Chapter 03 – International Convergence of Financial Reporting
Answers to Questions
1. The ultimate goal of both harmonization and convergence is to achieve international
comparability in financial reporting, and both are processes that take place over time.
2. The potential benefits for a multinational corporation from convergence of financial reporting
3. The EU Directives were not completely effective in generating comparability across EU
member nations because the Directives:
4. The three phases in the life of the IASC were:
5. IOSCO’s endorsement of IASs legitimized the IASC’s claim as “the” international accounting
6. Twelve of 14 members of the IASB are full-time. They are required to sever all ties to former
7. A principles-based approach to accounting standard setting refers to the development of
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Chapter 03 – International Convergence of Financial Reporting
8. IFRS appear to cover most of the major accounting issues. With the issuance of IFRS 2,
9. The IASB has adopted a principles-based approach to develop a set of accounting
standards that constitute the “highest common denominator” of financial reporting. This
10. The different ways in which IFRS might be used within a country include:
Required of all companies domiciled within the country.
11. There are several factors that might inhibit worldwide comparability of financial statements
even if IFRS are required in every country. First, even though the Comparability Project of
the 1990s reduced the number of alternative methods allowed, several IFRS continue to
12. The objective of developing a set of high quality standards for financial reporting by
companies internationally is commendable. There are many potential benefits associated
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Chapter 03 – International Convergence of Financial Reporting
13. IAS 1 indicates that, if existing IFRS do not provide guidance in a specific area,
14. The amendments to IFRS 1 First-time Adoption of IFRS address the retrospective
15. Nearly 120 countries have either adopted or allowed the use of IFRS.
16. The SEC has ruled that beginning in 2007, foreign companies which have prepared their
financial statements on the basis of IFRS need not include a reconciliation to U.S. GAAP in
Solutions to Exercises and Problems
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Chapter 03 – International Convergence of Financial Reporting
1. A major concern particularly in continental Europe is that the IASB is attempting to impose a
certain style of accounting on every country. The reason for this concern is the fact that
2. a. The ultimate objective of adopting IFRS is to ensure that financial statements
prepared by firms in different countries are comparable.
b. There are several issues that might hamper the EU from achieving the objective of
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Chapter 03 – International Convergence of Financial Reporting
3. Some of the key points to include in your report include:
Make sure that IFRS are translated into each of the EU’s local languages without
4. Examples of countries that might have their own, different reasons for not permitting the use
of IFRS include the United States, Mexico, and Japan. The reasons can be summarized as
follows:
5. The purpose of this exercise is to encourage students to use the Internet to search for
6. The purpose of this exercise is to encourage students to find the necessary information
7. There are several reasons why Anglo-Saxon accounting might be of interest to Chinese
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Chapter 03 – International Convergence of Financial Reporting
8. Honda Company raises a large proportion of its funding from overseas markets, particularly
from the United States. The Company’s shares are listed on the New York Stock Exchange.
As a condition of listing, it must submit a set of annual financial statements based on US
9. The purpose of this exercise is to provide students with an opportunity to learn how different
10. The ultimate objective of the efforts at setting global standards for accounting and financial
reporting is to make corporate financial reports comparable, regardless of their geographical
origin. However, setting global standards alone is not sufficient to achieve this objective.
11. The purpose of this exercise is to encourage students to look beyond the text book to
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Chapter 03 – International Convergence of Financial Reporting
12. The IASB’s main objective is to develop a set of High quality standards for financial reporting
by companies at international level. Towards achieving this objective, the IASB has taken
13. In accordance with IFRS 1, First Time Adoption of IFRS, the following steps must be taken
by the fixed assets accounting department manager in preparing IFRS-based financial
statements.
14. Recently, IFRS 1 has been amended mainly to provide further assistance to first time
adopters of IFRS.
15. In November 2007, the SEC removed the requirement that foreign issuers using IFRS
reconcile the financial statements to US GAAP for several reasons. First, the SEC
16. Recently, IASB chairman Hans Hoogervoorst suggested that the IASB would no longer seek
to converge with the US GAAP. The reason for this change of direction would probably be
the view that unlike before, under the current circumstances the risk of going alone would be
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Chapter 03 – International Convergence of Financial Reporting
Case 3-1: Jardine Matheson Group
As required by IAS 1, Jardine presents a consolidated income statement (profit and loss
account), balance sheet, cash flow statement, and statement of changes in equity in its annual
report.
Presentation of Profit and Loss Account
Presentation of Balance Sheet
Jardine does classify assets and liabilities as current and non-current as required by IAS 1. The
IAS 1 Jardine Matheson
Property, plant and equipment Tangible assets
Inventories Stocks and work in progress
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