Exercises for Chapter 5
一、Multiple Choice Questions
1.
Which of the following is the least expensive approach to transnational financial
reporting by a company?
a. Preparing country-specific secondary statements.
b. Preparing convenience statements.
c. Preparing convenience translations.
d. Preparing universal secondary statements.
e. Preparing limited restatements.
2.
The do nothing approach is a rational response by a company when:
a. the company takes great pride in its domestic accounting principles.
b. the company does not seek to raise capital or sell products in other countries.
c. the company is based in an English speaking country.
d. the company is based in a country that has adopted the euro as its currency.
e. the company has a website containing its primary financial statements.
3.
In transnational financial reporting, convenience translations
a. are provided in the foreign reader's language.
b. are prepared in the accounting principles of the foreign reader's country.
c. use the currency of the foreign reader's country.
d. All of the above.
e. Only (a) and (c) from the above.
4.
In transnational financial reporting, convenience statements
a. are provided in the foreign reader's language.
b. are prepared in the accounting principles of the foreign reader's country.
c. use the currency of the foreign reader's country.
d. All of the above.
e. Only (a) and (c) from the above.
5.
In a limited restatement, a company
a. only restates the language to that of the foreign reader's country.
b. only restates the currency to that of the foreign reader's country.
c. only restates parts of the financial statements in the accounting principles of
the foreign reader's country.
d. only provides the annual reports to a limited number of foreigner readers.
e. None of the above.
6.
In a country-specific secondary statement, a company
a. translates only the language to that of the foreign reader's country.
b. translates only the language and the currency to that of the foreign reader's
country.
c. translates only the language and the accounting principles to that of the
foreign reader's country.
d. translates the language, currency, and the accounting principles to that of the
foreign reader's country.
e. translates only the currency and the accounting principles to that of the
foreign reader's country.
7.
In a typical universal secondary statement, a company
a. translates the annual report into English.
b. translates the accounting principles into that of the foreign reader's country.
c. translates the currency into that of the foreign reader's country.
d. translates the accounting principles into international accounting standards.
e. Only (a) and (d) from above.
8.
In the age of global capital markets, some companies send primary financial
statements to some investors and secondary financial statements to others.
a. This is primarily done by U.S. companies.
b. This is inappropriate and is frowned upon by most regulators.
c. The primary financial statements are prepared in accordance with GAAP
while the secondary statements are prepared in accordance with the tax laws.
d. Secondary statements are a rational response when the additional cost of
preparing them is justified by the benefits they generate for the company.
e. This practice is very confusing for both institutional and individual investors.
9.
The difference between a convenience statement and a convenience translation
is:
a. The accounting principles used.
b. The currency used.
c. The language used.
d. All of the above.
e. Only a and b.
10. Which of the following statements is true?
a. Most Japanese corporations use U.S. accounting principles because of their
considerable exports to the United States.
b. Most Swedish companies use International Accounting Standards when they
prepare limited restatements for U.S. investors.
c. Most companies in Spanish speaking countries prepare secondary financial
statements.
d. Most Swiss companies use International Accounting Standards when they
prepare secondary statements.
e. Most German companies use U.S. accounting principles when they prepare
convenience statements.
11. Companies doing business globally respond to foreign users of their financial
statements in a variety of ways. Which of the following statements is true?
a. Most companies opt for limited restatements since they result in limited
costs.
b. Secondary financial statements are the least expensive of the alternatives
available to companies.
c. The do nothing approach is invariably the most sensible choice.
d. Each approach can be appropriate for a company that uses it if the option
chosen is a result of a reasonable cost-benefit analysis by management.
e. A convenience translation is almost always chosen by management because
of its convenience.
12. Research evidence reviewed in the chapter showed that financial statements of
two companies may lack comparability even if they are prepared using the same
accounting principles. This suggests that:
a. global accounting harmonization efforts serve little purpose.
b. ratio analysis should never be used in comparing countries from different
countries.
c. it is important to factor in the company's domestic business environment in
conducting cross-country ratio analysis.
d. it is best to use convenience statements in comparing companies from other
countries with one's domestic companies.
e. All of the above statements are false.
13. Potential investors who have difficulty understanding a foreign company's
financial statements may
a. ask their local regulator to intervene even though the company is not listed
on their country's stock exchange.
b. use a variety of coping mechanisms if they are really interested in investing
in foreign companies to diversify their portfolios.
c. boycott the company's products.
d. demand that the company be required to use International Accounting
Standards.
e. vote to change the company's top management.
14. When a company prepares a limited restatement for foreign users of its financial
statements, the related information is located in
a. the report of the independent auditors.
b. the balance sheet.
c. the management discussion and analysis section.
d. the notes to the financial statements.
e. the chief executive officer's message to stockholders.
15. In a recent research study, most non-U.S. firms indicated that as a result of
accounting diversity they refused to list their shares in U.S. markets and had
instead:
a. bypassed the U.S. market in favor of the Eurobond market.
b. relied on domestic bank financing rather than raising capital in the United
States.
c. encouraged foreign investors to buy the company's shares in its home
market.
d. raised capital by undertaking a private placement in the United States.
e. All of the above.
16. In a study of financial statement users, underwriters indicated that accounting
diversity affected their decision making in the following ways:
a. It influenced the geographic spread and location of their activity.
b. It influenced the types of companies and securities they selected.
c. It affected their information processing costs.
d. It affected their assessment of securities returns in different countries.
e. All of the above.
17. At the macro-level, the reliability of financial statements from various countries
is likely to be affected by:
a. the level of financial reporting transparency that prevails in a country.
b. the scope and extent of audit required.
c. the degree of enforcement of financial reporting regulations.
d. the level of enforcement of securities regulations.
e. All of the above.
18. In Morgan Stanley Dean Witter’s Apples to Apples series, the following
accounting issues were identified as needing the most attention in conducting
sensible cross-country comparisons:
a. depreciation and revaluation of long-lived assets.
b. goodwill.
c. pension and other post-employment benefits.
d. consolidation and group reporting.
e. All of the above.
19. Users of accounting information must be cognizant of a number of differences
other than accounting principles, in annual reports that originate in countries
other than their own. These include:
a. the availability of financial information.
b. the reliability of financial information.
c. the timeliness of annual reports.
d. the format used in financial statements.
e. All of the above.
20. Users respond to foreign financial statements based on their resources and their
level of interest in the company. Investor responses include:
a. Refusing to invest in foreign companies.
b. delegating the monitoring function to professional fund managers.
c. relying on the companies' credit ratings.
d. meeting with company management periodically.
e. All of the above.
二、True/False Questions
1.
Companies that take the do nothing approach to transnational financial reporting
are generally not interested in raising equity capital abroad.
2.
Most U.S. companies take the do nothing approach to transnational financial
reporting.
3.
A convenience translation sent by a Brazilian company to France would be in
French and in French francs.
4.
A convenience statement sent by Toyota to the United Kingdom would be in
English and in British pound sterling.
5.
In limited restatements, a company translates only the language and the currency
to accommodate foreign readers of its annual reports.
6.
Traditionally, Swedish companies have provided limited restatements to investors
in the United States.
7.
In preparing country-specific secondary statements the company translates its
domestic annual report into the foreign user's language, currency, and accounting
principles.
8.
If Sony provided investors in the United States with an annual report that was in
English, in U.S. dollars, and in Japanese accounting principles that would be an
example of a convenience translation.
9.
Some Swiss companies provide universal secondary statements to foreign
investors. These annual reports are in English, in Swiss francs and use
international accounting standards.
10. There is a potential for confusion between convenience statements and country specific secondary statements because the two annual reports look similar.
11. Cost considerations and the need to tap capital providers in several countries
sometimes results in companies providing country-specific rather than universal
secondary statements.
12. Research evidence shows that large U.K. and U.S. firms which tend to have more
experience in dealing with international capital markets are relatively less
affected by accounting differences.
13. Research evidence shows that German, Swiss and Japanese firms tend to be more
affected by accounting differences than U.K. and U.S. firms.
14. Research evidence suggests that some firms refuse to list their shares on U.S.
stock exchanges because of the costs resulting from accounting diversity.
15. Large institutional investors might consider it worthwhile to invest in developing
skills in interpreting the financial statements of foreign companies contained in
their primary annual reports.
16. With the increasing globalization of capital markets, regulators face the challenge
of balancing their mandate to protect domestic investors without imposing
unreasonable barriers to reputable foreign companies from entering the capital
market in the regulator's jurisdiction.
17. Even though Honda might provide secondary financial statements prepared in
U.S. GAAP, the numbers contained therein might still not be fully comparable to
those in Ford's annual report due to important differences in the business
environments of Japan and the United States.
18. Companies in debt oriented countries are generally less willing to respond to
requests from investors in other countries for their annual reports.
19. The scope and extent of audit required in a country is likely to affect the
reliability of financial statements of companies from that country.
20. The absence of laws against insider trading in several countries results in
individuals or groups being able to benefit from trading on information they have
obtained before it is disclosed to the public at large in those countries.
21. In the United Kingdom and the United States, balance sheet items are listed in
increasing order of liquidity, with the most liquid items appearing at the bottom
of the balance sheet.
22. In Germany and the United Kingdom, balance sheet items are listed in increasing
order of liquidity, with the most liquid items appearing at the bottom of the
balance sheet.
23. Differences in definitions of terms can adversely affect the comparability of
financial statements across countries.
24. The accounting item cash and cash equivalents is one of the few items that is
defined exactly the same way in all countries.
25. The accounting terms accounts receivable and accounts payable in the United
States
are similar to the accounting terms debtors and creditors in the United Kingdom.