Class Notes (787,835)
Canada (482,923)
Brock University (11,658)
Accounting (219)
ACTG 2P31 (26)


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Brock University
Parunchana Pacharn

Chapter 1: The Canadian Financial Reporting Environment Read: Chapter 1 In-class exercise: BE1-2, BE1-3, BE1-8 Practice exercise: BE1-5, BE1-12, BE1-13, BE1-2 Major financial statements include: Balance Sheet Income Statement (include comprehensive income) Statement of Cash Flows Statement of Shareholders’ (Owners’) Equity + Note Disclosures Stakeholders in Financial Reporting • Stakeholders: parties who have something at stake in the financial reporting environment • Key stakeholders include traditional users of financial information • Broader definition of users is: anyone who prepares, relies on, reviews, audits, or monitors financial information • Key stakeholders include investors, creditors, auditors, regulators, analysts, management, standard setters, and others Accounting and Capital Allocation Financial reporting aids users in the allocation of capital  The accounting profession has the responsibility of measuring a company’s performance accurately, fairly, and on a timely basis  These measurements enable investors and creditors to compare the income and assets employed by companies  Investors can then assess the relative risks and returns associated with companies  An effective process of capital allocation is critical to a healthy economy  Unreliable information leads to poor capital allocation What incentives would managers have to disclose some financial information voluntarily?  To reassure debt & equity markets  Firms compete to pay lowest rate, more information may reduce investors’ perception of firm’s risk  To improve manager’s worth in managerial labour market  May disclose information to raise bid of friendly takeover or  to discourage unfriendly takeovers  To satisfy demands from financial analysts, activist groups 1 The Need to Develop Standards • Standards are set to aid preparers and users of financial statements • They allow the preparers of the financial statements to present fairly the operations of the company • Standards increase efficiency in communication for both firms and users • Having standards allow for more balanced and consistent reporting, e.g., good and bad news, level of aggregation or aggressiveness. The Standard Setting Process in Canada – Parties Involved • International Accounting Standards Board (IASB) – GAAP for public companies for periods beginning on or after January 1, 2011 • Accounting Standards Board (AcSB) of the CICA – GAAP for private companies, pension plans, not-for-profit entities • Financial Accounting Standards Board (FASB) and the Securities and Exchange Commission • Provincial Securities Commission (e.g. Ontario – – To oversee and monitor capital marketplace – Ensure strict adherence to securities law/legislation – Require GAAP financial statements Standard Setting Process Due Process: A system that allows interested persons to have opportunities to express their views Generally Accepted Accounting Principles (GAAP) • The profession has developed GAAP, which aids in presenting fairly, clearly, and completely the financial operations of the enterprise • GAAP consists of authoritative pronouncements issued by certain accounting bodies and also broad principles and conventions that apply generally. The GAAP Hierarchy • IFRS • IAS • Interpretations • Pronouncements of other standard-setting bodies • Other accounting literature • Accepted industry practices 2 Challenges Facing Accounting Standards  Globalization: Need for international harmonization of standards  Technology: Ability to produce and access timely information  New economy: A move from the traditional ‘resource-based’ to a ‘knowledge- based’ economy  Accountability: Driven by more sophisticated and varied investors 3 Exercises BRIEF EXERCISE 1-2 Financial accounting measures, classifies, and summarizes in report form those activities and that information which relate to the enterprise as a whole for use by parties both internal and external to a business enterprise. Managerial accounting also measures, classifies, and summarizes in report form enterprise activities, but the communication is for the use of int
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