BU227 Lecture Notes - Canadian Securities Administrators, Informationweek, Financial Statement

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20 Nov 2012
BU227 Chapter 6 Communicating and Interpreting Accounting Information Week 12
Players in the Accounting Communication Process
Regulators (CSA, AcSB, AASB, Stock Exchanges)
-Canadian publicly traded corporations must comply with provincial securities regulations that are
coordinated by the Canadian Securities Administrators (CSA)
-The CSA’s mission is to protect investors from unfair, improper, or fraudulent practices and to foster
fair, efficient, and vibrant capital markets
-Securities regulators work closely with the Accounting Standards Board (AcSB) that is responsible for
establishing standards of accounting and reporting by Canadian companies
-External auditors ensure that companies prepare their financial reports in accordance with these
standards, and their audit work is guided by International Standards on Auditing which have been
adopted by the Canadian Auditing and Assurance Standards Board as Canadian Auditing Standards
-As intermediaries, the stock exchanges may also enforce their rules through penalties ranging from
temporary cease trade orders to fines and delisting of companies
Managers (CEO, CFO, and Accounting Staff)
-The CEO and CFO must sign the statement of management responsibility that is included in the annual
-These two officers must certify that: each report riled with the provincial securities commission does
not contain any untrue material or omit a material fact and fairly presents in all material respects the
financial condition, results of operations, and cash flows of the company; there are no significant
deficiencies and material weaknesses in the internal controls over financial reporting; they have
disclosed to the auditors and audit committee of the board any weaknesses in internal controls or any
fraud involving management or other employees who have a significant role in financial reporting
-The members of the accounting staff who actually prepare the details of the report also have
professional responsibility for the accuracy of this information
Board of Directors (Audit Committee)
-Board of directors elected by the shareholders to represent their interests, is responsible for
maintaining the integrity of the company’s financial reports
-Unqualified (clean) audit opinion Auditors’ statement that the financial statements are fair
presentations in all material respects in conformity with Canadian Auditing Standards
-KPMG is an auditing firm
Information Intermediaries: Analysts and Information Services
Financial Analysts
-Financial analysts receive accounting reports and other information about the company from electronic
information services
-The results of their analyses are combined into analysts’ reports
-Analysts’ reports normally include forecasts of share price and future quarterly and annual earnings per
share; a buy, sell or hold recommendation for the company shares; and explanations for these
-Earnings forecasts predictions of earnings or future accounting periods
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BU227 Chapter 6 Communicating and Interpreting Accounting Information Week 12
-Analysts make recommendations to buy, hold, or sell a company’s shares based on their earnings
Information Services
-Canadian companies actually file financial statements and other securities-related forms electronically
with SEDAR (System for Electronic Document Analysis and Retrieval), which is the official site for the
filing of documents by public companies as required by security laws in Canada
-Financial analysts and other sophisticated users obtain much of the information they use from the wide
variety of commercial online information services
Users: Institutional and Private Investors, Creditors, and Others
-Institutional investors include private pension funds; public pension funds; mutual funds; and
endowment, charitable foundation and trust funds
-Institutional investors managers of pension funds, mutual funds, endowment funds, and other funds
that invest on behalf of others
-Private investors individuals who purchase shares in companies
-Lenders (creditors) suppliers and financial institutions that lend money to companies
-Lenders include suppliers, banks, commercial credit companies, and other financial institutions that
lend money to companies
-Customers evaluate the financial health of suppliers to determine whether they will be reliable up-to-
date sources of supply
-Supplier evaluate their customers to estimate their future needs and ability to pay debts
-Competitors attempt to learn useful information about a company from its statements
The Disclosure Process
Press Releases
-To provide timely information to external users and to limit the possibility of selective leakage of
information, most public companies announce quarterly and annual earnings through a press release as
soon as the audited annual figures are available
-Press release a written public news announcement normally distributed to major news services
Annual Reports
-Annual reports are simple documents photocopied on white paper
-They include:
-Basic financial statements
-Related notes
-Report of independent accountants (auditor’s opinion)
-The annual reports of public companies are significantly more elaborate, both because of additional
reporting requirements imposed on these companies by securities commissions and because many
companies use their annual reports as public relations tools to communicate non accounting
information to shareholders, customers, the press, and others
-The annual reports of public companies are normally split into two sections
-The first “non-financial” section includes a letter to shareholders from the chairperson and CEO, along
with descriptions of the company’s management philosophy, products, and successes
-The second “financial” section includes the core of the report
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