INTERNATIONAL ACCOUNTING CH 3 HW - International Accounting...

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International Accounting Chapter 3: International convergence of Financial Reporting 1. How does harmonization differ from convergence? Harmonization refers to the reduction of alternatives while retaining a high degree of flexibility in accounting practices. Convergence implies the adoption of one set of standards internationally. 2. What are the potential benefits that a multinational corporation could derive from the international convergence of accounting standards? 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. Examples of such benefits include: 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; and ability to transfer accounting staff to other subsidiaries overseas more easily. 3. Were the EU directives effective in generating comparability of financial statements across companies located in member nations? Why or why not? The EU Directives were not completely effective in generating comparability across EU member nations because the Directives: a. allowed countries to choose among available options in many areas and b. did not cover many accounting issues, such as leases and translation of foreign currency financial statements. 4. What were the 3 phases in the life of IASC? A. 1973-1988 – lowest common denominator approach to standard setting B. 1988-1993 – reduction of existing options in IASs through the Comparability of Financial Statements Project C. 1993-2001 – development of core set of standards under the IOSCO Agreement 5. Why was IOSCO’s endorsement of IASs so important to the IASC’s efforts? IOSCO’s endorsement of IASs legitimized the IASC’s claim as “the” international accounting standard setter. This also helped in addressing, at least partly, the problem of IASC’s lack of enforcement power. 6. How does the structure of the IASB help to establish its legitimacy as a global standard setter? Twelve of 14 members of the IASB are full-time.
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INTERNATIONAL ACCOUNTING CH 3 HW - International Accounting...

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