Worldwide Accounting Diversity and International Accounting Standards

Homework Question

Chapter 11 – Worldwide Accounting Diversity and International Accounting Standards

 

Multiple Choice:                                                                                

 

[QUESTION]

  1. In the United States, foreign companies filing annual reports with the SEC that are notprepared in accordance with U.S. GAAP must:
  2. A) Present financial statements that comply with international GAAP.
  3. B) Conform with U.S. GAAP or present a reconciliation to U.S. GAAP.
  4. C) Have a demonstrated need for capital to be used for operations in the S.
  5. D) Use the U.S. dollar as their reporting currency.
  6. E) Either use IFRS, or otherwise use foreign GAAP with a reconciliation to U.S. GAAP.

Answer:E

Learning Objective: 11-07

Topic: SEC recognition of IFRS

Difficulty: 1 Easy

Blooms: Understand

AACSB: Thinking

AACSB: Diversity

AICPA: BB Global

AICPA: FN Measurement

 

[QUESTION]

  1. Which of the following is nota likely step to furthering convergence of FASB and IFRS?
  2. A) FASB adopting an existing IASB Standard.
  3. B) IASB adopting an existing FASB standard.
  4. C) FASB and IASB issuing an identical standard.
  5. D) FASB working with IASB to develop a new standard.
  6. E) Realizing that identical standards, rather than similar standards, is not realistic.

Answer: C

Learning Objective: 11-07

Topic: FASB–IASB Convergence process

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

AACSB: Diversity

AICPA: BB Global

AICPA: BB Legal

 

[QUESTION]

  1. All of the following are influences on the development of a country’s financial reporting practices except:
  2. A) The country’s legal system.
  3. B) The country’s political system.
  4. C) The taxation system.
  5. D) The country’s cultural system.
  6. E) The country’s level of inflation.

Answer:D

Learning Objective: 11-01

Topic: Accounting diversity―Factors of influence

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

AACSB: Diversity

AICPA: BB Global

AICPA: BB Legal

 

[QUESTION]

  1. Which of the following is a pronouncement originally issued by the IASC and is nota pronouncement originally issued by the IASB?
  2. A) Business Combinations.
  3. B) First-Time Adoption of IFRS.
  4. C) Financial Instruments: Disclosures.
  5. D) Interim Financial Reporting.
  6. E) Operating Segments.

Answer:D

Learning Objective: 11-03

Topic: IFRS―Types of pronouncements

Difficulty: 3 Hard

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Global

AACSB: Diversity

AICPA: FN Research

 

[QUESTION]

  1. In countries of Latin America:
  2. A) Accounting practice currently emphasizes political colonialism.
  3. B) Accounting standards previously emphasized accounting highly inflationary economies.
  4. C) Banks are the primary source of financing for companies.
  5. D) Accounting standards focus are based on recent market economy reforms.
  6. E) Accounting information is prepared to meet the needs of governmental planners.

Answer: B

Learning Objective: 11-01

Topic: Accounting diversity―Factors of influence

Difficulty: 1 Easy

Blooms: Remember

AACSB: Reflective thinking

AACSB: Diversity

AICPA: BB Global

AICPA: BB Legal

 

[QUESTION]

  1. Which of the following is not a way for a country to use IFRS?
  2. A) Require foreign companies listed on that country’s stock exchange to use IFRS for consolidated financial statements.
  3. B) Allow foreign companies listed on that country’s stock exchange to use IFRS.
  4. C) Permit its domestic companies listed on that country’s stock exchange to use IFRS.
  5. D) Adopt IFRS as that country’s national GAAP.
  6. E) All of these answer choices are correct.

Answer: E

Learning Objective: 11-04

Topic: IFRS―Usage around the world

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

AACSB: Diversity

AICPA: BB Global

AICPA: BB Legal

 

[QUESTION]

  1. Convergence of accounting standards would notoccur by:
  2. A) FASB adopting an existing IASB standard.
  3. B) IASB adopting an existing FASB standard.
  4. C) IASB issuing a new standard.
  5. D) IASB and FASB jointly developing a new standard.
  6. E) IASB and FASB each issuing a similar but not identical standard.

Answer:C

Learning Objective: 11-07

Topic: FASB–IASB Convergence process

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

AACSB: Diversity

AICPA: BB Global

AICPA: FN Research

 

[QUESTION]

  1. The types of differences that exist between IFRS and U.S. GAAP would notgenerally include:
  2. A) Presentation differences.
  3. B) Measurement differences.
  4. C) Disclosure differences.
  5. D) Comparability differences.
  6. E) Classification differences.

Answer:D

Learning Objective: 11-08

Topic: IFRS–US GAAP differences―Select the type

Difficulty: 1 Easy

Blooms: Remember

AACSB: Reflective Thinking

AACSB: Diversity

AICPA: BB Global

AICPA: FN Measurement

 

[QUESTION]

  1. Which of the following is not true about IFRS?
  2. A) The IASB does not have the ability to enforce proper usage of IFRS.
  3. B) IFRS is available to any organization or nation that wishes to use those standards.
  4. C) IFRS is a comprehensive set of financial reporting standards.
  5. D) IFRS includes only pronouncements issued by the IASB.
  6. E) IFRS are considered as generally accepted accounting principles.

Answer:D

Learning Objective: 11-03

Topic: IFRS―Types of pronouncements

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Global

AICPA: FN Research

 

[QUESTION]

  1. Which one of the following isnot a background or qualification requirement for full-time IASB members?
  2. A) Professional competence.
  3. B) Attain 10 years of auditing experience.
  4. C) Practical experience.
  5. D) Cease holding positions which might call into question their independence.
  6. E) Sever relationship with former employers.

Answer: B

Learning Objective: 11-02

Topic: IASC and IASB―Developers of standards

Difficulty: 1 Easy

Blooms: Remember

AACSB: Ethics

AACSB: Diversity

AICPA: BB Global

AICPA: BB Legal

 

[QUESTION]

  1. Which of the following isnotan authoritative pronouncement of International Financial Reporting Standards (IFRSs)?
  2. A) International Financial Reporting Standards issued by the IASB
  3. B) International Accounting Standards issued by the IASCand adopted by the IASB
  4. C) Interpretations issued by the International Financial Reporting Interpretations Committee (IFRICs)
  5. D) International Accounting Principles
  6. E) Interpretations issued by the Standing Interpretations Committee (SICs) and adopted by the IASB

Answer:D

Learning Objective: 11-03

Topic: IFRS―Types of pronouncements

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

AACSB: Diversity

AICPA: BB Global

AICPA: FN Research

 

[QUESTION]

  1. Which of the following is nota factor influencing a country’s financial reporting practices?
  2. A) Providers of financing.
  3. B) Inflation.
  4. C) Legal system.
  5. D) Gross National Product.
  6. E) Political and economic ties.

Answer: D

Learning Objective: 11-01

Topic: Accounting diversity―Factors of influence

Difficulty: 1 Easy

Blooms: Remember

AACSB: Reflective Thinking

AACSB: Diversity

AICPA: BB Global

AICPA: BB Legal

 

[QUESTION]

  1. Which of the following statements is falseregarding a country’s legal system?
  2. A) The two major types of legal systems are common law and codified Roman law.
  3. B) Common law originated in the Roman jus civile.
  4. C) Code law countries tend to have more statutes governing a wider range of human activity.
  5. D) Accounting law is rather general in code law countries.
  6. E) A nongovernmental organization is more likely to develop in a common law country than in a code law country.

Answer: B

Learning Objective: 11-01

Topic: Accounting diversity―Factors of influence

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

AACSB: Diversity

AICPA: BB Global

AICPA: BB Legal

 

[QUESTION]

  1. The most relevant factor in determining the purpose of financial reporting is:
  2. A) The nature of the country’s financing system
  3. B) The country’s current economic conditions
  4. C) The ability to control inflation
  5. D) A strong equity financing system which is more conservative, minimal disclosures, and tight tax laws.
  6. E) A weak equity financing system which is less conservative, extensive disclosures and loose tax laws.

Answer: A

Learning Objective: 11-01

Topic: Accounting diversity―Factors of influence

Difficulty: 2 Medium

Blooms: Understand

AACSB: Reflective Thinking

AACSB: Diversity

AICPA: BB Global

 

[QUESTION]

  1. Which of the following is nota problem caused by diverse accounting practices across countries?
  2. A) Preparation of consolidated financial statements.
  3. B) Gaining access to foreign capital markets.
  4. C) Lack of comparability of financial statements between companies in the same country.
  5. D) Cost and expertise required of accounting staff who prepare consolidated financial statements.
  6. E) Need for a company to maintain multiple sets of accounting records.

Answer:C

Learning Objective: 11-02

Topic: Accounting diversity―Problems caused

Difficulty: 1 Easy

Blooms: Remember

AACSB: Reflective Thinking

AACSB: Diversity

AICPA: BB Global

 

 

[QUESTION]

  1. A U.S. company has many foreign subsidiaries and wants to convert its consolidated financial statements from U.S. GAAP to IFRS. Which of the following items is notone of the likely accounting issues to resolve for the opening IFRS balance sheet?
  2. A) Inventory valuation.
  3. B) Capitalizing development costs.
  4. C) Bank overdrafts that are integral to cash management.
  5. D) Goodwill calculation from acquisition of a subsidiary.
  6. E) Liability for restructuring charges.

Answer: D

Learning Objective: 11-06

Topic: IFRS―First-time adoption

Difficulty: 2 Medium

Blooms: Understand

AACSB: Reflective Thinking

AACSB: Diversity

AICPA: BB Global

AICPA: FN Measurement

 

[QUESTION]

  1. A U.S. company has many foreign subsidiaries and is converting its consolidated financial statements from U.S. GAAP to IFRS. Which of the following items is notone of the likely accounting issues to resolve for the conversion?
  2. A) Measuring impairment.
  3. B) Classifying preferred shares of stock.
  4. C) Sale and leaseback gain recognition.
  5. D) Measuring salaries expense.
  6. E) Prior service cost recognition for defined benefit plans.

Answer:D

Learning Objective: 11-08

Topic: IFRS–US GAAP differences―Specific topics

Difficulty: 2 Medium

Blooms: Understand

AACSB: Reflective Thinking

AACSB: Diversity

AICPA: BB Global

AICPA: FN Measurement

 

[QUESTION]

  1. Foreign companies whose stock is listed on a U.S. stock exchange and using foreign GAAP other than IFRS must file their annual report with the SEC on:
  2. A) Form 8-A.
  3. B) Form 10-A.
  4. C) Form 16-K.
  5. D) Form 20-F.
  6. E) Form 20-K.

Answer: D

Learning Objective: 11-07

Topic: SEC recognition of IFRS

Difficulty: 1 Easy

Blooms: Remember

AACSB: Reflective Thinking

AACSB: Diversity

AICPA: BB Legal

AICPA: BB Global

 

[QUESTION]

  1. What international organization currently issuesIFRS?
  2. A) IASB.
  3. B) IASC.
  4. C) IOSCO.
  5. D) FASB.
  6. E) EU.

Answer: A

Learning Objective: 11-03

Topic: IFRS―Types of pronouncements

Difficulty: 1 Easy

Blooms: Remember

AACSB: Legal

AACSB: Diversity

AICPA: BB Global

AICPA: BB Legal

 

[QUESTION]

  1. All of the following are ways a country may use IFRSexcept:
  2. A) A country may require foreign companies listed on its domestic stock exchange to use IFRS.
  3. B) A country may permit companies listed on its domestic stock exchange to use IFRS.
  4. C) A country may permit foreign companies listed on a foreign stock exchange to use foreign GAAP.
  5. D) A country may require companies listed on its domestic stock exchange to use IFRS in preparing consolidated financial statements.
  6. E) A country may adopt IFRS as its national GAAP.

Answer: C

Learning Objective: 11-04

Topic: IFRS―Usage around the world

Difficulty: 1 Easy

Blooms: Remember

AACSB: Reflective Thinking

AACSB: Diversity

AICPA: BB Global

AICPA: BB Legal

 

[QUESTION]

  1. All of the following are true regarding IASB members except:
  2. A) IASB shall comprise 16 members, and up to 3 of those members may be part-time.
  3. B) Full-time members must sever employment relationships with former employers.
  4. C) Full-time members are not allowed to hold any position giving rise to perceived economic incentives that might call their independence into question.
  5. D) Part-time members must sever employment relationships with former employers.
  6. E) Primary qualifications for IASB membership are professional competence and practical experience.

Answer: D

Learning Objective: 11-02

Topic: IASC and IASB―Developers of standards

Difficulty: 1 Easy

Blooms: Remember

AACSB: Ethics

AACSB: Diversity

AICPA: BB Global

 

[QUESTION]

  1. IFRS for SMEs differ from full IFRS in all of the following ways except:
  2. A) IFRS for SMEs require significantly fewer disclosures.
  3. B) Interim period reports need not be prepared when following IFRS for SMEs.
  4. C) Recognizing and measuring assets are simplified when following IFRS for SMEs.
  5. D) Segment reporting must be provided when following IFRS for SMEs.
  6. E) IFRS for SMEs do not require earnings per share to be reported.

Answer:  D

Learning Objective: 11-05

Topic: IFRS for SMEs

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

AACSB: Diversity

AICPA: BB Global

AICPA: FN Measurement

 

[QUESTION]

  1. Which of the following is not an example of IFRS simplified for SMEs?
  2. A) All borrowing costs are expensed as incurred.
  3. B) All development costs are expensed as incurred.
  4. C) Goodwill is amortized over its useful life.
  5. D) There is a choice between using the cost model and the revaluation model for property, plant, and equipment.
  6. E) Actuarial gains and losses for defined benefit plans are recognized immediately.

Answer:  D

Learning Objective:  11-05

Topic: IFRS for SMEs

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

AACSB: Diversity

AICPA: BB Global

AICPA: FN Measurement

 

  1. IFRS for SMEs are primarily designed to meet the needs of:
  2. A) Small Manufacturing Enterprises.
  3. B) Governmental entities.
  4. C) Companies whose shares of stock are not publicly traded.
  5. D) Not-for-profit organizations.
  6. E) Special Model Entities.

Answer: C

Learning Objective:  11-05

Topic: IFRS for SMEs

Difficulty: 1 Easy

Blooms: Remember

AACSB: Reflective Thinking

AACSB: Diversity

AICPA: BB Global

AICPA: BB Legal

AICPA: FN Research

 

[QUESTION]

  1. Which of the following is the organization that governs the IASB?
  2. A) IASC.
  3. B) IOSCO.
  4. C) UNESCO.
  5. D) IFRS Foundation.
  6. E) IAS Service.

Answer: D

Learning Objective: 11-02

Topic: IASC and IASB―Developers of standards

Difficulty: 1 Easy

Blooms: Remember

AACSB: Reflective Thinking

AACSB: Diversity

AICPA: BB Global

AICPA: BB Legal

 

  1. All of the following are simplified principles for recognizing and measuring assets, liabilities, income, and expenses for SMEs under IFRSexcept:
  2. A) Borrowing costs are expensed as incurred.
  3. B) All development costs are expensed as incurred.
  4. C) Actuarial gains and losses for defined benefit plans may be either recognized immediately or deferred and amortized.
  5. D) Goodwill is amortized over its useful life.
  6. E) The cost model for property, plant, and equipment must be used.

Answer: C

Learning Objective: 11-05

Topic: IFRS for SMEs

Difficulty: 1 Easy

Blooms: Remember

AACSB: Reflective Thinking

AACSB: Diversity

AICPA: BB Global

AICPA: FN Measurement

 

 

[QUESTION]

  1. Which of the following is a correct statement with regard to differences between IFRS and U.S. GAAP?
  2. A) Reporting a bank overdraft that is an integral part of a cash management policy is a recognition difference.
  3. B) Reporting LIFO inventory is a presentation difference.
  4. C) Reporting past service cost for defined benefit pension plans is a measurement difference.
  5. D) Reporting convertible debt is a recognition difference.
  6. E) Reporting development costs is a classification difference.

Answer: C

Learning Objective: 11-08

Topic: IFRS–US GAAP differences―Select the type

Difficulty: 2 Medium

Blooms: Analyze

AACSB: Analytical Thinking

AACSB: Diversity

AICPA: BB Global

AICPA: FN Measurement

 

[QUESTION]

  1. Which of the following is not one of the steps to prepare IFRS statements for the first time?
  2. A) Determine applicable IFRS accounting policies based on standards in force on the reporting date.
  3. B) Recognize assets and liabilities required to be recognized under IFRS that were not recognized under previous GAAP.
  4. C) Derecognize assets and liabilities previously recognized that are not allowed to be recognized under IFRS.
  5. D) Reclassify items previously classified in a different manner from what is acceptable under IFRS.
  6. E) Comply with most disclosure and presentation requirements.

Answer:  E

Learning Objective: 11-06

Topic: IFRS―First-time adoption

Difficulty:  2 Medium

Blooms:  Understand

AACSB: Reflective Thinking

AACSB: Diversity

AICPA: BB Global

AICPA: FN Measurement

 

[QUESTION]

  1. Which of the following is not a step in preparing IFRS financial statements for the first time?
  2. A) Determine applicable IFRS accounting policies based on standards in effect on the reporting date.
  3. B) Determine applicable IFRS accounting policies based on the standards in effect on the opening balance sheet date.
  4. C) Recognize assets and liabilities required to be recognized under IFRS that were not recognized under previous GAAP.
  5. D) Derecognize assets and liabilities previously recognized that are not allowed to be recognized under IFRS.
  6. E) Measure assets and liabilities recognized on the opening balance sheet in accordance with IFRS.

Answer: B

Learning Objective: 11-06

Topic: IFRS―First-time adoption

Difficulty: 2 Medium

Blooms: Understand

AACSB: Reflective Thinking

AACSB: Diversity

AICPA: BB Global

AICPA: FN Measurement

 

[QUESTION]

  1. A company is preparing financial statements using IFRS for the first time for the year ended December 31, 2018. The “transition date” for reporting is
  2. A) December 31, 2018.
  3. B) December 31, 2017.
  4. C) January 1, 2017.
  5. D) January 1, 2018.
  6. E) January 1, 2019.

Answer: D

Learning Objective: 11-06

Topic: IFRS―First-time adoption

Difficulty: 1 Easy

Blooms: Analyze

AACSB: Analytical Thinking

AACSB: Diversity

AICPA: BB Global

AICPA: FN Measurement

 

Use the following to answer questions 31 and 32:

REFERENCE 11-01

A foreign subsidiary of a U.S.-based company has been notified of a loss contingency with an estimated cost ranging between $220,000 and $250,000 which is probable of resulting in an actual loss. Each dollar amount within this range of cost is equally likely of being the actual outcome.

 

[QUESTION]

REFER TO: 11-01

  1. According to IFRS, what is the amount recognized as a provision for loss contingency?
  2. A) No amount will be recorded but an amount will be disclosed in the notes to the financial statements.
  3. B) $110,000
  4. C) $220,000
  5. D) $235,000
  6. E) $250,000

Answer: D

Learning Objective: 11-08

Topic: IFRS–US GAAP differences―Specific topics

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AACSB: Diversity

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

REFER TO: 11-01

  1. According to U.S. GAAP, what is the amount recognized as a provision for loss contingency?
  2. A) No amount will be recorded but an amount will be disclosed in the notes to the financial statements.
  3. B) $110,000
  4. C) $220,000
  5. D) $235,000
  6. E) $250,000

Answer: C

Learning Objective: 11-08

Topic: IFRS–US GAAP differences―Specific topics

Difficulty: 1 Easy

Blooms: Apply

AACSB: Knowledge Application

AACSB: Diversity

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

Use the following to answer questions 33 and 34:

REFERENCE 11-02

Bugs, Inc., a wholly owned subsidiary of the U.S.-based company, Pillows Ltd., was notified of a loss contingency with an estimated cost ranging between $50,000 and $150,000. Bugs, Inc. hired an expert appraiser who assessed that all possible dollar amounts of liability in this range are equally likely. Management of Bugs, Inc. has estimated that there is a 60 percent chance that this contingency will result in an actual loss.

 

[QUESTION]

REFER TO: 11-02

  1. According to U.S. GAAP, what is the amount recognized by Bugs, Inc. as a provision for loss contingency?
  2. A) No amount will be recorded but an amount will be disclosed in the notes to the financial statements.
  3. B) $50,000
  4. C) $60,000
  5. D) $100,000
  6. E) $150,000

Answer: A

Learning Objective: 11-08

Topic: IFRS–US GAAP differences―Specific topics

Difficulty: 2 Medium

Blooms: Analyze

AACSB: Analytical Thinking

AACSB: Diversity

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

REFER TO: 11-02

  1. In the conversion from U.S. GAAP financial statements to IFRS financial statements, what is the amount of adjustment needed to adjust for the difference in accounting for a provision for loss contingency?
  2. A) $0
  3. B) $50,000
  4. C) $100,000
  5. D) $150,000
  6. E) $200,000

Answer: C

Learning Objective: 11-06

Topic: IFRS to US GAAP―Conversion adjustments

Difficulty: 3 Hard

Blooms: Analyze

AACSB: Analytical Thinking

AACSB: Diversity

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

  1. Of the following IFRS, which was the most recently issued?
  2. A) First-Time Adoption of IFRS
  3. B) Leases
  4. C) Revenue from Contracts with Customers
  5. D) Insurance Contracts
  6. E) Financial Instruments: Disclosures

Answer: B

Learning Objective:  11-04

Topic: IFRS―Usage around the world

Difficulty: 1 Easy

Blooms: Remember

AACSB: Reflective Thinking

AACSB: Diversity

AICPA: BB Global

AICPA: FN Measurement

 

[QUESTION]

  1. Which of the following is not a problem caused by diversity in accounting practices across countries?
  2. A) Comparing companies in the same industry that are headquartered in different countries.
  3. B) Translating foreign currency balances into U.S. dollars.
  4. C) Converting local GAAP financial statements into U.S. GAAP for consolidation purposes.
  5. D) Maintaining separate accounting records in both the local and U.S. GAAP.
  6. E) Identifying and retaining personnel who are competentto prepare financial statements in both international and domestic accounting standards.

Answer: B

Learning Objective: 11-02

Topic: Accounting Diversity—Problems Caused

Difficulty: 1 Easy

Blooms: Remember

AACSB: Reflective Thinking

AACSB: Diversity

AICPA: BB Global

AICPA: FN Measurement

 

[QUESTION]

  1. Which statement is correct as it relates to diverse accounting practices across countries?
  2. A) Gaining access to foreign capital markets is relatively easy and inexpensive once the financial statements are converted to the local currency of the country where the financing is desired.
  3. B) U.S. GAAP is acceptable worldwide wherever IFRS has not been adopted.
  4. C) To have stock listed on a U.S. stock exchange, all financial statements submitted to the SEC must be prepared either using U.S. GAAP or using IFRS.
  5. D) Stock analysts specializing in industry coverage can compare financial statements regardless of various national or international accounting standards used by companies being compared.
  6. E) Translating financial statements of various currencies into one common currency for consolidation purposes does not resolve the problem of diversity of accounting practices across countries.

Answer: E

Learning Objective: 11-02

Learning Objective: 11-04

Topic: Accounting Diversity—Problems caused

Topic: IFRS―Usage around the world

Difficulty: 2 Medium

Blooms: Understand

AACSB: Reflective Thinking

AACSB: Diversity

AICPA: BB Global

AICPA: FN Measurement

 

[QUESTION]

  1. Barrel of Oats (BOA), a U.S. company,was acquired by an international company and BOA has a transition date of January 1, 2018 for first-time adoption of IFRS. BOA has a new cereal brand that is ready to be marketed but the company has not yet received copyright approval for the brand’s logo. All costs for development of the copyright were expensed prior to IFRS January 1, 2018. BOA and its new international parent both have December 31 year-end accounting years. What should BOA do to prepare financial statements for the first time in accordance with IFRS?
  2. A) Debit development expense and credit copyright for the year ended December 31, 2018.
  3. B) Debit copyright and credit copyright expense at January 1, 2018.
  4. C) Debit copyright and credit research and development expense for the year ended December 31, 2017.
  5. D) Debit copyright and credit stockholders’ equity at January 1, 2018.
  6. E) Debit stockholders’ equity and credit research and development expense at January 1, 2018.

Answer: D

Learning Objective: 11-06

Topic: IFRS―First-time adoption

Difficulty: 2 Medium

Blooms: Analyze

AACSB: Analytical Thinking

AACSB: Diversity

AICPA: BB Global

AICPA: FN Measurement

 

[QUESTION]

  1. When measuring assets and liabilities recognized on the opening balance sheet in accordance with first-time adoption of IFRS, the reporting company must:
  2. A) Use its current valuation method and disclose the method in the notes to the financial statements.
  3. B) Retrospectively apply applicable IASB standards to each asset and liability reported on the opening balance sheet.
  4. C) Prospectively apply applicable IASB standards to each asset and liability reported on the opening balance sheet.
  5. D) Recognize thedifference in measurement, and disclose it in the notes to the financial statements as a change in accounting estimate.
  6. E) Retrospectively apply applicable IASB standards to each asset and liability reported on the opening balance sheet and recognize the amount of change in the income statement.

Answer:  B

Learning Objective: 11-06

Topic: IFRS—First-time adoption

Difficulty: 2 Medium

Blooms: Understand

AACSB: Reflective Thinking

AACSB: Diversity

AICPA: BB Global

AICPA: FN Measurement

 

[QUESTION]

  1. The FASB-IASB convergence project on leases resulted in the following:
  2. A) Lease accounting will be the same under IFRS and under U.S. GAAP in that lessors and lesseeswill capitalize all leases as finance leases and treat them as such in the measurement of income.
  3. B) Lessor and lessee accounting will be the same under IFRS and under U.S. GAAP in that lessors will capitalize all leases and lessees will capitalize some leases as finance leases but treat others as operating leases.
  4. C) Lease accounting will differ in that under IFRS lessees will capitalize some leases as finance leases and others as operating leases, while under U.S. GAAP lessees will capitalize all leases as finance leases but treat them as traditional operating leases in the measurement of net income.
  5. D) Lease accounting will be similar under IFRS and U.S. GAAP for lessees but will differ for lessors in their treatment of the measurement of net income.
  6. E) Lease accounting will differ for lessees in that, under IFRS, all leases will be treated as finance leases both on the balance sheet and in the measurement of net income, and under U.S. GAAP lessees will capitalize operating leases on the balance sheet similar to finance leases but will treat them as traditional operating leases in the measurement of income.

Answer: E

Learning Objective: 11-07

Topic: FASB–IASB Convergence process

Difficulty:2 Medium

Blooms: Analyze

AACSB: Analytical Thinking

AACSB: Diversity

AICPA: BB Global

AICPA: FN Measurement

 

[QUESTION]

  1. The most recent FASB-IASB convergence projects include:
  2. Leases, Research and Development,Revenue Recognition, and Fair Value Measurement.
  3. Leases, Revenue Recognition, Fair Value Measurement, and Joint Ventures.
  4. Insurance Contracts, Post-Employment Benefits, Income Taxes and Impairment
  5. Insurance Contracts, Income Taxes, Leases, and Revenue Recognition.
  6. Revenue Recognition, Leases, Insurance Contracts, and Income Taxes.

Answer: B

Learning Objective: 11-07

Topic: FASB–IASB Convergence process

Difficulty: 1 Easy

Blooms: Understand

AACSB: Reflective Thinking

AACSB: Diversity

AICPA: BB Global

AICPA: FN Measurement

 

 

Essay:

 

[QUESTION]

  1. Why do countries have their own unique set of financial reporting practices?

 

Answer:Five commonly accepted factors influence financial reporting practices: (1) legal system, (2) taxation, (3) financing system, (4) inflation, and (5) political and economic ties.  Because of the differences in these five factors from one country to another, and because international standards had not been created when many individual country’s standards were created, countries continue to have unique financial reporting practices and standards.

Learning Objective: 11-01

Topic: Accounting diversity―Factors of influence

Difficulty: 2 Medium

Blooms: Understand

AACSB: Communication

AACSB: Diversity

AICPA: BB Global

AICPA: FN Measurement

 

[QUESTION]

  1. State the two major types of legal systems used around the world and briefly describe their differences.

 

Answer:The two major types of legal systems used around the world are common law and code law. Common law is primarily used in the English-speaking countries of the world and relies on a limited amount of statute law interpreted by the courts. Code law is followed in most non-English-speaking countries, originated in the Roman jus civile, and tends to rely more on statute or codified law.

Learning Objective: 11-01

Topic: Accounting diversity―Factors of influence

Difficulty: 2 Medium

Blooms: Remember

AACSB: Communication

AACSB: Diversity

AICPA BB Global

AICPA: BB Legal

 

[QUESTION]

  1. The major providers of financing in some countries are stockholders, while other countries predominantly use banks as the main financing source. What difference does it make to accounting disclosures in comparing a company from one of each of those countries?

 

Answer: When banks dominate financing, there is less pressure for public information and disclosures.  However, as companies become more reliant upon equity, demand for information increases.  Therefore, the disclosures in countries whose main providers of financing are banks are significantly less than those disclosures in countries dependent upon stockholders’ equity.

Learning Objective: 11-01

Topic: Accounting diversity―Factors of influence

Difficulty: 2 Medium

Blooms: Understand

AACSB: Communication

AACSB: Diversity

AICPA: BB Global

AICPA: FN Measurement

 

[QUESTION]

  1. What problems are caused by diverse accounting practices?

 

Answer: (1) Difficulty in preparation of consolidated financial statements by companies with foreign operations; (2) difficulty in gaining access to foreign capital markets; and (3) the lack of comparability of financial statements between companies from countries with different accounting standards.

Learning Objective: 11-02

Topic: Accounting diversity―Problems caused

Difficulty: 2 Medium

Blooms: Understand

AACSB: Reflective Thinking

AACSB: Diversity

AICPA: BB Global

AICPA: FN Measurement

 

[QUESTION]

  1. What is the IOSCO?

 

Answer:The International Organization of Securities Commissions (IOSCO) is an organization of stock exchange regulators in more than 100 countries, including the SEC of the United States.  One of its objectives is to facilitate cross-border securities offerings and listings by multinational issuers. Therefore, IOSCO has supported accounting standard harmonization.

Learning Objective: 11-02

Topic: IASC and IASB―Developers of standards

Difficulty: 2 Medium

Blooms: Remember

AACSB: Communication

AACSB: Diversity

AICPA: BB Global

 

[QUESTION]

  1. What are the fourtypes of authoritative pronouncements that make up the International Financial Reporting Standards (IFRS)?

 

Answer: The fourtypes of authoritative pronouncements are International Financial Reporting Standards issued by the IASB, the International Accounting Standards issued by the IASC adopted by the IASB, the Interpretations issued by the International Financial Reporting Interpretations Committee (IFRICs), and Interpretations issued by the Standing Interpretations Committee (SICs) (and adopted by the IASB).

Learning Objective: 11-03

Topic: IFRS―Types of pronouncements

Difficulty: 1 Easy

Blooms: Remember

AACSB: Reflective Thinking

AACSB: Diversity

AICPA: BB Global

AICPA: FN Research

 

[QUESTION]

  1. What does the IASB’s Conceptual Framework for Financial Reporting state as the objective of general purpose financial reporting?

 

Answer: The IASB Conceptual Framework states that the objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders, and other creditors in making decisions about providing resources to the entity.

Learning Objective: 11-03

Topic: IFRS―Types of pronouncements

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

AACSB: Diversity

AICPA: BB Global

AICPA: FN Research

 

[QUESTION]

  1. What are the four different ways IFRS can be used by a country?

 

Answer: IFRS can be used by a country by (1) adopting IFRSas its national GAAP, (2) requiring domestic listed companies to use IFRSin preparation of consolidated financial statements, (3) permitting domestic companies listed on the domestic stock exchange to use IFRS, and (4) requiring or allowing foreign companies listed on the domestic stock exchange to use IFRS.

Learning Objective: 11-04

Topic: IFRS―Usage around the world

Difficulty: 1 Easy

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Global

AICPA: FN Measurement

 

[QUESTION]

  1. What are the two primary methods used by countries to incorporate IFRS into their financial reporting requirements for listed companies?

 

Answer: (1) Full adoption of IFRS as issued by the IASB, without any intervening review or approval by a local body. (2) Adoption of IFRS after some form of jurisdictional review and approval process.

Learning Objective: 11-04

Topic: IFRS―Usage around the world

Difficulty: 1 Easy

Blooms: Remember

AACSB: Reflective Thinking

AACSB: Diversity

AICPA: BB Global

AICPA: BB Legal

 

[QUESTION]

  1. With regard to IFRS, what does SME refer to, and what is the significance with regard to financial reporting requirements?

 

Answer: With regard to IFRS, SME refers to small and medium–sized entities that do not have publicly traded securities. IFRS issues IFRS for SMEs which are a less complex set of standards than full IFRS. Fewer disclosures are required and some principles for recognizing assets, liabilities, income, and expenses are simplified. Additionally, some topics in full IFRS such as earnings per share, interim reporting, and segment reporting are not required for SMEs to comply with for financial reporting. Objective: 11-05

Topic: IFRS for SMEs

Difficulty: 2 Medium

Blooms: Remember

AACSB: Communication

AICPA: BB Global

AICPA: FN Research

 

[QUESTION]

  1. What are some examples of accounting treatmentsunder IFRS for SMEs for recognizing and measuring assets, liabilities, income, and expenses?

 

Answer: Under IFRS for SMEs, (1) borrowing costs are expensed as incurred, (2) development costs are expensed as incurred, (3) goodwill is amortized over a useful life, (4) the cost model must be used for property, plant, and equipment, and (5) actuarial gains and losses for defined benefit plans are recognized immediately.

Learning Objective: 11-05

Topic: IFRS for SMEs

Difficulty: 1 Easy

Blooms: Remember

AACSB: Reflective Thinking

AACSB: Diversity

AICPA: BB Global

AICPA: FN Measurement

 

[QUESTION]

  1. What are the steps to be taken in preparing IFRS financial statements for the first time?

 

Answer: There are five (5) steps to preparing IFRS financial statements for the first time. Step 1 – Determine the applicable IFRS accounting policies based on standards in force on the reporting date. Step 2 – Recognized assets and liabilities required to be recognized under IFRS that were not recognized under previous GAAP and derecognize assets and liabilities previously recognized that are not allowed to be recognized under IFRS. Step 3 – Measure assets and liabilities recognized on the opening balance sheet in accordance with IFRS. Step 4 – Reclassify items previously classified in a different manner from what is acceptable under IFRS. Step 5 – Comply with all presentation and disclosure requirements.

Learning Objective: 11-06

Topic: IFRS―First-time adoption

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

AACSB: Diversity

AICPA: BB Global

AICPA: FN Measurement

 

[QUESTION]

  1. What two reconciliations are required by IFRS 1 for first-time IFRS Adopters?

 

Answer: (1) Reconciliation of total equity measured under previous GAAP to total equity measured under IFRS at:  (a) the date of transition and (b) the end of the comparative period. (2) Reconciliation of net income measured under previous GAAP to net income measured under IFRS for the comparative period.

Learning Objective: 11-06

Topic: IFRS―First-time adoption

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

AACSB: Diversity

AICPA: BB Global

AICPA: FN Measurement

 

[QUESTION]

  1. What is the significance of the “Norwalk Agreement?”

 

Answer: The “Norwalk Agreement” set the FASB and IASB along the path of convergence of accounting standards. The FASB and IASB agreed to “use their best efforts to (a) make their existing financial reporting standards fully compatible as soon as is practicable and (b) to coordinate their work program to ensure that once achieved, compatibility is maintained.”

Learning Objective: 11-07

Topic: FASB–IASB Convergence process

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

AACSB: Diversity

AICPA: BB Global

 

[QUESTION]

  1. In the 2012 Financial Staff Report issued by the SEC, what were some of the unresolved issues identified that prevented the SEC from requiring IFRS usage?

 

Answer: (1) The diversity in how IFRS are interpreted, applied, and enforced in variance jurisdictions. (2) The potential cost to U.S. issuers of adopting or incorporating IFRS. (3) Investor education.

Learning Objective: 11-07

Topic: SEC recognition of IFRS

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

AACSB: Diversity

AICPA: BB Global

AICPA: FN Measurement

 

[QUESTION]

  1. What are recognition differences in financial reporting and what would be an example of a recognition difference between IFRS and U.S. GAAP?

 

Answer: Recognition differences relate to whether an item is recognized or not, how it is recognized, or when it is recognized. An example of recognition differences between IFRS and U.S. GAAP exists for the recognition of research and development costs.  U.S. GAAP requires that research and development costs must be expensed immediately.  The only exception relates to costs incurred in developing computer software, which must be capitalized when several restrictive criteria are met.  IFRS (IAS 38) also requires immediate expensing of all research costs.  Development costs, on the other hand, must be recognized as an internally generated intangible asset when certain criteria are met.  These costs are amortized over their useful life not to exceed 20 years.

Learning Objective: 11-08

Topic: IFRS–US GAAP differences―Recognition

Difficulty: 2 Medium

Blooms: Understand

AACSB: Communication

AACSB: Diversity

AICPA: BB Global

AICPA: FN Measurement

 

[QUESTION]

  1. What are measurement differences in financial reporting and what would be an example of a difference between IFRS and U.S. GAAP??

 

Answer: Measurement differences result in different amounts being recognized in the financial statements from using different measurement methods. An example of measurement differences between IFRS and U.S. GAAP exists for the measurement of a contingent liability. For example,when it is determined under both sets of accounting standards that a contingent liability needs to be recognized, and a range of possible cash outflows exists, IFRS requires measurement of the liability at the midpoint of the range when all points in the range are equally likely. However, U.S. GAAP requires the liability to be measured at the low end of the range of values.

Learning Objective: 11-08

Topic: IFRS–US GAAP differences―Measurement

Difficulty: 2 Medium

Blooms: Understand

AACSB: Communication

AACSB: Diversity

AICPA: BB Global

AICPA: FN Measurement

 

Use the following to answer questions 59 – 61:

REFERENCE 11-03

Dowa, Ltd..is a foreign company that uses IFRS for its financial reporting. Dowa is a wholly-owned subsidiary of Ide Corp. which is a U.S. company that prepares its consolidated financial statements in accordance with U.S. GAAP. Dowa purchased a piece of equipment for 2,000,000 on January 1, 2017. The equipment is comprised of the following three significant components, shown with their associated cost and useful life.

Component Cost Useful Life
Housing 400,000 20 years
Control Unit 600,000 5 years
Motor 1,000,000 10 years
  2,000,000  

As a corporate policy, Ide Corp. utilizes the straight-line method of depreciation for machinery and equipment and plans to extend this policy to Dowa, Ltd.

 

[QUESTION]

REFER TO: 11-03

  1. Prepare the journal entry for the 2017 depreciation expense for Dowa, Ltd. based on IFRS accounting principles.

 

Answer:

Depreciation Expense   $ 240,000  
  Accumulated Depreciation – Machinery   $ 240,000

 

 

 

Learning Objective: 11-08

Topic: IFRS–US GAAP differences―Specific topics

Difficulty: 1 Easy

Blooms: Apply

AACSB: Knowledge Application

AACSB: Diversity

AICPA: BB Global

AICPA: FN Measurement

Feedback: [400,000 / 20] + [600,000 / 5] + [1,000,000 / 10] = 20,000 + 120,000 + 100,000 = $240,000

 

[QUESTION]

REFER TO: 11-03

  1. Prepare the journal entry for the 2017 depreciation expense for Ide Corp. based on U.S. GAAP.

 

Answer:

Depreciation Expense   $ 100,000  
  Accumulated Depreciation – Machinery   $ 100,000

 

 

 

Learning Objective: 11-08

Topic: IFRS–US GAAP differences―Specific topics

Difficulty: 1 Easy

Blooms: Apply

AACSB: Knowledge Application

AACSB: Diversity

AICPA: BB Global

AICPA: FN Measurement

Feedback: [2,000,000 / 20] = $100,000

 

[QUESTION]

REFER TO: 11-03

  1. Prepare the journal entry to convert the 2017 Dowa, Ltd. financial statements from IFRS to U.S. GAAP.

 

Answer:

Accumulated Depreciation – Machinery   $ 140,000  
  Depreciation Expense   $ 140,000

 

 

 

Learning Objective: 11-09

Topic: IFRS to US GAAP―Conversion adjustments

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AACSB: Diversity

AICPA: BB Global

AICPA: FN Measurement

Feedback: According to U.S. GAAP rules applied to Ide Corp., both Accumulated Depreciation – Machinery and Depreciation Expense are overstated by $140,000; therefore the entry to convert Dowa, Ltd. financial statements to U.S. GAAP results in a debit to Accumulated Depreciation – Machinery of $140,000 and a credit to Depreciation Expense of $140,000.

 

[QUESTION]

  1. On December 31, 2017, Carter Corp. a foreign subsidiary of Barter Corp., had a bank overdraft of $20,000 on one of its bank accounts. Bank overdrafts are an integral part of Carter’s cash management policy.

1) Prepare the journal entry to convert the foreign subsidiary from its IFRS financial statements to U.S.GAAP financial statements.

2) Briefly explain why this journal entry is required.

 

Answer:

(1)

Cash and cash equivalents   $ 20,000  
  Short-term borrowings   $ 20,000

 

 

 

(2) Under IFRS, bank overdrafts are classified as a reduction in cash and cash equivalents. Under U.S. GAAP, bank overdrafts are classified as a liability. To convert financial statements, a reclassification entry is required to change the account in which the bank overdraft is held so that the overdraft will be presented in the proper section of the financial statements.

Learning Objective: 11-08

Learning Objective: 11-09

Topic: IFRS–US GAAP differences―Classification

Topic: IFRS to US GAAP―Conversion adjustments

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AACSB: Diversity

AICPA: BB Global

AICPA: FN Measurement

 

Problems:

 

[QUESTION]

  1. Principal Company is a U.S.-based company that prepares its consolidated financial statements in accordance with U.S. GAAP. Principal reported net income of $ 2,600,000 in 2018 and stockholders’ equity of $12,000,000 at December 31, 2018. Principal wants to determine the reporting impact of switching to IFRS. The following three items would create differences in financial reporting:

1)  At December 31, 2018, management had determined that a contingent liability was reasonably possible with regard to a defective product and Principal disclosed an amount of $80,000 for this possibility. However, under IFRS, the likelihood of occurrence of an outflow of resources to settle the liability was considered probable. (Ignore income tax.)

 

2)  Principal acquired a building at the beginning of 2016 at a cost of $5,000,000. The building has an estimated useful life of 20 years, an estimated residual value of $1,000,000, and is being depreciated on a straight-line basis.  On January 1, 2018, the building has a fair value of $5,500,000.  There is no change in the estimated useful life or residual value. In a switch to IFRS, Principal would use the revaluation model in IAS 16 to determine the carrying value of property, plant, and equipment subsequent to acquisition.

3)  In 2018, Principal incurred $800,000 of research and development for a new product, of which 35% relates to development activities subsequent to the point at which criteria indicating the creation of an intangible asset had been met.  As of the end of 2018, development of the new product had not been completed.

Required:

1)  Prepare a schedule reconciling net income under U.S. GAAP to net income under IFRS for the year ended December 31, 2018.

2)  Prepare a schedule reconciling stockholders’ equity under U.S. GAAP to stockholders’ equity under IFRS at December 31, 2018.

 

Answer:

 

 

1)    
Net income U.S. GAAP $   2,600,000
Loss from defective product   ( 80,000)
Building revaluation – depreciation        (50,000)
Deferred development costs        280,000
Net income IFRS $   2,750,000
     
2)    
Stockholders’ equity U.S. GAAP $ 12,000,000
Product liability   (   80,000)
Building revaluation – basis and expense (see schedule below)    

850,000
Deferred development costs        280,000
Stockholders’ equity IFRS $ 13,050,000
     

 

 

 

 

 

       U.S. to

IFRS

Net

Income

 U.S. to

IFRS

Stockholders

Equity
Product liability:        
         
     U.S. IFRS    
Recognition of contingent liability  

$ 0

  

$80,000

  

$(80,000)

  

$(80,000)
         
Building revaluation:         
     U.S. IFRS    
Accum. Depreciation 2 years $400,000 $400,000    
BV at date of revaluation:

$5,000,000 cost – $400,000 Accum. Depreciation =                       $4,600,000

        
Fair value $5,500,000        
Revalue: increase       0 $900,000      $900,000
Current Depreciation:        
aIFRS: revalued basis ($5,500,000 – residual value $1,000,000)/remaining 18 years = $250,000 expense   200,000 250,000a $(50,000) $(50,000)
Adjustment totals     $(50,000) $850,000
         
Development costs:        
     U.S. IFRS    
35% x $800,000 capitalized       0 $280,000  $280,000    $280,000
         
         
         

Learning Objective: 11-06

Learning Objective: 11-08

Topic: IFRS—First-time adoption

Topic: IFRS–US GAAP differences―Specific topics

Difficulty: 3 Hard

Blooms: Analyze

AACSB: Analytical Thinking

AACSB: Diversity

AICPA: BB Global

AICPA: FN Measurement

 

 

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