chapter 22 Answers

chapter 22 Answers - CHAPTER 22 QUESTIONS 1. Globalization...

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CHAPTER 22 QUESTIONS 1. Globalization of business has forced inves- tors, creditors, and other stakeholders to perform an increasing number of cross- border financial statement comparisons. This has created the need for a common set of global accounting standards. 2. Initially, the IASC was a consortium of na- tional CPA organizations, and committee members served part time while maintain- ing their connections with their firms and their clients. 3. The early IASC standards were a compila- tion of the diverse accounting practices from around the world with some expres- sion of a preferred alternative but no co- herent conceptual foundation. 4. During the 1990s, the IASC sought the stamp of approval from the International Organization of Securities Commissions (IOSCO). The IASC worked to eliminate the large number of alternative accounting treatments allowable under IAS and also to improve the overall quality of the standards. 5. As a result of the 2001 restructuring in which the IASC was renamed the IASB, the IASB Board members became full time. The IASB Board members were chosen from a much broader background than the CPA community. The IASB deliberative process was redesigned to be much more along the lines of the FASB’s operating procedure—public meetings, open debate, lots of public input into the process, trans- parent decisions, and so forth. 6. The Norwalk Agreement is a joint agree- ment signed in 2002 in which the IASB and FASB pledged to work together to develop a set of “fully compatible” accounting stan- dards as soon as possible and to continue to work together to make sure that those standards stay compatible. 7. In 2007, the SEC announced that non-U.S. companies would be allowed to use Inter- national Financial Reporting Standards, in- stead of U.S. GAAP, in their financial statement filings with the SEC. Before this, non-U.S. companies wishing to have their shares traded in the United States had to provide U.S. shareholders with a summary showing what key reported financial state- ment numbers would have been had the company used U.S. GAAP. 8. On August 27, 2008, the SEC announced a timetable for the transition of U.S. compa- nies from FASB standards to IFRS. 9. Ratio comparisons can yield misleading implications if the ratios come from compa- nies with differing accounting practices. Dif- ferences in accounting methods can make one company look superior to another even though they are economically identical. For example, if one company uses a 10-year life for depreciating fixed assets and an- other depreciates similar assets over a 15- year life, the decreased depreciation ex- pense for the second company will make it look more profitable even in the absence of real differences in operating performance. 10.
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chapter 22 Answers - CHAPTER 22 QUESTIONS 1. Globalization...

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