Multiple Choice Questions

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Multiple Choice Questions

• What is the equivalent of the common stock account on a U.S. balance sheet on the balance sheet

of a British company?

• Capital redemption reserve

• Share premium account

• Own shares held

• Called-up share capital

• What does "harmonization" mean in the context of international accounting?

• The process of combining the financial statements of foreign subsidiaries into the parent

company's financial statements

• The process of reducing accounting differences across countries

• Disclosing the accounting methods used in preparing the financial statements

• Assessing the exposure resulting from inadequate internal controls

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• 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?

• Professionalism

• Statutory control

• Uniformity

• Transparency

• Which of the following is NOT a problem caused by accounting diversity?

• Lack of qualified international auditors

• Preparation of consolidated financial statements

• Access to foreign capital markets

• Comparability of financial statements

• Differences in legal systems used in various countries have been cited as one reason for diversity in

accounting practices. What are the major types of legal systems?

• Commercial law and accounting law

• Rules and regulations

• Written law and unwritten law

• Common law and code law

6. The accounting standards in code law countries tend to be:

• very detailed.

• formulated by organizations such as the FASB.

• stated generally without much guidance on accounting procedures.

• very conservative.

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• What is likely to be the source of accounting standards in common law countries?

• Tax law

• Non-government entities such as the FASB

• Federal and local legislatures

• The International Accounting Standards Board

• What is the likely result when accounting rules are left up to professional associations rather than

being legislated by governmental bodies?

• Very general accounting rules are created, as in code law countries.

• Very detailed rules for practice are created, as in common law countries.

• Very general accounting rules are created, as in common law countries.

• Very detailed rules for practice are created, as in code law countries.

• Relative to accounting standards in countries such as Germany, whose accounting laws are only 47

pages long, accounting practice in the U.S. is often described as being subject to:

• standards overload.

• standards minimization.

• the optimal amount of accounting regulation.

• ideal accounting standards.

• In code law countries such as Germany, France, and Japan, tax law and accounting standards tend

to be:

• unrelated.

• very different.

• general.

• detail oriented.

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• 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 disclosure 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

• In countries such as the U.S., there is great demand for public disclosure of accounting

information. What is the reason for this?

• Corporate management isn't trustworthy.

• Businesses rely heavily on financing through issuance of stock to the public.

• The American populace is better able to read financial statements than people in other

countries.

• U.S. government officials are generally members of corporate boards of directors and can get

all the information they require.

• Historical cost is the primary basis for asset valuation under U.S. GAAP. Why is historical cost NOT

as important in the accounting systems of Latin America as in the U.S.?

• Historical costs are too difficult to calculate in the currencies used in Central and South America.

• The countries of Latin America have experienced very high rates of inflation, which would make

historical costs meaningless to readers of financial statements.

• There is very little foreign direct investment in the countries of Latin America, so few assets need

to be accounted for.

• In Latin America, asset prices are very stable, making historical costs equal to replacement costs,

so it doesn't matter which valuation basis is used.