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Chapter 09 1- Why is it important that, in countries with high inflation, financial statements be adjusted for inflation? 2- What are the major differences in the calculation of income between the historical cost (HC) model and the general purchasing power (GPP) model of accounting? 3- Which balance sheet accounts give rise to purchasing power gains, and which accounts give rise to purchasing power losses? 4- What are the major differences in the calculation of income between the historical cost (HC) model and the current cost (CC) model of accounting? 5- Why is return on assets (net income/total assets) generally smaller under current cost accounting than under historical cost accounting? 6- In what ways do International Financial Reporting Standards (IFRS) address the issue of accounting for changing prices (inflation)? 7- What is a group? Compare and contrast the different concepts of a group. 8- To which specific type of business combination does the concept of a group relate? 9- Define control. When does control exist in accordance with IAS 27? 10- Explain why the legal concept of control may be appropriate in some countries, such as Japan. Chapter 10 1. Why might individual investors wish to include foreign companies in their investment portfolio? 2. Which companies might Ford Motor Company include in a benchmarking study of the automobile industry, and in which countries are those companies located? 3. What are potential problems in using commercial databases as the source of financial statement information for foreign companies? 4. How might an analyst obtain the most recent financial statements for a foreign company in which he or she is interested? 5. Why should the fact that a foreign company presents its financial statements in a foreign currency present no significant problems in analyzing those statements? 6. A foreign company prepares its financial statements in a foreign language and does not provide any convenience translations. How might this affect an analyst's decision to invest in this company? 7. How can more disclosure in the notes to the financial statements facilitate the analysis of foreign financial statements? 8. In what ways does the timeliness of the publication of financial information differ across countries? 9. What are the advantages and disadvantages of using measures such as operating income before depreciation (OIBD) or earnings before interest, taxes, depreciation, and amortization (EBITDA) rather than net income in comparing profitability across foreign companies? 10. What are the different features of financial statements that a foreign company might "translate" in a convenience translation? 11. Why should analysts be careful in comparing financial ratios across companies in different countries? 12. How might differences in the extent to which countries apply the accounting concept of conservatism (some countries are more conservative than others) affect profit margins, debt-to-equity ratios, and returns on equity? 13. How might differences across countries in the extent to which debt versus equity is the major source of financing affect profit margins, debt-to-equity ratios, and return on equity? 14. A foreign company did not capitalize any interest in the current or past years, although such capitalization is required under U.S. GAAP. Why does an adjustment to reconcile this item to U.S. GAAP affect assets, expenses, and beginning retained earnings? Chapter 11 1. How can a country's tax system affect the manner in which an operation in that country is financed by a foreign investor? 2. Why might the effective tax rate paid on income earned within a country be different from that country's national corporate income tax rate? 3. What is a tax haven? How might a company use a tax haven to reduce income taxes? 4. What is the difference between the worldwide and territorial approaches to taxation? 5. What are the different ways in which income earned in one country becomes subject to double taxation? 6. What are the mechanisms used by countries to provide relief from double taxation? 7. Under what circumstances is it advantageous to take a deduction rather than a credit for taxes paid in a foreign country? 8. How are foreign branch income and foreign subsidiary income taxed differently by a company's home country? 9. What is the maximum amount of foreign tax credit that a company will be allowed to take with respect to the income earned by a foreign operation? 10. What are excess foreign tax credits? How are they created and how can companies use them? 11. How does the foreign tax credit basket system used in the United States affect the excess foreign tax credits generated by a U.S.-based company? 12. What is a tax treaty? What is one of most important benefits provided by most tax treaties? 13. What is treaty shopping? 14. What is a controlled foreign corporation? What is Subpart F income? 15. Under what circumstances will the income earned by a foreign subsidiary of a U.S. taxpayer be taxed as if it had been earned by a foreign branch? 16. What are the four factors that will determine the manner in which income earned by a foreign operation of a U.S. taxpayer will be taxed by the U.S. government? 17. What procedures are used to translate the foreign currency income of a foreign branch into U.S. dollars for U.S. tax purposes? What procedures are used to translate the foreign currency income of a foreign subsidiary? 18. In what way did both the domestic international sales corporation and the foreign sales corporation violate international trade agreements? 19. What is the benefit provided to an individual taxpayer through the foreign earned income exclusion? 20. How does an individual taxpayer qualify for the foreign earned income exclusion? Chapter 12 1. What are the various types of intercompany transactions for which a transfer price must be determined? 2. What are possible cost-minimization objectives that a multinational company might wish to achieve through transfer pricing? 3. What is the performance evaluation objective of transfer pricing? 4. Why is there often a conflict between the performance evaluation and costminimization objectives of transfer pricing? 5. How can transfer pricing be used to reduce the amount of withholding taxes paid to a government on dividends remitted to a foreign stockholder? 6. According to U.S. tax regulations, what are the five methods to determine the arm'slength price in a sale of tangible property? How does the best-method rule affect the selection of a transfer pricing method? 7. What is the arm's-length range of transfer pricing, and how does it affect the selection of a transfer pricing method? 8. Under what conditions would a company apply for a correlative adjustment from a foreign tax authority? What effect do tax treaties have on this process? 9. What is an advance pricing agreement? 10. What are the costs and benefits associated with entering into an advance pricing agreement? Chapter 13 1- What are the internal factors that influence strategy formulation within an MNC? 2- What are the external factors that influence strategy formulation within an MNC? 3- Explain the role of accounting in strategy formulation within an MNC. 4- Compare and contrast NPV and IRR as capital budgeting techniques. 5- How does the organizational structure of an MNC influence its strategy implementation? 6- How do differences in cultural values across countries influence strategy implementation within an MNC? 7- Explain the role of accounting in implementing multinational business strategy. 8- What are the main issues that need to be considered in designing and implementing a successful performance evaluation system for a foreign subsidiary? 9- What differences can you identify between performance evaluation measures adopted by Japanese and U.S. MNCs? 10- What are the nonfinancial measures available to MNCs for evaluating foreign subsidiary performance? Chapter 14 1. Why should MNCs be concerned about auditing issues? 2. What are the main differences between the OECD Principles of Corporate Governance issued in 1999 and the revised version issued in 2004? 3. What are the provisions in the Sarbanes-Oxley Act 2002 and the New York Stock Exchange listing requirements that are aimed at improving corporate governance and are directly related to audit committees? 4. What determines the primary role of external auditing in a particular country? 5. What is audit quality? What determines audit quality in a given country? 6. What is the PCAOB? What is its role in audit regulation? 7. What is the PIOB? What is its role in audit regulation? 8. What was the impact of the European Union's Eighth Directive on the regulation of auditing in the United Kingdom? Chapter 15 1- What is corporate social reporting (CSR)? 2- What are the theories often used to explain the CSR practices of firms? 3- What is the conceptual basis for CSR? 4- What motivates firms to engage in CSR practices? 5- What are the implications of climate change for CSR? 6- Identify five key terms used in assessing the impact of climate change on a firm. 7- Why is it necessary to regulate the CSR practices of firms? 8- Identify five mechanisms for regulating CSR practices at the international level. 9- What are some of the problems of trying to regulate CSR practices through legislation? 10- What are the items often included in CSR reports? 11- What is the Kyoto Protocol? 12- What is the Global Reporting Initiative?
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Explanation & Answer

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Running head: CHAPTER ANALYSIS

1

Chapter Analysis
Student’s Name
Institution
Date

CHAPTER ANALYSIS

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Chapter 10
1. Why might individual investors wish to include foreign companies in their investment
portfolio?
Individual investors include foreign investors in their investment portfolio so that they can
reduce portfolio risks. If individuals invest on their own in a domestic country, then risks will not
diversify, but with the inclusion of foreign investors, specific risks would be reduced due to
diversification (Keleş, 2015). Therefore, the addition of foreign investors enhances
diversification of risks and reduction of foreign exchange risk.
2. Which companies might Ford Motor Company include in a benchmarking study of the
automobile industry, and in which countries are those companies located?
Form Motors can include General Motors which is based in the U.S, Honda, and Toyota from
Japan and Hyundai from Korea. Further, it might choose Renault from France as well as
BMW and Volkswagen from Germany.
3. What are potential problems in using commercial databases as the source of financial
statement information for foreign companies?
Commercial databases contain less financial information, and thus, companies face risks of
mismanagement as a result of suitable financial statements. In commercial databases, data
errors also form among the most significant challenges that affect obtaining financial
information. Additionally, commercial databases force foreign countries to comply with the
standardized format, and as such, too much information is lost while other data is
misclassified in the process of converting to the standardized format.

CHAPTER ANALYSIS

3

4. How might an analyst obtain the most recent financial statements for a foreign company
in which he or she is interested?
If an analyst wants to obtain information from a foreign company, then they will have to look
at the company's website. Other internet websites which can help provide financial
information about an international company include Hoover and CAROL (Hand & Green,
2011).
5. Why should the fact that a foreign company presents its financial statements in a foreign
currency present no significant problems in analyzing those statements?
While analyzing financial statements, percentages, as well as ratios, form the dominant form
of comparing different currency amounts and thus, foreign monetary currencies do not pose
any challenge to analysts. However, while translating foreign currency to their money,
attention must be paid to exchange rates as they can lead to distortion of fundamental
relationships.
6. A foreign company prepares its financial statements in a foreign language and does not
provide any convenience translations. How might this affect an analyst's decision to
invest in this company?
Lack of information caused by lack of reading annual reports makes analysts fail to obtain
purposeful information that leads to making investments decisions. Description of products
in a language that an analyst does not understand leads to uninformed decisions by analysts.
7. How can more disclosure in the notes to the financial statements facilitate the analysis of
foreign financial statements?

CHAPTER ANALYSIS

4

According to Keleş (2015), analysis of financial statements is facilitated by disclosure of
information because it provides additional details related to specific line items which allow
analysts to format the report to a required format. Further, disclosure enhances an
understanding of the impacts of information provided to income.
8. In what ways does the timeliness of the publication of financial information differ across
countries?
Publication of financial information across countries differ in different countries; such
information depends on certain factors such as stock. In some countries, financial
information is published quarterly, while other publish after six months. Determinants of
financial information predict the formation of such statements, and thus, different countries
produce them at their convenience.
9. What are the advantages and disadvantages of using measures such as operating income
before depreciation (OIBD) or earnings before interest, taxes, depreciation, and
amortization (EBITDA) rather than net income in comparing profitability across foreign
companies?
EBITDA is advantageous because differences in accounting for interest taxes, depreciation,
and authorization across countries do not impact a company's profitability. The disadvantage
of using this method is that expenses might be vital in examining cost-effectiveness and it
fails to determine the value of a firm.
10. What are the different features of financial statements that a foreign company might
"translate" in a convenience translation?

CHAPTER ANALYSIS

5

EBITDA is advantageous because differences in accounting for interest taxes, depreciation,
and authorization across countries do not impact a company's profitability (Hand & Green,
2011). The disadvantage of using this method is that expenses might be vital in examining
cost-effectiveness and it fails to determine the value of a firm.
11. Why should analysts be careful in comparing financial ratios across companies in
different countries?
The most important features of a foreign financial statement that must be translated include
language, GAAP and currency. Language translation is the most vital feature because it will
lead to an understanding of all the other elements.
12. How might differences in the extent to which countries apply the accounting concept of
conservatism (some countries are more conservative than others) affect profit margins, debt-toequity ratios, and returns on equity?
Analysts should be cautious while comparing financial ratios across different countries because
environmental factors can cause distortion of crucial information. Information concerning the
basis for taxation and income in different countries should be analyzed thoroughly before they
are compared against each other. Conservatism in organizations denotes overstating expenses
and liabilities as well as understanding assets and revenues. Conservatism affects return on
equity because both the denominator and numerator in the ratios are understated. Profit margin is
impacted by moderation because an overstatement of expenses and profit margins will be
smaller. Overstatement of liabilities and understatement of retained income results to an
increased debt-to-equity ratio.

CHAPTER ANALYSIS

6

12. How might differences across countries in the extent to which debt versus equity is the
major source of financing affect profit margins, debt-to-equity ratios, and return on
equity?
Debt financing affects liabilities, and a larger amount of interests impacts a country
positively. Debt-equity rations are usually larger when profits margins are smaller and thus,
factors which affect profit margins act as determinants of this scenario. Tax relations between
countries affect the return on equity and hence, the higher the tax, the lower the interest rate
and return on investment decreases.

14. A foreign company did not capitalize any interest in the current or past years, although such
capitalization is required under U.S. GAAP. Why does an adjustment to re...


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