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International Accounting Final Exam 77

60 Questions
Accounting Quizzes & Trivia

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Questions and Answers
  • 1. 
    Under U.S. tax laws, how are taxes paid by U.S. corporations to foreign governments treated? 
    • A. 

      Total foreign taxes paid are deductions in calculating taxable income.

    • B. 

      Foreign income taxes paid are credits against U.S. taxes owed.

    • C. 

      Taxpayers may choose between (A) and (B) stated above.

    • D. 

      None of the above.

    • E. 

      Doupnik - Chapter 10 #30 Learning Objective: 3 Level: Medium

  • 2. 
    Which of the following is a reason for a parent to use discretionary transfer prices?
    • A. 

      Improve competitive position of foreign operation

    • B. 

      Minimize import duties

    • C. 

      Avoid restrictions on repatriation funds

    • D. 

      All of the above

  • 3. 
    In following the international norm concerning tax jurisdiction, how would double taxation be eliminated?
    • A. 

      The subsidiary's home country would allow tax credits for taxes paid to the parent's home country.

    • B. 

      The parent company's home country would allow tax credits for taxes paid to the subsidiary's home country.

    • C. 

      The home countries of both the parent and the subsidiary would forego taxation on the income earned by the subsidiary.

    • D. 

      None of the above

  • 4. 
    What is the term used for intercompany transactions from a parent to a subsidiary? 
    • A. 

      Upstream transfer

    • B. 

      Downstream transfer

    • C. 

      International transfer

    • D. 

      None of the above

  • 5. 
    Under Securities and Exchange Commission regulations, who may be a member of an audit committee for a listed company? 
    • A. 

      Any member of the corporate board of directors

    • B. 

      Any member of the corporate board of directors who is not a Certified Public Accountant (CPA)

    • C. 

      Only members of the corporate board of directors who do not have a material interest in the company

    • D. 

      Any manager or director of the corporation

  • 6. 
    In addition to regulating the transfer prices on tangible property, the Internal Revenue Service also provides guidance on: 
    • A. 

      Interest charged on intercompany loans

    • B. 

      Transfer prices for intangible property

    • C. 

      Charges for intercompany services

    • D. 

      All of the above

  • 7. 
    The monetary amount used to record intercompany transactions is called: 
    • A. 

      Exchange rate

    • B. 

      Transfer price

    • C. 

      Conversion rate

    • D. 

      incremental cost

  • 8. 
    Withholding taxes on dividends paid by a foreign subsidiary to a parent can be reduced by 
    • A. 

      Raising prices paid by the parent for goods it acquires from the subsidiary

    • B. 

      Raising prices paid by the subsidiary for goods it acquires from the parent

    • C. 

      Negotiated transfer pricing

    • D. 

      Reducing prices charged by the parent for good transferred to the subsidiary

  • 9. 
    Which of the following terms is NOT defined by statute in the companies laws of the United Kingdom? 
    • A. 

      Accountant

    • B. 

      Auditor

    • C. 

      Independence

    • D. 

      None of these terms is defined in the laws of the UK.

  • 10. 
    Which of the following is NOT a factor influencing the probability that an auditor will detect an accounting error? 
    • A. 

      Competence of the auditor

    • B. 

      Quality review and monitoring

    • C. 

      Financial reporting requirements

    • D. 

      Independence of the auditor

  • 11. 
    What is the meaning of "tax system neutrality?" 
    • A. 

      Taxes should be minimized.

    • B. 

      Tax systems should not be a major factor in business decisions.

    • C. 

      Tax policies should be unbiased.

    • D. 

      Taxes in one jurisdiction are offset by tax credits in another jurisdiction.

  • 12. 
    An auditor may be subject to criminal liability under which of the following situations? 
    • A. 

      She willingly participates in defrauding the company's stockholders.

    • B. 

      She breaks a contract with the client.

    • C. 

      She violates a rule on the manner of advertising allowed by the professional accounting and auditing association.

    • D. 

      None of the above

  • 13. 
    What is a major limitation to the apparent incentive of tax holidays? 
    • A. 

      If a MNC is taxed on worldwide income, it will eventually pay tax on the foreign income when it is repatriated.

    • B. 

      Income earned by multinational corporations must remain in the foreign country offering the tax holiday.

    • C. 

      The tax holidays are only available to large multinational corporations.

    • D. 

      Tax holidays are offered only by governments with the ten weakest economies.

  • 14. 
    What does ISA 700 say about the interpretation of an audit opinion? 
    • A. 

      It enhances the credibility of the financial statements of corporation.

    • B. 

      It guarantees the future viability of the corporation.

    • C. 

      It assures readers that no errors have been made in the financial statements.

    • D. 

      It tells shareholders that management has operated the corporation efficiently.

  • 15. 
    In what area is external auditing consistent internationally? 
    • A. 

      Audit report

    • B. 

      Auditing standards

    • C. 

      Regulation of the profession

    • D. 

      None of the above

  • 16. 
    The OECD believes which group in a multinational corporation should oversee the financial reporting function to ensure that appropriate controls are in place to safeguard information integrity? 
    • A. 

      Corporate management

    • B. 

      Internal auditors

    • C. 

      Board of directors

    • D. 

      Information systems department

  • 17. 
    What group is responsible for developing international auditing standards? 
    • A. 

      International Accounting Standards Board (IASB)

    • B. 

      International Auditing and Assurances Standards Board (IAASB)

    • C. 

      International Organization of Securities Commissions (IOSCO)

    • D. 

      Organization for Economic Cooperation and Development (OECD)

  • 18. 
    What explains the reason for the historically very low (1/3% to ½%) limit on allowance for doubtful accounts in China? 
    • A. 

      The primary customer in China was the government, which was presumed to have very good credit.

    • B. 

      This is the international accounting standard for companies operating in eastern Asia.

    • C. 

      Prior to being admitted to the World Trade Organization (WTO), China was required to reduce its bad debt level.

    • D. 

      All of the above

  • 19. 
    What is the primary advantage of a negotiated transfer price? 
    • A. 

      It is objectively determined.

    • B. 

      It reflects managers' ability to control cost.

    • C. 

      It is based on arms-length transactions with unrelated parties.

    • D. 

      It preserves managerial autonomy to make decisions.

  • 20. 
    Refer to item #15. How will subsidiary managers in the decentralized organization view this decision by parent company management? 
    • A. 

      They will embrace it whole-heartedly because corporate profits will increase.

    • B. 

      The manager of Subsidiary Y will be concerned about the decline in Y's profit and the effect this will have on his/her bonus.

    • C. 

      They won't mind because the intercompany transaction will still occur.

    • D. 

      They won't notice because all decisions in the decentralized organization are made by the parent.

  • 21. 
    Why is international harmonization of auditing standards important? 
    • A. 

      To be consistent with harmonized international accounting standards

    • B. 

      To ensure the independence of external auditors of multinational corporations

    • C. 

      To assure international capital markets that auditing has been consistent across companies

    • D. 

      To reduce the authority of individual governments to enact accounting laws

  • 22. 
    What is the difference between a profit center and an investment center? 
    • A. 

      Profit centers include the selling function, whereas investment centers are not responsible for sales.

    • B. 

      Investment centers may be decentralized, but profit centers are not typically part of a decentralized organization.

    • C. 

      Investment centers are responsible for assets, but profit centers are not.

    • D. 

      Managers of investment centers have been delegated authority to make decisions autonomously, but managers of profit centers lack this power.

  • 23. 
    • A. 

      Taxes paid by a parent on foreign branch income is deducted from taxes owed to the parent's home country

    • B. 

      Taxes paid by a foreign subsidiary are taken as a credit against a parent's taxes when dividends are received from the subsidiary

    • C. 

      Taxing jurisdictions agree to share the taxes paid by a foreign subsidiary

    • D. 

      A foreign taxing jurisdiction does not tax a subsidiary within its jurisdiction and allows the parent country to tax the foreign source income

  • 24. 
    IRS code Section 482 describes appropriate transfer prices as "the prices which would have been agreed upon between unrelated parties engaged in the same or similar transactions under the same or similar conditions in the open market." How does it refer to such prices? 
    • A. 

      Arm's length prices

    • B. 

      Market prices

    • C. 

      International prices

    • D. 

      Comparable prices

  • 25. 
    Which of the following is the responsibility of an audit committee? 
    • A. 

      Oversee the internal control system

    • B. 

      Oversee internal auditing and the independent public accounting function

    • C. 

      Monitor the financial reporting process

    • D. 

      All of the above

  • 26. 
    The Institute of Chartered Accountants in New Zealand (ICANZ) proposed a policy of proportionate liability to replace the country's existing "joint and several liability" approach. Why was the proposal denied? 
    • A. 

      Proportionate responsibility for damages cannot be determined objectively.

    • B. 

      Fairness to the defendants was not relevant to ensuring fairness to the injured party.

    • C. 

      Large auditing firms would be paying proportionately higher damage awards than small firms.

    • D. 

      Such a policy is inconsistent with harmonization of international auditing standards.

  • 27. 
    In the context of international taxation, the Bahamas, Lichtenstein, and Monaco are considered by the OEDC as: 
    • A. 

      Tax holidays

    • B. 

      Tax shelters

    • C. 

      Tax havens

    • D. 

      Tax centers

  • 28. 
    Which cost will be minimized by setting a low transfer price? 
    • A. 

      Withholding taxes on a downstream transfer

    • B. 

      Import duties

    • C. 

      Currency devaluation of foreign cash flows

    • D. 

      All of the above

  • 29. 
    What term is used to refer to the probability that an accounting error or irregularity is detected and reported? 
    • A. 

      Accounting risk

    • B. 

      Audit risk

    • C. 

      Audit quality

    • D. 

      Transaction risk

  • 30. 
    Which of the following affect the effective corporate tax rate? 
    • A. 

      Tax-based incentives

    • B. 

      Local corporate tax rate

    • C. 

      Method of determining taxable income

    • D. 

      All of the above.

  • 31. 
    Controlled foreign corporations (CFC) will not be taxed on their foreign income currently if: 
    • A. 

      The foreign tax rate is less than 90% of the U.S. corporate income tax rate

    • B. 

      Subpart F income is less than 70% of the CFC's total income

    • C. 

      Subpart F income is less than 5% of the CFC's total income

    • D. 

      None of the above

  • 32. 
    To calculate U.S. tax, what exchange rate must be used to translate foreign branch net income? 
    • A. 

      Current rate

    • B. 

      Rate at the beginning of the year

    • C. 

      Average rate for the year

    • D. 

      Rate at the end of the year

  • 33. 
    What is the international norm for determining tax jurisdiction? 
    • A. 

      Residence takes precedence over source

    • B. 

      Citizenship takes precedence over residence

    • C. 

      Source takes precedence over residence

    • D. 

      Domestic takes precedence over foreign

  • 34. 
    What explains the "follow-the-leader" effect of countries changing their corporate tax rates in response to changes made by other countries? 
    • A. 

      Harmonization of accounting standards

    • B. 

      Competition for foreign investment

    • C. 

      Currencies pegged to another country's currency

    • D. 

      None of the above

  • 35. 
    • A. 

      Cost-plus method

    • B. 

      Comparable profits method

    • C. 

      Comparable uncontrolled price method

    • D. 

      Resale price method

  • 36. 
    What is the position of the U.S. Securities and Exchange Commission (SEC) with respect to internal auditing? 
    • A. 

      It requires all companies, including foreign enterprises, listed on U.S. stock exchanges to have an internal audit function.

    • B. 

      Since 2000, the SEC has been silent with respect to internal auditing.

    • C. 

      Internal auditing is recommended by the SEC, but it is not required for listed companies.

    • D. 

      Only multinational companies are required to have internal auditing systems.

  • 37. 
    According to the International Auditing Practices Committee, financial statements have conformed to International Financial Reporting Standards (IFRS) if: 
    • A. 

      They have complied with at least 75% of the IFRS

    • B. 

      They have complied with at least one-half of the provisions of the IFRS

    • C. 

      They have complied with all requirements and interpretations of the IFRS

    • D. 

      They have complied with most of the IFRS, or with U.S. GAAP

  • 38. 
    What approach is taken by the United States of America relative to taxing income? 
    • A. 

      Citizenship

    • B. 

      Residence

    • C. 

      Both citizenship and residence

    • D. 

      None of the above

  • 39. 
    In general, why do countries wish to avoid double taxation on corporations? 
    • A. 

      The calculations of the taxes are excessively complex.

    • B. 

      It discourages foreign direct investment.

    • C. 

      Enforcement of the tax law becomes excessively burdensome.

    • D. 

      It contributes to accounting diversity.

  • 40. 
    Under the Sarbanes-Oxley Act of 2002, who is responsible for paying the independent auditor? 
    • A. 

      Management

    • B. 

      Audit committee

    • C. 

      Government who has jurisdiction over the corporation

    • D. 

      American Institute of Certified Public Accountants (AICPA)

  • 41. 
    What is the U.S. policy concerning taxing income of a U.S. corporation's foreign subsidiary? 
    • A. 

      Tax is imposed on the foreign subsidiary income in the year it is earned.

    • B. 

      Tax is paid on the foreign subsidiary's income when the profits are returned to the U.S. parent as dividends.

    • C. 

      The government of the U.S. does not tax foreign source income.

    • D. 

      Tax credits for losses incurred by the foreign subsidiary are recognized by the parent currently, but taxes on profits are deferred until dividends are paid.

  • 42. 
    Correlative relief is a component of the U.S. Model Income Tax Treaty. What is correlative relief? 
    • A. 

      Additional tax imposed by the IRS related to a transfer pricing audit is offset with a foreign tax credit in the same amount.

    • B. 

      When the IRS adjusts an international transfer price, the tax authority in the foreign country makes a corresponding adjustment.

    • C. 

      The burden of revising transfer pricing schemes is offset by reduction of the corporate tax rate on foreign source income.

    • D. 

      IRS and foreign taxing authorities will collaborate in determining the appropriate international transfer price.

  • 43. 
    For what reason are the transfer prices of imports more closely monitored worldwide than are exports? 
    • A. 

      Political implications

    • B. 

      Effect on local job availability

    • C. 

      Impact on a country's balance of trade

    • D. 

      All of the above

  • 44. 
    How does the U.S. government tax controlled foreign corporations (CFC) differently from other subsidiaries? 
    • A. 

      All income of the CFC is taxed by the U.S. in the year it is earned rather than when dividends are received.

    • B. 

      Some income of the CFC is taxed by the U.S. in the year it is earned rather than when dividends are received.

    • C. 

      None of the income generated by the CFC is subject to U.S. tax.

    • D. 

      Only interest income from CFC is taxed in the year received by the U.S. government.

  • 45. 
    How can the conflict between cost minimization and performance evaluation be overcome in a decentralized organization? 
    • A. 

      Dual transfer pricing systems

    • B. 

      Market-based transfer pricing systems

    • C. 

      Cost-based transfer pricing systems

    • D. 

      Negotiated transfer pricing systems

  • 46. 
    What is the primary role of external auditing in multinational corporations? 
    • A. 

      Preparing the annual report to corporate shareholders

    • B. 

      Designing a working system of internal accounting controls

    • C. 

      Assuring that financial statement information is high quality

    • D. 

      Selecting independent members for the board of directors

  • 47. 
    Jane, a citizen of Country X, received a corporate dividend in the amount of £10,000 from a company in the U.K. Country X taxed Jane's dividend as ordinary income. Country X is using what kind of approach toward foreign source income? 
    • A. 

      Territorial approach

    • B. 

      World-wide approach

    • C. 

      Legalistic approach

    • D. 

      None of the above

  • 48. 
    Why might a developing country offer a tax holiday? 
    • A. 

      To encourage job creation

    • B. 

      To encourage foreign investment in the country

    • C. 

      To stimulate foreign trade

    • D. 

      All of the above

  • 49. 
    Who may bring civil litigation against an auditor? 
    • A. 

      Only the client company

    • B. 

      Only shareholders

    • C. 

      The client company and shareholders

    • D. 

      It depends on a country's laws governing auditor liability.

  • 50. 
    • A. 

      They are only granted for intercompany transactions between a U.S. parent and a foreign subsidiary.

    • B. 

      They are only granted for intercompany transactions between a foreign parent and a U.S. corporation.

    • C. 

      In 2003, the IRS approved several thousand advance pricing agreements for U.S. taxpayers.

    • D. 

      None of the above is true.

  • 51. 
    In a 2003 survey by Ernst &Young, what issue did 90% percent of respondents identify as the most important international tax issue they face? 
    • A. 

      Foreign currency translation of taxable income

    • B. 

      Double taxation

    • C. 

      Transfer pricing

    • D. 

      Withholding taxes

  • 52. 
    A multinational corporation may attempt to minimize the taxes it pays in a country with a high effective tax rate by setting a very high transfer price on goods transferred to a subsidiary in high-tax country. Why is this often not successful? 
    • A. 

      Laws in the foreign country may prohibit such a scheme.

    • B. 

      The high transfer price would actually increase taxes.

    • C. 

      Foreign exchange losses will eliminate any tax savings.

    • D. 

      None of the above.

  • 53. 
    The comparable uncontrolled transaction (CUT) method is one alternative for determining an arm's-length transfer price for what kind of intercompany transaction? 
    • A. 

      Interest on intercompany loans

    • B. 

      Sale of tangible property

    • C. 

      Intangible property

    • D. 

      Intercompany services

  • 54. 
    What is the focus of Section 404 of the Sarbanes-Oxley Act? 
    • A. 

      Requirement that all members of the board of directors be independent of the corporation

    • B. 

      It addresses the need for a consistent set of international auditing standards.

    • C. 

      Attesting to the reliability of internal controls in the annual report

    • D. 

      This defines the membership in the Public Company Accounting Oversight Board (PCAOB).

  • 55. 
    Why was the issuance of International Standard on Auditing 13 (IAS 13) considered so important to harmonization of auditing standards? 
    • A. 

      It required all multinational corporations to adopt international auditing standards by 2008.

    • B. 

      It specified the form and content of the annual report.

    • C. 

      It provided guidance on the form and content of the audit report.

    • D. 

      It requires the auditor to express an opinion on whether the statements give a true and fair view of corporate performance.

  • 56. 
    What power is given to the Internal Revenue Service (IRS) under code section 482? 
    • A. 

      Power to eliminate intercompany transactions

    • B. 

      Authority to audit international transfer prices

    • C. 

      Authority to impose tariffs on foreign imports

    • D. 

      All of the above

  • 57. 
    What is "Subpart F" income? 
    • A. 

      All foreign source income

    • B. 

      Foreign income that is not taxable by foreign jurisdictions

    • C. 

      Income that is easily moved to tax havens

    • D. 

      Foreign source income that is exempt from U.S. taxation

  • 58. 
    In 2003, what portion of total U.S. goods trade was made up of intercompany transactions? 
    • A. 

      20%

    • B. 

      82%

    • C. 

      42%

    • D. 

      11%

  • 59. 
    What is a tax haven? 
    • A. 

      A jurisdiction where taxes are abnormally low

    • B. 

      A location where tax cheats live to escape prosecution

    • C. 

      A tax jurisdiction where world-wide tax is eliminated

    • D. 

      Locations that provide tax-based incentives to corporations

  • 60. 
    How might a parent company's home country eliminate double taxation on foreign source income? 
    • A. 

      Tax credits for taxes paid to foreign countries

    • B. 

      Tax deductions for taxes paid to foreign countries

    • C. 

      Taking a territorial approach to taxing income

    • D. 

      All of the above