Ch3 International Accounting Exam Questions

Chapter 3

Multiple Choice

• 1. Which of the following is not an environmental factor that could impact on the development of a country’s accounting system?
     • • 1. Level of education
         2. Political system
         3. Geographic location
         4. Legal system
  2. What is the current acronym for the body most responsible for issuing international accounting standards?
     1. IASB
     2. SEC
     3. FASB
     4. IASC
  3. How many trustees serve on the IFRS Foundation?
     1. 16
     2. 18
     3. 20
     4. 22
  4. How many members serve on the IASB?
     1. 16
     2. 18
     3. 20
     4. 22
  5. How many member serve on the Accounting Standards Advisory Forum?

a. 12

b. 14

c. 20

d. 22

• 1. Which of the following bodies has the responsibility to issue international financial reporting standards (IFRS)?

1. The International Financial Reporting Interpretations Committee
2. The International Standards Advisory Council
3. The IASC Foundation
4. The International Accounting Standards Board
   1. Which of the following is not a use of international accounting standards?
5. As national requirements.
6. As standards to be violated to improve intercountry comparability.
7. As an international benchmark for those countries that develop their own requirements.
8. By regulatory authorities for domestic and foreign companies
   1. How does the IASC enforce its standards?
      1. Through, the International Organization of Securities Commission
      2. Through the concept of best endeavors
      3. Through the Securities and Exchange Commission
      4. Through the Financial Accounting Standards Board
   2. What is the name given to the agreement between the FASB and IASC to harmonize accounting standards?
      1. The Norwalk Agreement
      2. The London agreement
      3. The Washington D C agreement
      4. The Paris Accords
   3. Which of the following is not an effect of the IFRS for SMEs?
      1. It omits topics in IFRS that are not relevant to SMEs
      2. It allows the easier option when IFRS permits accounting policy choices
      3. It simplifies many principles for recognizing and measuring assets, liabilities, income, and expenses
      4. It requires significantly greater disclosures
   4. What is the title of the form that foreign companies have used to reconcile their financial statements to U. S. GAAP?
      1. Form 10-K
      2. Form 10-Q
      3. Form SX
      4. Form 20-F
   5. Which of the following is not one of the characteristics discussed in Chapter 2 - Qualitative Characteristics of Useful Financial Information of the IASB’s Framework for the Preparation of Financial Statements?
      1. Understandability
      2. Faithful representation
      3. Relevance
      4. Reliability
   6. Which of the following is not an element of financial statements contained in the IASB’s Framework for the Preparation of Financial Statements?
      1. Gain
      2. Income
      3. Expense
      4. Asset
   7. Which of the following is seen as a pervasive difference between IASB’s and FASB’s Conceptual Frameworks?
      1. Definition of elements
      2. Number of qualitative characteristics
      3. Scope of authority
      4. Level of detail
   8. Which of the following concepts is contained in the FASB’s conceptual framework but not in the IASC’s
      1. Expense
      2. Gain
      3. Asset
      4. Liability

16. Which of the following is an element of financial statements under the IASB’s conceptual framework?

a. Losses

b. Comprehensive income

c. Investment by owners

d. Equity

17. Under the IASB’s conceptual framework, a decrease in economic benefit that results in a decrease in equity is termed as a(an):

a. Distributions to owners

b. Loss of economic benefit

c. Comprehensive loss

d. Expense

18. Which of the following statements is true regarding the conceptual frameworks developed by FASB and IASB?

a. The economic entity assumption is not part of either framework

b. The monetary unit assumption is part of each framework and the U.S. dollar is established as the common unit of currency.

c. Both have similar measurement principles based on historical cost and fair value.

d. The conceptual frameworks underlying U.S. GAAP and IFRS are dissimilar.

19. Under IFRS

a. The going concern assumption is used.

b. The conceptual framework is similar to the conceptual framework under GAAP

c. Companies may apply fair value to natural resources

1. Companies that use IFRS:
   1. Are allowed to report property, plant, and equipment and natural resources at fair value on their financial statements
   2. May only use historical cost as the measurement basis in financial reporting
   3. Are required to report all their assets on the statement of financial position at fair value
   4. May utilize the framework in a statement of concepts to estimate fair values when market data are not available.
2. Which of the following is not a chapter of the IASB Framework?
   1. The objective of financial statements
   2. The elements of financial statements
   3. Concepts of capital and capital maintenance
   4. Concepts of income and expenditure

22. Which of the following statements regarding Chapter 4 - The Elements of Financial Statements of the IASB’s conceptual framework is false?

1. The focus of the definitions of assets and liabilities moved to the existence of a right (or an obligation) that has the potential to produce (or require an entity to transfer) economic benefits.
2. It requires that a present obligation be as a result of past events.
3. It changes how an entity distinguishes between a liability and an equity instrument.
4. It removes of the reference to the expected flow of economic benefits in defining assets and liabilities.
5. Which of the following is not a criterion for an element to be recognized according to Chapter 5 - Recognition and Derecognition of the IASB’s conceptual framework?
6. It provides a reliability measurement threshold
7. It provides relevant information
8. It can be measured
9. It faithfully represents the underlying transaction
10. Chapter 6 – Measurement of the IASB’s conceptual framework includes a discussion of which of the following measurement bases?
11. Historical cost
12. Fair value
13. Value in use
14. All the above

25. Which of the following statements regarding Chapter 4 - The Elements of Financial Statements of the IASB’s conceptual framework is false?

a. The focus of the definitions of assets and liabilities moved to the existence of a right (or an obligation) that has the potential to produce (or require an entity to transfer) economic benefits.

b. It requires that a present obligation be as a result of past events.

c. It changes how an entity distinguishes between a liability and an equity instrument.

d. It removes of the reference to the expected flow of economic benefits in defining assets and liabilities.

26. Chapter 7 - Presentation and Disclosure of the IASB’s conceptual framework indicates that the _____ is the primary source of information about an entity’s financial performance for the reporting period.

1. Balance sheet
2. Income statement
3. Statement of owners’ equity
4. Statement of comprehensive income

Essay

• • 1. Discuss the environmental factors that impact on the development of a country’s accounting system.
    2. Discuss the approaches a company might take when issuing financial reports to users in foreign countries.

1. Send the same set of financial statements to all users (domestic or foreign).
2. Translate the financial statements sent to foreign users into the language of the foreign nation’s users.
3. Translate the financial statements sent to foreign users into the foreign nation’s language and currency.
4. Prepare two sets of financial statements, one using the home country language, currency, and accounting principles, the second using the language, currency, and accounting principles of the foreign country’s users.
5. Prepare one set of financial statements based on worldwide accepted accounting principles
   • 1. What is the purpose of the International Accounting Standards Board?
     2. Discuss the factors that have contributed to the need for new approaches to international standard setting.
6. A rapid growth in international capital markets, combined with an increase in cross-border listings and cross-border investment. These issues have led to efforts by securities regulators to develop a common “passport” for cross-border securities listings and to achieve greater comparability in financial reporting.
7. The efforts of global organizations (such as the World Trade Organization) and regional bodies (such as the European Union, NAFTA, MERCOSUR [the southern common market countries of Argentina, Brazil, Paraguay, and Uruguay], and Asia-Pacific Economic Cooperation) to dismantle barriers to international trade.
8. A trend toward the internationalization of business regulation.
9. The increasing influence of international accounting standards on national accounting requirements and practice.
10. The acceleration of innovation in business transactions.
11. Users’ increasing demands for new types of financial and other performance information.
12. New developments in the electronic distribution of financial and other performance information.
13. A growing need for relevant and reliable financial and other performance information both in countries in transition from planned economies to market economies and in developing newly industrialized economies
    • 1. Outline the steps in the IASB’s standard-setting process.
      2. Discuss the IASB’s annual improvements project.
    1. Discuss the composition and role of The International Accounting Standards Board.
    2. Discuss the duties of the trustees of the International Accounting Standards Committee Foundation.
14. Appointing the members of the Board, including those who will serve in liaison capacities with national standard setters, and establish their contracts of service and performance criteria.
15. Appointing the members of the Standing Interpretations Committee and the Standards Advisory Council.
16. Reviewing annually the strategy of the IASB and its effectiveness.
17. Approving annually the budget of the IASB and determine the basis for funding.
18. Reviewing broad strategic issues affecting accounting standards, promote IASB and its work, and promote the objective of rigorous application of International Accounting Standards, provided that the trustees shall be excluded from involvement in technical matters relating to accounting standards.
19. Establishing and amending operating procedures for the Board, the Standing Interpretations Committee, and the Standards Advisory Council (SAC).
20. Approving amendments to this constitution after following a due process, including consultation with the SAC and publication of an exposure draft for public comment.
    1. Discuss the role of The International Financial Reporting Interpretations Committee
    2. In 2013 a new organization, the Accounting Standards Advisory Forum (ASAF), was added to the IASB’s organizational structure. What is the purpose of the ASAF?
       1. Support the IFRS Foundation in its objectives, and contribute toward the development, in the public interest, of a single set of high‐quality understandable, enforceable, and globally accepted financial reporting standards to serve investors and other market participants in making informed resource allocations and other economic decisions.
       2. Formalize and streamline the IASB’s collective engagement with the global community of national standard setters and regional bodies in its standard‐setting process to ensure that a broad range of national and regional input on major technical issues related to the IASB’s standard‐setting activities are discussed and considered.
       3. Facilitate effective technical discussions on standard‐setting issues, primarily on the IASB’s work plan, but which may include other issues that have major implications for the IASB’s work, in sufficient depth, with representatives at a high level of professional capability and with a good knowledge of their jurisdictions/regions
    3. How are IASB standards used by various countries?
21. As national requirements.
22. As the basis for some or all national requirements.
23. As an international benchmark for those countries that develop their own requirements.
24. By regulatory authorities for domestic and foreign companies.
25. By companies themselves.
    1. Discuss the Short-term International Convergence Project
    2. Discuss the IASB-FASB Norwalk agreement.
26. Undertake a short-term project aimed at removing a variety of differences between U.S. GAAP and IFRSs.
27. Remove any other differences between IFRSs and U.S. GAAP that remained on January 1, 2005, by undertaking projects that both Boards would address concurrently.
28. Continue the progress on the joint projects currently underway.
29. Encourage their respective interpretative bodies to coordinate their activities.
    1. What is the objective of the joint FASB-IASB Convergence Project?
    2. Under rules enacted prior to 2007, how could a foreign company list its securities for sale in U. S. capital markets? How did this rule change?
    3. Discuss the objectives of accounting as defined by chapter 1 of the IASB’s Framework for the Preparation of Financial Statements.
    4. Discuss the qualitative characteristics of accounting information as defined in chapter 2 of the IASB’s Framework for the Preparation of Financial Statements. The IASB also described how certain qualities enhance the usefulness of information and how the cost of information affects its usefulness. List those enhancing qualities.
    5. Discuss the elements of financial statements defined by Chapter 4 of the IASB’s Framework for the Preparation of Financial Statements.
    6. Discuss the concepts of capital and capital maintenance discussed in the Framework for the Preparation of Financial Statements.

• Financial capital maintenance. Profit is earned only if the financial (or money) amount of net assets at the end of the period exceeds the net asset at the beginning of the period excluding any distributions to or contributions from owners.
• Physical capital maintenance. Profit is earned only if the physical productive capacity (or operating capacity) of the enterprise exceeds the physical productive capacity at the beginning of the period.
  1. Discuss IFRS No. 1, “First Time Adoption of International Reporting Standards.

1. Recognize all assets and liabilities whose recognition is required under existing IFRSs;
2. Do not recognize items as assets or liabilities when existing IFRSs do not allow for such recognition;
3. Reclassify assets, liabilities, and equity as necessary to comply with existing IFRSs; and
4. Apply existing IFRSs in measuring all recognized assets and liabilities.
   1. On December 18, 2014, as part of its Disclosure Initiative,28 the IASB issued amendments to IAS No. 1 to encourage companies to apply professional judgment in determining what information to disclose and how to structure it in their financial statements. What are the key aspects of this proposal?
      1. Materiality—Clarifies that entities should not obscure information by aggregating or providing immaterial information and that materiality considerations apply to all parts of the financial statements, even when a standard requires a specific disclosure.
      2. Statement of financial position and statement of profit or loss and other comprehensive income—Explains that the list of line items to be presented in these statements can be disaggregated and aggregated as relevant and that an entity’s share of other comprehensive income of equity‐accounted associates and joint ventures should be presented in the aggregate as a single line item according to whether the share will subsequently be reclassified as profit or loss.
      3. Notes—Add examples of possible ways to arrange the notes to clarify that entities should consider understandability and comparability when determining the order of the notes and to demonstrate that the notes need not be presented in the order listed in paragraph 114 of IAS No. 1. The IASB also removed guidance and examples related to the identification of significant accounting policies that were perceived as potentially unhelpful.