Global Financial Reporting
Chapter Exam Questions
Course Introduction
Global Financial Reporting examines the principles, standards, and practices that govern the preparation and presentation of financial statements in an international context. The course covers International Financial Reporting Standards (IFRS), their adoption across different countries, and how they compare to national accounting frameworks such as US GAAP. Students will explore key issues in financial reporting, including consolidation, foreign currency translation, segment reporting, and disclosures for multinational enterprises. Emphasis is placed on understanding the impact of global finance, regulatory bodies, and cultural differences on financial reporting, equipping students with the knowledge to analyze and interpret financial information in a global business environment.
Recommended Textbook
International Accounting 5th Edition by Frederick
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D. S. Choi
Page 2
Chapter 1: Introduction to International Accounting
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Q1) The number of companies involved in international trade has grown significantly in recent years. What percent of U.S. exporters are relatively small companies (i.e. less than 500 employees)?
A) Less than 5%
B) 10%
C) 25%
D) More than 90%
Answer: D
Q2) Which of the following statements is true about U.S. taxation of foreign subsidiaries?
A) The U.S. income taxes income generated by subsidiaries incorporated in foreign countries.
B) U.S. multinationals do not pay tax on their worldwide income if incorporated in the U.S.
C) Transfer pricing will eliminate taxes by the U.S. government on multinational corporations.
D) U.S. tax on foreign operations does not have to be paid until the income is brought back to the U.S.
Answer: D
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Chapter 2: Worldwide Accounting Diversity
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Q1) In code law countries such as Germany, France, and Japan, tax law and accounting standards tend to be:
A) unrelated.
B) very different.
C) general.
D) detail oriented.
Answer: C
Q2) A cultural preference for accounting systems that rely on compliance with legal requirements is called:
A) professionalism.
B) uniformity.
C) statutory control.
D) optimism.
Answer: C
Q3) 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
Answer: B
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Chapter 3: International Convergence of Financial Reporting
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Q1) The "Seventh Directive" issued by the European Commission is a statement to the European Union (EU) members concerning:
A) adoption of the euro as the currency used throughout the EU.
B) consolidated financial statements.
C) rules for valuation, financial statement disclosures, and financial statement format.
D) authority of the European Commission to pass laws.
Answer: B
Q2) In addition to the International Accounting Standards Committee (IASC), which of the following organizations was considered to be one of the two most important forces in efforts to harmonize accounting standards?
A) U.S. Financial Accounting Standards Board (FASB)
B) United Nations (UN)
C) North Atlantic Treaty Organization (NATO)
D) European Union (EU)
Answer: D
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Page 5
Chapter 4: International Financial Reporting Standards:
Part I
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Q1) How does IAS 38 (Intangible Assets) differ from U.S. GAAP with respect to development costs?
A) U.S. GAAP does not allow capitalization of development costs, whereas IAS 38 allows capitalization of these costs.
B) U.S. GAAP requires capitalization of development costs, whereas IAS 38 makes capitalization of these costs optional.
C) U.S. GAAP treats development costs as part of "Goodwill", whereas IAS 38 treats these costs as an intangible asset.
D) U.S. GAAP requires expensing of all development costs, and IAS 38 requires capitalizing all development costs.
Q2) Rive Rouge Confections Company incurred 5,000,000 to determine if chocolate could be made to resist melting by adding certain inert minerals to the mixture.
According to IAS 38, how should Rive Rouge record this cost?
A) It should be capitalized as a deferred development cost.
B) It should be treated as a cost of products it currently markets.
C) It should be expensed currently.
D) It should be amortized over 20 years.
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Page 6
Chapter 5: International Financial Reporting Standards:
Part II
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Q1) Under U.S. GAAP, a deferred tax asset must be realized when:
A) realization is probable.
B) realization is possible.
C) realization is more likely than not.
D) realization is greater than 75% likely.
Q2) Under IAS 12, Income Taxes, how is the relationship between a hypothetical tax expense based on statutory rates and reported tax expense based on the effective tax rate explained?
A) A numerical reconciliation between tax expense based on the statutory rate in the home country and tax expense based on the effective tax rate must be presented.
B) A numerical reconciliation between tax expense based on the weighted-average statutory rate across jurisdictions in which the company pays income taxes and tax expense based on the effective tax rate must be presented.
C) Both (A) and (B) can be acceptable explanations.
D) Neither (A) nor (B) are acceptable explanations.
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Chapter 6: Foreign Currency Transactions and Hedging
Foreign Exchange Risk
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Q1) What is a foreign currency transaction?
A) It is another name for an international transaction.
B) It is a transaction that involves payment at a date sometime in the future.
C) It is a business deal denominated in a currency other than a company's domestic currency.
D) It is an economic event measured in a currency other than U.S. dollars.
Q2) Why was there very little fluctuation in the foreign exchange rate in the period 1945-1973?
A) This was a period when the world economy was very stable.
B) There was very little growth in the world economy between 1945 and 1973.
C) Countries linked their currency to the U.S. dollar, which was backed by gold reserves.
D) Most currencies were pegged to the British pound, which could be converted to sterling silver.
Q3) A noncancelable sales order that specifies foreign currency price and date of delivery is known as a:
A) hedge.
B) foreign currency firm commitment.
C) forward contract.
D) put option.
Page 8
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Chapter 7: Translation of Foreign Currency Financial Statements
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Q1) When would the balance sheet exposure arising from the current rate method become realized?
A) It is realized once the financial statements of the foreign operation and the parent are consolidated.
B) It is realized any time the historical exchange rate is different from the spot rate at the balance sheet date.
C) It is realized when the foreign operation is sold at book value and the proceeds are converted into parent company currency.
D) It can never be realized because it is only the result of the choice of accounting methods and does not reflect real exposure.
Q2) Which of the following methods for translating foreign currency financial statements is required under IAS 21?
A) Current rate method.
B) Temporal method.
C) Current rate method or temporal method, depending on the functional currency of the subsidiary.
D) Current rate method or temporal method must be chosen by management of the parent.
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Chapter 8: International Taxation
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Q1) A Japanese branch of a U.S. corporation paid $4,200,000 in taxes to the government of Japan on income it generated there. The corporation is subject to a 35% tax rate in the U.S. How much tax will be owed to the U.S. government on the $10,000,000 of Japanese branch income?
A) $4,200,000
B) $3,500,000
C) $0
D) $7,000,000
Q2) Under U.S. tax laws, how are taxes paid by U.S. corporations to foreign governments treated?
A) Total domestic taxes paid in U.S. are deductions in calculating taxable income.
B) Domestic income taxes owed are credits against U.S. taxes owed.
C) Taxpayers may choose to deduct total foreign taxes paid or take credit for foreign income taxes.
D) None of the above
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Chapter 9: International Transfer Pricing
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Q1) What is the advantage of an advance pricing agreement?
A) IRS (Internal Revenue Service) will not challenge the transfer price after the tax return is filed if the agreement is followed.
B) Worldwide taxes will be minimized.
C) The brief form explaining the transfer price to be used can be completed with minimal effort by the taxpayer but will reduce a tremendous amount of work later.
D) All of the above are advantages of APA.
Q2) Of the signals that may cause a taxing authority to audit a company's transfer price, which one is the most important?
A) The nature of the business of the multinational corporation
B) Unexpectedly low profit
C) Profits higher than expected for a specific industry
D) Parent company located in an emerging economy
Q3) The "price" for using intangible property is called:
A) interest.
B) rent.
C) royalty.
D) service charge.
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Chapter 10: Management Accounting Issues in Multinational Corporations
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Q1) What is a capital investment?
A) Using money to buy goods or services
B) Issuing shares of stock of the corporation
C) Authorizing and issuing shares of common stock by a multinational corporation
D) Committing resources to projects that have long period costs and benefits
Q2) What discount rate should be used for calculating net present values of capital investment alternatives?
A) Corporate borrowing rate
B) Desired rate of return
C) Internal rate of return
D) Corporation's return on investment
Q3) Which of the following items are controlled by the parent company?
A) Lost production due to labor strikes
B) Foreign exchange losses
C) Sales revenue determined by discretionary transfer pricing
D) Restrictions on foreign exchange spending
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Chapter 11: Auditing and Corporate Governance: An International Perspective
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Q1) The Institute of Chartered Accountants in New Zealand (ICANZ) proposed a policy of proportionate liability to replace the country's existing "joint and several liability" approach. Why was the proposal denied?
A) Proportionate responsibility for damages cannot be determined objectively.
B) Fairness to the defendants was not relevant to ensuring fairness to the injured party.
C) Large auditing firms would be paying proportionately higher damage awards than small firms.
D) Such a policy is inconsistent with harmonization of international auditing standards.
Q2) What term is used to describe the relationships between a company's management, its board, shareholders, and other stakeholders that create a structure through which the objectives of the company are set, attained, and monitored?
A) Management control
B) Corporate governance
C) Internal auditing
D) Government regulation
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Chapter 12: International Sustainability Reporting
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Q1) Imagine that two firms who burn massive amounts of fossil fuel during their daily operations are merged to create a single company. Which of these statements is accurate?
A) Their environmental performance scores will automatically suffer because the scale of their emissions will grow
B) The measurement of the new company's emissions intensity will be scaled by a size variable, such as units produced or sales revenue
C) Their environmental performance may be enhanced by streamlining operations and pooling R&D insights
D) The measurement of the new company's emissions intensity will be scaled by a size variable, such as units produced or sales revenue & Their environmental performance may be enhanced by streamlining operations and pooling R&D insights
Q2) ESG is an acronym for:
A) Environmentally Specific Gases
B) Environmental, Social, and Governance
C) European Sustainability Goals
D) Ecologically Safe Groundwater
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