MGT 302 FINAL EXAM QUESTIONS AND ANSWERS
Chapter 20 Accounting and Finance in the International Business Answer Key
True / False Questions
1. Accounting information is the means by which firms communicate their financial position to the providers of
capital.
TRUE
Accounting information is the means by which firms communicate their financial position to the providers of
capital, enabling them to assess the value of their investments and make decisions about future resource
allocations.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 20-01 Discuss the national differences in accounting standards.
Topic: Introduction
2. Accounting is shaped by the environment in which it operates.
TRUE
Accounting is shaped by the environment in which it operates. Just as different countries have different political
systems, economic systems, and cultures, historically they have also had different accounting systems.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 20-01 Discuss the national differences in accounting standards.
Topic: National Differences in Accounting Standards
3. Banks are the most important source of external capital for business enterprises in the United States.
FALSE
In countries where there are well-developed capital markets, such as the United States and Britain, firms typically
raise capital by issuing stock or bonds to investors.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 20-01 Discuss the national differences in accounting standards.
Topic: National Differences in Accounting Standards
4. Accounting standards are rules for preparing financial statements.
TRUE
Accounting standards are rules for preparing financial statements. They define what is useful accounting
information.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 20-01 Discuss the national differences in accounting standards.
Topic: National Differences in Accounting Standards
,5. Auditing standards are rules that define the accounting principles and monetary policy of a nation.
FALSE
Auditing standards specify the rules for performing an audit—the technical process by which an independent
person (the auditor) gathers evidence for determining if financial accounts conform to required accounting
standards and if they are also reliable.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 20-01 Discuss the national differences in accounting standards.
Topic: National Differences in Accounting Standards
6. IASB is a major proponent of international accounting standards.
TRUE
The International Accounting Standards Board (IASB) has emerged as a major proponent of standardization. The
IASB has 15 members who are responsible for the formulation of new international financial reporting standards.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 20-02 Explain the implications of the rise of international accounting standards.
Topic: International Accounting Standards
7. Compliance to IASB standards is mandatory for countries to engage in international trade.
FALSE
Another hindrance to the development of international accounting standards is that compliance is voluntary; the
IASB has no power to enforce its standards.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 20-02 Explain the implications of the rise of international accounting standards.
Topic: International Accounting Standards
8. The standards of U.S. Financial Accounting Standards Board and IASB are vastly different.
FALSE
To date, the impact of the IASB standards has probably been least noticeable in the United States because most
of the standards issued by the IASB have been consistent with opinions already articulated by the U.S. Financial
Accounting Standards Board (FASB).
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 20-02 Explain the implications of the rise of international accounting standards.
Topic: International Accounting Standards
9. The budget is the main instrument of financial control in an organization.
TRUE
The budget is the main instrument of financial control. The budget is typically prepared by the subunit, but it must
be approved by headquarters management.
AACSB: Analytic
, Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 20-03 Explain how accounting systems affect control systems within the multinational enterprise.
Topic: Accounting Aspects of Control Systems
10. Most international businesses require all budgets and performance data within the firm to be expressed in the
currencies of the countries where its subunits are located.
FALSE
Most international businesses require all budgets and performance data within the firm to be expressed in the
"corporate currency," which is normally the home currency.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 20-03 Explain how accounting systems affect control systems within the multinational enterprise.
Topic: Accounting Aspects of Control Systems
11. A European subsidiary of a U.S. firm will usually prepare its budgets in Euro.
FALSE
Most international businesses require all budgets and performance data within the firm to be expressed in the
"corporate currency," which is normally the home currency. Here the firm would typically prepare budget in U.S.
dollars.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 20-03 Explain how accounting systems affect control systems within the multinational enterprise.
Topic: Accounting Aspects of Control Systems
12. The initial rate, in the Lessard-Lorange Model, refers to the spot exchange rate when the budget is adopted.
TRUE
In the Lessard-Lorange Model, the initial rate is the spot exchange rate when the budget is adopted.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 20-03 Explain how accounting systems affect control systems within the multinational enterprise.
Topic: Accounting Aspects of Control Systems
13. The ending rate refers to the spot exchange rate forecast for the end of the budget period in the Lessard-Lorange
Model.
FALSE
The ending rate refers to the spot exchange rate when the budget and performance are being compared in the
Lessard-Lorange Model.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 20-03 Explain how accounting systems affect control systems within the multinational enterprise.
Topic: Accounting Aspects of Control Systems
, 14. Using the ending rate to translate the budget is a valid practice according to the Lessard-Lorange Model.
FALSE
Lessard and Lorange ruled out four of the nine combinations they proposed as illogical and unreasonable. For
example, it would make no sense to use the ending rate to translate the budget and the initial rate to translate
actual performance data.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 20-03 Explain how accounting systems affect control systems within the multinational enterprise.
Topic: Accounting Aspects of Control Systems
15. Lessard and Lorange recommend that firms use the projected spot exchange rate to translate both the budget
and performance figures into the corporate currency.
TRUE
Of the five valid combinations they identified, Lessard and Lorange recommend that firms use the projected spot
exchange rate to translate both the budget and performance figures into the corporate currency.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 20-03 Explain how accounting systems affect control systems within the multinational enterprise.
Topic: Accounting Aspects of Control Systems
16. The projected rate will typically be the forward exchange rate as determined by the foreign exchange market
when firms use the projected spot exchange rate to translate both the budget and performance figures into the
corporate currency.
TRUE
Of the five valid combinations they identified, Lessard and Lorange recommend that firms use the projected spot
exchange rate to translate both the budget and performance figures into the corporate currency. The projected
rate in such cases will typically be the forward exchange rate as determined by the foreign exchange market.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 20-03 Explain how accounting systems affect control systems within the multinational enterprise.
Topic: Accounting Aspects of Control Systems
17. The price at which goods and services are transferred between subsidiary companies in a multi-national firm is
referred to as minimum retail price.
FALSE
The price at which goods and services are transferred between subsidiary companies in a multi-national firm is
referred to as the transfer price.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 20-03 Explain how accounting systems affect control systems within the multinational enterprise.
Topic: Accounting Aspects of Control Systems
Chapter 20 Accounting and Finance in the International Business Answer Key
True / False Questions
1. Accounting information is the means by which firms communicate their financial position to the providers of
capital.
TRUE
Accounting information is the means by which firms communicate their financial position to the providers of
capital, enabling them to assess the value of their investments and make decisions about future resource
allocations.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 20-01 Discuss the national differences in accounting standards.
Topic: Introduction
2. Accounting is shaped by the environment in which it operates.
TRUE
Accounting is shaped by the environment in which it operates. Just as different countries have different political
systems, economic systems, and cultures, historically they have also had different accounting systems.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 20-01 Discuss the national differences in accounting standards.
Topic: National Differences in Accounting Standards
3. Banks are the most important source of external capital for business enterprises in the United States.
FALSE
In countries where there are well-developed capital markets, such as the United States and Britain, firms typically
raise capital by issuing stock or bonds to investors.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 20-01 Discuss the national differences in accounting standards.
Topic: National Differences in Accounting Standards
4. Accounting standards are rules for preparing financial statements.
TRUE
Accounting standards are rules for preparing financial statements. They define what is useful accounting
information.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 20-01 Discuss the national differences in accounting standards.
Topic: National Differences in Accounting Standards
,5. Auditing standards are rules that define the accounting principles and monetary policy of a nation.
FALSE
Auditing standards specify the rules for performing an audit—the technical process by which an independent
person (the auditor) gathers evidence for determining if financial accounts conform to required accounting
standards and if they are also reliable.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 20-01 Discuss the national differences in accounting standards.
Topic: National Differences in Accounting Standards
6. IASB is a major proponent of international accounting standards.
TRUE
The International Accounting Standards Board (IASB) has emerged as a major proponent of standardization. The
IASB has 15 members who are responsible for the formulation of new international financial reporting standards.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 20-02 Explain the implications of the rise of international accounting standards.
Topic: International Accounting Standards
7. Compliance to IASB standards is mandatory for countries to engage in international trade.
FALSE
Another hindrance to the development of international accounting standards is that compliance is voluntary; the
IASB has no power to enforce its standards.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 20-02 Explain the implications of the rise of international accounting standards.
Topic: International Accounting Standards
8. The standards of U.S. Financial Accounting Standards Board and IASB are vastly different.
FALSE
To date, the impact of the IASB standards has probably been least noticeable in the United States because most
of the standards issued by the IASB have been consistent with opinions already articulated by the U.S. Financial
Accounting Standards Board (FASB).
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 20-02 Explain the implications of the rise of international accounting standards.
Topic: International Accounting Standards
9. The budget is the main instrument of financial control in an organization.
TRUE
The budget is the main instrument of financial control. The budget is typically prepared by the subunit, but it must
be approved by headquarters management.
AACSB: Analytic
, Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 20-03 Explain how accounting systems affect control systems within the multinational enterprise.
Topic: Accounting Aspects of Control Systems
10. Most international businesses require all budgets and performance data within the firm to be expressed in the
currencies of the countries where its subunits are located.
FALSE
Most international businesses require all budgets and performance data within the firm to be expressed in the
"corporate currency," which is normally the home currency.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 20-03 Explain how accounting systems affect control systems within the multinational enterprise.
Topic: Accounting Aspects of Control Systems
11. A European subsidiary of a U.S. firm will usually prepare its budgets in Euro.
FALSE
Most international businesses require all budgets and performance data within the firm to be expressed in the
"corporate currency," which is normally the home currency. Here the firm would typically prepare budget in U.S.
dollars.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 20-03 Explain how accounting systems affect control systems within the multinational enterprise.
Topic: Accounting Aspects of Control Systems
12. The initial rate, in the Lessard-Lorange Model, refers to the spot exchange rate when the budget is adopted.
TRUE
In the Lessard-Lorange Model, the initial rate is the spot exchange rate when the budget is adopted.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 20-03 Explain how accounting systems affect control systems within the multinational enterprise.
Topic: Accounting Aspects of Control Systems
13. The ending rate refers to the spot exchange rate forecast for the end of the budget period in the Lessard-Lorange
Model.
FALSE
The ending rate refers to the spot exchange rate when the budget and performance are being compared in the
Lessard-Lorange Model.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 20-03 Explain how accounting systems affect control systems within the multinational enterprise.
Topic: Accounting Aspects of Control Systems
, 14. Using the ending rate to translate the budget is a valid practice according to the Lessard-Lorange Model.
FALSE
Lessard and Lorange ruled out four of the nine combinations they proposed as illogical and unreasonable. For
example, it would make no sense to use the ending rate to translate the budget and the initial rate to translate
actual performance data.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 20-03 Explain how accounting systems affect control systems within the multinational enterprise.
Topic: Accounting Aspects of Control Systems
15. Lessard and Lorange recommend that firms use the projected spot exchange rate to translate both the budget
and performance figures into the corporate currency.
TRUE
Of the five valid combinations they identified, Lessard and Lorange recommend that firms use the projected spot
exchange rate to translate both the budget and performance figures into the corporate currency.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 20-03 Explain how accounting systems affect control systems within the multinational enterprise.
Topic: Accounting Aspects of Control Systems
16. The projected rate will typically be the forward exchange rate as determined by the foreign exchange market
when firms use the projected spot exchange rate to translate both the budget and performance figures into the
corporate currency.
TRUE
Of the five valid combinations they identified, Lessard and Lorange recommend that firms use the projected spot
exchange rate to translate both the budget and performance figures into the corporate currency. The projected
rate in such cases will typically be the forward exchange rate as determined by the foreign exchange market.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 20-03 Explain how accounting systems affect control systems within the multinational enterprise.
Topic: Accounting Aspects of Control Systems
17. The price at which goods and services are transferred between subsidiary companies in a multi-national firm is
referred to as minimum retail price.
FALSE
The price at which goods and services are transferred between subsidiary companies in a multi-national firm is
referred to as the transfer price.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 20-03 Explain how accounting systems affect control systems within the multinational enterprise.
Topic: Accounting Aspects of Control Systems
