Part 1: Ch1 International financial reporting

Question 1

Define accounting

Answer 1

systematic gathering and organization of information about the financial positions, the performance and the cash flows of an entity

Question 2

Difference between individual and consolidated financial statements

Answer 2

Individual: financial statements of ONE entity
Consolidated: financial statements of a GROUP OF ENTITIES presented as one entity

Question 3

Define managerial accounting

Answer 3

financial information used for INTERNAL purposes

ex: to provide information of management decisions

Question 4

Differences in accounting systems

Answer 4

• Basic concepts remain the same for every country

- differences are found in presentation and disclosure, specific accounting rules and methods

Question 5

Reasons for differences in financial reporting

Answer 5

-Because of specific conditions and circumstances of an environment

Question 6

Pros of harmonizing financial reporting

Answer 6

• Comparability: worldwide comparability of financial statements
• Credibility: increased credibility
• facilitate preparation of consolidated financial statements of international companies
• access to foreign capital markets
• increase efficiency

Question 7

Cons of harmonizing financial reporting

Answer 7

• cost of education and implication due to a new financial reporting system
• not adapted to specific environments
• less useful to smaller companies because of its focus on international firms and issues

Question 8

EU directives

Answer 8

• harmonization fits in the general EU objective of free movement of persons, capital and goods.
• significant differences remain significant even after the implementation of EU directives
  Specific arguments:
• facilitate investing and financing
  lowe efforts of preparing consolidated financial statements
• improve mergers and acquisitions
  provide basis for macro-economic accounting
• Set the first step towards European tax harmonization

Question 9

Simmonds and Azieres (1989) + Radebeaugh and Grey (1993)

Answer 9

• Conducted by German researchers. Research done after the harmonization in the EU. They took the financial statement of Hero AG and calculated the profit based on different European countries. UK is very optimistic and Germany is very prudent.
• Conducted by American researchers. Same research but calculated for a sample of European companies the result based on the most common accounting principles.