International Accounting Overview
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Questions and Answers

Which accounting approach is characterized by a preference for cautious measurement and less risky practices?

  • Optimism
  • Transparency
  • Secrecy
  • Conservatism (correct)

    • Which legal system is primarily based on statue law and links rules to justice and morality?

  • Trade Law
  • Roman Law (correct)
  • Common Law
  • Civil Law

    • In which of the following countries is the capital primarily provided by Banks and Families?

  • UK
  • USA
  • Netherlands
  • France (correct)

    • Which of the following pairs of countries are categorized under the Anglo-Saxon legal system?

    <p>USA and UK</p> Signup and view all the answers

    Which system places pressure for disclosure and audit primarily from investors?

    <p>Capital Market systems</p> Signup and view all the answers

    Which countries utilize tax rules as the primary accounting rules, where financial statements serve as a ground for taxation?

    <p>Germany and France</p> Signup and view all the answers

    Which countries are associated with strong ties to traditional measurement practices and strong Uncertainty Avoidance?

    <p>Japan and Germany</p> Signup and view all the answers

    In which country is transparency typically valued due to a weak Uncertainty Avoidance culture?

    <p>USA</p> Signup and view all the answers

    What is a key reason for studying International Accounting that focuses on the differences across various countries?

    <p>Comparative Reason</p> Signup and view all the answers

    What significant contribution to accounting did Luca Pacioli make?

    <p>Systematization of double entry bookkeeping</p> Signup and view all the answers

    Which country is referred to as having established true and fair view in accounting during the 19th century?

    <p>Britain</p> Signup and view all the answers

    What is a primary reason that makes Multinational Enterprises (MNEs) advantageous?

    <p>Lower transportation costs</p> Signup and view all the answers

    Which of the following best describes harmonization in accounting?

    <p>Increasing compatibility of accounting processes</p> Signup and view all the answers

    Which group of countries is identified as vital for their economic and accounting significance?

    <p>United States, United Kingdom, Germany, Japan</p> Signup and view all the answers

    In which century did Japan contribute to management accounting with concepts like Standard Costing and Just-in-Time?

    <p>20th century</p> Signup and view all the answers

    Which of the following is NOT a reason for the existence of Multinational Enterprises (MNEs)?

    <p>Increasing local competition</p> Signup and view all the answers

    What characterizes a collectivist society?

    <p>There is a reliance on group support and relationships.</p> Signup and view all the answers

    In a society with a large power distance, how is power perceived?

    <p>Hierarchical order is accepted without question.</p> Signup and view all the answers

    What best describes a society with strong uncertainty avoidance?

    <p>There is discomfort with ambiguity and reliance on uniformity.</p> Signup and view all the answers

    How does a masculine society primarily define success?

    <p>Via achievement and assertiveness.</p> Signup and view all the answers

    What does Gray's Study relate to in terms of accountants?

    <p>The variance in professional ethics across cultures.</p> Signup and view all the answers

    What is the outcome of high professionalism in accounting?

    <p>A higher reliance on independent judgment.</p> Signup and view all the answers

    What does a society with strong uncertainty avoidance display regarding deviant behavior?

    <p>Intolerance and regulation.</p> Signup and view all the answers

    Which of the following characteristics is typical of a strongly feminine society?

    <p>Focus on care and quality of life.</p> Signup and view all the answers

    In which region are financial statements primarily serving as performance indicators for investment decisions?

    <p>Anglo-Saxon countries</p> Signup and view all the answers

    What is a major characteristic of the accounting profession in Continental Europe compared to Anglo-Saxon countries?

    <p>Weaker equity markets</p> Signup and view all the answers

    How does the concept of conservatism in accounting differ between Continental Europe and the UK?

    <p>Continental Europe tends to report lower profit figures</p> Signup and view all the answers

    What is the primary aim of reserves in financial reporting?

    <p>To protect creditors</p> Signup and view all the answers

    Which method for asset valuation is commonly used in Germany?

    <p>Historical cost</p> Signup and view all the answers

    Inflation accounting is necessary when inflation is at what level?

    <p>High</p> Signup and view all the answers

    Which country generally applies a legal reserve of 5% of annual profit until it reaches a designated percentage of issued share capital?

    <p>Turkey</p> Signup and view all the answers

    In the context of international financial reporting, 'substance over form' is predominantly focused on which aspect?

    <p>The true economic essence of transactions</p> Signup and view all the answers

    Which of the following are required components of a complete set of financial statements?

    <p>Statement of profit or loss and other income for the period</p> Signup and view all the answers

    Which accounting basis is emphasized in IAS 1 regarding the presentation of financial statements?

    <p>Accrual basis</p> Signup and view all the answers

    Under IAS 2, what costs are excluded from inventory measurement?

    <p>Abnormal waste</p> Signup and view all the answers

    Which method for cash flow statements is described as adjusting net profit or loss for non-cash transactions?

    <p>Indirect method</p> Signup and view all the answers

    What is the minimum frequency for preparing financial statements according to IAS 1?

    <p>Annually</p> Signup and view all the answers

    In relation to inventory, which of the following methods is NOT permitted under IAS 2?

    <p>LIFO</p> Signup and view all the answers

    Which activity category in the statement of cash flows includes cash paid to suppliers and employees?

    <p>Operating activities</p> Signup and view all the answers

    What is excluded from the costs of inventory according to IAS 2?

    <p>Selling costs</p> Signup and view all the answers

    When should an entity correct all material prior period errors?

    <p>Retrospectively in the first set of financial statements</p> Signup and view all the answers

    Which of the following costs are included in the recognition of Property, Plant, and Equipment (PPE)?

    <p>Delivery and handling costs</p> Signup and view all the answers

    What is the method for calculating depreciation that applies a constant percentage to the decreasing balance of an asset?

    <p>Double-declining balance method</p> Signup and view all the answers

    According to IAS 23, which of the following is true about borrowing costs?

    <p>Only costs directly attributable to qualifying assets should be recognized</p> Signup and view all the answers

    What is the carrying amount of an asset?

    <p>Cost of the asset less any accumulated depreciation and impairment</p> Signup and view all the answers

    Which approach would be used to measure an asset after initial recognition under the revaluation model?

    <p>Fair value at the revaluation date minus accumulated depreciation</p> Signup and view all the answers

    Which of the following best describes a contingent liability?

    <p>Possible obligation depending on future events</p> Signup and view all the answers

    What is the effect of change in accounting estimates recognized as?

    <p>Prospectively in current and future financial statements</p> Signup and view all the answers

    Study Notes

    International Accounting

    • Four reasons for studying international accounting: historical, multinational, comparative, and harmonization reasons.

    Contribution to Accounting Development

    • Romans: Bookkeeping forms (not double-entry) and profit calculation.
    • Italy: Double-entry bookkeeping (13th-15th centuries), Luca Pacioli's Summa de Arithmetica, and Italian origins of bank, capital, cash, debit, credit, and journal terms.
    • Britain and United States: 19th-century Britain emphasized true and fair view in accounting; establishment of accounting bodies (ICAEW, ACCA); English as a global accounting language; US Management Accounting (Activity-Based Costing).
    • Japan: 20th-century focus on management accounting, standard costing, and Just-In-Time (JIT) to reduce storage costs.

    Multinational Enterprises (MNEs)

    • MNEs produce goods/services in two or more countries.
    • Reasons for this: lower transportation costs, trade barriers, resource seeking, market seeking, distribution system establishment, reputation.
    • Financial capital raising in one country for investment elsewhere.
    • Consolidation of financial statements, translation of currencies, transfer of accounting technology to various countries, and financial expertise building across multiple countries.

    Factors of Differences in Accounting Systems

    • External Environment and Culture:
      • Individualism vs. Collectivism: Loosely-knit social frameworks (e.g., USA) versus tightly-knit ones (e.g., Europe).
      • Large vs. Small Power Distance: Large power distance societies accept hierarchical order (e.g., Mexico); small ones strive to equalize power distribution (e.g., Austria).
      • Strong vs. Weak Uncertainty Avoidance: Strong avoidance societies demand uniformity and tolerate deviance less readily (e.g., Greece); weak ones have less structure (e.g, Norway).
      • Masculinity vs. Femininity: Masculinity emphasizes emotional roles; femininity prioritizes quality of life.

    Authority & Enforcement

    • Professionalism vs. Statutory Control: High professionalism correlates with self-regulation and decreased need for government intervention.
    • Uniformity vs. Flexibility: Uniformity relates to accounting plans and imposition of tax rules (Strong Uncertainty Avoidance & Large Power Distance) (e.g., France); Flexibility reflects a less rigid approach (e.g., UK).
    • Measurement & Disclosure: Conservatism (e.g., France) versus optimism (e.g., UK, USA) in evaluating risk; adherence to traditional practices or openness to new ones. Secrecy versus transparency.
    • Common Law (Case Law): Relies on precedent and court interpretations of rules, as opposed to statute law. (e.g., England/Wales, USA).
    • Roman Law: Rules are intertwined with morality and linked to justice via legislation (e.g., France, Germany).

    Providers of Finance

    • Capital financing from banks and families (Germany, France, Italy) vs. shareholders (UK, USA, Netherlands).

    Taxation

    • Accounting rules are bound to tax rules in some countries (France, Germany, Turkey) while others (UK, USA) demonstrate separate rule-sets.
    • Financial statements are considered as performance indicators for investments in Anglo-Saxon countries (e.g. UK), while in continental Europe (e.g., France) they are more tied to taxation.

    The Profession

    • Impact of the size of the accounting profession (and public companies) on demand for skilled and reliable auditors.

    Other Factors

    • Inflation: High inflation mandates the use of price-level adjustment models for asset valuation. (Affects asset valuation methods).
    • External Factors: Company ownership, economic crises, and EU requirements influence financial reporting practices.

    Major International Differences in Financial Reporting

    • Fairness: Correctness, legality, and adherence to the Substance over Form.
    • Conservatism and Accruals: Conservative tendencies reduce the reporting of profits and include provisions for bad debts or potential losses.
    • Provisions and Reserves: Allowances, liabilities, and business reserves (in various countries), and their handling.
    • Valuation Bases: Historical cost vs. current costs or revaluations in different contexts. (Germany, UK, France, Spain, Netherlands.

    Consolidation

    • Combining subsidiary company financial results into the parent company's reports.
    • Balance Sheet (vertical or report form, assets and liabilities on left/right or single page).
    • Balance Sheet and Income Statement (By-Nature and By-Function formats).

    Uniformity and Accounting Plans

    • Various countries have accounting plans adopted for particular industries.
    • Legal rules that mandate a degree of uniformity across business operations.
    • Hedging against foreign currency fluctuations (foreign currency options, and forward contracts).

    Transfer Pricing

    • The pricing of goods and services exchanged between different divisions of a company or related firms.
    • Impacts profitability.

    Harmonization vs. Convergence

    • Harmonization seeks consistency within legal standards, while convergence aims for a single standard, such as IFRS (International Financial Reporting Standards).
    • Significant global differences exist in accounting standards.
    • IFRS emerged from the IASB in 2001 (previous IASs) and is now common amongst businesses across the globe.
    • IFRS are preferred over IASs in a conflictual situation.

    Standards (IAS/IFRS)

    • IFRS Framework: Provides guidance for financial statements and assists with sound decisions.
    • IAS 1 - Presenting financial statements (accrual accounting; going concern concept; fair presentation; materiality and comparability).
    • IAS 2 - Inventories (cost or net realizable value (NRV); FIFO, average-cost, or weighted-average).
    • IAS 7 - Statement of cash flows; classifying cash flow transactions into operating, investing, and financial activities.
    • IAS 8 - Accounting policies and changes to those; retrospection or prospectiveness, correcting errors of previous periods. Retrospective approach is generally preferred.
    • IAS 16 - Property, Plant, and Equipment (tangible fixed assets, costing principle, depreciation; straight-line, diminishing balance).
    • IAS 36 - Impairment of assets; assets with carrying amounts higher than recoverable amounts undergo impairment valuation.
    • IAS 23 - Borrowing costs (direct and indirect borrowing costs)
    • IAS 38 - Intangible assets (e.g., copyrights, research, patents, marketing).
    • Recoverable/Irrecoverable taxes: taxes that are included/excluded in the cost.

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    Description

    Explore the key concepts and historical contributions to international accounting. This quiz covers the evolution of accounting practices across different countries, including the development of double-entry bookkeeping and the role of multinational enterprises. Test your knowledge on why international accounting is essential for global business operations.

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