Question 1

Both U.S.GAAP and IFRS classify gains and losses that are both unusual in nature and infrequent in occurrence as extraordinary and present them in a separate section of the income statement.

Accepted Answer

Both U.S.GAAP and IFRS do not allow for the classification of extraordinary items in the income statement. Instead, gains and losses that are unusual or nonrecurring in nature are typically reported separately as part of continuing operations.

Question 2

In countries, like Japan and much of Europe, fewer differences between the amount of income reported to stockholders and that reported to the taxing authorities exist than in the U.S.

Accepted Answer

In these countries, there is generally more alignment between the financial reporting to stockholders and the tax authorities.

Question 3

Under IFRS, if inventory is written down to a new lower market value, this cannot be reversed in later periods.

Accepted Answer

Under IFRS, if inventory is written down to a new lower market value, this write-down can be reversed in later periods if the reasons for the write-down no longer exist.

Question 4

U.S.GAAP requires companies to present a balance sheet with classifications for current and long-term liabilities, while IFRS does not.

Accepted Answer

Both U.S. GAAP and IFRS require the classification of liabilities into current and non-current (long-term) on the balance sheet.

Question 5

Ultimately, it will be the responsibility of the FASB in the U.S.to decide if the advantages of IFRS's outweigh the disadvantages.

Accepted Answer

The answer of Ultimately, it will be the responsibility of...

Question 6

A single set of accounting standards could help a U.S.company save time and money in the acquisition of a German company.

Accepted Answer

Having a single set of accounting standards would mean that the U.S. company and the German company would be using the same accounting principles, which would reduce the time and resources needed to reconcile financial statements and ensure regulatory compliance. This could ultimately result in cost savings for the acquiring company.

Question 7

The U.S.accounting standards are more principle-based than IFRS.

Accepted Answer

The U.S. accounting standards, known as Generally Accepted Accounting Principles (GAAP), are more rule-based, whereas the International Financial Reporting Standards (IFRS) are more principle-based, focusing on the substance of transactions.

Question 8

Both U.S.GAAP and IFRS apply the lower-of-cost-or market rule in a similar manner to inventory.

Accepted Answer

Under U.S. GAAP, the lower-of-cost-or-market rule is applied to inventory, whereas IFRS uses a lower-of-cost-or-net realizable value approach, leading to differences in how inventory is valued under the two standards.

Question 9

Essentially, the entire statement of financial position is inverted compared to what is commonly seen in the United States.

Accepted Answer

In countries that follow International Financial Reporting Standards (IFRS), the statement of financial position (also known as the balance sheet) is typically presented with assets listed first, followed by liabilities and equity. This is the opposite of how it is commonly presented in the United States, where liabilities and equity are listed first, followed by assets.

Question 10

There is a standard format in various countries for the statement of financial position.

Accepted Answer

Different countries may have different accounting standards and regulations, leading to variations in the format of the statement of financial position.

Question 11

All of the following statements are true about inflation except:
A) U.S.companies no longer present financial information adjusted for the effects of inflation.
B) In recent years, inflation has been more rampant in Latin America and South America than the rest of the world.
C) The FASB developed rules for companies in the United States to use to adjust for inflation.
D) The U.S.and Germany adjust their financial statements for inflation.

Accepted Answer

The U.S. and Germany do not typically adjust their financial statements for inflation, as they do not experience hyperinflationary environments that would necessitate such adjustments.

Question 12

According to the text, in economies like those that made up the former Soviet Union, accounting standards are relatively less complex due to the fact that they are just beginning to be developed.

Accepted Answer

The text states that accounting standards in economies like those that made up the former Soviet Union "are relatively less complex as they are just beginning to be developed" (implying that they are not as developed as in other economies).

Question 13

The state of economic development can affect accounting standards.

Accepted Answer

The level of economic development of a country can have an impact on its accounting standards. Countries with more developed economies may have more advanced accounting standards and regulations, while developing countries may have less stringent standards or may be in the process of adopting international accounting standards. Additionally, cultural and legal factors can also influence the development and implementation of accounting standards.

Question 14

Japan has a greater number of differences than the U.S.between the amount of income reported to stockholders and that reported to the taxing authorities.

Accepted Answer

The U.S. generally has more differences due to its complex tax code and the use of different accounting standards for financial reporting and tax purposes.

Question 15

Regarding the valuation of operating assets, IFRS allows companies to use fair value.

Accepted Answer

According to IFRS, companies are allowed to use fair value as a measure for the valuation of operating assets. However, fair value may only be used if it reliably reflects the actual value of the asset and appropriate valuation techniques have been applied. Companies must also disclose the method used to determine fair value and any significant inputs or assumptions used in the process.

Question 16

IFRS is now mandatory in all member states of the economic and political organization known as the European Union.

Accepted Answer

Since 2005, IFRS has been mandatory in all member states of the European Union for listed companies and their consolidated financial statements.

Question 17

No single explanation can be given for the divergence of accounting standards.

Accepted Answer

There are multiple factors that contribute to the divergence of accounting standards, such as different legal systems, cultural differences, and varying economic environments. Therefore, no single explanation can account for this phenomenon.

Question 18

Companies in Mexico had to begin using IFRS by 2020.

Accepted Answer

While Mexico has made efforts to adopt IFRS (International Financial Reporting Standards), there is currently no specific deadline for companies to fully transition to these standards. Some Mexican companies may choose to voluntarily adopt IFRS or may follow a modified version of Mexican GAAP (Generally Accepted Accounting Principles) that is aligned with IFRS.

Question 19

Which of the following statements is true regarding common law?
A) In common law countries, there are generally more statutes written into the laws.
B) In common law countries, there is less reliance on interpretation by the courts.
C) Because more details are written into U.S.law, FASB has shorter and more general accounting standards than most countries.
D) The common law system has its roots in the United Kingdom.

Accepted Answer

The common law system has its origins in the United Kingdom, and has been adopted in many countries that were formerly colonies of the UK, including the United States. Common law relies heavily on court decisions and legal precedents rather than on statutory law. FASB's accounting standards may be shorter and more general than those of some other countries because of the predominance of common law in the US legal system, which allows for greater flexibility in interpreting legal principles.

Question 20

While U.S.GAAP requires a complete set of financial statements, including a balance sheet, statement of stockholders' equity, income statement, and statement of cash flows, IFRS does not.

Accepted Answer

IFRS also requires a complete set of financial statements, including a balance sheet, income statement, statement of changes in equity, statement of cash flows, and notes to the financial statements.

Quiz 14: Exploring Accounting Standards and Differences around the World