Multiple Choice Answers
1. As used in international accounting, a “hedge” is:
a business transaction made to reduce the exposure of foreign exchange risk.
the legal barrier between the various divisions of a multinational company.
the loss in US $ resulting from a decline in the value of the US $ relative to foreign currencies.
one form of foreign direct investment.
2. What is the term used to describe the possibility that a foreign currency will decrease in US $ value over the life of an asset such as Accounts Receivable?
Foreign exchange translation
Foreign exchange risk
Foreign currency options
3. What is “transfer pricing”?
The cost to convert from one country’s GAAP to another country’s GAAP
The value of sales made in a foreign country
The method of recording transactions between divisions within the same company
The taxes paid on sales in a foreign country
4. Which of the following is a reason for foreign direct investment?
Reduce costs of doing business
Protect domestic markets
Protect foreign markets
All of the above
5. The number of companies involved in international trade has grown significantly in recent years. What percent of U.S. exporters are relatively small (i.e., less than 500 employees)?
Less than 5%
More than 90%
6. What is the advantage of foreign direct investment?
Retain advantage over competition
Reducing transportation costs
Creating a company tailored to a foreign market’s unique characteristics
All of the above
7. 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?
8. According to Gray’s framework for accounting system development, which of the following are directly affected by ecological influences, such as geography, demography, and technology?
9. If most of a country’s business financing comes from families, banks, and the government what should we expect in terms of information disclosure to the public?
Relatively little because the public isn’t a major factor
A great deal of disclosure because it will be the only way for interested parties to learn about the company
Complete openness of accounting records
No disclosure at all
10. What is likely to be the source of accounting standards in common law countries?
Non-government entities such as the FASB
Federal and local legislatures
The International Accounting Standards Board
11. Under U.S. GAAP, fixed assets are generally reported on the balance sheet at their:
net realizable value.
12. What term is used to refer to the decision about whether to report an item in the financial statements?
13. Which of the following statements is believed to be true about accounting convergence by proponents of convergence?
Convergence would decrease feelings of nationalism.
Convergence is desirable because there is little difference among capital markets in different countries.
Convergence would help to raise the quality of accounting practice internationally.
None of the above statements is true.
14. Which of the following statements is true about accounting convergence?
Convergence is a synonym for harmonization.
Convergence is the opposite of standardization.
Convergence, unlike harmonization, takes place over a period of time.
Convergence means developing high-quality standards in partnership with national standard-setters.
15. Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, and Slovenia joined the European Union in 2004. Besides membership in the EU, what do these countries have in common?
They share a common language.
They were previously under the political and economic influence of the Soviet Union.
All were under the political control of Germany until the early 1960’s.
They were former British colonies until after World War II.
16. In 1990, the European Commission stopped issuing directives related to accounting. Why?
The EU was leaving the formulation of accounting standards up to the IASC.
The European Commission had finished the task of formulating accounting standards for the European Union.
Accounting harmonization had been completed.
The Commission found that its directives were unenforceable.
17. It has been said that the addition of 10 new members to the European Union in 2004 is likely to significantly change the dynamics within the EU. What was the explanation given for this statement?
The EU is getting too large to manage effectively.
The members added in 2004 have very different economic traditions than the 15 members that joined before 2004.
The members added in 2004 have more economic power than the members that joined the EU between 1957 and 1995.
The purchasing power of the EU was weakened by the addition of additional members.
18. What language is used to develop the International Financial Reporting Standards (IFRS)?
19. According to the Norwalk Agreement, the FASB will monitor:
all IASB projects.
only those projects where they have a level of interest in the topic.
no IASB projects, since the IASB is capable of self-monitoring.
only those projects dealing with internationally complex issues.
20. Which of the following is a difference among the U.S. and other Anglo-American countries in terms of accounting standards?
The U.S. does not adhere to the “true and fair view” approach.
The U.S. is more private-sector oriented.
The U.S. always follows a conceptual framework when developing accounting standards.
U.S. standards are becoming more rigid than U.K. standards.