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International Accounting 7th Edition Frederick D. Choi, Gary K. Meek - Solutions

Refer to Exhibit 3-6.Required: Which country’s GAAP appears to be the most oriented toward equity investors? Which country’s GAAP appears to be the least oriented toward equity investors? Why do you say so?
The role of government in developing accounting and auditing standards differs in the five countries discussed in this chapter. Required: Compare the role of government in developing accounting and auditing standards in France, Germany, the Czech Republic, the Netherlands, and the United Kingdom.
Countries of the European Union are establishing oversight bodies to regulate the activities of statutory auditors. These national bodies are also coordinated at the EU level.Required: Find information on the European Group of Auditors’ Oversight Bodies (EGAOB) on the European Union Web site
In most countries, accounting standard setting involves a combination of private- and public-sector groups. The private sector includes the accounting profession and other groups affected by the financial reporting process, such as users and preparers of financial statements, and organized labor.
Listed below are certain financial ratios used by analysts:• Liquidity: current ratio; cash flow from operations to current liabilities• Solvency: debt to equity; debt to assets• Profitability: return on assets; return on equityRequired: Assume that you are comparing the financial ratios of
1. Describe the problems characterized in this case.2. What are the likely causes of these problems?3. What are consequences of these problems for investors, Czech companies, and the Prague Stock Exchange?4. Outline a program of changes needed to correct the problems identified.MINI CASE The
1. Document the effects of the GAAP differences in the 20F by doing the following:a. For the current year, calculate the percentage change for net income and for total shareholders’ equity indicated by the reconciliation and using the non-U.S. GAAP (i.e., IFRS) numbers as a base.b. Repeat the
1. Document the effects of the GAAP differences in the 20F by doing the following:a. For the current year, calculate the percentage change for net income and for total shareholders’ equity indicated by the reconciliation and using the non-U.S. GAAP (i.e., IFRS) numbers as a base.b. Repeat the
Compare and contrast the mechanisms for regulating and enforcing financial reporting in the five countries discussed in this chapter. Discuss.
Compare and contrast the main features of financial reporting in the five countries discussed in this chapter. Discuss.
Auditor oversight bodies have recently been established in several countries discussed in this chapter. Identify the auditor oversight bodies discussed in the chapter. What is the reason for this recent trend? Discuss.
What is the difference between principles-based and rules-based accounting standards? What evidence indicates that U.S. GAAP is rules-based?
U.S. financial statements “present fairly,” while U.K. financial statements are “true and fair.” What is the difference between these two concepts?
Mexican companies traditionally guarded their information and were secretive in their financial reporting. What evidence is there that Mexican-companies are becoming less secretive?
What was the reason for Japan’s Big Bang, and what changes in accounting practice have resulted from it?
What important features of accounting and reporting are necessary to develop an efficient stock market with fair trading? How likely is it that China will develop such a stock market? Why do you say so?
China’s aim is to develop accounting standards that are harmonized with international practices. Cite some examples indicating that Chinese accounting standards are consistent with “world-class” practices.
What evidence is there of British influence on accounting in India?
This chapter provides synopses of national accounting practice systems in five countries.Required:For each country, list:a. The name of the national financial accounting standard-setting board or agency.b. The name of the agency, institute, or other organization charged with supervising and
The International Federation of Accountants (IFAC) is a worldwide organization of professional accounting bodies. IFAC’s Web site (www.ifac.org) has links to accounting bodies around the world.Required: Visit IFAC’s Web site. List the accounting organizations discussed in this chapter that are
Reread Chapter 4 and its discussion questions.Required:a. As you go through this material, prepare a list of five expressions, terms, or short phrases unfamiliar or unusual in your home country.b. Write a concise definition or explanation of each item.
Analyze the five national accounting practice systems summarized in the chapter.Required:a. For each of the five countries treated in the chapter, select the most important financial accounting practice or principle at variance with international norms.b. For each selection you make, briefly state
Refer to Exhibit 4-5.Required: Which country’s GAAP appears to be the most oriented toward equity investors? Which country’s GAAP appears to be the least oriented toward equity investors? Why do you say so?
The United Kingdom and the United States have a common accounting heritage and are linked by history and language. The term Anglo-American accounting is sometimes used to denote their accounting styles because of the similarities in orientation, purpose, and approach. Nonetheless, accounting
The following describes Japanese accounting before the Big Bang: The preparation of consolidated financial statements is based on the Securities and Exchange Law. Individual-company accounts are the basis for the consolidated statements, and normally the same principles are used at both levels.
The following describes Chinese accounting in the late 1990s:Financial statements consist of the balance sheet, income statement, statement of changes in financial position (or cash flow statement), notes, and supporting schedules. Consolidated financial statements are required. The purchase
Accounting standard setting in most countries involves a combination of private- and public-sector groups. The private sector includes the accounting profession and other groups affected by the financial reporting process, such as users and preparers of financial statements and organized labor.
The following are financial ratios used by analysts:• Liquidity: current ratio; cash flow from operations to current liabilities• Solvency: debt to equity; debt to assets • Profitability: return on assets; return on equityRequired: Assume that you are comparing the financial ratios of
1. What is the difference between rules-based and principles-based accounting standards, and what are the advantages and disadvantages of each?2. Why has U.S. GAAP evolved into a rules-based approach? Would principles-based standards be effective in the United States? Why or why not?3. What needs
1. Describe the conditions necessary to develop a stock market in an emerging economy.2. How do these conditions compare to the situation in China?3. How likely is China to develop a stock market with fair trading? Why do you say so?4. Outline a plan of reforms necessary to achieve stock market
The chapter discusses the objectives of investor-oriented markets: investor protection and market quality. Transparent financial reporting is important for achieving these objectives. What is transparent financial reporting? Explain how transparent financial reporting protects investors and
Why are multinational corporations increasingly being held accountable to constituencies other than traditional investor groups?
Should foreign companies seeking to issue securities in the United States be required to disclose as much as U.S. companies issuing securities in the United States? Critically evaluate the arguments presented in this chapter.
What is the difference between voluntary disclosure and mandatory disclosure? Provide at least two explanations for the differences in managers’ voluntary disclosure practices. Provide at least two explanations for the differences in managers’ mandatory disclosure practices.
What is triple-bottom-line reporting, and why is it a growing trend among large multinational corporations? There are now few requirements for this type of reporting. Is more regulation necessary? Why or why not?
Do you expect to observe more or less voluntary disclosure by companies in emerging-market countries than in developed countries? Why? Do you expect to observe more or less regulatory disclosure requirements in emerging-market countries than in developed countries? Why?
What are the two broad objectives for investor-oriented markets? Which of these do you think is more important? Present reasons for your response.
From the perspective of a securities market regulator, is more required disclosure always better than less? Why or why not?
Why are forecasts of revenues and income relatively uncommon?
What is corporate governance? Listed companies in some countries are required to disclose information about their corporate governance practices. Why might investors and analysts find such information useful?
The Outlook section in Daimler’s 2008 annual report may be found at ar2008.daimler.com/daimler/annual/2008/gb/English/pdf/04_DAI_AR2008_Management-Report.pdf (pp. 82–87).Required: Provide (1) A list of items forecasted (e.g., sales, profits, economic growth), (2) The forecast horizon (e.g., one
Exhibit 5-1 presents the business-segment and geographic-segment information of Lafarge, a French company that uses International Financial Reporting Standards (IFRS) in its consolidated financial statements.Required: Go to the Web site of the International Accounting Standards Board (www.iasb.org)
Exhibit 5-2 presents the employment disclosure of Roche.Required:a. How do the employment levels compare between the periods presented? Where are Roche’s employees located?b. Which regions of the world have the highest turnover rates and what are the reasons for this turnover?c. What is Roche’s
Exhibit 5-3 presents the safety and environmental disclosure of Roche.Required: Comparing the three years: (1) Which measures show an improved record of safety and environmental protection? (2) Which measures show a worse record of safety and environmental protection? What is your overall
Exhibit 5-4 presents the independent assurance report on Roche’s sustainability reporting. The auditor’s engagement was carried out “in accordance with International Standards on Assurance Engagements (ISAE) 3000.” Required:a. Go to the World Wide Web and learn about the International
Corporate social responsibility (CSR), as practiced by business, means many different things. Consider the following: “At one end of the broad span of CSR lie corporate policies that any well-run company ought to have in place anyway, policies that are called for on any sensible view of business
The Global Reporting Initiative (GRI) has developed a set of guidelines for social responsibility reporting.Required:Go to the GRI Web site (www.globalreporting. org) and find its guidelines. The disclosure guidelines are categorized as indicators of economic, environmental, and social
Exhibit 5-8 is the corporate governance disclosure of the Volvo Group. Some of the disclosures relate to independence requirements for the board of directors and audit committee.Required:a. What is the independence requirement for the board of directors?b. How many Volvo board members are
The Organisation for Economic Cooperation and Development (OECD) published its revised Principles of Corporate Governance in 2004. Required: Obtain the document from the OECD Web site (www.oecd.org).a. Outline the six sections of the OECD’s corporate governance principles.b. Discuss how these
Exhibit 5-9 ranks 34 countries on earnings opacity. Which five countries have the most surprising placement? Why do you sayso?
1. Discuss why financial statement users find environmental disclosures informative.2. Obtain the G3 sustainability reporting guidelines of the Global Reporting Initiative (GRI, www.globalreporting.org). List the environmental performance indicators that the GRI recommends for disclosure.3. How
1. Discuss at least five characteristics that predict relatively low disclosure levels in Mexico. Your response should be based on a review of the material presented in Chapters 2 and 4 and this chapter, in addition to the case information above.2. Discuss characteristics or features that predict
From a user’s perspective, what is the inherent problem in attempting to analyze historical cost-based financial statements of a company domiciled in an inflationary, devaluation-prone country?
Examine the income statements of Modello, Vestel, and Infosys, referenced earlier in this chapter. Which earnings number do you feel provides the better earnings metric for an investment analyst, and why?
Consider the statement: “The object of accounting for changing prices is to ensure that a company is able to maintain its operating capability.” How accurate is it?
Following are the remarks of a prominent member of the U.S. Congress. Explain why you agree or disagree. The plain fact of the matter is that inflation accounting is a premature, imprecise, and underdeveloped method of recording basic business facts. To insist that any system of inflation
As more and more companies span the globe in terms of their operating, financing, and investing activities, they will increasingly turn to international financial reporting standards when communicating with domestic and non-domestic financial statement readers. What approaches to inflation
Briefly describe the historical-cost-constant purchasing power and current-cost models. How are they similar? How do they differ?
As a potential investor in the shares of multinational enterprises, which inflation method, restate-translate or translate-restate, would give you consolidated information most relevant to your decision needs? Which information set is best from the viewpoint of the foreign subsidiary’s
What is a gearing adjustment, and on what ideas is it based?
How does accounting for foreign inflation differ from accounting for domestic inflation?
What does double-dipping mean in accounting for foreign inflation?
Sobrero Corporation, a Mexican affiliate of a major U.S.-based hotel chain, starts the calendar year with 1 billion pesos (P) cash equity investment. It immediately acquires a refurbished hotel in Acapulco for P 900 million. Owing to a favorable tourist season, Sobrero Corporation’s rental
The comparative historical-cost balance sheets of Majikstan Enterprises for 2010 and 2011 are reproduced below. The accounts are expressed in 000’s of renges (MJR’s).Required:What was the change in Majikstan’s net monetary asset or liability position?
Using the information provided in Exercise 2. Calculate Majikstan Enterprises’ net monetary gain or loss in local currency for 2011 based on the following general price-level information.12/31/10 ....... 30,000Average ....... 32,90012/31/11 ....... 36,000
Revisit Sobrero Corporation in Exercise 1. In addition to the information provided there, assume that Mexico’s construction cost index increased by 80 percent during the year, while the price of vacant land adjacent to Sobrero Corporation’s hotel increased in value by 90 percent.Required:Use
Majikstan Enterprises has equipment on its books that it acquired at the start of 2009. The equipment is being depreciated in straight-line fashion over a 10-year period and has no salvage value. The current cost of this equipment at the end of 2010 was MJR8,000,000,000. During 2011, the specific
Now assume that Majikstan Enterprises is a foreign subsidiary of a U.S.-based multinational corporation and that its financial statements are consolidated with those of its U.S. parent. Relevant exchange rate and general price-level information for the year are given here:Required:What would be
The balance sheet of Rackett & Ball plc., a U.K.-based sporting goods manufacturer, is presented here. Figures are stated in millions of pounds (￡m). During the year, the producers’ price index increased from 100 to 120, averaging 110.The aggregate current cost of sales, depreciation, and
Ninsuvaan Corporation, a U.S. subsidiary in Bangkok, Thailand, begins and ends its calendar year with an inventory balance of BHT500 million. The dollar/baht exchange rate on January 1 was $0.02 = BHT1. During the year, the U.S. general price level advances from 180 to 198, while the Thai general
Doosan Enterprises, a U.S. subsidiary domiciled in South Korea, accounts for its inventories on a FIFO basis. The company translates its inventories to dollars at the current rate. Year-end inventories are recorded at 10,920,000 won. During the year, the replacement cost of inventories increases by
The year-end balance sheet of Helsinki Corporation, a wholly owned British affiliate in Finland, is reproduced here. Relevant exchange rate and inflation information is also provided.Required:Using this information, calculate the monetary adjustment without double-counting for the effects of
1. Assuming beginning inventories were acquired when the general price index level was 128, prepare Kashmir Enterprises’ financial statements (i.e., income statement and balance sheet) under the(a) Conventional original transactions cost model(b) Historical-cost constant rupee model(c)
1. Comment on International Cosmetics’ policies on the basis of “as reported” earnings.2. Is management correct in stating that by translating their financial reports into dollars they “automatically approximate the impact of inflation”?3. What revised actions/policies would you recommend
Distinguish between the terms “harmonization” and “convergence” as they apply to accounting standards.
Compare and contrast the following proposed approaches for dealing with international differences in accounting, disclosure, and auditing standards:(1) Reciprocity,(2) Reconciliation,(3) International standards.
What are the key rationales that support the development and widespread application of International Financial Reporting Standards?
What are the key rationales against the development and widespread application of International Financial Reporting Standards?
What evidence is there that International Financial Reporting Standards are becoming widely accepted around the world? Do you believe that worldwide convergence of accounting standards will end investor concerns about cross-national differences in accounting practices? Why or why not?
Describe the structure of the International Accounting Standards Board and how it sets International Financial Reporting Standards.
What is the purpose of accounting harmonization in the European Union (EU)? Why did the EU abandon its approach to harmonization via directives to one favoring the IASB?
Why is the concept of auditing convergence important? Will international harmonization of auditing standards be more or less difficult to achieve than international harmonization of accounting principles? Describe IFAC’s work on converging auditing standards.
Describe IOSCO’s work on harmonizing disclosure standards for cross-border offerings and initial listings by foreign issuers. Why is this work important to securities regulators around the world?
What role do the United Nations and the Organization for Economic Cooperation and Development play in harmonizing accounting and auditing standards?
Three solutions have been proposed for resolving the problems associated with filing financial statements across national borders: (1) Reciprocity (also known as mutual recognition)(2) Reconciliation (3) Use of international standards.Required: Present a complete but concise evaluation of each of
Exhibit 8-1 presents the Web site addresses of many major international organizations involved in international accounting harmonization. Consider the following three: the International Federation of Accountants (IFAC), the United Nations Intergovernmental Working Group of Experts on International
Exhibit 8-2 presents the Web site addresses of national accountancy organizations, many of which are involved in international accounting standard-setting and convergence activities. Required: Select one of the accounting organizations and search its Web site for information about its involvement
The text discusses the many organizations involved with international convergence activities, including the IASB, EU, and IFAC.Required:a. Compare and contrast these three organizations in terms of their standard-setting procedures.b. At what types and sizes of enterprises are their standards
The chapter contains a chronology of some significant events in the history of international accounting standard setting.Required: Consider the 1995 European Commission adoption of a new approach to accounting harmonization. Consult some literature references about this event; prepare a short essay
The biographies of current IASB board members are on the IASB Web site (www.iasb.org).Required: Identify the current board members (including the chair and vice-chair). Note each member’s home country and prior affiliation(s). Which board members have previously served on national accounting
Chapter 3 discusses financial reporting and accounting measurements under International Financial Reporting Standards (IFRS). Chapter 4 discusses the same issues for U.S. GAAP and Exhibit 4-2 summarizes some of the significant differences between IFRS and U.S. GAAP.Required:How would each
The U.S. Securities and Exchange Commission (SEC) roadmap issued in 2008 may eventually move U.S. issuers to report under International Financial Reporting Standards (IFRS). Consider the following critical questions of such a move: a. IFRS lack detailed rules when compared to U.S. GAAP. Shouldn’t
The IASB Web site (www.iasb.org) summarizes each of the current International Financial Reporting Standards.Required: Answer each of the following questions.a. In measuring inventories at the lower of cost or net realizable value, does net realizable value mean?i. Estimated replacement cost, orii.
1. As much as possible, assess the extent to which PetroChina’s accounting principles conform to IASB standards.2. How reliable is your assessment?3. What further information would help your assessment?4. Does the auditor’s report provide information useful in your assessment? Explain. MINI
1. Go to the Web sites of the International Accounting Standards Board (www.iasb.org) and the U.S. Financial Accounting Standards Board (www.fasb.org). Compare and contrast the two boards in terms of their composition and standard-setting processes.2. Why is so much attention paid to convergence
What is tax neutrality? Are taxes neutral with regard to business decisions? Is this good or bad?
What philosophies and types of taxes exist worldwide?
Consider the statement “National differences in statutory tax rates are the most obvious and yet least significant determinants of a company’s effective tax burden.” Do you agree? Explain.
Carried to its logical extreme, tax planning implies a conscientious policy of tax minimization. This mode of thinking raises an ethical question for international tax executives. Deliberate tax evasion is commonplace in many parts of the world. In Italy, for example, tax legislation is often
Compare and contrast the role of transfer pricing in national versus international operations.

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