A major force leading to the convergence of accounting standards is ________.
A) a shareholder orientation towards FDI
B) the global separation of capital markets
C) MNEs’ needs for foreign capital
D) pressures from the EU
27) The global integration of capital markets ________.
A) is a major force leading to the convergence of accounting standards
B) is a counterforce to regional political and economic harmonization
C) is being led by the strengthening of worldwide unions rather than investors
D) highlights the importance of maintaining differences in accounting worldwide
28) The standard-setting organization tasked with the challenge of determining one set of accounting
standards that can be used worldwide is the ________.
A) Global Financial Accounting Standards Board
B) International Organization of Securities Commissions
C) International Financial Reporting Committee
D) International Accounting Standards Board
29) Which of the following is true concerning the International Accounting Standards Board?
A) The IASB is an EU institution designed to harmonize accounting standards among EU member
countries.
B) The EU has voted to not adopt IFRS issued by the IASB so that it will not hurt its own convergence
efforts.
C) The IASB and the FASB of the United States are working closely to harmonize accounting standards.
D) FASB has been ordered by the SEC to not work with the IASB in setting accounting standards.
30) For U.S. companies, foreign-currency-denominated receivables and payables give rise to exchange
gains and losses ________.
A) at the end of each accounting period
B) only when the dollar strengthens against the foreign currency
C) only when the dollar weakens against the foreign currency
D) whether the transactions are denominated in dollars or the foreign currency
31) How do U.S. companies recognize transaction gains and losses in the financial statements?
A) They are recognized as gains and losses in the income statement.
B) They are recognized as gains and losses in owners’ equity.
C) Gains are recognized in the income statement, but losses are not.
D) Losses are recognized in the income statement, but gains are recognized in owners’ equity.
32) Assume a U.S. company sells merchandise to a French customer for $200,000 when the exchange
rate is $1.5 per euro. At the end of the month, the euro is trading at 1.47, and in the middle of the next
month when payment is received, the exchange rate is 1.53. If the U.S. company receives payment in
dollars, what is the value of the sale at the end of the month for the U.S. company?
A) $200,000
B) $294,000
C) $300,000
D) $306,000
33) Assume a U.S. company purchases equipment from a German supplier for €37,500 when the
exchange rate at the time of the transaction is $1.5 per euro, or €0.667 per dollar. The U.S. company
doesn’t have to pay the German supplier until the end of the month, at which time the euro is now worth
only $1.49 per euro or €0.671 per dollar. According to U.S. GAAP, the equipment would be valued at
________.
A) $25,167
B) $25,000
C) $56,250
D) $55,875
34) The process of combining financial statements of different subsidiaries into one statement is known
as ________.
A) conversion
B) translation
C) consolidation
D) recognition
35) According to the translation process in the United States, ________.
A) companies first translate their statements into dollars, and then recast their financial statements
consistent with U.S. GAAP
B) companies recast their financial statements consistent with U.S. GAAP, and then translate them into
U.S. dollars
C) companies only need to worry about the translation process because local operations take place in a
local GAAP environment
D) companies translate foreign currency financial statements only if the dollar is weakening against the
local currency
36) Translation of foreign currency financial statements is best described as ________.
A) the process of restating foreign currency financial statements from one currency into another
B) the process of combining financial statements of different subsidiaries into one statement
C) the conversion of foreign currencies into the U.S. dollar
D) easier when the foreign currency is the euro
37) Coca-Cola has subsidiaries all over the world. The process of combining the results of its far-flung
operations into one set of financial statements for investors is known as ________.
A) combination
B) translation
C) consolidation
D) unification of results
38) The translation method used when the functional currency is the parent currency is the ________.
A) current-rate method
B) temporal method
C) translate-restate method
D) consolidation method
39) Assume that a U.S.-based MNE has operations in Germany and that the revenues and expenses are
mostly incurred in euros. Which translation method is the MNE most likely to use?
A) current-rate method
B) temporal method
C) translate-restate method
D) consolidation method
40) If a U.S.-based MNE translates its German subsidiary’s financial statements from euros into dollars
using the current-rate method, how would it recognize translation gains and losses?
A) Gains and losses would be taken to the income statement.
B) Gains and losses would be recognized on the balance sheet in owners’ equity.
C) Gains and losses are not recognized since the financial statements are in dollars.
D) There are transaction gains and losses but not translation gains and losses.
41) Under the current-rate method of translation, any gain or loss is known as a(n) ________.
A) liability
B) foreign exchange
C) annual net income
D) accumulated translation adjustment
42) Matt manages the sales unit at Global Electronics but has no control over input costs. The primary
purpose of the sales division is to sell goods produced by another division at Global Enterprises. What is
the most appropriate performance evaluation measure for Matt’s division?
A) market share
B) profitability
C) net income as a percentage of sales
D) inventory costs as a percentage of sales
43) Gavin Pharmaceuticals is a U.S.-based MNE. Which of the following is probably Gavin’s most
important metric when evaluating the firm’s performance?
A) foreign sales
B) market share
C) return on investment
D) sales revenue budget
44) Budget versus actual comparisons, followed by some form of ROI, are most likely used by
________ MNEs.
A) Japanese
B) American
C) British
D) German
45) As a Japanese MNE, Sony is more likely to use ________ to evaluate performance of its foreign
operations.
A) quality targets
B) market share
C) ROI
D) sales
46) Using the same exchange rate to set the budget and monitor results ________.
A) allows management to focus on operating variances instead of exchange-rate variances
B) enables management to focus on both operating and exchange-rate variances
C) is an illegal reporting method according to the FASB
D) is the only method that can be used in Europe
47) An exchange rate variance results from ________.
A) setting the budget at the actual exchange rate at that time and final performance at the rate used when
the budget was set
B) translating the budget and actual performance at the forecasted exchange rate
C) translating the budget at the projected exchange rate and final results at the actual exchange rate
D) translating the budget using the current-rate method and actual results at the new current-rate method
48) The most common approach to translate budgets and compare a budget with actual performance
uses the ________.
A) spot rate
B) forecast rate
C) historical exchange rate
D) temporal exchange rate