49) The most preferred exchange rate used by British MNEs to translate the budget is the ________.
A) current-rate method
B) temporal method
C) budgeted rate
D) forecast rate
50) The price on the sale of goods from one member of a corporate family to another is known as a
________.
A) transfer price
B) sale/resale price
C) global price
D) multidomestic price
51) Transfer prices are ________.
A) always based on production costs
B) the prices on goods transferred from one country to another
C) regulated by the United Nations so as to avoid manipulation
D) often used to minimize taxation
52) What is the LEAST likely reason that MNEs set arbitrary transfer prices?
A) take advantage of tax differences between countries
B) achieve economies of scale on a global level
C) circumvent national controls
D) manipulate profits
53) Which of the following is conducive to low transfer prices from the parent company to a foreign
subsidiary and high transfer prices to the parent company from a foreign subsidiary?
A) political instability
B) restrictions on profit or dividend remittances
C) restrictions in the subsidiary country on the value of imported products
D) desire to mask the profitability of the foreign subsidiary to keep competitors out
54) The balanced scorecard is ________.
A) an average of foreign exchange rates
B) an approach to performance measurement
C) used widely by U.S. firms but not European firms
D) not very successful at linking financial and nonfinancial performance
55) Which of the following is one of the benefits of using the balanced scorecard approach?
A) It helps managers avoid using only one measure of performance.
B) It avoids using financial drivers so that it can focus on nonfinancial drivers.
C) It avoids using nonfinancial drivers so that it can focus on financial drivers.
D) It is separate from the strategic management system so that it can focus on financial measures.
56) Which of the following perspectives would LEAST likely be considered in a balanced scorecard?
A) financial
B) customer
C) industry standards
D) learning and growth
57) ________ is an approach to performance measurement that closely links the strategic and financial
perspectives of a business.
A) Transfer pricing
B) Budget to actual
C) The balanced scorecard
D) Return on investment
58) Vanessa, a manager at an MNE, has been given the task of measuring the firm’s performance by
using the balanced scorecard approach. Which of the following would be best for Vanessa?
A) review financial and nonfinancial factors broadly
B) create a multidomestic strategy for the future
C) closely compare industry and firm standards
D) calculate the firm’s return on investment
59) Which term refers to the combination of external and internal mechanisms implemented to safeguard
the assets of a company and protect shareholders’ rights?
A) consolidation
B) transfer pricing
C) balanced scorecard
D) corporate governance
60) Which legislation triggered many foreign MNEs to exit the New York Stock Exchange?
A) Davis-Bacon Act
B) Sarbanes-Oxley Act
C) Norris-LaGuardia Act
D) McCarran-Ferguson Act
62) Both the form and content of financial statements are currently the same in most countries due to the
convergence of accounting implemented by the International Accounting Standards Board.
63) Germanic and Japanese companies tend to be more optimistic than U.S. and U.K. companies.
64) The degree of caution companies display in valuing assets and recognizing income is known as
conservatism.
65) U.S. and U.K. companies tend to be more transparent than Japanese companies.
66) Germanic countries tend to be more transparent than the United States and the United Kingdom in
terms of financial reporting due to their reliance on bank financing.
67) The Netherlands is an example of a country that is micro-based from an accounting perspective, as
opposed to macro-uniform based.
68) From an accounting perspective, countries with strong equity markets and shareholder orientations
tend to be macro-uniform systems.
69) Currency is a major issue in financial reporting because companies must decide in which currency to
present their financial information to the general public.
70) According to the accounting concept of mutual recognition, companies are required to reconcile
financial statements to local GAAP.
71) The global integration of capital markets is a major force leading to the convergence of accounting
standards.
72) The International Accounting Standards Board is composed of international securities regulators and
is attempting to harmonize accounting standards through issuing International Financial Reporting
Standards.
73) According to U.S. GAAP, companies recognize transaction gains and losses in the income
statement.
74) When recording the value of a purchase denominated in a foreign currency, the company is required
to use the spot rate when payment is made as long as it is made 30 days or more in the future.
75) Translation of foreign currency financial statements is the process of restating foreign currency
financial statements from one currency into another.
76) Consolidation of financial statements is the process of restating foreign subsidiary financial
statements into the GAAP of the parent company.
77) The Financial Accounting Standards Board and International Accounting Standards Board allow
firms to use the current-rate method or the temporal method to translate foreign currency financial
statements into the currency of the parent company.
78) When using the current-rate method to translate foreign currency financial statements into the parent
currency, translation gains and losses are recognized in comprehensive income.
79) Japanese companies are more likely to use sales as a measure of performance evaluation of foreign
operations than income-based measures.
80) U.S.-based MNEs are not permitted to set budgets and monitor results using the same exchange rate.
81) When using a budget for foreign operations, it is important for the parent company to select an
exchange rate to set the budget and use that same rate to evaluate performance.
82) British MNEs are more likely to use the forecast exchange rate to set the budget.
83) The challenge with setting an optimal transfer price is that there could be conflicting conditions in
the local country.
84) A condition that is conducive to low transfer prices from the parent company to the subsidiary and
high transfer prices from the subsidiary to the parent company is where the corporate income tax is
lower in the subsidiary’s country than in the parent country.
85) The balanced scorecard is an approach to performance measurement that closely links the strategic
and financial perspectives of a business.
86) U.S.-based MNEs do not like to use the balanced scorecard for evaluation performance because it
does not take into consideration international differences.
87) Parmalat engaged in financial statement fraud in part to divert funds to family-owned businesses.
88) Ericsson, the Swedish MNE, was required as of 2005 to adopt both Swedish and U.S. GAAP since it
lists it securities in both the U.S. and Sweden.
89) The balanced scorecard approach is a preferred method for measuring performance among U.S.
firms, but the EU does not allow its usage.
90) Differences in culture, geography, and financial methods make it complicated for MNEs to identify
cause-and-effect performance measures.
91) What is the role of the controller in an MNE? What are some of the challenges that a controller faces
in an international environment?
92) What factors influence international accounting practices? What forces are leading to the global
convergence of accounting practices?
93) How do cultural values such as optimism, conservatism, transparency, and secrecy affect country
differences in accounting systems?
94) Explain the difference between macro-uniform-based and micro-based accounting systems. What
are some examples of countries that fit in each system?
95) Compare the two major approaches used to translate foreign currency financial statements, and
explain how translation gains and losses are reported under these two approaches.
96) How do exchange rates affect budgets used to evaluate performance in MNEs?
97) What metrics are used to measure the performance of an MNE? How is the balanced scorecard
approach unique?
98) In a brief essay, discuss the concepts of transfer pricing and hedging.
99) What are the four main ways that financial statements differ from country to country? What role has
the IASB played in establishing global accounting standards?
100) In regards to accounting, what is the impact of the SEC and Sarbanes-Oxley Act on international
business?