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International Accounting Exam 1 Questions with Correct Answers
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International Accounting Exam 1 Questions with Correct Answers
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International Accounting Exam 1Questions with Correct Answers
what is international accounting? - Answer-- includes study of various functional areas
of accounting (financial, managerial, auditing, taxation, and accounting information
systems)
- focuses on the accounting issues unique to multinational corporations
international accounting can be defined at three levels. what are these three levels?
what do they mean? Examples? - Answer-1st level: Supranational accounting
2nd level: Company level
3rd level: International accounting
Supranational accounting - Answer-standards, guidelines, and rules of accounting,
auditing, and taxation issued by supranational organizations
- such organizations include the United Nations, the Organization for Economic
Cooperation and Development, and the International Federation of Accountants
Company level - Answer-can be viewed in terms of the standards, guidelines, and
practices that a company follows related to its international business activities and
foreign investments
- these includes standards for accounting for transactions denominated in foreign
currency and techniques for evaluating the performance of foreign operations
International accounting - Answer-- broadest level
- study of the standards, guidelines, and rules of accounting, auditing, and taxation
existing within each country and comparison across countries
- examples would be cross-country comparison of
1. rules related to the financial reporting of plant, property, and equipment
2. income and other tax rates
3. the requirements for becoming a member of the national accounting profession
issues related to credit sales to international customer using foreign currency. (look at
chapter 1 slide for more info.) - Answer-- First encounter with international business
occurs as sales to foreign customers
, - Credit sales are made to foreign customers who will pay in their own currency
--- Gives rise to foreign exchange risk
What is hedging? - Answer-Techniques to manage exposure to foreign risk
what are the two financial instruments used in hedging? - Answer-Foreign currency
option
- Right but not obligation to sell foreign currency at a predetermined exchange rate and
time as the strike price
Forward contract
- Obligation to exchange foreign currency at a future date
What is foreign direct investment? - Answer-the ownership and control of foreign assets,
such as manufacturing plant
what are ways of foreign direct investment? give an example and ask what kind of FDI it
is. - Answer-Acquisition: investment in existing operations in foreign countries
- E.g., Indian truck company Tata Motors acquired Land Rover and Jaguar from Ford.
Chinese carmaker, Geeley, acquired Volvo from Ford.
Greenfield investment: new operation in foreign countries
- E.g., McDonald's and Starbucks
- Either way firms need to calculate the NPV. Financial statements is needed to forecast
future profits and cash flow.
what are reasons of foreign direct investment? - Answer-- Increase sales and profits
- Enter rapidly growing or emerging markets
- Reduce costs (labor, material)
- Gain a foothold in economic blocs
(lower/no external tariff on imported goods, less restrictions) (e.g., North American Free
Trade Association, EU, Association of Southeast Asian Nations)
- Protect domestic markets (weaken international competitors')
- Protect foreign markets (from local competitors)
- Acquire technological and managerial know-how
what is transferring pricing? what are the issues behind transferring pricing? - Answer-
Issue for multinational companies making intercompany sales
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