Deck 5: International Financial Statement Analysis

Question 1

R&D costs are required to be expensed immediately in

A) the Asian countries.
B) the United States.
C) Sweden.
D) the United Kingdom.

Answer 1

B

Question 2

Continental Europe has relatively less conservative accounting because of a strong influence of taxes.

Answer 2

False

Question 3

Japanese PE ratios have been reported as relatively high because their earnings have been understated.

Answer 3

True

Question 4

Intangibles, such as brands, publishing rights, and patents are generally capitalized except in

A) the United States.
B) the Asian countries.
C) Switzerland
D) Sweden.

Question 5

Problems and costs arising from international accounting diversity

A) are not restated by financial statement users
B) affect 95 percent of financial statement users according to Choi and Levich
C) are very real
D) affect 25 percent of financial statement users according to Choi and Levich

Question 6

Earnings tend to be more conservative or understated in France and Germany than in the united Kingdom.

Question 7

In similar economic environments or situations

A) accounting diversity is logical
B) accounting diversity is illogical and leads to noncomparable results
C) results may or may not be comparable
D) accounting treatment does not matter

Question 8

If US GAAP is the benchmark in a conservatism comparison with a company in a foreign country, then an index greater that 1 is more conservative.

Question 9

Goodwill

A) is amortized in the United States
B) is immediately expensed in Japan
C) is amortized in Britain
D) is subject to an impairment test in Britain.

Question 10

In attempting to value a foreign corporation, there is a tendency

A) not to restate the financial statements
B) to use the London exchange market values
C) to be conservative
D) to look at earnings from a home country perspective

Question 11

In dissimilar economic environments, accounting diversity is illogical and leads to noncomparable results.

Question 12

Measurement of accounting income is strongly influenced by tax rules in France and Switzerland.

Question 13

Form 20-F is used for income tax calculations.

Question 14

Historical cost is frequently modified by revaluations in

A) the United States.
B) the Asian countries.
C) the United Kingdom and the Netherlands.
D) Germany.

Question 15

The treatment of inventory in Britain differs from that of the United States in that

A) the British approach to inventory measurement is much less restrictive.
B) FIFO is not permitted in Britain.
C) LIFO is not permitted in Britain.
D) in the United States, LIFO is not permitted.

Question 16

R&D costs are usually capitalized in Germanic countries.

Question 17

A key international financial analysis question is the extent of the impact of accounting differences on earnings assessments.

Question 18

For purposes of financial analysis it is important to assess the differential impact of accounting principles on

A) return on equity
B) professionalism
C) individualism
D) power distance

Question 19

Sweden companies have a tendency to be more conservative than the United States.

Question 20

The most popular exchange to be listed on is:

A) Nasdaq
B) New York
C) Euronext
D) London

Question 21

Which of the following accurately describes the differences between the United States and the United Kingdom in terms of conservatism in earnings measurement?

A) The British tend to be more conservative in earnings measurements than do Americans.
B) British earnings are higher than U.S. earnings because U.S. firms tend to capitalize interest costs relating to certain types of assets during acquisition or construction.
C) U.S. earnings tend to be lower than British earnings since U.S. firms capitalize and amortize goodwill.
D) none of the above.

Question 22

It is possible to determine the degree of conservatism of U.K versus U.S. GAAP, because

A) British firms must disclose the difference due to London Stock Exchange requirements.
B) British firms voluntarily disclose the difference in order to attract U.S. investors.
C) British firms who list an American Depositary Receipt (ADR) or an actual share in the United States must disclose the difference in earnings.
D) all of the above.

Question 23

Currently, international standards

A) are developed to allow substantial flexibility
B) promote uniformity
C) are designed to reduce transparency
D) are developed by the IDOT

Question 24

According to Form 20-F of the U.S. SEC,

A) U.S. firms are required to disclose the amount of their foreign earnings.
B) foreign firms are required to reconcile their earnings with what earnings would have been under U.S. GAAP.
C) foreign firms do not have to disclose the reasons why their GAAP differs from U.S. GAAP, only the amount of the difference.
D) the index of conservatism must be disclosed in order to determine the degree to which income differs under different GAAP.

Question 25

Income statement information is more informative in

A) Britain.
B) Japan.
C) the United States
D) Germany

Question 26

Assume that translated U.K. earnings are $100 and U.S. earnings are $120. The index of conservatism is

A) .800 (U.S. is more conservative)
B) .800 (British is more conservative)
C) 1.200 (U.S. is more conservative)
D) 1.200 (British is more conservative)

Question 27

An earnings adjustment index based on US GAAP showing the comparative impact of international accounting differences on earnings

A) has Germany at the top
B) has Japan on the bottom
C) has the U.S. at the top
D) has the U.K. at the bottom

Question 28

The stock market is a dominant influence on earnings in

A) the UK and US
B) Japan
C) continental europe
D) countries with extensive infrastructure

Question 29

The number of companies that follow IASC standards

A) has declined from its founding
B) has remained about the same from its founding
C) has increased from its founding
D) none of the above

Question 30

As a result of research on the degree of conservatism among U.S. and British firms, it was found that

A) British and American firms are about the same in terms of the degree of conservatism.
B) British earnings are more conservative than are U.S. earnings.
C) U.S. earnings are more conservative than are British earnings.
D) goodwill is not as significant a factor in determining earnings differences as was once thought.

Question 31

Research on the stock market

A) is certain about the international accounting differences and the US stock market
B) shows value relevance for Form 20-F reconciliations
C) of Pope and Rees indicates that the UK GAAP earnings adjustment information has incremental information for dual listed firms in the US and UK
D) greater power distance for non US firms

Question 32

The IASC was founded by

A) the UN
B) the OECD
C) the AICPA
D) professional national accounting organizations

Question 33

Given what you know about the differences in conservatism between the U.S. and U.K., which of the following statements is most accurate?

A) return on equity and the debt/equity ratio would usually be lower under U.K. GAAP than it would be under U.S. GAAP.
B) return on equity would usually be higher and the debt/equity ratio lower under U.K. GAAP than under U.S. GAAP.
C) return on equity would usually be lower and the debt/equity ratio higher under U.K. GAAP than under U.S. GAAP.
D) return on equity and the debt/equity ratio would usually be higher under U.K. GAAP than under U.S. GAAP.

Question 34

When comparing the relative conservatism of U.S. versus foreign companies,

A) U.S. firms tend to be less conservative than Japanese firms, because Japanese firms are more heavily influenced by tax law.
B) U.S. firms are more conservative than Continental European firms due to the dominance of capital market disclosures in the United States.
C) European firms are less focused on tax law than are the U.S. firms.
D) British firms are more conservative than U.S. firms, because they tend to take goodwill to income rather than to equity as is the case in the United States.

Question 35

In ranking countries in terms of conservatism,

A) Japanese firms tend to be less conservative than U.S. firms.
B) continental European firms tend to be more conservative than British but less conservative than U.S. firms.
C) the Anglo-Saxon countries are less conservative and Germanic countries more conservative in terms of earnings.
D) there has been no research on the conservatism of earnings of countries other than the U.S. and U.K.