ACC 620 Ch3
Financial accounting standards are rules for preparing financial statements
...
How many board members are currently in IASB?
16
ABC Inc bought a private jet for use of its officials. The cost is 15 mil and can be depreciated either using a composite useful life or useful lives of its major components. It is expected to be used over a period of 7 years. The engine of the jet has a useful life of 5 years. The private jet's tires are replaced every 2 years. The private jet will be depreciated using the straight-line method over
5 years useful life of the engine, 2 years useful life of the tires, and 7 years useful life applied to the balance cost of the jet.
which organization in Japan is playing the same role as US FASB:
Accounting Standards board of Japan
In comparing financial ratios of Japanese and US companies, which of the following statements tends to be false?
American companies have lower EPS than Japanese companies; American companies have lower current ratios than Japanese companies;
In comparing financial ratios of Japanese and US companies, which of the following statements tends to be true?
American companies have lower debt to asset ratios than Japanese companies
How should gain on sale of an office building owned by the entity be presented in a cash flow statement?
As an adjustment to the net income in the operating activities section of the cash flow statement prepared under the indirect method
T/F: All US listed foreign companies have been required to use IFRS to prepare their consolidated financial statements.
F
T/F: German experienced high inflation after World War I and again after World War II. She therefore abandoned the historical cost principle
F
T/F: Restating financial statements on a 'limited basis' means that the restatement is limited to the language and currency unit portions of the statements.
F
T/F: US GAAP allows the percentage-of-completion method to be used with service contracts for revenue recognition.
F
Which country adopts national charts of accounts?
France
The influence of conservatism on a nation's accounting reflects in reported net income amount: the more conservative the accounting, the lower the net income. Therefore, one would normally expect which of the following to be true, all else being equal:
German companies report lower net incomes than US companies; US companies report higher net incomes than Swedish companies; British companies report higher net incomes than Japanese companies; Swiss companies report lower net incomes than British companies
In our world of increasing national interdependence, countries often have political and economic ties with each other. Such ties do not exist between
Germany and Pakistan
The applicable IFRS/IAS for a property being constructed or developed for future use as investment property is:
IAS 16, Property Plant and equipment, until construction is complete and then it is accounted for under IAS 40, Investment property
How is the international standard for translating foreign currency financial statements (IAS 21) different from US GAAP with respect to subsidiaries in hyperinflationary economies?
IAS 21 requires that the subsidiary's financial statements be restated to account for the inflation before using the current exchange rate for all balance sheet accounts
What is NOT true about revenue recognition for multiple deliverable contracts under IFRS?
IAS No. 18 provides extensive guidance for determining how contracts are to be separated into components for purposes of revenue recognition.
which unit is equivalent of the FASB under IFRS foundation?
IASB
Which of the following organizations is directly involved with developing international auditing standards?
IFAC
which committee provides advice to the IASB on agenda decisions and priorities in the IASB's work
IFRS Advisory council
IASB board members are appointed by trustees of
IFRS Foundation
What is the authoritative status of the Framework?
If there is a standard or interpretation that specifically applies to a transaction, it overrides the framework. in the absence of a standard or an interpretation that specifically applies to a transaction, management should consider the applicability of the framework in developing and applying an accounting policy that result in information that is relevant and reliable.
A group is organized into a number of business divisions across the world. The group has two main classes of business: insurance and banking. THe management board receives information from each business division on a quarterly basis and wishes to report segmental information on the basis of these divisions. What should be the basis of the group's reporting of the primary segmental information?
It would depend on the different (or differing) risks and rewards but is likely to be the different classes of business.
Noncurrent assets must be reported before current assets in a balance sheet reported by a company using
Neither US GAAP nor IFRS
An entity has split its business segments on the basis of the law governing its different types of business. Two business segments that the entity has identified are insurance and banking. Within the banking group, several different services are provided: retail banking, merchant banking, and small business advisory service. The insurance entities sell travel insurance, health insurance, and property insurance. The entity operates throughout the world in several countries and continents. What basis should the entity report its segmental information?
On the basis of the services it offers within those divisions.
What are the qualitative characteristics of financial statements?
Relevance and faithful representation. Financial information is useful when it is relevant and represents faithfully what it purports to represent. The usefulness of financial information is enhanced if it is comparable, verifiable, timely and understandable. [F QC4]
ABC Inc owns a fleet of over 100 cars and 20 ships. It operates in a capital-intensive industry and thus has significant other property, plant and equipment that it carries in its books. It decided to revalue its property, plant and equipment. THe company's accountant suggested the alternatives that follow. Which would be in line with the provisions of IAS 16?
Revalue an entire class of PPE
The equivalent to the FASB's Financial Accounting Standards Advisory Council (FASAC) for the IASB is
Standards Advisory Council
T/F: Even non-US firms whose securities are publicly traded in the US muts abide by the rules of the SEC.
T
T/F: In several countries financial accounting is oriented toward decision making by government planners.
T
T/F: The IASB was formed to develop worldwide accounting standards; compliance with IASB standards by countries is voluntary.
T
T/F: The accounting values of secrecy versus transparency relates primarily to the extent of disclosure in financial reporting.
T
How should the income from discontinued operations be presented in the income statement?
The entity should disclose a single amount on the face of the income statement with analysis in the notes or a section of the income statement separate from continuing operations.
Which of the following criteria do not have to be met in order for an operation to be classified as discontinued?
The operation must be sold within three months of the year-end
Borrowing costs can be capitalized as part of the asset when
They are a qualifying asset; the entity has opted for the allowed alternative treatment under IAS 23, and it is probable that they will result in future economic benefits to the entity, but the costs can be measured reliably
An entity purchases a building and the seller accepts payment partly in equity shares and partly in the debentures of the entity. This transaction should be treated in the cash flow statement as follows:
This does not belong in the cash flow statement and should be disclosed only in the footnotes to the financial statements.
Which of the following countries' financial reporting systems is not heavily influenced by the tax laws?
UK
When can a 'provision' be recognized in accordance with IAS 37 (provisions, contingent liabilities and contingent assets)?
When there is a constructive obligation as a result of a past (obligating) event, the outflow of resources is probable, and a reliable estimate can be made of the amount of the obligation.
the IASB standard on stock options (IFRS 2) is substantially the same as US GAAP. how should stock options be accounted for?
a compensation expense is recorded based on the value of the options expected to vest as of the date the options are granted
In an environment where business capital needs are provided by only a few very large banks
accounting practices tend to be conservatively value assets and overvalue liabilities
under IAS 19, with respect to the calculation of net pension expense (or revenue), which of the following components is NOT counted?
actual annual return on plan assets
Purchased goodwill is accounted for differently in different countries. Which accounting practice IS acceptable?
all are acceptable: expense full amount immediately; charge full amount to owner's equity; set up as an asset and amortize during future periods
Purchased goodwill is accounted for differently in different countries. Which accounting practice is NOT acceptable?
allocate full amount to property and equipment accounts
how does US GAAP require prior service costs related to retirees to be recognized?
amortize over the remaining expected life of the retirees
'secondary' financial statements
are usually translated into English; many express the monetary amounts in a second currency; usually conform to the accounting principles of the US or the International Accounting Standards Committee; are prepared by a number of Japanese MNCs
What are components of financial statements according to IAS 1?
balance sheet, statement of changes in equity, notes to the financial statements, statement of comprehensive income, statement of cash flows (5 total)
under IAS 19, Employee Benefits, which of the following benefits are covered?
compensated absences and bonuses; post-employment benefits; deferred compensation and disability benefits
which IS an approach taken by multinationals to accomodate foreign readers of their financial reports?
convenience translations, limited statements, secondary financial statements, convenience statements
what is meant by the translation of foreign currency financial statements?
converting financial statements of a foreign currency into a domestic currency
current-noncurrent method
current assets and liabilities are translated at current exchange rates; noncurrent assets and liabilities are translated at historical exchange rates; income statement items are translated at average exchange rates applicable to each month of operation or on the basis of weighted average covering the whole period being reported; depreciation and amortization charges are translated at the historical rates in effect when the related assets were acquired
under IAS 19, with respect to the calculation of net pension expense (or revenue), which of the following components ARE counted?
current service cost; current period actuarial gains and losses; past service cost recognized in the current period
the difference between 'convenience translations' and 'convenience statements' is
different monetary expressions are employed
under IAS 37, inflows of resources that are 'virtually certain' to be received should be
disclosed as contingent assets in the notes to the financial statements
Under both US GAAP and IFRS, which one of the following items is reported separately in the income statement, net of tax?
discontinued operations
interest expense on an income statement is reported on the value added statement as a
distribution to the providers of capital
an example of a disclosure more often found in the financial statements of European companies than in US companies is
employee disclosure
Financial accounting information links business enterprises with providers of business capital through
financial reports issued periodically by business enterprises
Financial accounting exists because it
furnishes info for those who provide capital for business enterprises
In most countries, a particular group of accountants is legally sanctioned to conduct financial statement audits. These statements are correct:
in the UK it is the chartered accountants; in the Netherlands, it is the register accountants; in Germany it is the Wirtschaftprufer
Accounting values are important components of international financial statement analysis. Which cannot be regarded as a representative accounting value scale?
individualism vs. collectivism
the 'use right of land' before the construction or development commences in China is classified under:
intangibles section
Which of the following costs MAY BE eligible for capitalization as borrowing costs under IAS 23?
interest on bonds issued to finance the construction of qualifying assets; amortization of discounts or premiums relating to borrowing that qualify for capitalization; exchange differences arising from foreign currency borrowings to the extent they are regarded as an adjustment to interest costs pertaining to qualifying assets
The IFRS interpretation committee has committed itself to
interpret the application of IFRS and provide timely guidance on financial reporting issues not specifically addressed in iFRSs, in the context of hte IASB framewor,k, and undertake other tasks at request of IASB; have regard to the IASB"s objective of working actively with national standard-setters to bring about convergence of national standard-setters and IFRS to high quality solutions; publish after clearance by the IASB draft interpretations; report to the IASB and obtain approval
convenience translation
is either when an entity displays its financial statements or other financial information in a currency that is different from either its functional currency or its presentation currency simply by translating all amounts at end-of-period exchange rates. A result of making this is that the resulting financial information does not comply with all Generally Accepted Accounting Principles. It is also referred to as this when a (language) translation is rendered for the convenience of reading a text in a different than the original language; however, the original text remains the only legally-binding text.
Accounting for inflation and other price changes
is required in some countries
under IAS 1, Presentation of Financial Statements, which of the following is NOT a definition of a current liability?
it is a liability that does not have the right to defer until 18 months of the balance sheet date
under IAS 1, Presentation of Financial Statements, which IS a definition of a current liability?
it is a liability that is expected to be settled in an entity's normal operating cycle; it is a liability primarily held for the purpose of trading; it is a liability that is expected to be settled within 12 months of the balance sheet date
What is a contingent asset?
it is a probable asset, arising from past events whose existence is yet to be confirmed definitively by a future event
Accounting professionals may benefit from worldwide accounting diversity because
it makes cross-border auditing more costly and therefore raises auditing fees
In defining meaningful geographic segments for their multinational business operations, company managements disregard
language spoken
ABC Inc incurred costs of $5 million on a two-year fixed price contract for $4 million. What profit or loss should it recognize in the first year of the contract?
loss of $1 million ( expensed immediately)
Inventory should be stated at
lower of cost and net realizable value
A competitor has sued an entity for unauthorized use of its patented technology. THe amount that the entity may be required to pay to the competitor if the competitor succeeds in the lawsuit is determinable with reliability, and according to the legal counsel it is less than probable (but more than remote) that an outflow of the resources would be needed to meet the obligation. THe entity that was sued should at year-end
make a disclosure of the possible obligation in footnotes to the financial statements
Who is least affected by the accounting diversity that exists throughout the world?
managers of domestic corporations
Which is not a qualitative characteristic of financial statements according to the framework?
materiality
monetary-nonmonetary method
monetary assets and liabilities are translated at the current exchange rate; nonmonetary assets and liabilities and stockholders' equity are translated at historical exchange rates; income statement items are translated under procedures similar to current-noncurent framework
information about shares and shareholders
normally includes the company's share ownership structure
In defining meaningful geographic segments for their multinational business operations, company managements take into account
political risk; currency strength, state of economic and social development; economic and social stability
which of the following approaches to TFR is generally the least expensive for a multinational corporation?
preparing convenience translations
Accounting values are important components of international financial statement analysis. Which CAN be regarded as a representative accounting value scale?
professionalism vs. statutory control; uniformity vs. flexibility; conservatism vs. optimism; secrecy vs. transparency
Ratio analysis applied to financial statements
provides expressions of relationships between selected numbers appearing on financial statements
which of the following represents a difference in the classification of current liabilities between IFRS and US GAAP?
refinanced short-term debt; amounts payable on demand due to violation of debt covenants; bank overdrafts
TFR is encouraged by
selling bonds to investors in other countries; listing stocks on stock exchanges outside the home country; borrowing money from foreign banks; investing in the stocks of MNCs
What is TRUE about revenue recognition for multiple deliverable contracts under IFRS?
some arrangements are likely to be different from GAAP; unlike US GAAP, IFRS does not require vendor-specific objective evidence for software contracts in order to separate contracts into multiple deliverables; IFRS focuses on fair values to allocate total revenue to components
under US GAAP, what method of translating foreign currency financial statements must be used for subsidiaries in highly inflationary economies?
temporal method
Which of the following countries' companies prepare comprehensive current cost financial statements or disclose current cost information supplementally because of the influence of business economics on the accounting system?
the Netherlands
US financial accounting and auditing standards influence similar standards in other countries because
the US enjoys a leading position in the world of accounting
according to IAS 37, with respect to onerous contracts, a provision should be recognized for 'unavoidable costs of the contract,' which is defined as
the lower of cost of fulfillment or the penalty from non-fulfillment of the contract
Which of the following criteria DO have to be met in order for an operation to be classified as discontinued?
the operation should represent a separate line of business or geographic area; the operation is part of a single plan to dispose of a separate major line of business or geographical area; the operation is a subsidiary acquired exclusively with a view to resale.
In order for a noncurrent asset to be classified as held for sale, the sale must be highly probable. Highly probable means that
the probability is higher than more likely than not
A user must be careful when using convenience statements of financial reports because
the statements are still in foreign GAAP
why is it difficult to compare IAS 18, Revenue, to US GAAP?
there is no single standard in US GAAP that deals solely with revenue
according to IAS 37, how should contingent assets be recognized?
they should be disclosed in the notes to the financial statements if the inflow of resources is probable
under which circumstances do companies choose the 'do nothing' approach to transnational financial reporting (TFR)?
they use private placements for selling their securities; the accounting principles of their home country are 'world class'; little capital is raised outside the borders of their home country
Why do exchange rates change?
trade balance of payments surpluses or deficits; relative rates of inflation; relative interest rates; and political factors and government intervention
convenience statement
translates the statement into the foreign user's language and retains the home country's accounting principles, but expresses the monetary amounts in the reader's home currency. these are usually translated at the year-end exchange rate. [not 100% sure this is the right definition]
What are several qualitative characteristcs of financla statements according to the framwork?
understandability, comparability, relevance
Transfers from investment property to property, plant, and equipment are appropriate
when there is a change of use
High levels of disclosure in published financial statements are generally found
where businesses raise their capital from a large and diverse investor/creditor group
which is not an approach taken by multinationals to accomodate foreign readers of their financial reports?
world class conversions
