Reading 31: Financial Reporting Standards - LOS c ～ Q1-3 spa, describe, black

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1.The term “convergence” is most accurately used to describe:

A)   the process of developing one universally accepted set of accounting standards.

B)   when expected return and required return are equal.

C)   the reduction of the premium on a bond as it nears maturity.

D)   the tendency for NPV to equal IRR as the discount rate approaches WACC.

2.Which of the following is most likely to be considered a barrier to developing one universally recognized set of reporting standards?

A)   Reluctance of firms to adhere to a single set of reporting standards.

B)   Different standard-setting bodies of different countries disagree on the best treatment of a particular issue.

C)   Existing agreement among international regulatory authorities is likely to be undermined.

D)   GATT already requires sufficient agreement.

3.The process of developing one universally accepted set of accounting standards is best described as:

A)   IASB.

B)   convergence.

C)   universalization.

D)   unification.

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答案和详解如下：

1.The term “convergence” is most accurately used to describe:

A)   the process of developing one universally accepted set of accounting standards.

B)   when expected return and required return are equal.

C)   the reduction of the premium on a bond as it nears maturity.

D)   the tendency for NPV to equal IRR as the discount rate approaches WACC.

The correct answer was A)

Moving towards agreement on a single set of accounting standards is referred to as “convergence.” The term is also used to refer to the tendency of futures prices to equal spot prices on the final trading day of a futures contract, but does not apply to a swap.

2.Which of the following is most likely to be considered a barrier to developing one universally recognized set of reporting standards?

A)   Reluctance of firms to adhere to a single set of reporting standards.

B)   Different standard-setting bodies of different countries disagree on the best treatment of a particular issue.

C)   Existing agreement among international regulatory authorities is likely to be undermined.

D)   GATT already requires sufficient agreement.

The correct answer was B)

A principal obstacle to agreement on a single set of reporting standards is that various standard-setting bodies and regulatory authorities disagree on what the standards should be. Firms generally support the idea because it would reduce the cost of reporting. GATT is the General Agreement on Tariffs and Trade and does not relate to financial reporting.

3.The process of developing one universally accepted set of accounting standards is best described as:

A)   IASB.

B)   convergence.

C)   universalization.

D)   unification.

The correct answer was B)

Developing one universally accepted set of accounting standards is referred to as “convergence.” The IASB is an accounting standard setting body involved in the process.