Worldwide Accounting Diversity Answer Key Part 1

International Accounting Worldwide Accounting Diversity 1) What is the equivalent of the common stock account on a U.S. balance sheet on the balance sheet of a British company? A) Capital redemption reserve B) Share premium account C) Own shares held D) Called-up share capital Answer: D 2) It is generally believed that the 1997 financial crisis in East Asia was partly due to accounting factors in that part of the world. Which of the following accounting values was lacking in that part of the world and thereby contributed to the crisis? A) Professionalism B) Statutory control C) Uniformity D) Transparency Answer: D 3) Which of the following is NOT a problem caused by accounting diversity? A) Lack of qualified international auditors B) Preparation of consolidated financial statements C) Access to foreign capital markets D) Comparability of financial statements Answer: A 4) Differences in legal systems used in various countries have been cited as one reason for diversity in accounting practices. What are the major types of legal systems? A) Commercial law and accounting law B) Rules and regulations C) Written law and unwritten law D) Common law and code law Answer: D 5) The accounting standards in code law countries tend to be: A) very detailed. B) formulated by organizations such as the FASB. C) stated generally without much guidance on accounting procedures. D) very conservative. Answer: C 6) 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 7) What is the likely result when accounting rules are left up to professional associations rather than being legislated by governmental bodies? A) Very general accounting rules are created, as in code law countries. B) Very detailed rules for practice are created, as in common law countries. C) Very general accounting rules are created, as in common law countries. D) Very detailed rules for practice are created, as in code law countries. Answer: B 8) Relative to accounting standards in countries such as Germany, whose accounting laws are only 47 pages long, accounting practice in the U.S. is often described as being subject to: A) standards overload. B) standards minimization. C) the optimal amount of accounting regulation. D) ideal accounting standards. Answer: A 9) 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 10) If most of a country's business financing comes from families, banks, and the government, what should we expect in terms of information disclosure to the public? A) Relatively little disclosure because the public isn't a major factor B) A great deal of disclosure because it will be the only way for interested parties to learn about the company C) Complete openness of accounting records D) No disclosure at all Answer: A 11) In countries such as the U.S., there is great demand for public disclosure of accounting information. What is the reason for this? A) Corporate management isn't trustworthy. B) Businesses rely heavily on financing through issuance of stock to the public. C) The American populace is better able to read financial statements than people in other countries. D) U.S. government officials are generally members of corporate boards of directors and can get all the information they require. Answer: B 12) Historical cost is the primary basis for asset valuation under U.S. GAAP. Why is historical cost NOT as important in the accounting systems of Latin America as in the U.S.? A) Historical costs are too difficult to calculate in the currencies used in Central and South America. B) The countries of Latin America have experienced very high rates of inflation, which would make historical costs meaningless to readers of financial statements. C) There is very little foreign direct investment in the countries of Latin America, so few assets need to be accounted for. D) In Latin America, asset prices are very stable, making historical costs equal to replacement costs, so it doesn't matter which valuation basis is used. Answer: B 13) In the United States, conformity between presentation of the financial statements and the tax statements is required only for: A) goodwill. B) depreciation. C) gains or losses on securities. D) the use of the LIFO inventory cost flow assumption. Answer: D 14) In some countries, financial accounting and tax accounting are so closely related that there is very little need to account for deferred income taxes. Which of the following countries has a financial accounting system that is most different from its tax laws? A) United States of America B) Japan C) Germany D) France Answer: A 15) In the Nobes classification of accounting systems, micro-based accounting systems are oriented toward: A) government economics. B) business practices. C) tax laws. D) code law. Answer: B 16) According to the research of Christopher Nobes, the most relevant factor in determining the purpose of financial reporting is: A) the financing system of the country. B) religious differences across countries. C) the population of the country. D) the strength of the country's accounting profession. Answer: A 17) According to the research of Christopher Nobes, what is the primary determinant of the accounting systems in developing countries? A) The nature of their financing system B) The accounting system of countries that dominate their culture C) The size of their capital market D) The strength of their tax code Answer: B 18) The "Fair Presentation/Full Disclosure Model" is a classification scheme used by: A) Germany. B) Japan. C) the United States and the United Kingdom. D) Brazil. Answer: C 19) The extent to which hierarchy and unequal authority distribution in institutions and organizations are accepted within a culture is referred to as: A) uncertainty avoidance. B) masculinity. C) individualism. D) power distance. Answer: D 20) A cultural preference for a loosely knit social fabric rather than a tightly knit social fabric is referred to as: A) uncertainty avoidance. B) masculinity. C) individualism. D) power distance. Answer: C 21) A cultural emphasis on values of performance and achievement rather than values of relationships, caring, and nurturing is referred to as: A) uncertainty avoidance. B) masculinity. C) individualism. D) power distance. Answer: B 22) What term is used to refer to a cultural aversion to ambiguous situations? A) Uncertainty avoidance B) Masculinity C) Power distance D) Individualism Answer: A 23) 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 24) Countries such as the U.S. tend to value self-regulation of accounting. What term is used to define this subculture? A) Uniformity B) Flexibility C) Conservatism D) Professionalism Answer: D 25) What does "transparency" mean in accounting? A) An emphasis on confidentiality B) Restricted disclosure of accounting information C) Flexibility in the application of accounting standards D) Openness of accounting information Answer: D 26) What term is used to describe accounting standards that encourage risk-taking in financial reporting? A) Optimism B) Conservatism C) Professionalism D) Transparency Answer: A 27) In Gray's framework for accounting system development, which of the following countries tends to have a relatively high degree of transparency in their companies' financial statements? A) Germany B) Switzerland C) United Kingdom D) Saudi Arabia Answer: C