RSM220H1 Lecture Notes - Lecture 1: Financial Statement, Financial Accounting, Integrated Reporting
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The Canadian Financial Reporting Environment
KIESO: Ch. 1
CICA HB: Parts I and II
After studying this chapter, you should be
Explain how accounting makes it possible to use scarce resources more
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
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.
The Canadian Financial Reporting
Opportunities for the
•Oversight in the capital
•Centrality of ethics
•Standard setting in a
•Principles versus rules
•Impact of technology
What is FR?
•Characteristics of Accounting (in general)
•identifies, measures, and communicates financial
•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
What is FR?
•Accounting theory and practice have evolved and will
continue to evolve to meet changing demands and
•What is included in major financial statements?
•Other forms of financial reporting
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
Capital Allocation Process
Accounting and Capital Allocation
•In Canada, the primary exchange mechanisms for allocating
•Debt and equity markets (e.g. TSX)
•Financial institutions (e.g. banks)
•An effective process of capital allocation is critical to a healthy
•Unreliable and irrelevant information leads to poor capital allocation
•Credit rating agencies/Financial analysts?
•This gives investors and creditors additional independent information