Final Exam

Question 1

What is balance sheet exposure?

Answer 1

When assets translated at current exchange rate are greater than liabilities translated at current exchange rate

Question 2

Does the current / non current method exist under IFRS and GAAP

Answer 2

No

Question 3

What is the temporal method?

Answer 3

Produces a set of parent currency translated financial statements as if foreign subsidiary had actually use the parent curreny

Question 4

What is current rate method?

Answer 4

Parent’s entire investment in a foreign operation is exposed to foreign exchange risk and translation of the financial statement should reflect this risk

Question 5

How are equity accounts translated?

Answer 5

Historical rates

Question 6

What is functional currency determination?

Answer 6

Determines whether company used temporal or current rate translation. Functional is primary currency of foreign entity’s environment

Question 7

What is the U.S Dollar Perspective to translation?

Answer 7

Reflects integrated nature of foreign subsidary with its US parent. Companies would carry their operations out in US Dollars if they could

Question 8

What is the local currency perspective?

Answer 8

Foreign entitites are self contained and integrated with local economy and primarily use foreign currency in their daily operations

Question 9

What is inflation?

Answer 9

General increase in the prices of goods and services in an economy

Question 10

Is inflation accounting required under US GAAP

Answer 10

No

Question 11

Holding monetary assets during inflation results in?

Answer 11

Purchase power loss

Question 12

Holding monetary liabilities during inflation results in?

Answer 12

Purchase power gains

Question 13

What is the treshold for determining significant influence in an associate enterprise?

Answer 13

20%

Question 14

How do multinational corporations combine?

Answer 14

1. acquired firm dissolved and merged into acquiring company 2. one company acquires majority shares of another. 3. both companies dissolve and merge to create a new corporation

Question 15

Three reasons for analyzing foreign financial statements?

Answer 15

1. making credit decisions 2. evaluating international business combinations. 3. diversifying an investment portfolio

Question 16

What is diversification?

Answer 16

investing in several corporate stocks that have different characteristics

Question 17

What is the optimal tax objective of multinational corporations?

Answer 17

Minimize worldwide taxes paid within limitations of tax law

Question 18

What two primary taxes are imposed on profit?

Answer 18

Corporate income tax and withholding tax

Question 19

Do all governments impose a direct tax on business income?

Answer 19

No

Question 20

What is a tax haven?

Answer 20

Jurisdiction where taxes are abnormally low

Question 21

What are withholding taxes?

Answer 21

Amount taken from dividends of foreign investor remitted to government

Question 22

What is thin capitalization?

Answer 22

Minimizing amount of equity capital used to fund foreign operations

Question 23

How is a decentralized organization structured?

Answer 23

A delegation of decision making authority

Question 24

What is goal congruence?

Answer 24

Creating incentives for managers to make decisions that are consistent with corporate goals

Question 25

What is an upstream transfer?

Answer 25

From a subsidiary to parent

Question 26

What is a downstream transfer?

Answer 26

From a parent to subsidiary

Question 27

What is a discretionary transfer price?

Answer 27

Transfer price set by management of a parent company than by subsidiary managers

Question 28

How can cost minimization objectives be achieved?

Answer 28

Used through discretionary transfer pricing

Question 29

How does a company avoid withholding taxes?

Answer 29

Cash is transferred in the form of sales price from subsidiary by its parent or other affliates

Question 30

How does a company minimize import duties (tarriffs)

Answer 30

Transfer goods to foreign operation at lower price

Question 31

How does U.S transfer pricing rules work?

Answer 31

IRS can audit international transfer prices and adjust a company's tax liability if price is inappropriate

Question 32

What is the penalty under Gross valuation misstatement?

Answer 32

40%

Question 33

What is strategic planning?

Answer 33

determining a firm's long term goals and objectives, adopting a course of action and allocating resources required to achieve goals

Question 34

What is strategy formulation?

Answer 34

process of revising existing goals and adopting new goals

Question 35

What is an operating budget?

Answer 35

plan for next year expressed in quantitative terms

Question 36

How does accounting operate in formulating strategy?

Answer 36

1. quantifying opportunities and threats 2. preparing budgets 3. making estimates of cost and benefits

Question 37

What are capital investments?

Answer 37

Committed resources to projects that have cost and benefits into the future

Question 38

What is capital budgeting?

Answer 38

Process of identifying, evaluating, and selecting projects that require substantial amounts of resources and expected to generate benefits for years to come

Question 39

What is financial risk?

Answer 39

possibility of loss due to unexpected changes in currency values or interest rates`

Question 40

What is corporate governance?

Answer 40

Relationships between a company's management, board, shareholders, and other stakeholders that create a structure where objectives are set, attained and monitored

Question 41

Who are external auditors response to?

Answer 41

Stockholders

Question 42

What does OECD stand for?

Answer 42

Organization for Economic Cooperation and Development

Question 43

What is the responsibilities of an Audit Committee?

Answer 43

1. oversee internal control system 2. oversee internal auditing and independent public accounting function 3. monitor financial reporting process

Question 44

What is the role of internal auditing?

Answer 44

provide assurance and consulting services to improve organization's operations

Question 45

What does the SEC require of all companies?

Answer 45

They have an internal audit function

Question 46

What are audit reports?

Answer 46

primary tool used to communicate with financial statement users about results of audit function.