What is a company's functional currency? A) the currency of the primary economic environment in which it operates B) the currency of the country where it has its headquarters C) the currency in which it prepares its financial statements D) the reporting currency of its parent for a subsidiary E) the currency it chooses to designate as such Which of the following is not a factor influencing a country's financial reporting practices? A) Providers of financing B) Inflation C) Legal system D) Gross National Product E) Political and economic ties

 What is a company's functional currency?
A) the currency of the primary economic environment in which it operates
B) the currency of the country where it has its headquarters
C) the currency in which it prepares its financial statements
D) the reporting currency of its parent for a subsidiary
E) the currency it chooses to designate as such

Answer: A) the currency of the primary economic environment in which it operates

U.S. GAAP under SFAS 52 requires identification of functional currency. Functional currency is the primary currency of the foreign subsidiary's operating environment.

25. Which of the following is not a factor influencing a country's financial reporting practices?
A) Providers of financing
B) Inflation
C) Legal system
D) Gross National Product
E) Political and economic ties

Answer: D) Gross National Product

All other factors influence a country's financial reporting practices

Providers of financing - whether it is bank or equity financing has a role to play- example Germany- Stock exchange rules have less influence than in U.S., Creditor protection is paramount

Legal system- German GAAP- there is reliance on statutes and court decisions. Commercial code and tax laws are main sources of accounting rules.

Inflation: Sweden has low inflation- Swedish GAAP - inventory method is FIFO.

Political and economic ties - Example UK- Its financial structure is closest to the U.S. Accounting regulation is similar to that of U.S.