Course Code: INB450Lec01
Course Name: International Accounting
Instructor: Dr. Kweh Qian Long
Due Time: 5:00PM
Note: Submission on MYCUD (Assignment 1 Submission)
Number of Students: 34
Course Learning Outcomes
Explain the main issues facing multinational companies when preparing their financial statements.
Discuss how international financial markets affect activities and operations of multinational companies.
Apply International accounting standards to different activities and operations of multinational corporations.
Compare International reporting standards in different countries using alternative accounting systems (e.g., China, Japan, Russia, and USA).
Analyze the different methods of translating foreign currency transactions and financial statements of multinational companies for the purpose of consolidation.
NAME OF STUDENT: ID:
INSTRUCTIONS – READ CAREFULLY
▪ Write your answer on this booklet.
▪ Programmable calculators with graphing capabilities are not allowed.
▪ Mobile phones, books, or other communication devices are not permitted in the examination room.
▪ Use of unauthorized material and attempts to cheat or plagiarize will automatically result in a grade of zero for this examination and appropriate disciplinary measures.
Total: 5 marks
Case Study (5 Marks)
The framework created by Professor Sidney Gray in 1988 to explain the development of a country’s accounting system is presented in the chapter in Exhibit 2.8. Gray theorized that culture has an impact on a country’s accounting system through its influence on accounting values. Focusing on that part of a country’s accounting system comprised of financial reporting rules and practices, the model can be visualized as follows:
In short, cultural values shared by members of a society influence the accounting values shared by members of the accounting subculture. The shared values of the accounting subculture in turn affect the financial reporting rules and practices found within a country. With respect to the accounting value of conservatism, Gray hypothesized that the higher a country ranks on the cultural dimensions of uncertainty avoidance and long-term orientation, and the lower it ranks in terms of individualism and
masculinity, then the more likely it is to rank highly in terms of conservatism. Conservatism is a preference for a cautious approach to measurement. Conservatism is manifested in a country’s accounting system through a tendency to defer recognition of assets and items that increase net income and a tendency to accelerate the recognition of liabilities and items that decrease net income. One example of conservatism in practice would be a rule that requires an unrealized contingent liability to be recognized when it is probable that an outflow of future resources will arise but does not allow the recognition of an unrealized contingent asset under any circumstances.
Although Gray’s model relates cultural values to the accounting value of conservatism as it is embodied in a country’s financial reporting rules, it can be argued that the model is equally applicable to the manner in which a country’s accountants apply those rules:
a) Using your own words, discuss the implications for the global convergence of financial reporting standards raised by Gray’s model.
b) Using your own words, discuss the implications this argument has for the comparability of financial statements across countries, even in an environment of substantial international accounting convergence.
c) Identify areas in which differences in cultural dimensions across countries could lead to difference in the application of financial reporting rules.
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