Deck 8: International Financial Reporting: Ethics and Corporate Governance Considerations

Question 1

The concept of "improve and adopt" refers to:

A)The adoption of IFRS in the U.S.
B)The use of home country standards in the U.S.
C)The translation of foreign-based currency statements to U.S.dollars
D)The convergence of IFRS with GAAP

Answer 1

D

Question 2

In the U.S., the word "reserve" always means:

A)Impairment
B)A market value adjustment
C)Provision
D)A depreciation write-down

Answer 2

C

Question 3

The difference between provisions and reserves can best be characterized as:

A)Provisions are liabilities recognized by charges against profit whereas a reserve is an element of shareholders' equity
B)Provisions are an element of shareholders' equity whereas a reserve is a liability recognized by charges against profit
C)Provisions reduce assets to net realizable value whereas reserves are liabilities recognized by charges against profit
D)Reserves always reduce profits

Answer 3

A

Question 4

The Norwalk agreement refers to:

A)The commitment of the U.S.and European Union to adopt one set of accounting standards
B)The commitment of FASB and the International Accounting Standards Board (IASB) to adopt one set of accounting standards
C)The commitment of FASB and IASB to the convergence of U.S.GAAP and international accounting standards
D)The agreement that ended World War II

Question 5

The FASB and IASB joint conceptual framework project has as its objective:

A)The developing of a single set of generally accepted accounting and financial reporting standards.
B)The developing of a sound foundation for developing future accounting standards.
C)The replacement of existing FASB and IASB separate conceptual framework projects.
D)The replacement of a rules-bases system with a principles-based approach to accounting and financial reporting standards.

Question 6

One concern with U.S.GAAP identified by Schipper is:

A)The principles that underlie U.S.GAAP can become rules-based exercises during implementation
B)The principles that underlie U.S.GAAP do not provide any implementation guidance
C)The rules that are part of the U.S.system are not based on an underlying conceptual framework
D)The rules that are part of the U.S.system are not based on any principles

Question 7

Lease standards in the U.S.can be manipulated to achieve the desired goal of:

A)Capitalizing lease payments at their present values to record an asset instead of an expense
B)Capitalizing lease payments at their present values to record an expense instead of an asset
C)Emphasizing form over substance
D)All of the above

Question 8

One problem of a more principles-based system that was pointed out in an SEC study is that they:

A)Tend to be rules-based than objectives-oriented standards
B)May present enforcement problems
C)Use bright-line tests
D)All of the above

Question 9

The IASB Framework for the Preparation and Presentation of Financial Statements:

A)Dictates the standards to be followed in preparing financial statements under IFRS
B)Requires an entity to use its judgment in developing and applying and accounting policy that results in information that is relevant and reliable
C)Serves as a guide to resolving accounting issues that are not addressed directly in a standard
D)All of the above

Question 10

The reason some people are concerned about the possibility for earnings management under IFRS is:

A)The principles-based system might lead preparers of financial statements to try and justify earnings by applying a substance over form concept.
B)The principles-based system might lead preparers of financial statements to try and justify specific accounting outcome based on commercial drivers.
C)It is more difficult to make materiality judgments.
D)It is more difficult to implement a set of generally accepted accounting and financial reporting standards.

Question 11

A common set of accounting standards on an international level can help to achieve each of the following except for:

A)Facilitate the understandability of financial reports prepared outside the home country of a potential investor.
B)Provide a foundation for professional judgment and support the implementation of international financial reporting standards (IFRS).
C)Provide a foundation for professional judgment and support the implementation of international standards of Auditing (ISAs).
D)Facilitate the enforcement of IFRS and (ISAs).

Question 12

Given that IFRS is not currently required in the U.S., foreign companies that list their stock on the New York Stock Exchange must:

A)Reconcile the financial statements in their home country GAAP to U.S.GAAP
B)Use IFRS in their financial statements
C)Either reconcile their statements to U.S.GAAP or use IFRS
D)Use their home country GAAP in their financial statements listed on the NYSE

Question 13

The relatively more principles-based IFRS standards requires each of the following except for:

A)Professional judgment based on the substance over form concept
B)Professional judgment in applying the true and fair view override
C)Professional judgment at both the transaction and financial statement levels
D)Professional judgment in applying the present fairly concept

Question 14

The rules under IFRS for property, plant, and equipment differ from U.S.GAAP because:

A)U.S.GAAP allows for the revaluation of property, plant, and equipment
B)IFRS allows for the revaluation of property, plant, and equipment
C)U.S.GAAP permits the LIFO method of valuation
D)IFRS prohibits accelerated methods of depreciation

Question 15

The FASB and IASB joint conceptual framework differs from the U.S.conceptual framework in that:

A)The joint conceptual framework identifies the concept of representational faithfulness as an element of reliability in determining useful information
B)The joint conceptual framework identifies the concept of representational faithfulness as an element of relevance in determining useful information
C)The joint conceptual framework excludes representational faithfulness from the determination of useful information
D)The joint conceptual framework considers representational faithfulness as a foundational element of useful information

Question 16

One benefit that may derive from the Memorandum of Understanding is that:

A)The International Organization of Securities Commissions (IOSCO) can facilitate the development of IFRS
B)IOSCO can facilitate the cross-border exchange of information to facilitate compliance with IFRS
C)IOSCO can facilitate the cross-border exchange of information to facilitate compliance with securities laws and regulations
D)All of the above

Question 17

The SEC study of a principles-based system identifies each of the following characteristics that should guide standards setting except for:

A)Be based on an improved and consistently applied conceptual framework
B)Clearly state the accounting objective of the standard
C)Minimize exceptions from the standards
D)Minimize the detail and structure so that the standard can be operationalized and applied on a consistent basis

Question 18

IFRS tends to be more ____________ than U.S.GAAP.

A)rules-based
B)principles based
C)consistent
D)accurate

Question 19

The number of countries that are expected to adopt IFRS as their home country standards by 2011 is:

A)117
B)150
C)167
D)200

Question 20

The SEC roadmap refers to:

A)A map of the highways and freeways to take to drive from Texas to California.
B)A series of steps to be taken by FASB to adopt IFRS in the U.S.
C)A timetable for adoption of IFRS in the U.S.
D)A series of steps to be taken by the SEC to adopt IFRS in the U.S.

Question 21

The provisions footnote in the Siemens Annual Report presented in the chapter requires recognition in the balance sheet when each of the following criteria is met except for:

A)The company has a present legal or constructive obligation as a result of a past event
B)It is probable that an outflow of economic benefits will be required to settle the obligation
C)It is reasonably possible that an outflow of economic benefits will be required to settle the obligation
D)A reliable estimate can be made of the amount of the obligation

Question 22

The Tata Group's code of ethics contains each of the following provisions except for:

A)Relatively minor gifts can be made if normal and customary
B)Conflicts of interest should be avoided and, if they exist, they should be reported to the CEO
C)The code prohibits the use of confidential information without the explicit approval of management
D)Insider information can be used as long as it is approved by management

Question 23

Which of the following statements is most accurate with respect to the similarity between ISAs and U.S.GAAS?

A)ISAs are the same as U.S.GAAS
B)ISAs are quite similar to U.S.GAAS
C)ISAs and U.S.GAAS differ significantly
D)ISAs have replaced U.S.GAAS

Question 24

The term "small and medium-sized" entities in the IASB's pronouncement on IFRS for Small and Medium-sized Entities (SMEs) defines SMEs as:

A)Those entities with public accountability that publish general purpose financial statements
B)Those entities without public accountability that publish general purpose financial statements
C)Those entities that use IFRS in their general purpose financial statements
D)Those entities that use U.S.GAAP in their general purpose financial statements

Question 25

A distinguishing characteristic(s) of corporate governance in China is the importance of:

A)State investors in Chinese entities
B)Family ownership of Chinese entities
C)Blockholders of Chinese entities
D)All of the above

Question 26

Under a dual board system, the board that carries out management directives for the benefit of various stakeholder groups is:

A)The Management Board
B)The Supervisory Board
C)The Board of Governors
D)The Board of Trustees

Question 27

A member body of the International Federation of Accountants (IFAC) should follow the provisions in the Code of Ethics for Professional Accountants (IFAC Code) when each of the following exists except for:

A)A member body of IFAC applies less stringent standards than those stated in the IFAC Code
B)The member body is prohibited by law or regulation from complying with certain parts of the Code and complies with all other parts of the code
C)The member body is prohibited by law or regulation from complying with certain parts of the Code and does not comply with all other parts of the code
D)All of the above

Question 28

Each of the following is an example of the difference between application of full-IFRS and IFRS for SMEs except for:

A)Cost or revaluation method for full-IFRS; cost method only for IFRS for SMEs
B)Revaluation method for full-IFRS; cost or revaluation for IFRS for SMEs
C)Expensing of all research and development costs as incurred for full-IFRS and capitalizing and amortizing development costs that meet specific criteria; expensing of all research and development costs as incurred for SMEs
D)Capitalizing borrowing costs if certain criteria are met for full-IFRS; expensing all borrowing costs for IFRS for SMEs

Question 29

International Standards of Auditing (ISAs) should be used by members of IFAC unless:

A)They conflict with the auditing standards in the home country
B)Local laws or regulations differ from or conflict with, the standards of the International Auditing and Assurances Board (IAASB)
C)They conflict with IFRS
D)Local laws or regulations are the same as ISAs

Question 30

A distinguishing characteristic(s) of corporate governance in India is the importance of:

A)Some government ownership of Indian entities
B)Family ownership of Indian entities
C)A large industrial group may own shares in an Indian entity
D)All of the above

Question 31

The OECD Principles of Corporate Governance contain each of the following recommendations except for:

A)Promote transparent and efficient markets
B)Adoption of the unitary model of board of directors
C)Allowing shareholders the right of redress for violations of their rights
D)Timely and accurate disclosure of all material matters regarding the corporation and its financial situation

Question 32

Each of the following can be a motivation to record a secret reserve except for:

A)Understate net assets and equity
B)Overstate net assets and equity
C)Record amounts in the name of prudence
D)Record amounts to get tax deductions

Question 33

A "secret" or "hidden" reserve can occur when a company does one or more of the following except for:

A)Fails to recognize an asset in its balance sheet
B)Deliberately measures an asset at an unreasonably low value
C)Sets up unnecessarily high provisions
D)Sets up unnecessarily low provisions

Question 34

One way to characterize the term "true and fair view" is that:

A)It is used to determine which international auditing standards should be used.
B)It is used to assess whether the entity has met the comply or explain provisions in corporate governance codes.
C)It is a governing criterion by which financial statements are to be judged.
D)All of the above.

Question 35

The primary role of the Supervisory Board is to:

A)Manage the enterprise for the benefit of various stakeholder groups
B)Work with the auditors in their review of financial statements
C)Work with the managing board in running day-to-day operations
D)Oversee and advise the Managing Board on policy matters

Question 36

The comply or explain principle refers to:

A)Certification of financial statements by CEOs and CFOs
B)Explain any gaps between existing corporate governance practices and recommendations by authoritative bodies/pronouncements
C)Explain any gaps between existing corporate governance practices and IFRS requirements
D)Certification of corporate governance practices by CEOS and CFOs

Question 37

One feature of corporate governance in Germany that makes it stand out when compared to the U.S.is:

A)A separate audit committee and a board of directors
B)A unitary board of directors system
C)A dual board of directors system
D)Compliance with the Sarbanes-Oxley Act

Question 38

The auditor evaluates audit evidence to do which of the following?

A)To obtain reasonable assurance about whether the financial statements give a true or fair view or are presented fairly
B)To obtain reasonable assurance whether the financial statements are prepared in accordance with GAAP in the U.S.
C)To obtain reasonable assurance IFRS internationally
D)All of the above

Question 39

Differences between international audit report language and language in U.S.audit reports include all of the following except for:

A)The report states in the scope paragraph that the selection of audit procedures requires the exercise of professional judgment including the assessment of the risks of material misstatements, whether due to error or fraud
B)The opinion paragraph can be couched in either the words present fairly or a true and fair view
C)A separate paragraph is provided for those entities required by law to report on compliance with legal and regulatory requirements
D)The report acknowledges management's responsibility for the financial statements

Question 40

Accounting policies that should be used in the first period of IFRS adoption should be:

A)Those that conform to the home country standards
B)Those that conform to IFRS in effect in the subsequent reporting period
C)Those that conform to IFRS in effect at the current reporting date
D)Any of the above can be used based on the judgment of the accountants

Question 41

The case that deals with conflicts between management and the board of directors and the role of family members in various business entities is:

A)Parmalat
B)Satyam
C)Bat-A-Bing Construction
D)Enron

Question 42

It has been said that there is more conformity in international auditing standards around the world than on international financial reporting standards.Why do you think this may be the case?

Question 43

The trigger event that led to the disclosure of the scandal at Parmalat was:

A)Almost €4 billion of company funds that were supposed to be held in an account at Bank of America did not exist.
B)The company stuffed the channels with product that it eventually was not purchased by customers.
C)Parmalat officers violated the Foreign Corrupt Practices Act.
D)The company sold sour milk.

Question 44

The primary accounting issue in the Royal Dutch Shell case is:

A)The failure of the company to properly account for oil exploration costs
B)The failure of the company to adhere to provisions of the Foreign Corrupt Practices Act
C)The failure of the company to adhere to SEC rules and the accounting for proved reserves
D)All of the above

Question 45

Why is it important to have a Global Code of Ethics for professional accountants around the world? That is, what is such a code trying to accomplish?

Question 46

Compare and contrast corporate governance provisions in the U.S.with those in Germany? Where differences exist, evaluate whether you think the U.S.system is preferable or the German system.

Question 47

Explain why you think the authors of studies cited in the text were concerned about whether a principles-based approach to standard setting might lead to earnings management.

Question 48

In some countries the laws and regulations play a much bigger role in establishing accounting and financial reporting standards than in the U.S.Discuss the difficulties that may arise on an international level in the process of developing IFRS given the varying influences of governments and regulators in the national standard setting process.

Question 49

From a U.S.perspective, are there any concerns that regulators and standard setters should have about moving towards the adoption of IFRS in the U.S.? Why are they concerns?

Question 50

In China and India different ownership groups often play a role much more important than these groups play in the U.S.Describe the different ownership patterns in China and India.Why do you think these groups have a larger role to play? Are there any concerns about the fact that they play such a larger role?

Question 51

Consider the discussion in the chapter about establishing one set of accounting standards and comment on whether you think there should be one set of educational standards for accounting students at educational institutions in countries that comply with IFRS.Should there be a uniform CPA (Chartered Accountants) Exam for all such students? Why or why not?

Question 52

Explain the role of ethics and virtue-based principles in evaluating whether financial information faithfully represents economic phenomena.

Question 53

The Bat-A-Bing case deals with which of the following accounting issues.

A)Proved reserves
B)Unapproved claims
C)Contractual allowances
D)Franchise revenue
Essay Questions

Question 54

Full-IFRS permits the revaluation of property, plant, and equipment while IFRS for SMEs does not.In the U.S., the cost method (less amortization) must be used.From a conceptual framework perspective, is it possible to justify the use of the revaluation technique? Be sure to describe relevant concepts in answering this question.Why do you think IFRS for SMEs does not permit revaluation while full-IFRS does? Are these inconsistent requirements?

Question 55

In the SEC v.Siemens Aktiengesellschaft case, each of the following charges were made against the company's Managing Board except for:

A)The Board failed to ensure that Siemens met the U.S.regulatory and anti-bribery provisions of the Foreign Corrupt Practices Act
B)The Board failed to meet its obligations with respect to compliance procedures at Siemens
C)The Board failed to adequately supervise the auditors of Siemens
D)The Board created a corporate culture that contributed toward tolerating and even rewarding bribery