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ACC 425 Midterm > Midterm > Flashcards

Midterm Flashcards

1
Q

What is a multinational company?

A

One headquartered in one country but with significant operations in other countries

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2
Q

What are the three levels of International Accounting?

A

Level 1 : Supranational Accounting, Level 2 Company level, and Level 3 Country Broadest Level

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3
Q

What does supranational denote?

A

Standards, guidelines and rules issued by United Nations, OECD, and International Federation of Accountants

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4
Q

What does company level denote?

A

Standards, guidelines and practices a company follows related to its international business activities

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5
Q

What does country broadest denote?

A

Involves cross country comparisons of (1) rules related to financial reporting (2) income and other tax rates (3) requirements for becoming a member of national accounting profession

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6
Q

Why do companies engage in foreign sales?

A

To grow their revenues and increase their profits

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7
Q

What is the exchange rate?

A

The factor used to convert from one country’s currency to another country’s currency

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8
Q

What is the foreign exchange risk?

A

possibility that a foreign currency will decrease in US value over the life of an asset

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9
Q

What are ways a company can manage/hedge their exposure to foreign exchange risk?

A

Purchase foreign currency options or foreign currency forward contract

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10
Q

What are the reasons companies engage in Foreign Direct Investment?

A

(1) increase sales and profits; (2) enter rapidly growing or emerging markets; (3) reduce costs; (4) protect domestic markets; (5) protect foreign markets (5) acquire technological and managerial know how

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11
Q

What is transfer pricing

A

A method of recording transactions between divisions within the same company

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12
Q

What is performance evaluation?

A

The process of evaluation performance is not directly transferable to a foreign subsidiary

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13
Q

When internal auditing a multinational company what must you be concerned with?

A

Must be familiar with language, customs and practices

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14
Q

When external auditing a multinational company what must you be concerned with?

A

Must have expertise in various sets of financial accounting rules and auditing standards in various jurisdictions

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15
Q

What is IFRS?

A

A set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements

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16
Q

What are the factors influencing a country’s financial report practices?

A

(1) legal system - common law countries non legislative organization developing accounting standards, detailed rules are developed. Code law countries accounting law tend to be general; (2) taxation - financial statements are adjusted for tax basis in some companies others it forms the basis for tax purposes; (3) providers of financing; (4) inflation; (5) political and economic ties; (6) correlation of factors

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17
Q

What are the accounting diversity challenges?

A

(1) preparation of consolidated financial statements by companies with foreign operations; (2) access to foreign capital markets; (3) comparability of financial statements; (4) lack of high quality accounting information

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18
Q

What is harmonization?

A

Reducing the alternatives while retaining a high degree of flexibility in accounting practices

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19
Q

What is de jure harmonization?

A

Process of making accounting regulations or standards consistent internationally

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20
Q

What is de facto harmonization?

A

Process of making accounting practices consistent across countries

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21
Q

What is convergence?

A

Process takes place over a period of time - implies adoption of one set of standards internationally

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22
Q

Who is responsible for administering the EU?

A

European Commission

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23
Q

What was the aim of the EU

A

Create a unified business environment

24
Q

What is the sole responsibility of IASB?

A

To develop and issue International Financial Reporting Standards and exposure drafts

25
Q

What does the board consist of?

A

16 members, 13 full-time; selected based on professional competence and experience

26
Q

What are the characteristics that make financial statement information useful

A

(1) understandability; (2) relevance; (3) reliability; (4) comparability;

27
Q

What does first time adoption of IFRS require?

A

(1) recognized all assets and liabilities; (2) derecognize items previously recognized as assets or liabilities; (3) reclassify items that it recognized as assets or liabilities; (4) apply IFRS in measuring all recognized assets and liabilities; (5) in specific areas where the cost of compliance exceeds the benefits to users IFRS provide exemptions from complying with IFRS.

28
Q

What are the arguments for convergence?

A

(1) comparability of financial statements worldwide is necessary (2) simplify the evaluation by multinational companies (3) reduce financial reporting costs for companies (4) National differences in corporate reporting cause loss in investor confidence; (5) one set of universally accepted accounting standards would reduce cost of preparing financial statements (6) multinational companies would find it easier to transfer accounting staff (7) raise the quality level of accounting practices internationally

29
Q

What are the arguments against convergence?

A

National entities will not bow to any international body

30
Q

What did SEC policy on IFRS change to?

A

Foreign private issuers are not required to reconcile their financial statements to U.S GAAP

31
Q

Type of differences between IFRS and US GAAP

A

definition, recognition, measurement, alternatives, lack of requirement or guidance, presentation, disclosure,

32
Q

Does IFRS allow LIFO

A

No

33
Q

Between IFRS and GAAP which is rules based and which is principle based?

A

IFRS - principles based; GAAP - rule based

34
Q

How does IFRS handle inventories?

A
  1. cost of inventories are segregated 2. entity must use same cost formula for all inventories 3. lower of cost or net realizable value
35
Q

What is fair market value?

A

The amount for which an asset could be exchanged between knowledgeable willing parties

36
Q

What is derecognition?

A

The removal of an asset or liability from the balance sheet and the accounts - included in net income

37
Q

What is the difference between GAAP impairment and IFRS impairment

A

GAAP - impairment exists when carrying amount exceeds future cash flows - IFRS - requires impairment testing and recognition of impairment losses

38
Q

What are intangible assets?

A

Identifiable non monetary assets without physical substance held for use in the production of goods or services

39
Q

How is goodwill recognized?

A

Recognized only in a business combination and is measured by the difference between consideration transferred and fair value of net assets acquired

40
Q

What is a provision?

A

A liability of uncertain timing or amount

41
Q

When are contingent liabilities disclosed?

A

When there is more than a remote possibility of an outflow of resources

42
Q

What is the % threshold for recognizing liabilities?

A

When the threshold is over 50 percent

43
Q

What is restructuring?

A

program that is planned and controlled by management and materially changes either the scope of business undertaken by an entity

44
Q

What are contingent assets?

A

It is a probably assets, arising from past events

45
Q

What is difference in terms of service cost under IFRS and US GAAP

A

IFRS - past service cost is expenses immediately GAAP - past service cost is amortized over the remaining expected life.

46
Q

What is float?

A

when currency is allowed to increase or decrease in value relative to other currencies

47
Q

What does ‘pegged to another currency’

A

value of currency is fixed in term of a particular foreign currency

48
Q

What is the European Monetary system?

A

Common currency called the euro used in several european countries

49
Q

What is direct quotes?

A

US dollar price for one unit of foreign currency

50
Q

What is indirect quotes?

A

number of foreign currency units that are purchased with one us dollar

51
Q

What is the spot rate>?

A

price at which a foreign currency can be purchased or sold today

52
Q

What is the forward rate?

A

price today at which a foreign currency can be purchased or sold sometime in the future

53
Q

Can a forward rate exceed a spot rate?

A

Yes

54
Q

What is hedging?

A

the process of reducing foreign exchange risk?

55
Q

What is hedge accounting?

A

matching gains or losses from hedging with losses or gains from risk being hedged

56
Q

What are the translation methods for financial statements?

A
  1. current/non current 2. monetary/nonmonetary 3. temporal and current rate

ACC 425 Midterm (1 decks)

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