Points Received: 200 / 200 (100%)

Question Type: # Of Questions: # Correct:

Short 3 N/A
Essay 4 N/A

Grade Details - All Questions

Question 1. Question : (TCO 1) What do you think is the most important event in the history
of international accounting standards?

Student Answer: Converging local accounting standards and international standards.

The need to match the international standards thus making them
flexible to other countries is the most relevant event.

Comments: ok

Question 2. Question : (TCO 2) What is the difference between a rules-based accounting

standard and a principles-based accounting standard?

Student Answer: Rules-based accounting is basically a list of detailed rules that must
be followed when preparing financial statements. Many accountants
favor the prospect of using rules-based standards, because in the
absence of rules they could be brought to court if their judgments
of the financial statements were incorrect. When there are strict
rules that need to be followed, the possibility of lawsuits is
diminished. Having a set of rules can increase accuracy and reduce
the ambiguity that can trigger aggressive reporting decisions by
management. The complexity of rules, however, can cause
unnecessary complexity in the preparation of financial statements.
Principles-based accounting such as generally accepted accounting
principles (GAAP) is used as a conceptual basis for accountants. A
simple set of key objectives are set out to ensure good reporting.
Common examples are provided as guidance and explain the
objectives. Although some rules are unavoidable, the guidelines or
rules set are not meant to be used for every situation. The
fundamental advantage of principles-based accounting is that its
broad guidelines can be practical for a variety of circumstances.
Precise requirements can sometimes compel managers to
manipulate the statements to fit what is compulsory. The problem
with principles-based guidelines is that lack of guidelines can
produce unreliable and inconsistent information that makes it
difficult to compare one organization to another.

Comments: ok

Question 3. Question : (TCO 3) Why was the FASB Codification Project initiated?
 Student Answer: The FASB initiated its Codification project in response to the
problem of standards overload. A 2001 survey by the Financial
Accounting Standards Advisory Council revealed significant
concerns among members about the increase in the volume and
sources of accounting rules, the complexity and detail of those
rules, and the difficulty in retrieving all of the applicable rules
related to a particular topic. Another survey of FASB constituents,
conducted in 2004, confirmed among other things that more than
80% of participants believe U.S. GAAP is confusing, and described
the level of research it takes to address an issue as excessive. They
overwhelmingly supported a FASB project that would make GAAP
more understandable and simplify retrieval when performing
research. Thus, the concept of the Codification was born. By making
it easier to use and retrieve literature, the Codification is expected
to reduce the risk of non-compliance with standards. Other benefits
of the Codification include the ability to provide timely information
with real-time updates as new standards are released, as well as
facilitating the FASBs research and convergence efforts in the
standard-setting process.

Comments: ok

Question 4. Question : (TCO 4) How do you hedge foreign exchange risk? What is the risk in
hedging this risk?

Student Answer: Hedging refers to managing risk to an extent that makes it

bearable. In international trade and dealings, foreign exchange
plays an important role. Fluctuations in the foreign exchange rate
can have significant impact on business decisions and outcomes.
Many international trade and business dealings are shelved or
become unworthy due to significant exchange rate risk embedded
in them. Historically, the foremost instrument used for exchange
rate risk management is the forward contract. Forward contracts
are customized agreements between two parties to fix the
exchange rate for a future transaction. This simple arrangement
would easily eliminate exchange rate risk, but it has some
shortcomings, particularly getting a counter party who would agree
to fix the future rate for the amount and time period in question
may not be easy. Suppose the company "Jaguar" has dollar
receivable at certain interval; it means company is afraid of dollar
depreciation. For instance: say Jaguar has billed $100000 to US
customer and credit period allowed is 6 months. Current exchange
rate is say 1$ = 0.6. If customer pays right now then inflow to
company will be $ 100000 * 0.6 = 60,000 but US customer is
going to pay after 6 months then Exchange rate may go below 0.6
and inflow to the company will be less than 60,000. Hence, Jaguar
is afraid of dollar ($) depreciation. Jaguar should have entered into
forward contracts and needs to sell foreign currency receivable
forward i.e $ to Foreign exchange dealers (Primarily Banks) so that
home currency() on maturity becomes certain. In above example,
Jaguar needs to sell $100000 for 6 months to foreign exchange
dealers at forward rate. It means that Jaguar is selling $100000 to
foreign exchange dealers which it is going to receive after 6 months
 at 6 Months forward rate. Forward rate are those rates which are
decided today i.e. at the time of entering into forward contracts but
settlement is done on maturity. Here Settlement means selling of $
and receiving of by Jaguar. Say Forward rate for 6 months quoted
by foreign exchange dealers is 0.7. It means total receivable after 6
months by Jaguar will be $1,00,000 * 0.7 = 70,000 irrespective of
exchange rate on maturity (6 months). Jaguar should have entered
into "Forward Contract Sale" with Foreign exchange dealers and
take sell position in foreign currency receivable i.e $. Period of
contract depends on credit period allowed to US customers. For
instance: say Jaguar has billed $1,00,000 to US customer and
credit period allowed is 6 months then company should enter into
"Forward Contract Sale" with Foreign exchange dealers for 6
months. So, period of contracts depends on period between Date of
billing to US customer and Date of maturity of foreign currency
receivable ($).

Comments: ok

Question 5. Question : (TCO 5) Why is it difficult to analyze foreign financial statements?

Describe one of the potential problems in analyzing foreign financial
statements.

Student Answer: Due to different foreign set accounting standards. Differences in

ever fluctuating foreign currencies including contrasting set
accounting standards during the process of analyzing the foreign
financial statements. The four stages of business analysis (business
strategy, accounting, financial analysis, and prospective analysis)
may be affected by the following factors: 1. Data information
access 2. Language and terminology problem 3. Timeliness of
information 4. Foreign currency issues and 5. Differences in types
and formats of financial statements. 6. Differences in accounting
principles 7. Business environment differences

Comments: ok

Question 6. Question : (TCO 6) What factors are considered in the treatment of foreign
source income? Which factor do you think is the most important?

Student Answer: U.S. tax treatment of foreign source income is determined by

several factors: (1) the legal form of the foreign operation (branch
or subsidiary), (2) the percentage owned by U.S. taxpayers (CFC or
not), (3) the foreign tax rate (tax haven or not), and (4) the nature
of the foreign source income (Subpart F or not; appropriate FTC
basket). The nature of the foreign source income (Subpart F or not;
appropriate FTC basket) is the most important. Subpart F income
includes: passive income such as interest, dividends, royalties,
rents, and capital gains from sales of assets. sales income, where
the CFC makes sales outside of its country of incorporation.
 service income, where the CFC performs services out of its country
of incorporation. air and sea transportation income. oil and gas
products income.

Comments: ok

Question 7. Question : (TCO 7) Describe three transfer pricing methods. Why is it important
to accurately determine the transfer price for goods and services?

Student Answer: Cost plus method - The method is used to test the activities of
manufacturing firms by comparing gross profits to cost of sales
Resale price method - This method compares gross profit relative to
turnover of the tested party to gross margins earned by comparable
third parties. Cup method - It evaluates the arm's-length character
of a controlled transaction by comparing the price and conditions to
the price and conditions of similar transactions between the
taxpayer and an unrelated party Transfer pricing is important in
preservation divisional autonomy, allow each division to make a
profit and encourage divisions to make decisions which maximize
group profits

Comments: ok