RSM220H1 Lecture Notes - Lecture 1: Financial Statement, Financial Accounting, Integrated Reporting

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22 Feb 2016
School
Department
Course
Professor
1
RSM220
The Canadian Financial Reporting Environment
KIESO: Ch. 1
CICA HB: Parts I and II
1
After studying this chapter, you should be
able to:
Explain how accounting makes it possible to use scarce resources more
efficiently.
Explain the meaning of “stakeholder” and identify key stakeholders in
financial reporting, explaining what is at stake for each one.
Identify the objective of financial reporting.
Explain how information asymmetry and bias interfere with the objective of
financial reporting.
Explain the need for accounting standards.
Identify the major entities that influence the standard-setting process and
explain how they influence financial reporting.
Explain the meaning of generally accepted accounting principles (GAAP).
Explain the significance of professional judgement in applying GAAP.
Discuss some of the challenges and opportunities for accounting.
2
The Canadian Financial Reporting
Environment
Financial
Statements and
Financial
Reporting
Accounting and
capital allocation
Stakeholders
Objective of
financial
reporting
Information
asymmetry
Standard
Setting
Need for
standards
Parties
involved in
standard setting
GAAP
GAAP
hierarchy
Professional
judgement
Challenges and
Opportunities for the
Accounting Profession
Oversight in the capital
marketplace
Centrality of ethics
Standard setting in a
political environment
Principles versus rules
Impact of technology
Integrated reporting
3
What is FR?
Characteristics of Accounting (in general)
identifies, measures, and communicates financial
information about
economic entities to
interested parties (such as investors, creditors,
management, unions and governmental agencies, etc.)
both internal and external.
Accounting has two broad classifications:
1. Financial accounting
2. Managerial accounting
4
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2
What is FR?
Accounting theory and practice have evolved and will
continue to evolve to meet changing demands and
influences
What is included in major financial statements?
Other forms of financial reporting
5
Why do we need it?
What is the objective?
to communicate information that is useful to “users”
for decision making
resource allocation decisions (including assessment of management
stewardship).
6
Capital Allocation Process
7
Accounting and Capital Allocation
In Canada, the primary exchange mechanisms for allocating
resources are:
Debt and equity markets (e.g. TSX)
Financial institutions (e.g. banks)
An effective process of capital allocation is critical to a healthy
economy
Unreliable and irrelevant information leads to poor capital allocation
Credit rating agencies/Financial analysts?
This gives investors and creditors additional independent information
8
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