CHAPTER 6 1. What term should be used to describe the current economic system in the People's Republic of China? A. Communist B. Socialist market C. Totalitarian D. Free enterprise 2. What is the basis for the People's Republic of China's current economic system? A. Government ownership of all businesses and economic resources B. Private ownership of all business enterprises C. Competition between state-run entities and private businesses D. Congressional planning of industrial output and consumption 3. Among the world's nations, where does the People's Republic of China rank in terms of receiving foreign direct investment? A. First B. Fourth C. Tenth D. Fifth 4. The People's Republic of China (PRC) made economic reforms in the 1980s to encourage international trade. What impact have these reforms made on accounting? A. Increased the demand for accounting information from investors B. Increased the supply of publicly available accounting information from Chinese companies C. Changed the nature of auditing in the PRC D. All of the above are true. 5. What recent event has given the People's Republic of China an incentive to harmonize its accounting standards? A. Collapse of Arthur Andersen B. Membership in the NATO C. Admission to the WTO D. Establishment of the CSRC 6. Which of the following are the requirements of the laws of Sino-foreign joint ventures? A. Tax returns of joint ventures must be audited by Chinese CPAs. B. Annual financial reports of joint ventures must be audited by registered Chinese CPAs. C. Capital contributions by investors must be verified by Chinese CPAs. D. All of the above statements are true about Chinese joint ventures. 7. What is the primary source of finance for German companies? A. Issuance of stock B. Corporate bonds C. Bank loans D. Government grants 8. Which of the following countries has NOT had its accounting systems significantly influenced by Germany? A. Switzerland B. Denmark C. Japan D. France 9. What was the primary influence on Germany's accounting regulations from the mid-1980's until very recently? A. The Stock Corporation Law B. The directives of the European Union C. The Companies Act D. The U.S. Financial Accounting Standards Board 10. Why do German companies willingly take a conservative position in calculating income? A. To minimize tax B. To keep employees from asking for higher wages C. To report stable income over time for dividend purposes D. All of the above 11. The Japanese economy is dominated by "keiretsu." What are these? A. Warlords that control Japanese wealth B. Local governmental entities C. Large conglomerates D. Joint ventures with foreign investors 12. What links the components of a Japanese keiretsu? A. A governmental agency B. A common industry affiliation C. A common market D. A bank 13. Keiretsu controls more than one-fourth (1/4) of the assets in Japan. What cultural value is reflected in this business structure? A. Professionalism B. Optimism C. Collectivism D. Conservatism 14. What is the reason given for a relatively low emphasis on public disclosure of financial information in Japan? A. Significant reliance on bank credit for financing B. Long-term cross-corporate ownership of stock C. Income is not viewed as a measure of corporate performance D. All of the above 15. Why is public disclosure of financial information less important in Japan than in other industrialized countries? A. Very few corporations B. Undeveloped stock exchange C. Heavy reliance on bank financing D. Strong government control of corporations 16. What was the "Big Bang" in Japan? A. The stock market crash of 1929 B. The unprecedented decline in exports and stock prices in the late 1980's C. The changes in accounting regulation that occurred in the late 1990's D. The growth of the Japanese economy from the 1950's to the 1980's 17. Privatization of Mexican businesses has been encouraged by: A. North American Free Trade Agreement (NAFTA). B. Governmental attempts to improve long-term economic growth. C. Loosening restrictions on foreign investment. D. All of the above 18. What type of economic system presently exists in Mexico? A. Socialist market B. Communist C. Free market D. Planned economy 19. Mexican corporations can issue three types of stock Series A, Series B, and Series N. Series A stock can only be owned by Mexican nationals. These shares must constitute at least what percentage of corporate voting rights? A. 51% B. 49% C. 25% D. 10% 20. What currency is used in Mexico? A. Peseta B. Peso C. Mexican dollar D. Bolivar 21. What is the main source of corporate financing in the United Kingdom? A. Banks B. Capital markets C. Government grants D. Royal families 22. Which of the following represents the primary source of funds for Japanese businesses? A. Government grants B. Bank credit and cross-corporate ownership C. Corporate bonds D. Outside equity financing 23. Which term refers to an affiliate relationship between an accounting/auditing firm and its sponsoring organization? A. Parent/subsidiary B. Hooking up C. Guanxi D. Principal/Agent 24. Why is the validity and reliability of financial disclosures of limited importance in the People's Republic of China (PRC)? A. Chinese investors look for long-term stock price gains, which are not based on fundamental company data. B. The government owns all of the corporate stock traded in the PRC. C. Most of the stock purchased in the PRC is held for only a short period of time. D. Most of the stock is rated by the government of the PRC in terms of its quality. 25. Which of the following statements is true about accounting in China? A. Accounting has a long history, dating back thousands of years. B. The first professional accounting body in the People's Republic of China was established in 1988. C. Its roots can be found in the teachings of the philosopher and educator Confucius. D. All of the above statements are true. 26. Which of the following is true of CICPA and CACPA in the People's Republic of China (PRC)? A. A These are two translations of a single Chinese professional association from Mandarin to English. B. The CICPA was the professional association for accountants and the CACPA is the professional association for auditors. C. The CICPA was the professional association for CPAs in private practice and the CACPA is the professional association for accountants in public practice in the PRC. D. None of the statements above is true. 27. What reason is given for the stagnation of accounting development during the "Cultural Revolution" in China (1966-1976)? A. Over-simplification of accounting was pursued to make it accessible to a broad populace. B. There was very little business being transacted in China during the Cultural Revolution. C. Businesses in China were converting to international accounting standards during this period of time so they stopped developing new standards. D. Auditors took over the development of accounting practice. 28. What functional area dominates the accounting profession in Germany? A. Taxation B. Auditing C. Financial reporting D. Managerial Accounting 29. How does the cultural value of collectivism explain the status of auditors in Japanese society? A. Collectivism places great importance on individual responsibility, giving auditors a high status in Japanese society. B. Since outsiders are not trusted in the Japanese culture, independent auditors in Japan do not enjoy the status of American auditors. C. As individual achievement is a hallmark of collectivism, auditors are commonly found at the top of Japanese corporations. D. Collectivism values the ability of individuals to collect resources for themselves, so auditors who achieve distinction in their profession are highly regarded. 30. The population of Japan is about 1/3 the population of the United States. There are approximately 250,000 CPAs in the U.S. What is the approximate number of CPAs in A. 250,000 B. 100,000 C. 85,000 D. 15,000 31. Mexico has had a professional association of public accountants since what year? A. 1821 B. 1917 C. 1929 D. 1964 32. By what title are professional accountants in Mexico known? A. Certified Public Accountant (CPA) B. Chartered Accountant (CA) C. Contador Publico Certificado (CPC) D. Mexican Certified Public Accountant (MCPA) 33. In which of the following cities was the first professional accounting association in the United Kingdom was established in 1853? A. London B. Belfast C. Edinburgh D. Canterbury 34. Of the following British professional accounting associations, whose members CANNOT sign an audit report? A. Institute of Chartered Accountants in England and Wales (ICAEW) B. Association of Chartered Certified Accountants (ACCA) C. Chartered Institute of Public Finance and Accountancy (CIPFA) D. Institute of Chartered Accountants in Scotland (ICAS) 35. In what way does the public accounting profession in the United Kingdom differ from the profession in the United States? A. Public accountants in the U.K. may not sign audit reports. B. Auditors in the U.K. do not need to be independent from their audit clients. C. Public accountants in the U.K. are paid by the government for their audit services. D. Public accountants in the U.K. are not required to have a university education. 36. What reasons have been given by the Institute of Chartered Accountants in England and Wales (ICAEW) for following a principles-based approach in setting accounting standards? A. Lawmakers and standard setters cannot anticipate every situation. B. Accountancy profession should be about exercising judgment and integrity. C. The profession needs to attract people of high intellect. D. All of the above 37. What body regulates trading of corporate securities in the People's Republic of China? A. National People's Congress B. State Council C. Securities and Exchange Commission D. Chinese Security Regulatory Commission 38. What agency is responsible for setting accounting standards and regulations in the People's Republic of China? A. Chinese Institute of CPAs B. Ministry of Finance C. Accounting Society of China (ASC) D. State Council 39. What body currently develops accounting standards in Germany? A. German Accounting Standards Committee B. German Ministry of Justice C. Bundestag D. Chamber of Auditors 40. What body currently enforces financial accounting requirements in Germany? A. German Accounting Standards Committee B. Bundestag C. Financial Reporting Enforcement Panel D. Financial Accounting Standards Board 41. Which body has the primary responsibility for establishing accounting standards in Japan? A. Japanese Institute of Certified Public Accountants (JICPA) B. Japanese Accounting Association (JAA) C. Japan's Ministry of Finance (MoF) D. International Accounting Standards Board (IASB) 42. Accounting and financial reporting in Japan is regulated by its Commercial Code, which is patterned after the Commercial Code of: A. United States of America. B. United Kingdom. C. Germany. D. France. 43. The Securities and Exchange Law (SEL) is one of the regulators of accounting and financial reporting in Japan. The SEL is modeled on the regulations of which U.S. entity? A. Securities and Exchange Commission B. Financial Accounting Standards Board C. American Institute of Certified Public Accountants D. American Accounting Association 44. What is the most important federal agency regulating disclosure by publicly traded companies in Mexico? A. Mexican Institute of Public Accountants (MIPA) B. National Banking and Securities Commission (NBSC) C. Bolsa Mexicana de Valores (BMV) D. National Executive Committee (NEC) 45. What entity is primarily responsible for setting accounting and financial reporting standards in Mexico? A. Mexican Institute of Public Accountants (MIPA) B. National Banking and Securities Commission (NBSC) C. Bolsa Mexicana de Valores (BMV) D. International Accounting Standards Board 46. Which of the following is NOT considered a part of GAAP in Mexico? A. MIPA Bulletins B. MIPA Interpretations C. International Financial Reporting Standards D. NBSC Statements on Accounting Practice 47. Until recently, regulation of accounting practice in the United Kingdom had traditionally been left to: A. the Parliament. B. the accounting profession. C. the securities exchange commission. D. None of the above 48. Since the 1980s accounting regulation in the United Kingdom has been legislated more than it had been previously. What is the primary cause for this change from professional self-regulation to government regulation? A. High profile scandals in the British business community B. Influence of the United States on the ICAEW C. Directives from the European Union D. All of the above 49. What is the primary role of the Financial Reporting Council in the United Kingdom? A. Compliance oversight B. Setting standards for accounting practice C. Policy over the accounting standard-setting process D. All of the above 50. What is China's policy regarding revaluation of intangible assets? A. It is encouraged. B. It is prohibited. C. It is permitted only if the asset trades in an active market. D. It has offered no guidance on the issue. 51. In addition to the 16 Chinese Accounting Standards, what else forms the structure of financial reporting in modern China? A. IFRS B. U.S. GAAP C. ASBE D. CICPA 52. Who is regarded the main user of accounting information in China? A. Listed companies B. Banks C. Investors D. The government 53. In Germany, prudence is an accounting principle established in commercial law. What does "prudence" mean in an accounting context? A. Reliability B. Comparability C. Conservatism D. Relevance 54. What is Germany's position with respect to accounting standards harmonization? A. IFRS should be used as long as they conform to directives set by the European Union. B. German GAAP is not influenced by IFRS. C. Accounting standard harmonization is of little interest to German accounting regulators. D. Germany has no mechanism for ensuring that accounting standards are consistent with IFRS. 55. German accounting standards have a "reverse authoritative principle." What does this mean? A. Reversing entries must be made before financial reports can be issued to the public. B. Only tax deductible expenses can be used for determining accounting income. C. Financial statements are the basis for taxation. D. None of the above 56. What is meant by Germany's "authoritative principle?" A. The GASB is the final authority for accounting standards. B. The International Accounting Standards Board is the authority for making German GAAP. C. Financial statements are the basis for determining tax. D. Accounting standards are derived from tax law. 57. Why is corporate income tax in Germany based on financial accounting income? A. Germany had rules for financial accounting before it had a corporate income tax. B. The German Accounting Standards Board has more authority than the Bundestag. C. German financial accounting standards reflect true economic income. D. Germany was following the practice set by the United Kingdom. 58. While German tax computations are based on financial accounting standards, this is not true in the United Kingdom. Why doesn't the U.K. base its tax code on financial accounting standards? A. The United Kingdom tries to avoid being like Germany whenever it can. B. The United Kingdom had a tax code long before it had financial accounting standards. C. Financial accounting standards in the United Kingdom are too conservative to be practical for tax purposes. D. Germany follows the directives of the European Union, whereas the United Kingdom has not adopted the directives of the EU. 59. What must large Japanese corporations report for years ending after 2004 due to recent amendments to the Japanese commercial code? A. Statement of changes in financial position B. Consolidated financial statements C. Retained earnings statement D. Cash flow statement 60. In Japan, what is the most commonly used ending date for accounting periods? A. December 31 B. March 31 C. June 30 D. September 30 61. What is the greatest difference between Mexican accounting practice and American accounting practice? A. The method of calculating earnings per share B. The lack of conservatism in Mexican accounting standards C. The treatment of inflation effects on financial statements D. The accounting for exchange rate gains and losses 62. Why do Mexican accounting standards require all nonmonetary assets and liabilities to be restated in terms of purchasing power of the Mexican currency? A. To properly reflect exchange rate gains and losses in the financial statement B. In order to reflect the historical cost of the assets and financing associated with these assets C. To reflect the high rates of inflation that Mexico has experienced D. Because historical costs overstate the value of the assets and corresponding claims on resources 63. Companies listed on the stock exchange in Mexico City must provide annual audited financial statements to: A. the public through the national media. B. shareholders only. C. government only. D. shareholders and the government. 64. Financial statements in the United Kingdom are supposed to provide a "true and fair view" of the firm's financial position and results of operations. How does U.K. GAAP define "true and fair view?" A. Objective, free from bias B. Statements must comply with accounting standards C. Relevant D. U.K. GAAP does not specifically define "true and fair view." 65. What set of standards must companies listed on the stock exchange in the United Kingdom use for consolidated financial statements? A. U.K. GAAP B. U.K. GAAP or U.S. GAAP C. IFRS adopted by the European Union D. There is no specific requirement. 66. How is goodwill handled for U.K. GAAP purposes? A. Expensed right away B. Capitalized and never amortized C. Amortized at the firm's choice D. There is no specific requirement. 67. IAS 38 requires the capitalization of development expenses in R&D. How does U.K. GAAP handle such development expenses? A. Expensed right away B. Permits capitalization C. Amortized at the firm's choice D. There is no specific requirement. 68. Which of the following is a key additional component of the U.K.'s true and fair view? A. Professional judgment B. Prudence C. Historical cost D. Loss bias 69. Accounting in Mexico is oriented towards fairness, not: A. professional judgment. B. legal compliance. C. correctness. D. taxable income. 70. Why is accounting conservatism NOT a basic principle underlying accounting standards in the People's Republic of China? A. It is perceived to manipulate accounting numbers for the benefit of owners by exploiting workers. B. It too closely reflects the views of the masses, which are not considered in establishing accounting standards. C. Conservatism has been shown to cause economic hardship for companies operating in China. D. Conservatism overstates assets, which is perceived to distort financial results. 71. Which of the following is the purpose of China's "Accounting System for Business Enterprises" issued in 2001 to supersede its "Basic Standard of Accounting for Business Enterprises?" A. Increase harmonization of accounting standards. B. Improve comparability of accounting statements. C. Make financial reporting distinct from taxation. D. All of the above 72. Under what circumstance should a German company prepare its financial statements under German GAAP rather than international financial reporting standards? A. Reporting to banks B. Reporting consolidated financial statements C. Calculating tax D. German GAAP should always be used instead of IRFS. 73. Why does German accounting practice differ from IFRS? A. German accounting rules are much more specific in most areas than IFRS. B. German accounting law is less specific in some respects than IFRS. C. Germany has not adopted a policy on accounting standard harmonization. D. Germany is not interested in foreign direct investment. 74. Unlike IFRS, under Japanese GAAP, inventories may be valued at: A. cost. B. market. C. lower of cost or net realizable value. D. lower of cost or market. 75. How does Japanese GAAP differ from IFRS with respect to preoperating costs? A. Japanese GAAP requires expensing of preoperating costs, whereas IFRS allows capitalization. B. Japanese GAAP requires expensing of preoperating costs, whereas IFRS requires capitalization. C. Japanese GAAP requires capitalizing preoperating costs, whereas IFRS requires expensing. D. Japanese GAAP allows capitalizing preoperating costs, whereas IFRS requires expensing.
