Chapter 2 Flashcards
What is the equivalent of U.S. balance sheet common stock on the balance sheet of a British company? A) Capital redemption reserve B) Share premium account C) Own shares held D) Called-up share capital
D) Called-up share capital
Which of the following is not a problem caused by accounting diversity?
A) Lack of qualified international auditors
B) Preparation of consolidated financial statements
C) Access to foreign capital markets
D) Comparability of financial statements
A) Lack of qualified international auditors
Differences in legal systems used in various countries have been cited as one reason for diversity in accounting practice. What are the major types of legal systems? A) commercial law and accounting law B) rules and regulations C) written law and unwritten law D) common law and code law
D) common law and code law
The accounting standards in code law countries tend to be:
A) very detailed.
B) formulated by organizations such as the FASB.
C) stated broadly without much guidance on accounting procedures.
D) very conservative.
C) stated broadly without much guidance on accounting procedures.
What is likely to be the source of accounting standards in common law countries?
A) Tax law
B) Non-government entities such as the FASB
C) Federal and local legislatures
D) The International Accounting Standards Board
B) Non-government entities such as the FASB
When accounting rules are left up to professional associations rather than being legislated by governmental bodies, what is the likely result?
A) Very general accounting rules are created, as in code law countries.
B) Very detailed rules for practice are created, as in common law countries.
C) Very general accounting rules are created, as in common law countries.
D) Very detailed rules for practice are created, as in code law countries.
B) Very detailed rules for practice are created, as in common 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:
A) standards overload.
B) standards minimization.
C) the optimal amount of accounting regulation.
D) ideal accounting standards.
A) standards overload.
In code law countries such as Germany, France, and Japan, tax law and accounting standards tend to be:
A) unrelated.
B) very different.
C) similar.
D) more confusing than those in the U.S.
C) similar.
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?
A) Relatively little because the public isn’t a major factor
B) A great deal of disclosure because it will be the only way for interested parties to learn about the company
C) Complete openness of accounting records
D) No disclosure at all
A) Relatively little because the public isn’t a major factor
In countries such as the U. S., there is great demand for public disclosure of accounting information. What is the reason for this?
A) Corporate management isn’t trustworthy.
B) Businesses rely heavily on financing through issuance of stock to the public.
C) The American populace is better able to read financial statements than people in other countries.
D) U.S. government officials are generally members of corporate boards of directors and can get all the information they require.
B) Businesses rely heavily on financing through issuance of stock to the public.
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.?
A) Historical costs are too difficult to calculate in the currencies used in Central and South America.
B) The countries of Latin America have experienced very high rates of inflation, which would make historical costs meaningless to readers of financial statements.
C) There is very little foreign direct investment in the countries of Latin America, so few assets need to be accounted for.
D) 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.
B) The countries of Latin America have experienced very high rates of inflation, which would make historical costs meaningless to readers of financial statements.
What does “harmonization” mean in the context of international accounting?
A) The process of combining the financial statements of foreign subsidiaries into the parent company’s financial statements
B) Reducing the diversity of accounting standards
C) Disclosing the accounting methods used in preparing the financial statements
D) Assessing the exposure resulting from inadequate internal controls
B) Reducing the diversity of accounting standards
The extent to which hierarchy and unequal authority distribution in institutions and organizations are accepted within a culture is referred to as: A) Uncertainty avoidance. B) Masculinity. C) Individualism. D) Power distance.
D) Power distance.
A cultural preference for loosely knit social fabric rather than tightly knit social fabric is referred to by the term: A) Uncertainty avoidance. B) Masculinity. C) Individualism. D) Power distance.
C) Individualism.
A cultural emphasis on values of performance and achievement rather than values of relationships, caring, and nurturing is referred to as: A) Uncertainty avoidance. B) Masculinity. C) Individualism. D) Power distance.
B) Masculinity.
What term is used to refer to a cultural aversion to ambiguous situations? A) Uncertainty avoidance. B) Masculinity. C) Power distance. D) Individualism.
A) Uncertainty avoidance.
A cultural preference for accounting systems that rely on compliance with legal requirements is called: A) Professionalism. B) Uniformity. C) Statutory control. D) Optimism.
C) Statutory control
Countries such as the U.S. tend to value self-regulation of accounting. What term is used to define this subculture? A) Uniformity B) Flexibility C) Conservatism D) Professionalism
D) Professionalism
What does “transparency” mean in accounting?
A) An emphasis on confidentiality
B) Restricted disclosure of accounting information
C) Flexibility in the application of accounting standards
D) Openness of accounting information
D) Openness of accounting information
What term is used to describe accounting standards that encourage risk-taking in financial reporting? A) Optimism B) Conservatism C) Professionalism D) Transparency
A) Optimism
