Jeter_AA_4e_SolutionsManual_Ch11

Jeter_AA_4e_SolutionsManual_Ch11 - Chapter 11 ANSWERS TO...

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Unformatted text preview: Chapter 11 ANSWERS TO QUESTIONS 1. There might be considerable training costs in switching to IFRS because U.S. investors and accountants will need to learn how to apply and interpret IFRS. The use of IFRS might also reduce the quality of financial reports and impede comparability as the IFRS GAAP allows more judgment by management. Managers may choose to use methods that make them look better. Finally, it is not clear who will handle the enforcement of the international rules and how violators might be punished. 2. Two major projects are revenue recognition and financial statement presentation. Currently, U.S. GAAP provides significant guidance for revenue recognition, specifically with regards to some industries. It is hoped that the joint effort can lead to a joint revenue recognition standard that might eliminate guidance required for different industries. A second joint project is the financial statement presentation project. This project would provide consistent presentation of the financial statement and eliminate alternative reporting options. 3. The interest in harmonizing international accounting standards is due to many factors. Currently, most countries have their own accounting standard setting bodies resulting in a divergence of accounting practices in the world. In addition, the application of principles varies. As international trade and cross-border financing increase, it is difficult to evaluate the financial status of firms. The divergent accounting standards reduce the efficiency of the capital markets. 4. The SEC has been reluctant to accept IAS because they are more general and often provide little guidance on applying the methods. The SEC believes that the efficiency of the US markets is partly due to the high level of reporting required in the US and that any reduction in this quality would result in less efficient markets. However, over the last several years, the international rules and the U.S. rules have been converging and many of the significant differences that existed in the past have been eliminate. 5. ADRs are classified as either sponsored or unsponsored. Unsponsored ADRs are becoming less popular. These occur when a bank offers a DR program without an agreement with the issuing non-US company. Sponsored programs require an exclusive agreement between a bank and the non-US company. There are four types of sponsored ADR programs: for firms not issuing capital there are Level I and Level II ADR programs, and for firms issuing capital, there are Level III and Rule 144 A programs. 6. In a 1998 report of the FASB regarding the future of international accounting, the FASB described its vision of a successful international accounting system. The FASB stated its belief that the worldwide use of a single set of accounting standards is desirable and eventually attainable, but that the ideal outcome will result from pursuing the overall objective of increasing international compatibility while maintaining the highest quality accounting standards in the United States. Over the maintaining the highest quality accounting standards in the United States....
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Jeter_AA_4e_SolutionsManual_Ch11 - Chapter 11 ANSWERS TO...

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