Chapter 03 - International Convergence of Financial Reporting

Chapter 03: International Convergence of Financial Reporting

Multiple Choice Questions 1. According to Sir Bryan Carsberg, former IASC Secretary-General, what is the most significant cost of accounting diversity? A) The time expended by accountants to create multiple sets of financial statements conforming to different national standards B) The cost of the IASB to regulate compliance with many national accounting standards C) The reduction in effectiveness of the international markets for capital D) The resources used by countries in legislating different sets of accounting standards a. Answer: C Level: Medium LO: 1 2. From a practical standpoint, what is the goal of accounting standards harmonization? A) Creating one set of standards used throughout the world B) Reducing the conflict among national accounting standards C) Producing accounting standards that are unique for each country D) Forcing compliance with IASB regulations b. Answer: B Level: Medium LO: 1

3. 6. Which of the following statements is believed to be true about accounting convergence by proponents of convergence? A) Convergence would decrease feelings of nationalism. B) Convergence is desirable because there is little difference among capital markets in different countries. C) Convergence would help to raise the quality of accounting practice internationally. D) None of the above statements is true. b. Answer: C Level: Medium LO: 2 4. 7. Which of the following items is considered to be the most significant impediment to accounting convergence? A) Nationalism B) Lack of accounting knowledge C) Language differences D) High cost of convergence b. Answer: A Level: Medium LO: 2

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Chapter 03 - International Convergence of Financial Reporting

5. 10. Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, and Slovenia joined the European Union in 2004. Besides membership in the EU, what do these countries have in common? A) They share a common language. B) They were previously under the political and economic influence of the Soviet Union. C) All were under the political control of Germany until the early 1960's. D) They were former British colonies until after World War II. b. Answer: B Level: Medium LO: 3

6. 13. In preparation for admission to the European Union, Hungary, Poland, and the Czech Republic passed new accounting laws based on EU Directives. How were these new laws different from their previous accounting laws? A) The new laws are easier to enforce than the previous laws. B) The new accounting regulations are written in English, whereas the earlier accounting standards were written in Russian. C) The new laws are less flexible than their earlier accounting laws. D) The new laws are market-oriented and their earlier accounting laws were Soviet-style. b. Answer: D Level: Medium LO: 3

7. 15. The early (1973-1988) harmonization efforts of the International Accounting Standards Committee (IASC) created standards that have been described as a lowest common denominator approach. What was the effect of these first international accounting standards? A) The IASC standards accommodated existing accounting practice in various countries. B) Comparability of financial statements across countries was achieved. C) It resulted in few companies being in compliance with IASC standards. D) All of the above b. Answer: A Level: Medium LO: 3

8. 17. Which of the following is NOT an objective of the International Accounting Standards Board? A) To establish worldwide uniformity of accounting practice B) To develop a single set of enforceable global accounting standards C) To promote the use and application of global accounting standards D) To encourage convergence of national accounting standards and
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Chapter 03 - International Convergence of Financial Reporting

international accounting standards b. Answer: A Level: Medium LO: 3 9. 22. The International Accounting Standards Board was preceded by: A) the IOSCO. B) the ASEAN. C) the IASC. D) the NRC . b. Answer: C Level: Medium LO: 3

10. 24.

The IASB is organized under an independent entity called: A) the SEC. B) the AFL. C) the IFRSF. D) INTERPOL. b. Answer: C Level: Medium LO: 3

11. 25. Which of the following is NOT part of the due process followed by the IASB in formulating International Financial Reporting Standards? A) A period of public comment is provided after discussion papers are prepared. B) Standards are approved by a unanimous vote of the 16-member board. C) Exposure drafts are published prior to taking a vote of the board. D) National accounting standards and practices are studied before preparing exposure drafts. b. Answer: B Level: Medium LO: 3 12. 26. What basis does the International Accounting Standards Board use in formulating its IFRS? A) Detailed rules to govern accounting practice B) A framework of accounting principles C) Typical tax laws of western nations D) Exceptions or unusual circumstances that require special attention b. Answer: B Level: Medium LO: 3 13. 27. Why does the IASB believe that a principles-based approach to standard setting is superior to a rules-based perspective? A) Detailed prescriptions or rules encourage accountants to look for ways to circumvent the rules rather than trying to provide useful information.
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B) Principles-based standard setting is less costly to undertake than rulesbased standard formulation. C) It is desirable to have all corporations in all countries using the same accounting practice. D) A conceptual framework for standard setting has been demonstrated to encourage the greatest economic development. b. Answer: A Level: Medium LO: 4 14. 28. According to the IASB, what is needed for international accounting standards to work effectively? A) Commitment from auditors to resist client pressures B) Professional judgment in the public interest on the part of management C) Financial statement preparers must produce reports that faithfully represent all transactions D) All of the above are conditions for effective standards. b. Answer: D Level: Medium LO: 4

15. 31. The IASB's Framework for Preparation and Presentation of Financial Statements (1989) implies that the most important group of users is: A) government. B) general public. C) creditors. D) investors. b. Answer: D Level: Hard LO: 5 16. 32. According to the Framework for Preparation and Presentation of Financial Statements of the IASB, which of the following is NOT required for asset recognition? A) Control of the resource B) Ownership of the resource C) Future economic benefits D) Reliable measurement of the cost or value of the resource b. Answer: B Level: Medium LO: 5 17. 33. According to the Framework for Preparation and Presentation of Financial Statements of the IASB, what is the definition of income? A) Assets minus liabilities B) Revenue minus expenses C) Increase in equity (other than from contributions by owners) D) Inflow of resources with future economic benefit b. Answer: C Level: Medium LO: 5
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Chapter 03 - International Convergence of Financial Reporting

18. 34. In November 2007 which organization removed the requirement that foreign private issuers reconcile their financial statements to U.S. GAAP? A) IASB B) EU C) SEC D) FASB b. Answer: C Level: Medium LO: 9 19. 35. Which of the following is NOT a way in which a country might adopt IFRS? A) All companies in that country adopt IFRS. B) Foreign companies listed on domestic exchanges adopt IFRS. C) IASB forces them to adopt IFRS. D) Domestic companies that list on foreign exchanges adopt IFRS. b. Answer: C Level: Hard LO: 8 20. 36. What was the 2002 finding by the six largest public accounting firms regarding International Financial Reporting Standards? A) Of the countries surveyed, almost all planned to make their GAAP converge with IFRS. B) Very few of the countries studied planned to move their national accounting standards toward convergence with IFRS. C) There were almost as many convergence strategies as there were countries in the study. D) The countries that planned to make their GAAP converge with IFRS were predominantly western European nations. b. Answer: A Level: Hard LO: 7

21. 39. What language is used to develop the International Financial Reporting Standards (IFRS)? A) French B) German C) English D) Spanish b. Answer: C Level: Easy LO: 7 22. 40. What group is responsible for translating International Financial Reporting Standards into languages other than the official language of the IASB? A) The International Accounting Standards Board
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Chapter 03 - International Convergence of Financial Reporting

B) The International Accounting Standards Committee Foundation C) The United Nations D) The national accountancy bodies of individual countries b. Answer: D Level: Medium LO: 7

23. 42.

What was the Norwalk Agreement? A) A pledge between the Financial Accounting Standards Board in the U.S. and the IASB to make their reporting standards compatible B) A concession by the Financial Accounting Standards Board in the U.S. to adopt IFRS as soon as possible C) It is a treaty between the United States and the European Union to make their accounting standards converge. D) It was an agreement signed in Norwalk, Connecticut in 2002 to make English the official language of the IASB. b. Answer: A Level: Medium LO: 9

24. 49. Which of the following statements is NOT true about Anglo-American Accounting? A) There is a strong reliance on professional judgment. B) Financial reporting focuses on the firm with an investor orientation. C) There is a strong emphasis on measurement of taxable income. D) Audits report on the adherence to the principle of fair presentation. b. Answer: C Level: Hard LO: 10

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Chapter 03 - International Convergence of Financial Reporting

25. 50. Which of the following statements is NOT true about Anglo-American Accounting? A) There is a strong reliance on professional judgment. B) There is agreement on the interpretation of the principle of fair presentation. C) There is a stronger emphasis on substance of reports rather than the form of reports D) Audits report on the adherence to the principle of fair presentation. b. Answer: B Level: Hard LO: 10 26. 51. Which of the following is a difference among the U.S. and other Anglo-American countries in terms of accounting standards? A) The U.S. does not adhere to the true and fair view approach. B) The U.S. is more private-sector oriented. C) The U.S. always follows a conceptual framework when developing accounting standards. D) U.S. standards are becoming more rigid than U.K. standards. b. Answer: D Level: Medium LO: 10 27. 52. Which of the following terms describe the qualitative characteristic of information usefulness? A) Relevance B) Understandability C) Representational faithfulness D) All of the above are characteristics of information usefulness. b. Answer: D Level: Easy LO: 5 28. 53. In which of the following countries is the use of IFRS not allowed for domestic companies listed on its stock exchanges? A) United Kingdom B) Yugoslavia C) Australia D) United States b. Answer: D Level: Medium LO: 6

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