国际会计试题

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▭⚪ஹDefinition(:Eachofthefollowingfor3points,total12points)1.Foreignexchangeexposure᜛◅2.Forwardcontract᜿ᔠ3.Anindirectforeigncurrencyquote᜛4.InternationalAccounting▭ஹSinglechoicequestion(ᓫ⚗⌱#⚪$Eachofthefollowingquestionfor2points,total10points)1.Whichofthefollowingisnotanenvironmentalfactoraffectingaccounting?%&'()*+᛻-./0ᔩ2A.LevelofenforcementofregulationsB.NatureofcapitalmarketsC.TypeoflegalsystemD.LanguageE.Levelofinflation2.Whichofthefollowingdoesnotaffectacountry'sfinancialaccountingorientation?&ᑡ'⚗)/0(4Ḅ678ᔣ2A.Thelevelofinflation.B.Politicalandeconomictieswithothercountries.C.Statusoftheaccountingprofession.D.Qualityofaccountingeducation.E.A11oftheaboveaffectacountry'sfinancialaccountingorientation.3.Currentproponentsofharmonizingaccountingstandardsgloballyare:;ᐰᳫ>?Ḅ@ᢝὅCᑣA.Investors.B.Multinationalcompanies.

1C.Thesecuritiesindustryandstockexchanges.D.Developingcountries.E.A11oftheabove.4.ThecurrencyinwhichtheparentcompanypreparesitsfinancialstatementsistheEḄFGH8Ḅ67⊤A.basecurrency.B.functionalcurrency.C.historicalcurrency.D.reportingcurrency.E.Noneofthem5.Underthemonetary/non-monetarymethodofforeigncurrencytranslation,depreciationexpenseistranslatedatthe:E/KEឋMN&Ḅ᜜EPQஹᢚSTᵨ*)$A.CurrentrateB.WeightedaveragerateC.HistoricalrateD.spotrateE.NoneoftheaboveWஹMultiplechoicequestions(X⚗⌱#⚪$Eachofthefollowingquestionfor3points,total15points)1.MajorChallengesFacingAccountingGloballyᡠ☢[Ḅᢧᡊ⌕_ᐰᳫA.GlobalHarmonizationB.QualityofFinancialReportinginDevelopedandEmergingEconomicsC.SocialandEnvironmentalReportingD.FinancialReportingintheHighTechnologyEraE.ReviewofSelectedClassificationStudies

22.InteractionbetweenAccountinganditsEnvironmentmainlyincludesthefowllowingaspects:>`Ḅ+᛻Ḅabcᵨ⌕_deᙠfowllowingM☢:A.NatureofCapitalMarketsandTypeofReportingRegimeB.TypeofBusinessEntitiesandTypeofLegalSystemC.LevelofEnforcementofRegulationsandLevelofInflationD.PoliticalandEconomicTiesandStatusoftheAccountingProfessionE.ExistenceofaConceptualFrameworkandQualityofAccountingEducationVoluntarydisclosuresbyMNEsareinfluencedbyghijᢇlmnopA.size.B.internationallistingstatus.C.countryoforigin.D.industry.ELanguage4.AdditionalIssuesinInternationalFinancialStatementAnalysisincludethefollowing:q᜜Ḅrs⚪tᙠ▭67⊤ᑖ᪆᝞x$AvailabilityofDataReliabilityofDataTimelinessofDataLanguage,TerminologyandFormatE.Noneofthem5.InvestorsareconcernedaboutᢗzὅᐵᝰḄ*A.up-to-datemeasurementsofearnings

3B.lackofcomparabilityofMNEsC.theinformationalcontentofMNEreportsD.GoodwillENoneofthem}ஹEssayquestions(~⚪$Eachofthefollowingquestionsfor8points,total16points)01.Costconsiderationsandtheneedtotapcapitalprovidersinseveralcountriessometimesresultincpmaniespreparinguniversalratherthancountry-specificsecondarystatements.Ifyouwereanalyzingauniversalsecondarystatementofaforeigncompany,whatmightbesomeofyourconcernsbeforemakinganinvestmentdecision?Howwouldyougettheanswersyouneed?ᡂḄὃ⇋>◤⌕ᑭᵨzὅinseveral4ᙠ(᎛cpmanies⚜ᜓ)*4⊤஺Ꮇ᝞*(Ḅ⌕Ḅ▰ᑖ᪆᜜zGHt*ḄMᢗz¡¢ᔩ?᝞¤¥ᑮᫀ,◤⌕©ª22.WhatistheRoleofFinancialReportinginEmergingCapitalMarkets?Ḅ«⁐*©ªᐶz¯°67±ᔩ2²ஹInternationalAccountingPractices(▭³7:Totalfor12points)Latechoc(Switzerland)companybeganitsfirstyearofbusinessonJan1,2008.Belowisthecompany'sstatementofincomefortheyear.Latechoc(´µ)GH¶·¸`Ḅ¹XºḄ»⃩ᙠ½º1ᨴ1¿À,஺%&*ÁGHḄÂḄÃĺ஺Latechoc

4Statementofincome(inmillionsofSwissfrancs)YearendDecember31,2008NetSales7,820Costofgoodssold(4,000)Selling,generalandadministrative(850)Rent(400)Advertising(150)Equipmentdepreciation(1,250)Interestexpense(90)Utilities(30)Federalincometaxes(65)Netoperatingincome985Assumethatequipmentwasacquiredatthebeginningoftheyearandthenetmonetarygainfortheyearwas480(inmillionsofSwissfrancs).Whatisthecompany'sadjustedGPLAnetincomefortheyearendingDecember31,2008?ᎷÅÅᜓ*᝞ÆÇ¥Ḅ:ᙠ½ººÈtÉEḄᓣËtº480(ᦪ%ÍÎḄ´µNÏ)஺ÐGHÑ᦮GPLAÉᦈᐭÕºÖ2008º12ᨴ31¿2Whatisthecompay'sGPLA-basednetincomefortheyearendingDecember31,2008?©ª*opGPLA-basedÉᦈᐭÕºÖ2008º12ᨴ31¿2×ஹCaseanalysis(ᫀØᑖ᪆⚪:Thissectionfor35points)TechcorporateofUSAisamanufacturerofskatesshoreforenthusiastsofallages.Durignthelastfiveyears,thecostofrawmaterialsandlaborhavecontinuedtoriseinthefirm'sU.Smanufacturingfacility.Asaresult,theCEOofTechcorporateisconsideringestablishinganewmanufacturingsubsidiaryoverseastotakeadvantageoflowerproductioncostselsewhere.InvestmentadvisorstotheCEOhavesuggestedMalaysiaand

5Thailandastwopossiblelocations.Belowisthesubsidiary'sexpectedafter-taxcashflowswillbeinringgitsorbath,thecompanyanticipatessomeU.Sdollar-denominatedexpenses.ÙḄÚᢈGH*4ÜpÃÝḄÞßàᚽâ>᰿äὅḄ☘Ṇ஺hḄ²ºç,DurignèᩞᧇḄëìíîïðñjᙠGHḄSᑴ⌼ô஺-Æ,ÁGHḄ✌ö᡻øùḄúÚᢈGHûᙠὃ⇋üýḄÃÝþGHÿ᜜ᑭᵨᡂḄᙢ஺ᢗᔣ,ᩭḄᨵ"#$%Ḅᙢ஺&'()*+,Ḅ-./012⚜45ᙠringgitsᡈ89+,4:ᨵ;<.S>ᐗḄ@ᵨ஺BladesMalaysiainmillions20032004200520062007MRcashinflows3500400055004800MRcashoutflows1500020009007001000US$cashoutflows20015012575BladesThailandinmillions20032004200520062007TBcashflows25000225002300024800TBcashoutflows350002000220019003000US$cashoutflows125175200noneAdditionalinformation:Exchangeratesfor2003are3.8Malaysianringgit(MR)=US$1and39.5Thaibath(TB)=US$1.ItisexpectedthattheMalaysianringgitwilldepreciate3percentayearagainstthedollarandtheThaibathwillappreciate4percentayearagainstthedollar.Techcorporate?saveragecostofcapitalforbothprojectsis12%.The12%ofPresentvaluefactor:20032004200520062007I.0000.89290.79720.71180.6355Requirements:Determinethenetpresentvalueofbothprojectsdef/g"ὅḄ⚗jIfyouwereTechcorporate'sinvestmentadvisor,whichlacationwouIdchoosefornewsubsidiary?Why?Ꮇ᝞m(nᢈpqᢗ,rs*+,ᙢᳮuvw⌱yᔩ?|}~ᦑ▭wᔁ3ᫀᑖ᪗ஹDefinition(:Eachofthefollowingfor3points,total12points)

61.Foreignexchangeexposure:Foreignexchangeexposureisameasureofthepotentialforafirm'sprofitability,cashflow,andmartketvaluetochangeduetoachangeinexchangerates.2.Forwardcontractisacommitmenttoexchangecurrenciesinthefutureataratethatissettoday.Whiletheamountofthetransaction,thematuritydate,andtheexchangeratearealldeterminedinadvance,nomoneychangeshandsuntilthesettlementdate.3.Anindirectforeigncurrencyquote:Anindirectforeigncurrencyquoterepresentshowmuchoftheforeigncurrencycanbepurchasedforoneunitofthedomesticcurrency.4.InternationalAccountingThedefinitionincludes(1)internationaltransactions(2)comparativeGAAP(3)harmonizationand(4)controlofgiobaloperations.InternationalaccountingencompassesallmajorareasofaccountingஹSinglechoicequestion(ᓫ⚗⌱y⚪:Eachofthefollowingquestionfor2points,total10points)l.D2.E3.E4.D5.CஹMultiplechoicequestions(⚗⌱y⚪Eachofthefollowingquestionfor3points,total15points)l.ABCD2.ABCDE3.ABCD4.ABCD5.ABCஹEssayquestions(⚪Eachofthefollowingquestionfor8points,total16points.)1.Costconsiderationsandtheneedtotapcapitalprovidersinseveralcountriessometimesresultincpmaniespreparinguniversalratherthancountry-specificsecondarystatements.Ifyouwereanalyzingauniversalsecondarystatementofaforeigncompany,whatmightbesomeofyourcon

7cernsbeforemakinganinvestmentdecision?Howwouldyougettheanswersyouneed?2.WhatistheRoleofFinancialReportinginEmergingCapitalMarkets?(l).BeforeECMcanfunctioneffectively,itisessentialtohaveinplaceasetofcorporatereportingpoliciesandproceduresgearedtowardssupplyingtheinformationnecessaryformakinginvestmentdecisions.Accountinginformationisanessentialforbuildingefficientfinancialmarkets.(2).Developinganeffectiveaccountingandauditingprofessionisessentialforbuildingefficientfinancialmarkets.TheaccountingandlegalinfrastructureunderlyinganECMwasamajorfactorforevaluatingtheinvestmentpotentialofthemarket.(3).Financialreportingiscentraltoregulationspertinenttoestablish!nganactivemarketforcorporatesecurities.ஹInternationalAccountingPractices(▭wTotalfor12points)Latechoc(Switzerland):HistoricalAdjustmentP-L-ACostRatioBasisNetSales7,820108/1058,043

8Costofgoodssold(4,000)108/105(4,114)Selling,generalandadministrative(850)108/105(874)Rent(400)108/105(411)Advertising(150)108/105(154)Equipmentdepreciation(1,250)108/100(1,350)Interestexpense(90)108/105(93)Utilities(30)108/105(31)Federalincometaxes(65)108/105(67)Netoperatingincome985949Add:Netmonetarygain480P-L-Anetincome1,429ஹCaseanalysis(ᫀᑖ᪆⚪:Thissectionfor35points)SolutionforcaseanalysisTechcorporate1.BladesMalaysianetpresentvalue(Ringersinmillionsof$):20032004200520062007NetMRcashflow(15,000)1,5003,1004,8003,800FixedrateMR/$3.83.9144.0314.1524.277

9Dollarvalue(3,947)3837691,156888Less$outflows(200)(150)(125)(75)Net$flows(3,947)1836191,03181312%Pvfacto1.000.8929.7972.71186355PVof$flow(3,947)163493734517ProjectNPV=$(2,040)BladesThailandnetpresentvalue(ThaiBathinmillionsof$):20032004200520062007NetTBcashflow(35,000)23,00020,30021,10021,800FixedrateTB/$39.537.9236.40334.94733.549Dollarvalue(886)607558604650Less$outflows(125)(175)(200)Net$flows(886)48238340465012%Pvfactor1.000.8929.7972.7118.6355

10PVof$flow(886)430305288413ProjectNPV=$5502.AsTechCorporation?sinvestmentadvisor,youshouldchoosetheThailandlocationsinceithasapositivenetpresentvalue.▭wᔁ4QUESTION1(20Marks)Inthe13thand14thcenturies,double-entrybookkeepingspreadrapidlythroughoutthewesternworld.Whatsocial,economicandpoliticalconditionswerenecessaryforwidespreadadoptionofdouble-entrybookkeepingtooccuratthattime?Howisthisanexampleoftheinternationalisationofaccounting?+ᐗ13ஹ14¢£,¤¥¦§᦮©ª¢«¬®¯°ᩭ|±᪵Ḅ³wஹ´µ¶·ᩩ¹(º◤Ḅ,r¼½¾Ḅ¿À¤¥¦§ÁᔩÂ(᝞Ã᪵Ḅ©Ḅ▭ᓄḄwᔩNecessaryconditions(16markstotal):-RapidgrowthoftradeandcommerceThosetravellingtotheHolyLandforthecrusadesfromWesternEuropeinevitablypassedthroughthecitystatesofNorthernItaly.Genoawasatthepeakofitspowerandinfluenceasatradingcentreinthe14thcentury.In1252,thegoldcoinknownastheflorinwasdevelopedinFlorenceanditbecameacceptedasthestandardgoldpieceinallofWesternEurope.

11AroundthistimeinFlorence,largeassociationsorcompagnie(partnerships)wereformedtopoolcapital,firstfrominsidefamilygroupsthenfromoutside.CommuneofGenoa(Government)in1327requiredthatgovernmentaccountshadtobekeptinsameformasusedbybanks.Thisisanexampleofinternationalisationofaccounting(4marks)becauseitshowsthegrowthoflargerscalebusinessesdependentonforeignersforsalesandcapital.Accountingemergedasaresponsetothedemandforinformationandtherequirementtobeaccountable.Inadditiontothis,theaccountingpracticesofFlorenceandGenoalaterweretransportedtoEnglandwheretheyreplacedthepreviousmanorialsystemofaccounting.Thisshowshowmoreeffectiveaccountingtechniquesflowacrossnationalboundaries.QUESTION2(5+5+5+5=20Marks)Answerfour(4)ofthefollowing:Towhatextentisthestrong/weakequitymarketdistinctionausefulwaytoidentifydifferentpatternsofaccountingdevelopment.ᜧÆÇÈÉÊËᜧḄ/ÍÎÏἠÑÒḄÓ$©ᨵᵨḄªÔᩭde$%ÕÖḄwḄ×Ø஺-Strongequityreferstothedominantpositionofoutsideequity-holdersandthestronglegalbackingaimedatinvestorprotection.Weakequityreferstothedominantpositionofbanksandfamilyequity-holdingsascapitalproviders,andthelegalstructurewhichisdesignedtosafeguardtheinterestsofcreditors.,Nobesestablishesthisclassdistinctioninadeductiveclassificationapproach.SeeFigure3.2ofRadebaughandGray(2002).

12,ThestrongmarketisUSGAAPandtheweakmarketistheIASGAAP.,USGAAPisapowerfulfactorbecausetheUScapitalmarketisverylarge.,IASGAAPisusedinEuropeanddevelopingcountries.,AttheoutsettheIASreflectedadistinctEuropeanapproachwithanemphasisoncurrentvalueaccounting,butbothUSandIASregulatorsaretryingtoharmonizeandthedistinctionskeepgettingsmallerbetweenthetwoGAAPS,Theincreasingglobalizationoffinancialmarketsalsoreducesthedistinctions.B.Doculturalinfluencesimpactmoresignificantlyuponfinancialreportingdisclosureissuesoruponmeasurementissues?Discusswithexamples.ÙÚÛ⌕ḄᦻᓄÞßḄÞßᙠàáâãäå☄⚪ᡈçè2Ḅ⚪ᔩ?éê¼ë஺AdistinctionwasmadebetweenmeasurementanddisclosurepracticesbecausethesewereconsideredtohaveseparatepatternsofdevelopmentintheNairandFrank(1980)study(referredtoinRadebaughandGray,2002,pp.39-41).Theyshowedcleardifferencesintheresultsbetweenthetwocriteria.However,measurementgroupingscouldbemadewithplausibleexplanations;butthedisclosuregroupingsofferednoplausibledescriptionsorexplanations.TheDisclosurecountrygroupings,basedonthe1975PriceWaterhousesurvey,wereBritishCommonwealthModel,LatinAmerican/SouthAmericanModel,NorthernandCentralEuropeanModel,UnitedStatesModel,andan“Other"categorywhichincludedonlyChile.TherewereseveralreliabilityandrelevanceproblemsrelatedtothePriceWaterhousesurveydatausedbyNairandFrank(1980).Theseprobl

13emsincludeddataerrors,misleadinganswers,swampingofimportantquestionsbytrivialones,andexaggerationofdifferencesbetweentheUSandtheUK.Therewasalsoconfusiononthesurveybetweenwhatconstitutedrules(mandatoryandnon-mandatory)andtheactualpractices,whichareoftendifferent.C.Doescultureexplaintoasignificantdegreetherelativeimportanceofstockexchangesandprofessionalaccountingassociationsaroundtheworld?Discusswithexamples.ᦻᓄ(ᙠìíᜧÆÇÈḄîçÛ⌕ឋðᑶò᧕ᡠ×õ9¢«ᔜᙢḄìqw÷øwᔩ?éê¼ë஺Hofstede(1980)arguesthatcultureimpactsoninstitutionsandorganizationaswellasoccupationalgroups.Accordingly,thereisaplausiblelinkbetweentheAngloculture,forexample,andapreferenceforstockexchangesandprofessionalassociationincontrasttotheGermanicandLatincultures.Highindividualism,lowuncertaintyavoidance,andlowpowerdistancewouldseemespeciallyrelevanthere.TheanswertoQuestion3PartCisalsorelevanthere.Wheredoesyourcountryfitintermsofthefollowingkeycharacteristiesofaccountingpractice:uprofessionalism/statutorycontrolv,“uniformity/flexibilityvwconservatism/optimismv,and“secrecy/transparency”?Explain.|}ᙢùḄú〉ü'ᑡᩩþw᪶Ḅᨬ⌕ᱯ:/”ஹ“ឋ/ឋ”ஹ“/”ஹ“/”ᔩ?"#஺AccordingtoGray's(1988)classificationscheme,discussedinRadebaughandGray(2002,pp.45-48),Professionalismversusstatutorycontro1relatestotheextenttowhichaccountantsusetheirprofessionaljudgementsandadoptindependenceattitudes.Uniformityversusflexibilityreferstopreferenceforcomparabilityofaccountsacrosscompaniesandacrosstimeversuspreferenceforflexibilitybasedonanindividualcompany'scircumstances.Conservatismversusoptimismreferstopreferenceforacautiousapproachtoassetandprofitvaluationversuspreferenceforanoptim

14isticapproach.Secrecyversustransparencyreferstopreferenceforconfidentialityindisclosureofbusinessdataversuspreferenceforinformationdisclosure.Accountingvaluesmostrelevanttotheauthorityandenforcementaspectsofaccountingsystemsseemtobetheprofessionalismanduniformityvalues.Gray's(1988)proposedclassificationofcountriesbyculturalareaisverysubjectiveandusestheanalysescarriedoutbyHofstede(1980)--notdatarelatedtoaccountingpractices.Ifthestudent'sclassificationoftheircountryiswellargued,andtheirclassificationappearslogical,theycanbeawardedhighmarks.Figures3.4and3.5inRadebaughandGray(2002,pp.50-51)canbeusedtoevaluatethis.EWhatwastheNorwalkAgreementof2002andwhatareitsimplicationsforaccountingstandard-settingworldwideandconvergenceissues?%&'()*+,'%&2002-Ḅ./ᐰᳫ23᪗5ᦈ789⚪;TheNorwalkAgreementwasanin-principlecommitmentagreeduponbytheInternationalAccountingStandardsBoardandtheFinancialAccountingStandardsBoardtooveraperiodoftimeworktowardsconvergenceoftheirtwosetsofstandardsandtoaimtowardsconvergenceonanyproposednewrules.ItcanbecontrastedwiththedecisionsofAustraliaandtheEuropeanUniontoadoptwholesalethefullsetofIASBstandardsastheirownsetofnationalstandards.QUESTION3(5+5+5+5=20Marks)Answerfour(4)ofthefollowing:A.TowhatextentareinformationdisclosuresbyMNEsindirectors,annualreports,asopposedtothefinancialstatements,likelytobeusefultofinancialanalystsandinvestors?ᑮ%&=ᙠ?@ABḄCDE☄ℏH-IJKLᐵNOPI⊤KRSᨵᵨVWᑖ᪆Z[ᢗ]ὅ;

15Theinformationdisclosuresindirectors'annualreportshelpinvestorsandotheruserstobetterunderstandthenatureandtheeffectsoftheactivitiesofMNEsandtobetterassessperformanceandfutureprospects.Theinformationinthedirectors'reportoftenprovidesanevaluationofthequalityofearningsandfinancialposition,bothcurrentandprospective,asopposedtothequantitativeinformationfoundinthefinancialstatements.Thedirectors'reportalsogivesmanagementanopportunitytocommunicatemorepolicyandfuture-orientedinformationaboutthecorporationtoinvestorsandanalysts.B.WhataresomeofthepotentialcostsandbenefitstoMNEsofmakingadditionalvoluntaryinformationdisclosures?ᨵ%&᪵Ḅ`ᙠᡂb[ᑭd,fghḄ?@ijkCDE☄;ThecoststoMNEsofmakingadditionalinformationdisclosuresincludethedirectcostsofassemblingandreportingtheinformationandthecostsassociatedwithcompetitivedisadvantage—especiallytheneedtomaintainbusinessconfidentialityinsensitiveareas.Thebenefitsincludetheinterestsofanalysts,investors,andthepublicinthetransparencyofmultinationaloperations.Theadditionalinformationdisclosuresmayinfluencemoreinvestorsandaffectthecorporation'ssharepricesormayleadtomoreadvantageousfinancingarrangementswithcreditors.C.Inwhichcountriesarestockexchangedisclosureregulationsmorestringent?Inwhichcountriesaretheylessstringent?Whataresomelikelyreasonsforthis?ᙠlmn@o'pἠr᧕CDE☄tᑣgvwḄᔩ;ᙠlmn@oxyz{&vwḄᔩ?ᨵ|RS}ᦑ'%&;TheUnitedStateshasthemoststringentdisclosureregulationsintheworldfollowedbyCanadaandtheU.K.AttheotherendofthespectrumisSwitzerlandwithitsregulationfor“secrecy“andanumberofemergingeconomies.Thereareanumberofreasonsforthesedifferencesbutthemostimportantwouldseemtobethesizeandstageofdevelopm

16entofthestockexchangecoupledwithculturalattitudestothedisclosureofinformationtooutsidersorexternalgroups.Ifthestudentreferstoothercountriesotherthanthoselistedhere,makesuretheansweriswellarguedandlogical.D.Whyisinformationconcerningfutureprospectslikelytobeimportanttoanalystsandinvestors?WhymightMNEsnotbewillingtodisclosesuchinformation?%&}ᦑᨵᐵRS'⌕Ḅᑖ᪆Z[ᢗ]ὅ??@AB2zkE☄ḄCDᔩ;Financialanalystsandinvestorsareoftenprimarilyinterestedinthefutureprospectsofacorporation.Therefore,anyadditionalinformationrelevanttofutureprospectswouldbeofgreatinteresttofinancialanalystsandinvestorssincedirectorsareusuallyinagoodpositiontoprovideinsightintofutureprospects.Corporationsareconstrainedonprovidingsuchvoluntarydisclosuresbycompetitiveconcerns.Quantitativefuture-orientedinformationisverysensitivefromacompetitivedisadvantageperspective.Inadditiontothis,itisnotaudited.Therefore,thenatureandextentofinformationconcerningfutureprospectsisoftengeneralandverylimited.ERecently,theInternationalAccountingStandardsBoardaskedthestandard-settingbodiesofSouthAfrica,Canada,AustraliaandNorwaytoworktogethertodevelopanIASBaccountingstandardfortheextractiveindustries.Whatdoyouthinkofsuchamove?Whydoyouthinkthesefourcountrieswereselected?ᨬK@▭235ᑣᕒ2⌕᪗5ḄKᓭ,ᜧKᜧᑭ[ᩭnIASB⃓235ᑣ஺¡¢£᝞¥Ḅr᧕ᔩ?¡%&}ᦑ¦l§n@o¨⌱ª;Thesefourcountrieswereselectedbecauseallarebigminingcountriesandmostoftheworld'slargestminingcompaniesaredomiciledintheselocations(e.g.,PlacerDomeinCanadaandBHPBillitonandRioTintoinAustralia).Anadditionalreasonisthatallfourofthesecountries

17havealonghistoryofaccountingstandard-settingandhaveanaccumulatedbodyofaccountingexpertiseandknowledgeresidentinthecountry.Thestudentmightarguethatthisisagoodmovebecauseitallowstheknowledgeandskillsofnationalaccountingstandard-setterstobepooled(andsoabetteraccountingstandardmighteventuate),anditshowstheIASB'swillingnesstomakeuseofexpertisewhereveritmaybesituatedaroundtheworld.ItalsoreflectstheIASB'smaintainedpositionthatcountriesandentitiesmostdirectlyaffectedbyanaccountingruleshouldbeabletohaveaninputintoitsformulation.QUESTION4(5+5+5+5=20Marks)Answerfour(4)ofthefollowing:A.DiscussthewaysinwhichtheEuropeanUnionmightbecomeinvoIvedinthefutureintheinternationalaccountingstandardsettingprocess.«¬Ḅ®,ᐸ°Ḅ±²RSᔁᐭµḄ@▭235ᑣᑴ·=஺ThescopeoftheEU'saccountingDirectivesislimitedtothememberstates,thoughtheirinfluencegoesbeyondtoSwitzerlandandtocountrieswishingtojoinsuchasHungaryandMalta.ItisunlikelythattherewillbeanynewDirectivesoramendmentsfortheforeseeablefuture.TheEuropeanAccountingAdvisoryForumisthustheprimemeansbywhichchangeswillbebroughtaboutattheEUlevel.TheEUalsoseemstohaveacceptedtheauthorityoftheIASBastheappropriatebodytosetglobalstandardsinthefuture.Atthesametime,theEUappearsconcernedtoinfluencefuturedevelopmentsthroughitsrepresentationattheIASBandIOSCO,andtoprotectEuropeaninterestsandaccountingtraditions.TheEUhasalsobeenattheforefrontofreleasingpolicydocumentsrelatingtoenvironmentalandsocialaccounting.

18B.OutlinethemajorperceivedadvantagesanddisadvantagesoftheIOSCOendorsementofIASBstandards.¦⌕ᜧ¸Ḅ¹ºIASB)Ḅ»ᢝ@▭᪗5஺ThemissionoftheIOSCOistheglobalcoordinationofstockexchangerulestofacilitatemulti-listingandcross-bordercapitalraisingbyMNEsandencourageinternationalsecuritiestrading.WhatIOSCOsupportdoesfortheIASBistogiveaddedauthoritytoitsstatusasthebodyresponsibleforaccountingstandard-settingonaworldwidebasis.But,moreimportantly,itprovidesalikelymeansofenforcementofitsstandardsasnationalsecuritiesagencies(e.g.,ASICinAustralia)havethepowertorequiresuchstandardstobefollowedforstockexchangelistingpurposes.C.ShouldinternationalaccountingstandardsbesetfortheworldorberestrictedtoMNEsinterestedinraisingfinancefrominternationalinvestors?Discuss.¾¿@▭235ᑣ'ÀÁᡈ▲?@iÄÅVWÆ᰿È@▭ᢗ]ὅ?«¬஺Becausethisisanormativequestion,alternativeviewpointontheissuesarepermitted.Anywellreasonedandlogicalanswershouldbeawardedhighmarks.Notethatthereisnosinglecorrectansweronthisissue.ShouldtheIASBhavetheauthoritytosetinternationalaccountingstandardsorshouldthestandardsbetheoutcomeofamorecollaborative/consultativeexercise?Discuss.Ꮇ᝞@▭235ᑣᳮH2ᨵᩗÌ@▭235ᑣÍÎÏl|᪗5ḄÐÑ'ngᔠ/+ᖪ┴Õᔩ?«¬஺Becausethisisanormativequestion,alternativeviewpointontheissuesarepermitted.Anywellreasonedandlogicalanswershouldbeawardedhighmarks.Notethatthereisnosinglecorrectansweronthisissue.InAustralia,theIASBsetofaccountingstandardsaremandatoryasfrom1January2005.HowdoesthedegreeofapplicabilityoftheIASB

19standardsinEuropeanUnioncountriespost2005differfromthedegreeofapplicabilityofthissetofaccountingstandardsinAustralia?ᜧᑭḄ@▭235ᑣᳮH2Ḅ235ᑣ'ÖᑴឋḄ×2005-1ᨴ1Ù஺᝞¾ᵨḄ=Ḅ±²@oIASB᪗5zÚÛÜ2005-Ḅ〉ᵨ=lᝅ235ᑣᙠᜧᑭ;TheAustralianconceptofureportingentityvinStatementofAccountingConcepts1stillcontinuestoapply.ThismeansthattheIFRSmustbefollowedbyallreportingentities,includinglargerprivatecompaniesandnot-for-profitorganisations.IntheEuropeanUnion,conformitywithIFRSislimitedtotheconsolidated(group)accountsandtolistedcompanies.Therefore,comparativelymoreorganisationswillbeaffectedinAustraliabythemovetoIFRSthanwillbeaffectedintheEU.TheseissuesmaynothavebeenproperlythoughtthroughatthetimethatAustraliarushedtoacceptIASBadoptionby1January2005(Alfredson,2003;HaswellandMcKinnon,2003).QUESTION5(5+5+5+5=20Marks)Answerfour(4)ofthefollowing:A.Compareandcontrastthedifferentformatsforfinancialstatementconsolidation.Makesurethatyouranswerincludesreferencetothefoliowingmethodsofconsolidation;full,proportionalandequity.ßàµzÚḄw®ᔠâOPI⊤஺ã¡Ḅäᫀᒹçèὃê☢Ḅ;ᐰḄ᦮ᔠஹßî[Aï஺Thequalityandquantityofconsolidatedinformationvariesconsiderablybothbetweenandwithincountries.ApartfromtheUnitedStates,UnitedKingdom,andtheEUcountries,legalandprofessionalrequirementsrelatingtoconsolidatedstatementsarenotyetascomprehensiveasmightbeexpected.Themethodsofconsolidationincludethefollowing:

20,Thefullmethod,commonwithcorporationsthathavewholly-ownedsubsidiariesorcontrollinginterestsinothercorporations,involvesa"line-by-line"consolidationofallaccounts.,Theproportionalmethod,consideredappropriateforjointventures,involvestheconsolidationofonlytheownershipshareofassetsandliabilitiesonapro-ratabasis.,Theequitymethod,usedwhenthereisasignificantinfluencebutnotcontrollinginterestinanotherentity,involvesconsolidatingashareoftheprofitsona"one-line"basisaccordingtotheequityownedbytheMNE.,Thecostmethod,wherebyonlydividendsareincludedintheresultsfortheyear,isalsowidelyusedincountriessuchasAustraliaandSweden.B.Whyhasjointventureaccountingbecomeamuchmoreimportantissuenowthanitwas(say)inthe1970s?Whyhasitbeendifficulttogetagreementinternationallyabouttheappropriateaccountingtreatmentforjointventures?%&}ᦑᔠ]i23ᡂð⌕Ḅ89⚪ñᙠß(")ᙠ20Àô70-õᔩ;%öÍÎ÷+,ø〉ùḄ23ᜐᳮ@▭ᔠ]ᔩ;Joint-ventureaccountingisbecomingincreasinglyimportantwiththegrowthofcollaborativearrangementsbetweenMNEsandhostgovernments/domesticcorporations,especiallyintheemergingeconomiesofRussia,EasternEurope,andChina.MNEsthemselvesarealsoforgingalliancestoaccessnewmarketsontechnology.ThistrendlookslikelytocontinueandsometheoristssuggestthatwehaveenteredanageofuAllianceCapitalism.vThealternativesofproportionalconsolidationversustheequitymethodarecontroversialbecauseofdifferingviewsconcerningthenatureofconsolidation,i.e.shouldtheformsbeontheassetsandliabilitiesdeployed

21inrespectofwhichtheinvestorcompanyisassumedtohavesomecontrol(proportionalapproach)orshouldthefocusbeonthenetinvestmentorequityinwhichtheinvestorcompanyhasrights?Majorproblemsariseinthecontextofjoint-venturesincountrieswithcentrally-plannedeconomies(ie.ChinaandRussia)whereaccountinghasaverydifferentpurpose(meansofcentralizedcontrol)thanaccountinginwesterncountries.Differenceshavealsoarisenintheapproachtaken(receiptsandpaymentsapproachvs.accrualsapproach),assetvaluation,depreciation,treatmentofliabilities,andtheuseoffundaccountingforavarietyofpurposes.Mostoftheproblemsassociatedwithaccountingforjoint-venturesinvolvecoordinatingdifferentculturalandaccountingtraditionsinawaythatresolvesissuesrelatingtofinancialcontrol,themeasurementofprofit,andthevaluationofjoint-ventureinvestments.C.WhydidAustraliancompaniessuchasNewsCorporationstronglyopposetheaccountingrulescontainedwithinIAS38:IntangibleAssets?%&}ᦑᜧᑭABK᝞ûüýþÖÿ
ᑣᒹᙠIAS2000,35:D.Whyisaccountingforidentifiableintangibleassetsanimportantissuefordevelopingcountries?ᦑᓰḄ⌕!⚪ᔩAsdevelopingcountries,includingtheemergingeconomiesofRussia,EasternEuropeandChina,privatizestate-ownedcorporationsandbecomemoremarket-orientedeconomies,sohastheissueofintangiblesbecomemoreimportant.ThereasonforthisisthatvaluationsneedtobeplacedonbusinessesthatincorporateintangiblessuchasR&D,brandnamesandmarketknowhowinacontextwherethereisasignificantlackofinformationavailableuponwhichtobasethenecessaryjudgments.Inaddition,thereisashortageofskilledandqualifiedpractisingaccountantsinth

22esecountrieswhocandetermineandauditreportedintangibleassetvalues.WhydoyouthinkdevelopingcountriessuchasPakistanandMalaysiamadethepolicydecisiontoadoptthefullsetofIASBstandardswholesaleastheirownsetofnationalstandardsratherthandeveloptheirownsetinternally?$ᦑ%&,()*+ᚆ-.ᩭ0123Ḅ45ᐰᝅ▭9ᑣᳮ;᪗9ᢇ%>?Ḅ᪗9,@AB>?ᑁDᔩAnotherreasonisthatthesecountriesarehopingthatfulladoptionofIASBwillsignaltointernationalinvestorsandMNEsthatreportingqualityinthecountryishigh.Asaresult,investmentfundsflowsintothecountryaremoreHkelytobemaximised.Inthisrespect,fulladoptionofIASBSislikelytobeaupublicrelationsexercise“toacertaindegree.Lastly,aninterestingpointisthatPakistanandMalaysiaarebothIslamiccountries.Islamprohibitstheuseofdebtfinancing.InPakistan,non-Islamicformsofbankinghavebeenoutlawedsince1992,whilstinMalaysiaWesternandIslamicbankingexistsidebyside.The((timevalueofmoney“conceptanddiscountingprocedurearguablyhavenoplacewithinIslamicsocieties.Bycontrast,manyoftheIFRSstandardsincorporatediscountingconcepts(Hamidetal.,1993;Deegan,2000).Islamicstudentsmightbeabletoaddfurtherinterestingcommentandopiniononthisissue.QUESTION6(20Marks)DiscussthemostimportantadvantagesanddisadvantagesofAustralia'sfulladoptionoftheIASBsetofaccountingstandardsfrom1January2005.Pleaseincludeatleastthree(3)argumentsforbothsides.Rate

23eachargumentoutoften(10)basedonyourownpersonalopinionastoitsmerit.EFᨬ⌕ḄHI-JIᐰ☢L5ḄMᜧᑭ1Ḅ▭9ᑣᳮ;Ḅ9ᑣP2005Q1ᨴ1ST஺VWXYᒹZ[(3)\ᡂ^_Ḅ`a஺᳛ḄᔜFdᓝ(10),fgh᯿>?ḄjḄkl
ᐸHI஺Advantages(8marks):-Enhancedcomparabilityandunderstand-abilityofreports.Maylowerthecostofcapital,especiallygiventhatAustraliaJscapitalmarketissmallbyworldstandardsandthenationisa“price-taker”.WillalloweasylistingforcompaniesalreadylistedontheLSE.IASBstandardsacceptableonbothASXandLSE.Cheaperarrangementbecausethecostofmaintainingalocalstandardsettingapparatusisreduced.ReducescostsandburdensuponMNEsbecausetheycanuseonlyonebasisforreporting.MorepoliticallyacceptabletotheAustralianFederalGovernmentbeeausefutureAustraliancorporatefailurescanbeblamedonpooraccountingstandardsissuedbyanon-Australianbody.Disadvantages(8marks):-Australianaccountingstandardsperceivedashighqualitybymanyneutralobservers.Australiashouldbemorethanaurubberstamp“forIASBstandards.Somelocalissuesmaynotbecoveredbyinternationalrulesortheremaybeinterpretationandapplicabilityissues.TheUSremainstheworld'slargestcapitalmarketandtheNewYorkStockExchangepresentlydoesnotacceptaccountspreparedaccordingtoIASBunlessaccompaniedbyareconciliationtoUSGAAP.ThehurriedmovetoIASBhasbeenviewedbysomeasapoliticalmovebytheAustralianFederalGovernmentbecausefutureAustralianco

24rporatefailurescanbeblamedonpooraccountingstandardsissuedbyanon-AustralianbodyAnyreasonableattemptbythestudenttoassignamarkoutoftentotheseadvantagesanddisadvantages,ifaccompaniedbylogicalreasoning,canbeawarded4marks.QUESTION7(7+7+6=20Marks)A.Criticallyevaluatetheallegedadvantagesofmandatedsegmentdisclosures.IncludeinyouranswerthemostimportantresultsfrompredictiveabilityandstockmarketresearchᡠpḄ⌕qrsḄHItᣴᩗw☄஺ᒹZᙠyḄz{Pᨬ⌕Ḅ|}Ḅ~f-ἠaẆPredictiveability(forecasting)testsandstockmarketreactiontestshavebeenperformedtodeterminethebenefitsofLOBandgeographicsegmentalinformation.Thesemethodshavebeenusedtohelpavoidtheproblemsofignoranceand"gaming"inthecontextofusersurveys.Segmentalreportinghelpsuserstobetterforecasttheperformanceofandevaluatetheriskassociatedwithanentity.Predictiveabilitystudies(reviewedinRadebaughandGray,2002,ch.8)haveallconcludedthatforecastsaremoreaccurateiftheyarebasedonLOBsegmentaldataratherthanconsolidatedearnings.Recentearnings-predictionstudiesalsoindieatethatforecastsbasedongeographicalsegmentaldisclosuresaremoreaccuratethanthosebasedonconsolidatedearnings(e.g.,Roberts,1990andBalakrishnan,HarrisandSen,1990,asdiscussedinRadebaughandGray,2002,p.199).Inaddition,stockmarketstudiesindicatethatdisclosureofbothLOBandgeographicalsegmentdataresultsinadecreaseinmarketassessmentsofriskofthedisclosingcorporation.

25B.Outlinesomeofthemajorissuesthathavearisenintherealworldconcerningthecontentandpresentationofsegmentdisclosures.ᶍḄI!⚪,ᙠᐵᐹᑁ-w☄஺Anumberofproblemsariseinauditingandverifyingdisclosedsegmentalinformation.Particularproblemsinvolvecommoncostallocations,intra-grouptransfers,andtransferpricing.Anothermajorproblemisdeterminingwhethertheidentifiedsegmentsarereasonable.Alackofguidanceinidentifyingsegmentsinmostcountriesimpliesthatcorporationscanmanipulatedisclosurestopresentthebestpossiblepictureoftheiroperations.WhilethislackofguidanceallowsMNEstoprovidemorerelevantdisclosuresthatarespecifictotheiroperations,italsodecreasescomparabilityamongcorporations.Ifrisksofoperatinginacertainforeigncountryareveryhigh,doyouthinkthatsegmentdisclosureforoperationsinthatcountryshouldbemandatory,eveniftheassetsinvolvedcompriseonly(say)5%oftotalassetsforthecompany?Ꮇ᝞◅᜜,$tw☄ᙠḄ¡Y¢B£ᑴឋḄ¦ᓽ¨ᒹZ©ª«()5%Ḅ®¯°ᔩInprinciple,itcouldbearguedthatsegmentdataaboutMexicoshouIdbereportediftherisksarehighandthereisagoodchanceofaloss.However,thisgeneralizationmaywarrantqualificationaccordingtothematerialityoftheassetsatstake.Howshouldmaterialitybedetermined?Thisisarbitraryalthoughpercentagesupto10%areoftenconsiderednotmaterialinpractice.Iftheamountisconsideredsignificant,irrespectiveofthepercentage,thendisclosurewouldseemappropriate.QUESTION8(5+5+5+5=20Marks)Answerfour(4)ofthefollowing:

26A.InMay2000,NissanannouncedthatitwouldclosesomefactoriesinJapanandshiftsomeofitsproductionoperationstotheUnitedStates.WhattypeofforeignexchangeisNissantryingtoprotectitselffrom?Explainfully.DiscusstheadvantagesanddisadvantagesofusingforwardcontractstohedgesalestotheUnitedStatesasopposedtoshiftingproductionoperationsthere.ᙠ2000Q5ᨴ¦S±²¦³´µᐵ¶·¸ᔆᙠSº-´DᑖḄ¼⃩¾¿ÀḄÁÂḄ▢Ä஺ÅÆḄ᜜ÇSÈÉ᰿Ë>?ÌÍᔩ?ÏÐÑḄ஺EFᑖ᪆ᐸHÓᑭÔ¨ᵨÖ×ᔠÙ
Ú├ÜᑮÀ
Þßàáâã஺Theprosarethatforwardcontractscanbeusedtohedgeforeignsalesinawaythatwillcreateprofitsfromthetransactions.Havingthefundsbeinthehomecountrycurrencypermitsgreatercorporatecontrolandflexibility.Theconsarethatforwardcontractscostmoneyandarealwayseasytoconstructtomatchnumeroustransactionsorforecastedactivities.Ifthecompanychoosesnottoperfectlyhedge,thenadditionalriskexposureoccurs.Generally,largerfirmslikeNissanhaveotherobjectivesthanforeignexchangeriskaffectingthedecision.Thedecisiontolocateproductioninothercountriesrequiresanevaluationofallapplicablefactors.ItisunlikelythatFXshouldbethedrivingfactorbecauseoftheabilitytohedgeasignificantportionofFXrisk.B.Iftherearepotentialforeignexchangelossesfromreceivablesandpayablesbeingdenominatedinaforeigncurrency,whydon'tfirmsjustdemandthatallreceivablesandpayablesbedenominatedintheirowncurrency?Ꮇ᝞ᨵåᙠḄ᜜ÇJᜫPYᦈªY
µè᜜é,ᦑA¯°«B⌕êᔜëYᦈªY
µè>?ḄìéForeverybuyer,thereisaseller.Onepartyinthetransactionwillhavetomakeanexchangeofcurrency.Generally,institutionalfactorsan

27dmarketpowerimpactonthedenominationoftransactions.So,inotherwords,veryoftenacompanydoesnothavethepowerorabilitytodemandthattheirreceivablesandpayablesbedenominatedintheirowncurrency.Itdependsontheinfluenceoftheircurrencyglobally.AUScompany,forexample,ismorelikelytohaveahigherproportionofitsreceivablesandpayablesdenominatedinitshomecurrencythanisaJordanianorPeruviancompany.C.ExplainthecurrentcostsystemadoptedvoluntarilybyPhilips(TheNetherlands).Whatwastheirstatedjustificationforrevertingbacktohistoricalcostintheirpublished1992accounts?Doyoufeelthatthischoicewasjusti>ed?Ñᨵᡂº>íîï45¾ᑭð(₹ᐲ)஺ôõ±öḄᳮᵫBøùᙠôõzᑮᔊûᡂº1992Qü᱐Ḅþÿ?
Ḅ⌱ḄᔩPhilipsusescurrentvalueswithagearingadjustmenttoreflectthebenefitsaccruingfromfinancingassetsfromloanratherthanequitycapital.Replacementvaluesaregenerallyusedtodeterminecurrentvalues,althoughthenetrealizablevalueisusedincertaininstances.Standardcostsaredeterminedatthebeginningoftheyearforinventory,andindicesaredevelopedtoaccountforpricechangesduringtheyear.Currentvaluesaredeterminedbythepurchasingdepartmentandtheengineeringdepartmentsforfixedassets,andindicesareusedtoupdatethesevalues.Theeffectofcurrentvaluechangesshouldshowupintheincomestatementasahighercostofgoodssold(asaresultofincreasesininventoryprices)andhigherdepreciationexpense.However,thefallininventorypricescoupledwiththefavourableeffectofthegearingandotheradjustmentstendedtoboostPhilips'profitsinasomewhatmisleadingwayinthe1ate1980'searly1990's.ThereasonsgivenbyPhilipsforrevertingtohistoricalcostwere:

281.Improvecommunicationwithshareholders2.Considerablysimplifyaccountingsystemsandprocedures3.BemoreinlinewithcurrentinternationalaccountingpracticesD.Outlinetheconditionsthatarelikelytobeprevalentinacountrybeforeweseethewidespreadvoluntaryadoptionofinflation-adjustedaccountingtechniques?ᭆᩩ!Ḅ"#$%&'()*ᢈ,Corporationsarelikelytovoluntarilydisclosetheimpactofpricechangesandinflationwhentheyhaveoperationsinhyper-inflationaryeconomiesandhistoricalvalueswouldharmthecorporation'spositionwithinvestorsandcreditors.Corporationsarehkelytodisclosetheimpactofinflationonlywhentheperceivedbenefitsexceedthecostsofpreparinganddisclosingsuchinformation.E.InGermany,therehasbeenhistoricalresistancetoanyformofcurrentcostaccountingandastrongloyaltytohistoricalcost.Whydoyouthinkthishasbeenthecase?ᙠ./01ᨵᔊ4ᢙ6789:Ḅ;<=ᡂ?*@AᜧḄCDᔊ4ᡂ?*E஺
GHIᦑKL᝞NᔩGermanaccountingishighlyconservativeandaimstoreduceuncertaintyaboutmeasurementandcopebetterwiththeunpredictabilityoffutureevents.Theconcernaboutinflationaccounting,whichisveryimpreciseinmeasurementterms,canthusbereadilyunderstood.Theexperienceofhyper-inflationinthe1920'sisalsounderstoodtohavemaderegulatorswaryofintroducinginflationaccountingonthegroundthatthismightinstitutionalizeinflationandsoperpetuateratherthancureit.InflationinGermanyinrecentyearshas,inanyevent,beenverylowandsothishasnotbeenaseriousissue.Atthesametime,pricechangesoftenvarys

29ignificantlysoitcouldbearguedthatintheory,currentvalueaccountingwouldbeuseful—subjecttoanassessmentofthecostsandbenefitsinvolved.F.SirDavidTweedie,headoftheIASB,madethepublicclaimonhis2002visittoAustraliathataccountingabusesassociatedwithcorporatecollapsessuchasEnronandWorldComwouldnothaveoccurredhadtheUnitedStatesadoptedIASBstandardsintheirentirety.WhywasthisstatementinfluentialinchangingtherelativepublicstatusandreputationoftheIASBandtheAmericanFASB?ᐜPᜧQTweedieIASBSTUVᐸXYZ[ᙠ\Ḅ2002]^_`aᜧᑭcdᐵ*fᵨXh᎔j᝞kl@m&᝞NḄXhn0oPpᎷ᝞rstᐰv$%▭*xᑣᳮ{᪗x஺GHIᦑ}~ᨵḄdᐵXḄᙢ@ZIASB@r*᪗xᕒTheNewYorkStockExchange(NYSE)isalsoveryawarethatmaintainingitsForm20-freconciliationrequirement(requiringforeigncompaniestoprovideareconciliationoftheirprofitcomputedunderIFRSstowhatitwouldhavebeenunderUSGAAP)iscausingmanyforeigncompaniestoprefertolistonexchangessuchasLondon,HongKongandAustralia,wherenoequivalentrequirementexistsandconformitywithIFRSisacceptable.▭*ᔁ5InternationalAccountingexampaperADefinitions(3pointsforeachdefinition,thereare4totally)Functionalcurrencyឋ''Foreigncurrencytranslation᜜ᢚGeneralPurchasingPowerAccounting᪵*Auditing*

30ஹ⌱Multiplechoicequestions(Thereisonlyonecorrectanswerineachquestion)1.Theunderlyingreasonfornationaldifferencesinaccountingsystemsis:0¡Ḅ¢£Iᦑᙠ*¤¥¦a.Environmentalb.Computersc.Globalizationd.theinventionoftheprintingpress2.ThemajorearlyVenetianinfluenceonthedevelopmentofaccountingwas§¨©⌕«Ḅ¬Ḅ*Ḅ®¯Ḅa.thespreadofdoubleentryaccounting.b.theinitialdevelopmentofdoubleentryaccounting.c.theestablishmentofthefirstbankinginstitutions.d.thedevelopmentofthegoldflorin,thestandardgoldpieceusedinEurope.3.Whichofthefollowingistrueconcerninginternationalbusiness?ᑡ±⌱⚗Ḅᙠ▭=ᔩa.Evenifafirmestablishesproductionfacilitiesabroad,itisnotengagingininternationalbusinessunlessitalsoexpandssalesabroad.b.Ithasresultedintheshiftoftechnologicalleadershipfromtheindustrialtotheemergingdevelopingcountries.c.Itisconductedexclusivelyintheprivateratherthanpublicsector.d.Itincludesbusinesstransactionsthatinvolvetwoormorecountries.4.Howdosocietalvaluesandaccountingvaluesinteractwitheachothertoestablishaccountingsystems?³ḄE´µ᝞8@*E´d¶·®¸¹*¤¥ᔩ

31a.Societalvaluesaffectaccountingvalues,andaccountingvaluesalsomodifysocietalvalues.b.Accountingsystemsareinfluenceddirectlybysocietalvalues.c.Accountingsystemsareindirectlyinfluencedbysocietalvaluesthroughtheirimpactonaccountingvaluesandinstitutionalconsequences(suehaslegalsystems,capitalmarkets,etc.)d.Accountingvaluesindirectlyaffectaccountingsystemsthroughtheirimpactoninstitutionalconsequences.5.Securitiesmarketsinfluencecorporatereportingºᑶ¼½Ḅ¾¿஺Xha.inindustrialbutnotdevelopingcountries.b.byrequiringsignificantsocialdisclosuresduetopressurefromEurope.c.byeliminatingtheneedforvoluntarydisclosures.d.byforcingcompaniestoincreasethequantityandqualityoftheirdisclosures.6.WhichgroupisprovidingenvironmentalimpactguidelinesforMNEs±ÀÁ<=ÂÃÄ᛻ᢣᓭᔩa.NBAb.ATFc.OECDd.AAA7.Accordingtothedeductiveapproachtoaccountingclassification,ft᯿ÉÊḄËÌ*ᑖÎa.accountingpracticesareanalyzedandusedtodevelopaccountinggroups.b.internationalaccountinggroupsaredevelopedbylinkingenvironmentalfactorstonationalpractices.c.itisimpossibletocomparecountriesduetoculturaldifferences.

32d.disclosuregroupsarenotassignificantasaremeasurementgroupsinclassifyingcountries.a.ThereisastrongSoviet-styleaccountinginfluence.b.TheaccountingsystemhasbeenchangedtoconformwithU.S.principles.c.Amoremicro-orienteddecision-makingapproachisbeingencouraged.d.TheJapanesesystemofaccountinghasbeenadopted.9.Forpurposesoffinancialanalysisitisimportanttoassessthedifferentialimpactofaccountingprinciplesonᑖ᪆LÐḄḄÑÒÓÔÕ⌕Ḅ*Öᳮ×ØḄa.returnonequityb.professionalismc.individualismd.powerdistance10.TheIASCwasfoundedbylASCᡂ¹Ḅa.theUNb.theOECDc.theAICPAd.professionalnationalaccountingorganizationsÙஹMultiplechoicequestions(therearemorethanonecorrectanswersforeachquestions)1.Allofthefollowingaretradeunions,whichinclude:ÚᙳLÜ,ᒹߦa.ETUCb.ICFTUc.WCL

33d.IASC2.InvestorsareconcernedaboutᢗáὅᐵᝰḄa.up-to-datemeasurementsofearningsb.lackofcomparabilityofMNEsc.theinformationalcontentofMNEreportsd.profitability3.AnalysisofMNEaggregateresultsrequiresknowledgeofthecomponentpartsofthefollowingᑖ᪆äåMNEæ◤⌕pèḄÀᡂvᑖÚa.certificationoftheCOFRIb.profitabilityc.degreeofriskd.potentialforgrowth4.AllofthefollowingareMNEconsolidationmethods:ÚᙳLMNEéä˦a.fullconsolidationb.proportionalconsolidationc.equitymethodd.intangibleeliminationmethod5.SegmentinformationᑖvêëPermitsabetterassessmentofriskìíîḄï◅ÑÒGivesamoreaccurateassessmentofpotentialgrowthxÑÒpñᙠḄòóa.Ib.IIc.neitherIorIId.EitherIorIIôஹAccountingpracticesfortransactionsdenominatedinaforeigncurrency

341.Thefollowinginformationwillbeusedforquestions1.1-1.6.AssumethatLewisInternationalsellsrunningshoestoaBritishimporteronJune1andthatthesaleisdenominatedat£75,000andwillbecollectedonJuly15.AlsoassumethatLewisclosesitsbooksattheendofeachmonth.Thefollowingaretherelevantexchangerates.õ᧕*÷øÚ᜜*EloÚêëùᵨ_`⚪1.1-1.6஺Ꮇûᑢ᧕©▭├þÿ
ᖪᙠ6ᨴ175000£ᙠ7ᨴ15ᦈ஺Ꮇᑢ᧕ᐵḄ!ᨴḄᨴ"஺#$
%ᐵḄ&᳛஺SpotrateonJune1$1.6200ForwardrateforJuly15delivery$1.6000SpotrateonJune30$1.6100SpotrateonJuly15$1.5950Forquestions1.1-1.4assumethatnoforwardcontractisenteredinto.1.1WhatisthedollarvalueofthesaleascarriedonthebooksonJune30?()
*ᐗḄ,├./6ᨴ300?a.$120,750b.$120,000c.$119,625d.$121,5001.2HowmuchcashwillLewisreceiveonJuly15?ᑢ᧕ᦈᑮ12347ᨴ15ᔩ6a.$120,750b.$120,000c.$119,625d.$121,500

351.3WhatistheamountoftheforeignexchangegainorlossthatitwillrecognizeonJune30?89
12᜜&ᑭ<ᡈ>ᜫ@AB6ᨴ300?a.$1500lossb.$750lossc.$1125lossd.$1875losse.gainorlossisdeferred1.4WhatistheamountoftheforeignexchangegainorlossthatitwillrecognizeonJuly15?89
12᜜&ᑭ<ᡈ>ᜫ,7ᨴ15@ABᔩ6a.$1875lossb.$750lossc.$1125lossd.$750gaine.gainorlossisdeferred2.Accountforforwardcontractsinthecontextofforeigncurrencytransactions2.Forquestions2.1-2.4.AssumethatLewisentersintoaforwardcontract.2.1WhatisthedollarvalueofthesaleonJuly15?()
*ᐗ,7ᨴ15ᔩ6a.$120,750b.$120,000c.$119,625d.$121,500

362.2WhatistheamountofcashthatLewiswillreceiveforthesale?89
1234├ᑢ᧕Cᑮᔩ6a.$120,750b.$120,000c.$119,625d.$121,5002.3ThedifferencebetweenthespotrateonJune1andtheforwardrateisaDEᙠ6ᨴ1ḄᓽG&᳛HIG&᳛
a.$375foreignexchangegainb.$375foreignexchangelossc.$1500foreignexchangelossd.$1500foreignexchangegain2.4ThedifferencebetweenthespotandforwardrateisDEGJK3Ja.deferreduntilLewisreceivespaymentfromtheBritishimporter.b.takentotheincomestatementwhenthecontractisenteredinto.c.anadjustmenttoretainedearnings.d.adjustedforforeignexchangegainsandlossesoverthelifeofthecontract.▭@Mᔁ5Definitions.1.Functionalcurrency:thecurrencyoftheprimaryeconomicenvironmentinwhichthecompanyoperates;couldbethereportingorthelocalcurrency2.Foreigncurrencytranslation:onecurrencyisexpressedorrestatedintermsofanother

373.GeneralPurchasingPowerAccounting:(a)Objectiveistoreportassets,liabilities,revenuesandexpensesinunitsofthesamepurchasingpower:(b)Non-monetarynominalassetvaluesarerestatedusingtoendofyearpriceindex,©Monetaryassetandliabilitiesarenotrestated:(d)Somemonetaryassetsshouldbeadjustedtoreflectpurchasingpowerchanges.Theconsumerpriceindexisthemostwidelyusedadjustmentindex.4.Auditing:(a)Quantifiableandverifiablefinancialdataofeconomicentities;(b)Establishedcriteria;and©Acompetentandindependentpersontotestthecorrespondencebetweenthedataandthecriteria.OஹMultiplechoicequestions1.a.2.a.3.d,4.c.5.d.6.c.7.b.8.c.9.a.lO.d.QஹMultiplechoicequestions(therearemorethanonecorrectanswersforeachquestions)1.a.b.c.2.a.b.c.d.3.b.c.d.4.a.b.c.5.a.b.RஹAccountingpracticesfortransactionsdenominatedinaforeigncurrency1.1**d.$121,5001.2**c.$119,625L3**b.$750loss1.4**c.$1125loss2.Accountforforwardcontractsinthecontextofforeigncurrencytransactions2.1**a.$120,7502.2**b.$120,0002.3**c.$1500foreignexchangeloss2.4**d.adjustedforforeignexchangegainsandlossesoverthelifeofthecontract.

38▭@Mᔁ6InternationalAccountingexampaperBDefinitions(3pointsforeachdefinition,thereare4totally.3*4=12points.)ForwardrateGJ&᳛DirectrateSTU&᳛PremiumV◅XConversionᐟᣚOஹMultiplechoicequestions(Thereisonlyonecorrectanswerineachquestion,whichwillgets2points.2*10=20points)1.ThecurrencyinwhichtheparentcompanypreparesitsfinancialstatementsistheJ[Ḅ\]^8Ḅ_`a⊤a.functionalcurrency.b.reportingcurrency.c.historicalcurrency.d.basecurrency2.Thetranslationmethodologythattranslatesonlyowner'sequityathistoricalexchangeratesisthe:cdḄcdefgᨵijᩗlḄm▭&᳛na.current-noncurrentmethod.b.monetary-nonmonetarymethod.c.temporalmethod.d.currentratemethod.3.ThetemporalmethodoftranslatingfinancialstatementsisusedwhenopḄefoqᵨcd_`a⊤—a.thelocalcurrencyisthefunctionalcurrency.—b.thelocalcurrencyisthereportingcurrency.—c.theparent'sreportingcurrencyisthefunctionalcurrency.—d.thesubsidiary'sreportingcurrencyisthefunctionalcurrency.4.Generalpurchasingpoweraccounting᪵tuv@

39—a.isrequiredforU.S.companiesiftheinflationrateexceeds10percentthreeyearsinarow.—b.isdesignedtoreportaccountsinunitsofthesamepurchasingpower.—c.assumesthatthegenerallevelofinflationisirrelevant.—d.isnotpermittedinBritishaccounting.5.TheInternationalAccountingStandardsCommittee▭@᪗xyᕒ@—a.takesaparticularstandonthetypeofinflationaccountingthatitwantsfirmstouse.—b.reliesmoreonaccountingforinflationthanitdoesdisclosure.—c.requiresthatfirmsrestatetheirfinancialstatementsforgeneralpurchasingpowerwhentheyareoperatinginhyperinflationaryeconomies.—d.doesnotwantfirmstoaccountforinflation,exceptinhyperinflationarycountries.6.Whichofthefollowingisnotakeydimensiontoauditing?$ᑡ|⚗E
ᐵ~Ḅᔩ6—a.acompetent,independentperson.—b.quantifiableandverifiableinformation.—c.establishedcriteria(auditingstandards).—d.theexistenceofaglobalauditingstandardsboardthatwillharmonizeauditingpractices.7.TheIFACis—a.anorganizationofnationalprofessionalaccountancyorganizations—b.partoftheOECD—c.undercontrolofFASB—d.partoftheUN8.Amulti-domesticstrategy!multi-domesticᶍ

40—a.allowseachsubsidiaryabroadtooperaterelativelyindependentlyofothersubsidiaries.—b.occurswhenanMNEpitsitselfagainstcompetitorsonaglobalbasis.—c.resultsinhighlycentralizeddecision-making.—d.doesnotallowproductstovaryfromonemarkettoanother.9.Aperformanceevaluationtoolthatmeasuresafter-taxoperatingprofitminusthetotalannualcostofcapitalisᦔᐹ⃩iᑭ<ᡂ—a.returnoninvestment.—b.returnonassets.—c.economicvalueadded.—d.residualincome.10.TheconceptwhichassetsthatHongKongshouldonlytaxincomethatisearnedinHongisknowastheḄ,✏gᦈᦈᐭḄ✏Ḅ
Ḅ—a.worldwideapproach.—b.territorialapproach.—c.multidomesticapproach.—d.transnationalapproach.QஹMultiplechoicequestions(therearemorethanonecorrectanswersforeachquestion.Eachofthecorrectquestionswillget4points.4*5=20points)1.Theeffectofinflationonnon-monetaryassetsisreflectedintheᙠ¡J¢£Ḅ¤¥,¦᧜¨J[ឋincomestatementªl⊤balancesheet«¬⊤a.onlyI

41b.onlyIIc.EitherIorIId.neitherIorII2.IAS15oninflationrequiresthelAS15¡J¢£⌕¯L.generalpurchasingpowerapproach᪵tuvḄefIL.currentcostapproach3/ᡂfa.onlyIb.onlyIIc.bothIandIId.neitherIorII3.Whichofthefollowingareproblemsthatpublicaccountingfirmsfacewhenthedobusinessoverseas.᝞$ᑁ²³Ḅ|´
µ¶⚪oῊ¹Ḅ@º»`ᡠḄ½¾¿᜜i`஺a.restrictionsontheuseofthefirm'sname.b.restrictionsonthescopeofpractice.c.taxdiscrimination.d.understandingthedifferentauditstatementformats.4.Allofthefollowingaffectsecrecyandtransparency#$ᡠᨵ¤¥VÀHÁÂÃa.measurementofassetsandprofitsb.individualismandcollectivismc.powerdistanced.uncertaintyavoidance5.Allofthefollowinginternationalorganizationsarenowissuingmoredetailedaccountingrequirements#$ᡠᨵ▭ÄÅ3ᙠÆ/Ç1ḄÈÉḄ@Ḅ⌕¯a.PGAb.UN

42c.OECDD.IASCRஹAccountingpractices(Inthispart,therearetotally48points,eachofthemwillget6points.6*8=48points)1.Accountingpracticesforpricechanges1.1AssumethatCostaPlcbuysamachinein1993for$200,000whenthegeneralpriceindexis150.Attheendof1996,theindexhasrisento210andthecurrentcostofthemachineis$300,000.Whatwouldbetheunrealizedholdinggaininconstantpurchasingpowerterms?ᎷÊËᛞtuÍᘤÏÐÑÒÓÔᘤ(Plc)ᙠ1993Õ20Ö*ᐗ¡ᵨ×ᢣᦪ
150Ú஺ᙠ1996Õ",ᢣᦪÛE1¹ᓣᑮ210H3ÝᡂÊᜓḄ30Ö*ᐗ஺()
ßm3àáâCᙠEãḄtuvḄäåeæᔩ6_a.$100,000_b.$220,000_c.$120,000_d.$80,000_e.$20,000_f.$280,0001.2AssumethatCostaPlcbuysamachinein1993for$200,000whenthegeneralpriceindexis150.Attheendof1996,theindexhasrisento210andthecurrentcostofthemachineis$300,000.Whatistheunrealizedholdinggainincurrentcostterms?ᎷÊËᛞtuÍᘤÏÐÑÒÓÔᘤ(Plc)ᙠ1993Õ20Ö*ᐗ¡ᵨ×ᢣᦪ
150Ú஺ᙠ1996Õ"ᢣᦪÛE1¹ᓣᑮ210H3ÝᡂÊᜓḄ30Ö*ᐗ஺()
ßm3àáCᑮ3/XᵨḄäåeæᔩ6_a.$100,000_b.$220,000_c.$120,000

43_d.$80,000_e.$20,000_f.$280,0001.3AssumethatCostaPlcbuysamachinein1993for$200,000whenthegeneralpriceindexis150.Attheendof1996,theindexhasrisento210andthecurrentcostofthemachineis$300,000.Whatisthecurrentcostgainorlossnetofinflation?ᎷÊËᛞtuÍᘤÏÐÑÒÓÔᘤ(Plc)ᙠ1993Õ20Ö*ᐗ¡ᵨ×ᢣᦪ
150Ú஺ᙠ1996Õ"ᢣᦪÛE1¹ᓣᑮ210H3ÝᡂÊᜓḄ30Ö*ᐗ஺3ᙠ
()ᡂḄçèᑭᡈ>ᜫ¡J¢£ᔩ6_a.$100,000_b.$220,000_c.$120,000_d.$80,000_e.$20,0002.Accountingforsalesandpurchasesdenominatedinaforeigncurrency.Usethefollowinginformationforproblems2.1-2.6AssumethatRadCoInternationalpurchasesskiequipmentonaccountfromaGermanexporteronOctober1andthatthesaleisdenominatedin500,000Germanmarks.RadCoclosesitsbooksattheendofeachmonth,andthepayableisdueonNovember15.Thefollowingaretherelevantexchangerates.ᓰ├Hêt#᜜J[஺qᵨ$ᑡëì2.1-2.6µ¶⚪ᎷÊRadC஺í▭êtḄîïᵨᐹðñᖪòÕ10ᨴ1᪗50Öñóô஺RadCoᐵḄᑮᨴ",H
õ11ᨴ150o#$
%ᐵḄ&᳛஺

44SpotrateonOctober1$0.5939ForwardrateforNov15delivery$0.5945SpotrateonOctober31$0.5948SpotrateonNov15$0.5941Questionsin2.1-2.4assumethatnoforwardcontractisenteredinto.2.1WhatisthedollarvalueofpurchasesonOctober1?()
tuḄ*ᐗ,10ᨴ1?_a.$297,050_b.$296,950_c.$297,250_d.$297,4002.2HowmuchcashwillRadCoInternationalhavetopay?1234▭RadCoäö6_a.$297,050_b.$296,950_c.$297,250_d.$297,4002.3WhatistheamountoftheforeignexchangegainorlossthatitwillrecognizeonOctober31?89
12᜜&ᑭ<ᡈ>ᜫᙠ10ᨴ31@ABᔩ6—a.$300loss—b.$450loss—c.$450gain_d.$150loss

45e.gainorlossisdeferred2.4WhatistheamountoftheforeignexchangegainorlossthatitwillrecognizeonNovember15?89
12᜜&ᑭ<ᡈ>ᜫᙠ11ᨴ15@ABᔩ6—a.$350gain—b.$200loss—c.$100loss—d.$350loss—e.gainorlossisdeferred2.5AssumethatRadCoentersintoaforwardcontract.WhatisthedollarvalueofthepurchasesonNovember15?ᎷÊRadCoᐭIGᔠø஺()
*ᐗḄ,tu11ᨴ15ᔩ6_a.$297,050_b.$296,950_c.$297,250_d.$297,4002.6AssumethatRadCoentersintoaforwardcontract.Whatistheamountofcashthatitwillpayforthemerchandise?ᎷÊRadCoᐭIGᔠø஺()
ᦪùḄ4@úäûᔩ6_a.$297,050_b.$296,950_c.$297,250_d.$297,400▭@Mᔁ6üý

46SolutionsforInternationalAccountingexampaperBDefinitions(3pointsforeachdefinition,thereare4totally.3*4=12points)Forwardrate:Theforwardexchangerateisacontractratebetweenthecorporationandtheforeignexchangetraderatthebank.Directrate:Theamountofthelocalcurrencyequivalenttooneunitoftheforeigncurrency.Premium:Iftheforwardrateisgreaterthanthespotrateonadirectquotebasis,theforeigncurrencywouldbesellingatapremium4.Conversion:Theprocessbywhichonecurrencyischangedintoanotherisknownasconversion.OஹMultiplechoicequestions(Thereisonlyonecorrectanswerineachquestion,whichwillget2points.2*10=20points)**b.reportingcurrency2.**d.currentratemethod.3.**c.theparent'sreportingcurrencyisthefunctionalcurrency.4.**b.isdesignedtoreportaccountsinunitsofthesamepurchasingpower.5.**c.requiresthatfirmsrestatetheirfinancialstatementsforgenera1purchasingpowerwhentheyareoperatinginhyperinflationaryeconomics.6.**d.theexistenceofaglobalauditingstandardsboardthatwillharmonizeauditingpractices.7.**a.anorganizationofnationalprofessionalaccountancyorganizations8.**a.allowseachsubsidiaryabroadtooperaterelativelyindependentlyofothersubsidiaries.9.**c.economicvalueadded

4710.**b.territorialapproach.QஹMultiplechoicequestions(therearemorethanonecorrectanswersforeachquestion.Eachofthecorrectonewillget4points.4*5=20points)1.—a.onlyI—b.onlyII2.—a.onlyI—b.onlyII3.a.restrictionsontheuseofthefirm'sname.—b.restrictionsonthescopeofpractice.—c.taxdiscrimination.4.—b.individualismandcollectivism—c.powerdistance—d.uncertaintyavoidance5._b.UN_c.OECD_D.IASCRஹAccountingpractices(Inthispart,therearetotally48points,6*8=48points)1.Accountingpracticesforpricechanges1.1**d.$80,0001.2**a.$100,000L3**e.$20,0002.Accountingforsalesandpurchasesdenominatedinaforeigncurrency.2.1**b.$296,9502.2**a.$297,0502.3**b.$450loss

482.4**a.$350gain2.5**b.$296,9502.6**c.$297,250▭@Mᔁ9Definition(ÿ
:Eachofthefollowingfor3points,total12points)1.TransferPricing2.Forwardcontract᜿ᔠ3.Foreigncurrencytranslationexposure᜛☄4.AdirectquoteᵨSinglechoicequestion(ᓫ⚗⌱$⚪:Eachofthefollowingquestionfor2points,total10points)1.Whichofthefollowingvariablesplayaroleinshapingaccountingdevelopment?&ᑡ(⚗)*+ᡂ-./01⌕3ᵨḄ5678ᔩ:a.natureofcapitalmarketsb.typeofreportingregimec.typeofbusinessentitiesd.Alloftheabove.Bothaandc.AccordingtotheInternationalAccountingStandardsCommittee,;᯿=▭56᪗@Aᕒ5a.thecostmethodmustbeusedinsteadoftheequitymethod.b.consolidatedfinancialstatementsarerequired.c.companiesmaychoosebetweenissuingparentcompanyorconsolidatedfinancialstatements.d.thepoolingofinterestsmethodmaynotbeused.3.Whichofthefollowingdoesnotaffectacountry'sfinancialaccountingorientation?&ᑡ(⚗CDEFG=HḄIJ56Kᔣ:

49a.Thelevelofinflation.b.Politicalandeconomictieswithothercountries.c.Statusoftheaccountingprofession.d.Qualityofaccountingeducation.e.Alloftheaboveaffectacountry'sfinancialaccountingorientation.4.ThecurrencyinwhichtheparentcompanypreparesitsfinancialstatementsistheMḄNOP8ḄIJQ⊤a.basecurrency.b.functionalcurrency.c.historicalcurrency.d.reportingcurrency.5.Researchanddevelopmentcostsare:ẆTUVWᡂXYZa.capitalizedintheUnitedStates.b.continuetodecreaseinimportanceascorporateresearchdeclinesglobally.c.areuniformlyrequiredtobeexpensedglobally.d.splitintopartsundertherevisedIASNo.9.notataxdeductibleexpense.Multiplechoicequestions([⚗⌱$⚪ZEachofthefollowingquestionfor3points,total15points)1.Whenanyoneanalyzesacompanybalancesheetandincomestatement,thereareobviousdifferencesinallofthefollowingᨵ]ᑖ᪆OPḄ`abc⊤Ude⊤ᙳgᙠi℉klᙠᡠᨵḄnᔩa.currencyb.terminology

50c.inflationeffectsd.thereasontoanalyzeofcreditworthiness2.Majorinternationalforcesforchangeare:⌕oḄ=▭)☩q*YZa.changesincorporatestrategyandorganization.b.newtechnologyandtheInternet.c.theinternationalizationofstockexchangesandfinancialmarkets.d.theInternationalAccountingStandardsCommitteeandtheInternationalOrganizationofSecuritiesCommissions.e.globaleconomicintegration,privatization,andderegulation.3.VoluntarydisclosuresbyMNEsareinfluencedbyr-stᢇvwx=yza.size.b.internationallistingstatus.c.countryoforigin.d.industry.4.Oneofthefollowingistrueconcerningthepressuresforinformationdisclosure,except?F⚗Y{|Ḅ}~☄ᨵᐵḄq◀ᔩ:a.Companiesarenotoverlyconcernedaboutthedemandfordisclosureduetoincreasingsophisticationofinformationsystems.b.Theinternationalizationofcapitalmarketsisleadingtothedemandformorecomparableinformation.c.Corporateannualreportscontainsufficientinformationforallusergroups.d.Thesimplificationofinformationisleadingtogreaterunderstandabilityoffinancialstatements.5.Investorsareconcernedaboutᢗ`ὅᐵᝰḄYa.up-to-datemeasurementsofearningsb.lackofcomparabilityofMNEsc.theinformationalcontentofMNEreports

51d.NoneofthemஹEssayquestions(⚪ZEachofthefollowingquestionsfor8points,total16pointsChooseonlytwoofthem.)01.Whataresomeofthemajorchallengesfacingaccountinggiobally?Yᡠ☢ḄF⌕oḄᢧᡊᐰᳫ56ᔩ:2.Whataremainpressuresforharmonization?⌕oḄqYUᔩ:3.WhatistheRoleofFinancialReportinginEmergingCapitalMarkets?Ḅ⁐Yᐶ`XIJQᔩ:4.Identifysomeofthemainaccountingissuesasneedingthemostattentioninconductingsensiblecross-countrycomparisons.CF⌕oḄ56⚪ᨬᐵḄ◤⌕7¢ᔠᳮḄ¤¥Ḅ¦§஺©ஹInternationalAccountingPractices(=▭56ªJZTotalfor12points)ThefollowinginformationistheconsolidatedbalancesheetfromPhilipsElectronicsJ(Netherlands)2007annualreport.AssumethatallassetswereacquiredonJanuary1,2007.¬&`ᧇᵫ¯ᔠ`abc⊤(₹ᐲ)³ᑭµᵯ·Ḅ2007¸¹Q஺Ꮇ»ᡠᨵḄ`a¼½¾2007¸1ᨴ1À஺GeneralPrice-levelindex:January1,2007100Averagefor2007104December31,2007110Usingtheinformationgivenabove,adjustPhilips?2007balancesheetforinflationusingtheGPPaccountingmodel.WhatisPhilipsGPPAccountingbasisretainedearningsbalanceinmillionsofEuros?Consolidatedbalancesheet(inmillionsofEuro)yearendDec.31,2007AssetsEquityandLiabilitiesCash&cashequivalents2500Accountspayable15000Accountsreceivable19460Accruedliabilities8250Prepaidexpense600Bankloanpayable12750Inventory10280Bondspayable7340Suppliees300Equipment24500OwnerJsequityLess:accumulatedDep.(5000)Paid-incapital7500Retainedearnings1800

52|Totalassets|52640|Totalequity&Liabilities|52640|ôஹCaseanalysis(ᫀöᑖ᪆⚪ZThissectionfor35points)ABCcorporateofUSAisamanufacturerofskatesshoreforenthusiastsofallages.Durignthelastfiveyears,thecostofrawmaterialsand1aborhavecontinuedtoriseinthefirm'sU.Smanufacturingfacility.Asaresult,theCEOofABCcorporateisconsideringestablishinganewmanufacturingsubsidiaryoverseastotakeadvantageoflowerproductioncostselsewhere.InvestmentadvisorstotheCEOhavesuggestedMalaysiaandThailandastwopossiblelocations.BelowisthesubsidiaryJsexpectedafter-taxcashflowswillbeinringgitsorbath,thecompanyanticipatessomeU.Sdollar-denominatedexpenses.ABCOPḄ÷=øaḄùúûüᚽþU᰿ὅḄ☘Ṇ஺Ḅ,DurignᩞᧇḄᙠḄSᑴ⌼஺,ABCḄ✌"᡻$%&ὃ⇋)*+,-Ḅ./01᜜ᑭᵨ56./ᡂ8Ḅᙢ஺ᢗ;<=>ᔣ@ABCᩭEFGHIḄ)JKLᨵNOPQḄᙢ஺RSTU0ḄVWXYZ[⚜]^ᙠringgitsᡈ`B]aᨵbc.SeᐗḄgᵨ஺BladesMalaysiainmillions20032004200520062007MRcashinflows3500400055004800MRcashoutflows1500020009007001000US$cashoutflows20015012575BladesThailandinmillions20032004200520062007TBcashflows25000225002300024800TBcashoutflows350002000220019003000US$cashoutflows125175200noneAdditionalinformation:Exchangeratesfor2003are3.8Malaysianringgit(MR)=US$1and39.5Thaibath(TB)=US$1.ItisexpectedthattheMalaysianringgitwilldepreciate3percentayearagainstthedollarandtheThaibathwillappreciate4percentayearagainstthedollar.ABCcorporate?saveragecostofcapitalforbothprojectsis12%.The12%ofPresentvaluefactor:200320042005200620071.0000.89290.79720.71180.6355Requirements:

53DeterminethenetpresentvalueofbothprojectsXNὅḄ⚗IfyouwereABCcorporate?sinvestmentadvisor,whichlacationwouldchoosefornewsubsidiary?Why?Ꮇ᝞TABCḄᢗ;<=>B-0ᙢᳮ⌱ᔩ?ᦑI▭¡¢ᔁ9¤ᫀ+ஹDefinition(¨©ª«:Eachofthefollowingfor3points,total12points)1.TransferPricingrelatedtopricingofgoodsandserivcesthatchangehandsbetweenentitiesengagedinintrafirmtrade.2.Forwardcontractisacommitmenttoexchangecurrenciesinthefutureataratethatissettoday.Whiletheamountofthetransaction,thematuritydate,andtheexchangeratearealldeterminedinadvance,nomoneychangeshandsuntilthesettlementdate.3.Foreigncurrencytranslationexposureisdefinedasthepotentialforanincreaseordecreaseintheparent;snetworthandreportednetincome,causedbyafluctuationintheexchangeratessincethepreviousperiod'sconsolidatedfinancialstatements.4.Adirectquoterepresentsthepriceofoneunitoftheforeigncurrencypricedinthedomesticcurrency.ஹSinglechoicequestion(ᓫ⚗⌱⚪°Eachofthefollowingquestionfor2points,total10points)l.D2.B3.E4.D5.D±ஹMultiplechoicequestions(²⚗⌱⚪°Eachofthefollowingquestionfor3points,total15points)l.ABC2.ABCDE3.ABCD4.ACD5.ABC

54³ஹEssayquestions(´¤⚪:Eachofthefollowingquestionfor8points,total16points,chooseonlytwoofthem.)Whataresomeofthemajorchallengesfacingaccountingglobally?(1).GlobalHarmonization(2).QualityofFinancialReportinginDevelopedandEmergingEconomies(3).SocialandEnvironmentalReporting(4).FinancialReportingintheHighTechnologyEraWhataremainpressuresforharmonization?(1)Investor.Theyfavorharmonizationbecausetheyperceivethatitwillhelplowerthecostofinvestingabroadandenhancetheirabilitytomakeeffectiveinvestmentdecisionsacrossborders.(2)Multinationalcompanies.Sincecapital,productsஹandlabormarketsbecomeincreasinglyglobalization,Mostlargecompanieshavetodiversifygeographicallybothintermsoftheirinputandoutputinordertocompeteeffectivelywiththemajorplayersintheirindustry.(3)Regulators.Withaccelerationintheglobalizationofcapitalmarketsandtheincreaseincross-bordersecuritieslistingsbycompanies,regulatorsinmanycountriesfacehighercosts,sincetheyhavetomonitorcompliancebothofbydomesticcompaniesandbyforeigncompaniesthatarelistedintheirjurisdiction.(4)Thesecuritiesindustryandstockexchanges.Manysecuritiesindustryandstockexchangeslookforforeigncompaniesforgrowthinlistingsandthevolumeofsecuritiestransactionswithintheirmarkets.Sotherearestrongsupportersamongmanysecuritiesindustryandstockexchangesforreducingdifferencesinfinancialreportingrequirementsglobally.(5)Developingcountries.Anumberofcountriesareattemptingtoswitchtomarket-orientedeconomicpolicies,inordertoattractforeigncapita1;theyarecalledupontoimplementaccountingstandardsthatinspirecon

55fidenceinforeigninvestors.AdoptingaharmonizedsetofIASsavesdevelopingcountriesfromhavingtoprovideexpensivereconciliationJstotheaccountingprinciplesofforeignprovidersofcapital.3.WhatistheRoleofFinancialReportinginEmergingCapitalMarkets?(l).BeforeECMcanfunctioneffectively,itisessentialtohaveinplaceasetofcorporatereportingpoliciesandproceduresgearedtowardssapplyingtheinformationnecessaryformakinginvestmentdecisions.Accountinginformationisanessentialforbuildingefficientfinancialmarkets.(2).Developinganeffectiveaccountingandauditingprofessionisessentialforbuildingefficientfinancialmarkets.TheaccountingandlegalinfrastructureunderlyinganECMwasamajorfactorforevaluatingtheinvestmentpotentialofthemarket.(3).Financialreportingiscentraltoregulationspertinenttoestablish!nganactivemarketforcorporatesecurities.Identifysomeofthemainaccountingissuesasneedingthemostattentioninconductingsensiblecross-countrycomparisons.(1)DepreciationandRevaluationofLong-LivedAssets(2)Goodwill(3)ForeignExchange(4)PensionandOtherPost-employmentBenefits(5)ConsolidationandGroupReporting)(6)TaxationஹInternationalAccountingPractices(I▭¡µ¶:Totalfor12points)1.PhilipsElectronicsConsolidatedBalanceSheet(inmillionsofDutchguilders)Year-endDec.31,2007

56HistoricalCostRatioP-L-ABasisAssetsCashandcashequivalents2,500notrestated2,500Accountsreceivables19,460Notrestated19,460Prepaidexpenses600110/100660Inventory10,280110/10410,873Supplies300110/100330Equipment24,500110/10026,950Less:Accumulateddep.(5,000)110/100(5,500)Totalassets52,64055,273Equityandliabilities:Accountspayable15,000notrestated15,000Accruedliabilities8,250Notrestated8,250Bankloanpayable12,750Notrestated12,750Bondspayable7,340notrestated7,340Owner'sequity:Paid-incapital7,500110/1008,250Retainedearnings1,800Reconcilingitem3,683

57Totalliabilities&O/E52,64055,273PhilipsGPLAbasisretainedearningsbalanceinmillionsofDutchguildersis3,683.·ஹCaseanalysis(ᫀ¸ᑖ᪆⚪°Thissectionfor35points)SolutionforcaseanalysisABCcorporate1.BladesMalaysianetpresentvalue(Ringersinmillionsof$):200320042005200362007NetMRcashflow(15,000)1,5003,1004,8003,800FixedrateMR/$3.83.9144.0314.1524.277Dollarvalue(3,947)3837691,156888Less$outflows_____(200)(150)(125)(75)Net$flows(3,947)1836191,03181312%Pvfacto1.000.8929.7972.7118.6355PVof$flow(3,947)163493734517ProjectNPV=$(2,040)BladesThailandnetpresentvalue(ThaiBathinmillionsof$):20032004200520062007

58NetTBcashflow(35,000)23,00020,30021,10021,800FixedrateTB/$39.537.9236.40334.94733.549Dollarvalue(886)607558604650Less$outflows—(125)(175)(200)Net$flows(886)48238340465012%Pvfactor1.000.8929.7972.7118.6355PVof$flow(886)430305288413ProjectNPV=$5502.AsABCCorporation'sinvestmentadvisor,youshouldchoosetheThailandlocationsinceithasapositivenetpresentvalue.I▭¡¢ᔁ10+ஹDefinition(¨©ª«:Eachofthefollowingfor3points,total12points)1.InternationalAccountingI▭¡2.HarmonizationG»G»3.Foreignexchangetransaction᜛½¾¿᧕᜛½¾Á¶4.Acurrencyoption⌱ÂÃஹSinglechoicequestion(ᓫ⚗⌱⚪:Eachofthefollowingquestionfor2points,total10points)

591.Whichofthefollowingisnottypicallyincludedinanaccountingconceptualframework?RSÄ+,PTÅÆᒹÈᙠ+,¡ᭆÊ᪾Ìa.astatementofobjectivesoffinancialaccountingb.targetedusersoffinancialstatementsc.limitationsoffinancialstatementsd.licensingcriteriaforpublicaccountantse.characteristicsofgoodfinancialaccounting2.Identifythebenefit(s)ofclassifyingcountriesaccordingtotheiraccountingsystems.ÍPᑭÎ(s)ḄIÏᑖÐÑ᯿ÓÔḄ¡ÕÖ஺a.Countriescanlearnfromtheaccountingexperiencesofothercountriesintheirgroup.b.Countriescanuseothercountriesintheirgroupasmodelsforsettingstandards.c.Globalstandard-setterscananticipatethereactiontotheirproposedstandards.MNCscanplanonthetypeofdisclosuretheyneedtoprovideinvariouscountries.e.Alloftheabove.3.Thekeydevelopmentalorganizationforinternationalaccountingstandardsisthe×ØÙḄÚÛTI▭¡Üᑣa.InternationalAccountingStandardsBoard.b.InternationalFederationofAccountants.c.InternationalOrganizationofSecuritiesCommissions.InternationalOrganizationofAccountingStandardSetters.e.GlobalAgencyforAccountingStandards.4.Whichofthefollowingorganizationsisdirectlyinvolvedwithharmonizingaccountingandauditingstandards?SᑡÄ,ÚÛG»ßàáâãᐵ¡ஹå¡᪗Üᔩ

60a.InternationalAccountingStandardsBoard.b.SecuritiesandExchangeCommission.c.AmericanAccountingAssociation.InternationalFederationofAccountants.Both(a)and(d).5.UnderthecurrentratemethodᙠçḄèéêḄëìa.allassetsandliabilitiesaretranslatedatthecurrentyear'saverageexchangerate.b.foreigncurrencytranslationgainsandlossesdonotaffecttheincomestatement.c.allrevenuesandexpensesaretranslatedusingthecurrentexchangerate.d.theincomestatementcontainsacumulativetranslationadjustmentamount.±ஹMultiplechoicequestions(²⚗⌱⚪:Eachofthefollowingquestionfor3points,total15points)1.Themajorimmediatechallengesthatfaceaccountingintheglobalarenainclude:⌕îḄßàáâ☢ðᔜOᢧᡊBᙠI▭ôõ¡ᒹö°a.Globalharmonizationb.Financialreportinginemergingeconomiesc.Socialandenvironmentalreportingd.Financialreportinginthehightechnologyera2.CurrentproponentsofharmonizingaccountingstandardsgloballyareçᐰᳫG»Ḅùᢝὅ¡Üᑣa.Investors.b.Multinationalcompanies.

61c.Thesecuritiesindustryandstockexchanges.d.Developingcountries.3.Basedoncurrentcorporatedisclosurepracticesglobally,theextentofenvironmentaldisclosureprovidedbycompaniesappearstobeafunctionof,except:ûüçḄýþÿ☄
Ḅᙠᐰᳫᶖᑁ,Ḅ᛻☄ᩭḄᵨ◀"#a.thestrengthofenvironmentallawsinrespectivecountries.b.thelevelofenforcementbytheenvironmentalagenciesincountries.c.thesocietalpressuresbroughttobearuponcorporations.d.thepersonalvaluesofcorporatemanagers.e.thelevelofpollutioninacountry.4.Whichofthefollowingaretheexpensiveapproachtotransnationa1financialreportingbyacompany?᝞%ᑁ&'Ḅ()᧊+Ḅ,-./0123ᔩ5a.Preparingcountry-specificsecondarystatements.b.Preparingconveniencestatements.c.Preparingconveniencetranslations.d.Preparinguniversalsecondarystatements.e.Preparinglimitedrestatements.5.Whichofthefollowingarelikelybenefitstodevelopingcountriesofhavingemergingcapitalmarkets(ECMs)?᝞%ᑁ&'Ḅ()67ᙠ89'/:Ḅᑭ<=ᐶ?@AB(DEF᜜HI)5a.ECMsexpandtheinvestmentoptionsavailableinthecountrytherebyattractingforeigninvestors.b.ECMsallowcapitaltoberaisedinamorecost-effectivemanner.

62c.ECMspositivelyinfluencetheeconomiccultureindevelopingcountriesbyencouragingdomesticcompaniestobecomemoreresponsiveandaccountabletoagreaternumberofstakeholdersinsociety.d.ECMshelpinimprovingallocativeefficiencybychannelingfundstothemostefficientandproductiveusersofcapital.KஹEssayquestions(MN⚪#Eachofthefollowingquestionsfor8points,total16pointsChooseonlytwoofthem.)01.WhataresomeofthemajorInteractionbetweenAccountinganditsEnvironmentfacingaccountingglobally?PQ)⌕SḄTᐸVW᛻ᔩ☢Yᐰᳫᔩ5DifferentiatebetweenforeigncurrencytransactionexposureandtranslationexposureZ[᜜\]᧕_ᐝabcd☄WhataresomeofthemainissuesforFinancialReportingPolicyIssuesinEmergingCapitalMarkets?ᨵPQ᪵Ḅ⌕Sgh⚪ᙠ0123i=ᐶ?@ABjkl⚪54.BriefexplaintheNatureandImportanceofEmergingCapitalMarketsandtheCharacteristicsofFinancialReportinginEmergingCapitalMarketsM⌕mn%ᜧpᯠ=ᐶ?@ABḄr⌕ឋaᱯua0123ᙠ=ᐶ?@ABvஹInternationalAccountingPractices(/▭x1:Totalfor12points)ABCcompanyplacedanorderforinventorycosting500,000FCwithaforeignvendoronApril15whenthespotratewas1FC=$O.683.ABCreceivedthegoodsonMay1whenthespotratewas1FC=$O.687.AlsoonMay1,ABCenterintoa90-daysforwardcontracttopurchase500,00

630FCataforwardrateof1FC=$0.693.PaymentwasmadetotheforeignvendoronAugust1whenthespotratewas1FC=$O.696.ABChasaJune30year-end.Onthatdate,thespotratewas1FC=$O.691,andtheforwardrateonthecontractwas1FC=$O.695.Changesinthecurrentvalueoftheforwardcontractaremeasuredasthepresentvalueofthechangeintheforwardratesovertime.Therelevantdiscountrateis6%.Required:ABCz{"|}ᡂ@500,000FC᜜/ᔆᖪᙠ4ᨴ15ᙠB᳛1FC0.683ᐗ=஺ABCᦈᑮᱥ?ᙠ5ᨴ1ᙠB᳛1FC0.687ᐗ=஺ᙠ/(ABC)Maylz90-daysᔠ{50ᙠᑭ᳛Ḅ0.693ᐗ=஺"᜜/ᖪᙠ8ᨴ1ᙠB᳛1FC0.696ᐗ=஺/6ᨴ30¡¢£஺¤ᜩB᳛1FC0.691ᐗ=ᑭ᳛ᙠᔠ0.6951FC=ᐗ஺ᙠ¦ᓄḄ¨¡©ᔠª«Ḅ©¬ᙠᑭ᳛Ḅ¦ᓄ஺ᨵᐵḄᢚ᳛6%o⌕°#(1)Prepareallrelevantjournalentriessuggestedbytheabovefacts.⚜ᜓᡠᨵ´ᐵḄµ¶·i¸¹x஺(2)Prepareapartialincomestatementandbalancesheetasofthecompany'sJune30year-endthatreflectstheabovefacts.⚜ᜓᑖ»<⊤a?½¾¿⊤Ḅ6ᨴ30¢ÀÁ'Â᧜"ÄiḄ¹x஺ÅஹCaseanalysis(ᫀÇᑖ᪆⚪#Thissectionfor35points)ABCInternationalisaU.S.firmwithawhollyownedsubsidiaryinFrance.ThebasicassumptionsinvolvedintheFrenchsubsidiaryanditsinteractionwiththeparentcompanyareasfollows:Relevantexchangerates(US$/FF)ABC/▭:/Ḅᐰ?Éᙠ-/஺ÊËÌᎷÎÏ"-/ÉaÀḄÐḄ´Vᵨ᝞%#ᨵᐵ\᳛(Ñ$/FF

64December31,20060.15December31,20070.138HistoricalRate0.16Averageduring20070.145AverageduringFourthquarter,20060.151Averageduringfourthquarter,20070.14(1)Balancesheet(InFrenchfrancs;inthousands)Accounts12/31/2007(Francs)ExchangeRateDollarsCash2,000Accountsreceivable4,275inventory4,700FixedAssets27,500Accumulateddepreciation-5500Total33,425Accountpayable6,000Long-termdebt10,800Capitalstock6,200RetainedEarnings10,425TranslationadjustmentsTotal33,425(2)IncomestatementAccountsFrancsExchangerateDollarsSales31,500ExpensesCostofgoodssold18,000Depreciation2,750Otherexpenses4,500Taxes1,500Netincome4,750Retainedearnings(12/31/2006)8,0501153.373NetincomeDividends2,375Retainedearnings(12/31/2007)Otherinformationincludesasthefollowing:ᐸ./0ᒹ2᝞4567thefunctionalcurrencyofthesubsidiaryistheFrenchfranc,andthefinancialstatementshaverecastinU.A.GAAPtoassistinthetranslationprocess.CapitalstockwasissuedandfixedassetsacquiredwhentheexchangeratewasFF6.3perdollar;dividendsarepaidatarateof0.145.Inventorieswereallacquiredinthepreviousquarter

65Purchase,sales,andotherexpensesoccurredevenlythroughouttheyear.Thereisazerobeginningbalanceintheaccumulatedtranslationadjustmentaccount.Requirement:Basedontheconditionsthatgaveabove,pleasedeterminethetranslationmethodfortheABCcorporate.89:;Ḅ=>?@ABCDEFGABCHI஺Afterchoosingappropriatetranslationmethod,PleasetranslatethefinancialstatementsintoU.S.dollars.⌱LាNḄDEFGO?@DEᡂQᙊḄSTU⊤஺W▭YZ[ᔁ10]ᫀ_ஹDefinition(abcd:Eachofthefollowingfor3points,total12points)1.InternationalAccountingThedefinitionincludes(1)internationaltransactions(2)comparativeGAAP(3)harmonizationand(4)controlofglobaloperations.Internationalaccountingencompassesallmajorareasofaccounting2.Harmonizationmeansthatthedifferencesamongnationalaccountingstandardsshouldbekepttotheminimum.Harmonizationaccommodatestheexistenceofalternativeaccountingrulesorpracticesindifferentcountriesaslongastheyareinharmonywitheachotherandcanbereconciled.Theconceptofharmonizationhasgainedwidespreadpopularity3.Foreignexchangetransactionisonwheretwopartiesagreetoexchangeonecurrencyforanotherataspecifiedrateofexchange.Differenttypesofexchangetransactionsincludespottransaction,forwardtransaction,currencyswaps,andcurrencyoptions.

664.Acurrencyoptionisacontractthatprovidestherightbutnottheobligationtotradeaforeigncurrencyatasetexchangerateonorbeforeagivendateinthefuture.fஹSinglechoicequestion(ᓫ⚗⌱L⚪:Eachofthefollowingquestionfor2points,total10points)l.D2.E3.A4.E5.BjஹMultiplechoicequestions(k⚗⌱L⚪:Eachofthefollowingquestionfor3points,total15points)l.ABCD2.ABCD3.ABDE4.ABDE5.ABCDlஹEssayquestions(m]⚪:Eachofthefollowingquestionfor8points,total16points,chooseonlytwoofthem)1.WhataresomeofthemajorInteractionbetweenAccountinganditsEnvironmentfacingaccountingglobally?(1)NatureofCapitalMarkets(2)TypeofReportingRegime(3)TypeofBusinessEntities(4)TypeofLegalSystem(5)LevelofEnforcementofRegulations(6)LevelofInflation(7)PoliticalandEconomicTies(8)StatusoftheAccountingProfession(9)ExistenceofaConceptualFramework(10)QualityofAccountingEducation

672.DifferentiatebetweenforeigncurrencytransactionexposureandtranslationexposureTranslationexposureisdefinedasthepotentialforanincreaseordecreaseintheparent'snetworthandreportednetincome,causesbyafluctuationintheexchangeratessincethepreviousperiod'sconsolidatedfinancialstatements.Themainpurposeoftranslationistoprepareconsolidatedfinancialstatements.Italsofacilitatesperformanceevaluationacrosstheaffiliatesgloballybyconvertingthenumbersintoacommoncurrencyoftheparent'scountry-Transactionexposurerelatedtothesensitivityofthefirm'scontractualcashflowsdenominatedinforeigncurrencytoexchangeratechangesasmeasuredinthefirm'sdomesticcurrency.Transactionexposuremeasuresthegainsorlossesthatarisefromthesettlementofexistingfinancialclaimsandobligationsthataresetinforeigncurrency.3.FinancialReportingPolicyIssuesinEmergingCapitalMarketsInformationAvailabilityStrengtheningEnforcementCapabilityHarmonizationofAccountingStandardsCaveatsBasedonRecentDevelopments4.BriefexplaintheNatureandImportanceofEmergingCapitalMarketsandtheCharacteristicsofFinancialReportinginEmergingCapitalMarketsThetermEmergingCapitalMarkets(ECM)isusedtorefertocapitaimarketsincountrieswithlessdevelopedandtransitionaleconomics.Suchemergingmarketsassmallmarketcapitalization,lowliquidity,highvolatilityofreturns,limitednumberofpremium-gradeandinvestment-gradesecurities,andthelackofawell-developeddomesticinstitutionalinvestor

68base.Therehasbeenagrowingappreciationofthefactthatfinancialreportingisavitalinfrastructurerequirementforthegrowthofemergingmarkets,thereforeincreasingattentionmustbedevotedtoimprovingthequalityoffinancialreportinginthemarkets.TheriskofinvestinginECMareassociatednotonlywithstructural,political,andeconomicproblems,equallyimportantareadequateandreliableinformationusefulforevaluatinginvestmentopportunitiesinthemarkets.FinancialreportingisacrucialelementoftheinformationnecessaryforsustaininginvestorsconfidenceinbothdevelopedandECM.TherearethreequalitativecriteriaforevaluatingfinancialreportinginECM:1)Availability2)Reliability3)ComparabilitynஹInternationalAccountingPractices(W▭YZoT:totalfor12points)(1)Apr.15NoentryMay1Inventory343,500AccountsPayable343,500(Torecordthepurchaseofinventorywhenthespotratewas1FC=$0.687).ForwardContractReceivable_FC346,500ForwardContractPayable—$346,500(Torecordthepurchaseofforwardcontractwhentheforwardrateis1FC=$0.693.)

69June30ExchangeLoss2,000AccountsPayable2,000(Toaccruetheexchangelossatyear-endwhenthespotrateis1FC=$0,691.)ForwardContractReceivable_FC995GainonForwardContract995(Torecordchangeinvalueofforwardcontractwhenforwardrateis1FC=$0.695.Changeinvalueofforwardcontractis$1,000[500,000FCX($0.695-$0.693)].(PV=1,000;n=1,i=6%/12)Aug.1ForwardContractReceivable_FC505GainonForwardContract505(Torecordchangeinvalueofforwardcontractwhen1FC=$0.696.Totalchangeinforwardvalueis$1,500[500,000FCX($0.696-$0.693)].Totalchangeof$1,500less$995previouslyrecognized=$505.)ForwardContractPayable_$346,500ForeignCurrency348,000Cash346,500ForwardContractReceivable_FC348,000(Torecordsettlementofforwardcontractwhenspotrateis1FC=$0.696.)AccountsPayable345,500ExchangeLoss2,500

70ForeignCurrency348,000(Tosettletheaccountpayablewhenthespotrateis1FC=$0.696.)(2)ABCPartialIncomeStatementFortheYearEndedJune30Exchangeloss$(2,000)Gainonforwardcontract995Netincomeeffect1,005ABCPartialBalanceSheetAsofJune30Inventory$343,500Accountspayable$345,500ForwardcontractForwardcontractreceivable—FC347,495payable_FC346,500Netincomeeffect1,005qஹCaseanalysis(ᫀrᑖ᪆⚪7Thissectionfor35points)SincethefunctionalcurrencyistheFrenchfrancandinflationisso1ow,thestudentsshouldusethecurrentratemethodtotranslatethefinancialstatements.HintthebeginningUSDollarretainedearningsmustbepluggedfromtheprioryear.

71IncomeStatementFrancsRateDollarsSales315000.1454567.5ExpensesCostofGoodsSold180000.1452610Depreciation27500.145398.75Other45000.145652.5Taxes15000.145217.5Netincome4750688.75RetainedEarnings0080501153.373Netincome4750688.75Dividends23750.145344.375RetainedEarnings01104251497.748BalanceSheetCash20000.13827610000.15150AccountsReceivable47250.138652.0539000.15585Inventories47000.138648.636000.15540FixedAssets275000.1383795275000.154125AccumulatedDepreciation-55000.138-759-27500.15-412.5Total334254612.65332504987.5AccountsPayable60000.13882865000.15975Long-termDebt108000.1381490.4125000.151875Capitalstock62000.15873984.12762000.15873984.127RetainedEarnings104251497.74880501153.373Trans.Adj.-187.6250Total334254612.65332504987.5