International Accounting Chapter 8: Global Standards

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Questions and Answers

What is the main difference between harmonization and convergence in accounting standards?

Harmonization involves compatibility without conflicts, while convergence gradually eliminates differences. (correct)

Convergence leads to the establishment of rigid, narrow rules.

Convergence is a one-size-fits-all approach to accounting.

Harmonization eliminates all existing standards.

Which of the following is NOT an advantage of international convergence?

Improvement in investor understanding and confidence.

More efficient capital allocation globally.

Reduction in the complexity of financial problems. (correct)

Enhanced strategic decision making in mergers and acquisitions.

What is meant by the term 'standardization' in the context of accounting standards?

An approach that recognizes and maintains existing differences.

Creation of flexible rules that adapt to different situations.

The establishment of a rigid set of rules that applies universally. (correct)

A cooperative effort between IASB and national standard-setters.

Which organization is primarily responsible for setting International Financial Reporting Standards?

The International Accounting Standards Board (IASB). Signup and view all the answers

What is the primary focus of the Sarbanes-Oxley Act?

To improve corporate accountability and financial disclosures. Signup and view all the answers

What is one of the consequences of reconciliation of financial statements under different GAAP?

It may offer an incomplete representation of financial health. Signup and view all the answers

What is a criticism of mutual recognition in accounting?

It can create disparities in the accounting landscape. Signup and view all the answers

Which historical event marked the creation of the International Accounting Standards Committee (IASC)?

1973 Signup and view all the answers

What is one limitation of using convergence in accounting practices?

It compromises fair presentation in financial reporting. Signup and view all the answers

Which organization succeeded the IASC in 2001?

IASB Signup and view all the answers

What is one of the main objectives of the International Accounting Standards Board (IASB)?

To create a single set of high-quality global accounting standards Signup and view all the answers

Which body was established to provide oversight and appointments for the IASB trustees?

Monitoring Board Signup and view all the answers

What is the primary requirement set forth by the Fourth Directive regarding financial statements?

They must provide a true and fair view. Signup and view all the answers

What was a significant event that enhanced the credibility of IASB?

IOSCO's endorsement of IASC's work plan Signup and view all the answers

Which directive mandates the preparation of consolidated financial statements for certain sized groups of companies?

Seventh Directive Signup and view all the answers

What is the main purpose of the Eighth Directive?

To specify qualifications for statutory auditors. Signup and view all the answers

What is the structure that oversees the IASB's activities?

Trustees and Monitoring Board Signup and view all the answers

Which of the following statements is true regarding the adoption of IFRS by U.S. companies?

The SEC is currently studying whether to allow or require U.S. companies to use IFRS. Signup and view all the answers

Which requirement is not part of the Fourth Directive?

Financial statements must use a specific accounting framework. Signup and view all the answers

What significant change did the Eighth Directive undergo in 2006?

It became known as the Statutory Audit Directive. Signup and view all the answers

Study Notes

International Accounting, 7/e - Chapter 8: Global Accounting and Auditing Standards

The book is titled "International Accounting, 7/e" and authored by Frederick D. S. Choi and Gary K. Meek.
Chapter 8 focuses on global accounting and auditing standards.
Learning Objectives include defining harmonization and convergence in accounting standards; discussing pros and cons of adopting international standards; understanding reconciliation and mutual recognition; identifying organizations crucial in international accounting standards; describing the International Accounting Standards Board (IASB) and its role in setting International Financial Reporting Standards (IFRS); and understanding the U.S. Sarbanes-Oxley Act and similar legislation globally.
Standardization is rigid, narrow, and one-size-fits-all.
Harmonization attempts to create compatible standards avoiding conflicts of existing accounting standards.
Convergence aims to gradually remove differences in accounting standards, potentially incorporating new concepts not present in existing standards. It is the preferred term over harmonization.
Advantages of international convergence include improved investor understanding and confidence, improved investor decision-making, efficient capital allocation globally, reduction of financial risk and cost of capital, and improved strategic decision-making in mergers and acquisitions.
Criticisms of international standards include simplicity, reduced flexibility, challenging national sovereignty, compromising comparability, and unsuitability for small and medium-sized companies.
Reconciliation involves presenting financial statements based on home GAAP while reconciling them to another GAAP, such as U.S. GAAP or IFRS.
Mutual recognition of accounting standards means that one jurisdiction accepts financial statements based on the GAAP of another, not necessarily improving comparability, and potentially creating an uneven playing field.
IOSCO's agreement with IASC's core standards plan provided a major credibility boost to IASC.
Key events in the history of international accounting standards setting include initial significant proclamations, the creation of IASC, the founding of IFAC, and specific directives or exposure drafts.
The IASB is described as an independent private sector standard-setting body intended to create high-quality and enforceable standards, promote high-quality financial statements, promote the use and application of standards for capital markets, consider emerging economies, and achieve convergence of national accounting standards.
The IASB's core standards, completed in 1998, and approved in 2000, are a key part of the organization's development. The IASB structure involves Trustees, a Monitoring Board, and the IASB Board with associated advisory committees.
IFRS are widely accepted worldwide, and IOSCO endorsement and the EU adoption of IFRS are key milestones. The SEC supports the work of IASB, but does not yet accept IFRS filings by foreign companies.
EU harmonization efforts aim at integrating European financial markets and have led to improved financial reporting practices through directives. However, enforcement has been uneven and some issues haven't been fully addressed.
EU's newly integrated approach requires EU companies with regulated markets to prepare consolidated financial statements using IFRS to meet legal requirements. The EU's approach includes technical reviews, advisory groups, and regulatory committees.
IOSCO, responsible for over 90% of global securities markets, cooperates to promote high standards, exchange information, unite efforts for standards, and provide mutual assistance for market integrity.
IFAC is a worldwide organization representing accountants, aiming to harmonize and standardize auditing standards and practice globally. IFAC's structure includes a council, standard setting bodies, and standing committees.
ISAR is the only intergovernmental working group devoted to corporate accounting and auditing; it helps developing countries enhance accounting, transparency, and economic development.
OECD plays a role by promoting good governance.
A central aspect of the convergence movement is the IASB, the body setting global accounting standards.
Lists of organizations and related web addresses are available in the provided exhibits.
Chapter 8 also covers principles for ongoing disclosure, including timeliness, simultaneous disclosure, dissemination of information, and criteria for disclosure, relevant for companies doing business in multiple jurisdictions. These criteria are crucial for maintaining investor confidence and reducing complications caused by discrepancies in standards.

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Description

This quiz covers Chapter 8 from 'International Accounting, 7/e' by Choi and Meek, focusing on global accounting and auditing standards. It explores key concepts such as harmonization, convergence, and the role of the IASB in setting IFRS. Additionally, it addresses the impact of the U.S. Sarbanes-Oxley Act and similar international legislation on standards adoption.