International Accounting, 5e (Doupnik)

CHAPTER 2. WORLDWIDE ACCOUNTING DIVERSITY

Table for Multiple choice answers

1. 6. 11. 16. 21. 26. 31. 36. 41. 46. 51.
2. 7. 12. 17. 22. 27. 32. 37. 42. 47. 52.
3. 8. 13. 18. 23. 28. 33. 38. 43. 48. 53.
4. 9. 14. 19. 24. 29. 34. 39. 44. 49.
5. 10. 15. 20. 25. 30. 35. 40. 45. 50.

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

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

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

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?

1
For internal use only – Chapter 2
 A. Commercial law and accounting law
B. Rules and regulations
C. Written law and unwritten law
D. Common law and code law

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.

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

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.

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.

9. In code law countries such as Germany, France, and Japan, tax law and accounting
standards tend to be:
A. unrelated.
B. very different.

2
For internal use only – Chapter 2
 C. general.
D. detail oriented.

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

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.

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.

13. In the United States, conformity between presentation of the financial statements and
the tax statements is required only for:
A. goodwill.

3
For internal use only – Chapter 2
 B. depreciation.
C. gains or losses on securities.
D. the use of the LIFO inventory cost flow assumption.

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

15. 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.

16. 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.

17. 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.

18. What term is used to refer to a cultural aversion to ambiguous situations?

A. Uncertainty avoidance
B. Masculinity

4
For internal use only – Chapter 2
 C. Power distance
D. Individualism

19. A cultural preference for accounting systems that rely on compliance with legal
requirements is called:
A. professionalism.
B. uniformity.
C. statutory control.
D. optimism.

20. 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

21. 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

22. What term is used to describe accounting standards that encourage risk-taking in
financial reporting?
A. Optimism
B. Conservatism
C. Professionalism
D. Transparency

23. Individualism, power distance, uncertainty avoidance, and masculinity are examples of:
A. accounting values.
B. ecological factors.
C. cultural dimensions.
D. external forces.

5
For internal use only – Chapter 2
24. The concepts of professionalism, uniformity, conservatism, and secrecy are classified in
Gray's framework for accounting system development as:
A. accounting values.
B. accounting systems.
C. institutional consequences.
D. cultural dimensions.

25. International accounting diversity can be found in terms of:

A. the terminology used in the financial statements.
B. the amount of information disclosed in the financial statements.
C. the order of items in the financial statements.
D. All of the above evidence of accounting diversity.

26. What term is used to refer to the decision about whether to report an item in the
financial statements?
A. Capitalization
B. Recognition
C. Realization
D. Conservatism

27. Under U.S. GAAP, fixed assets are generally reported on the balance sheet at their:
A. historical cost.
B. net realizable value.
C. fair value.
D. market value.

28. The methods allowed by the IFRS for valuing property, plant, and equipment are:
A. historic cost and general purchasing power.
B. historic cost and fair value.
C. fair value and general purchasing power.
D. fair value and inflation-adjustment.

29. In terms of level of detail provided in the individual financial statements, the U.S. tends to:
A. emphasize more line items on the face of the financial statements.
B. rely less on footnote disclosure.
6
For internal use only – Chapter 2
 C. condense the amount of line items and supplement with more footnote detail.
D. use footnotes only when absolutely required by GAAP.

30. Assets are commonly shown in order of their liquidity, or in reverse order of their
liquidity. What is liquidity?
A. Liquidity refers to how easily the assets are converted to cash.
B. Liquidity means that assets are inflation-adjusted.
C. Liquidity refers to whether the asset is depreciable or not.
D. Liquidity means that the assets are closely matched to specific liabilities.

31. Which of the following statements is true about the comparability of financial statement
of the United States and the United Kingdom?
A. The result of Latin American colonialism is the large number of countries with the
United Kingdom's influence on their accounting practices.
B. The financial statements of companies in the United States and the United Kingdom
are comparable as they are prepared after adjusting inflation, which is a critical factor
affecting accounting practice.
C. The basic principle followed by both countries in preparing financial statements is
government economics and government tax and legal framework.
D. The accounting practices of both the countries are oriented toward the decision
needs of a large number of investors and creditors.

7
For internal use only – Chapter 2