ACC 430

Exam 2 Answer Key

Question 1:
Ultimate goal: Achieve international comparability in financial reporting

Harmonization refers to the reduction of alternative accounting practices

Countries were allowed to have different accounting standards as long as they did not conflict
Convergence refers to the process of developing a set of high quality financial reporting
standards for use internationally

The potential benefits for a multinational corporation from convergence of financial reporting
standards are derived mainly as a result of:
 international comparability of financial reporting standards and practices.
 Reduction of financial reporting costs for multinational corporations that seek to list their
stocks on foreign stock exchanges;
 Reduction of cost of preparing worldwide consolidated financial statements;
 Ability to transfer accounting staff to other subsidiaries overseas more easily.

Question 2:
According to The IASB Framework in Chapter 3, IASB's framework's purpose is to establish the
concepts underlying the preparation and presentation of IFRS-based financial statements:
1. Objective of financial statements and underlying assumptions.
2. Qualitative characteristics that affect the usefulness of financial   statements.            
3. Definition, recognition, and measurement of the financial statements elements.
4. Concepts of capital and capital maintenance.
It also intended to assist preparers of financial statements in applying IFRS and in dealing with
topics that have not yet been addressed in IFRS."

IFRS are principles-based standards

IFRS potential benefits:
 It would increase the level of comparability of information contained in financial
statements prepared by companies from different countries
 This would benefit investors when using those statements to assess the performance of
companies as the basis for their investment decisions

Adoption vs. implementation:

Adoption of IFRS is different from their implementation on a consistent basis.
If standards are not implemented consistently by companies in different countries, the objective
of international comparability of information contained in financial statements would not be
achieved.

Factors that are likely to influence the consistency of IFRS are implementation:
IFRS are principles-based standards.
Arriving at principles that satisfy all of the parties involved in different countries is an almost
impossible task.
Accountants’ professional judgments play an important role in implementing principles-based
standards
Accountants’ professional judgments can be influenced by:
Cultural values
Level of professionalism in a particular country
One can argue that IFRS is unnecessary for companies worldwide
A common set of rules or standards which may not be relevant
It would be unnecessarily costly
Lead to a situation of standards overload.
Convergence difficult to achieve
Need for such standards is not universally accepted
The international capital market will force those companies that can benefit from accessing the
market to provide the required accounting information without convergence.

Question 3:
The different ways in which IFRS might be used within a country include:
 Required of all companies domiciled within the country.
 Required of parent companies in preparing consolidated financial statements; national
GAAP used in parent company-only financial statements.
 Required of all companies (both domestic and foreign) publicly traded within the country;
non-listed companies use national GAAP.
 Required of foreign companies that are publicly traded within the country. Domestic
companies use national GAAP.
 Required of domestic companies with foreign operations and/or foreign stock exchange
listings. Domestic companies without a foreign presence use national GAAP.
 Instead of requiring the use of IFRS in each example above, a country could allow the
use of IFRS in lieu of domestic GAAP in each situation.