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Floria Niu (12)
Lecture 1

BU387 Lecture 1: Chapter 1 Notes

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Floria Niu

Chapter 1 – The Canadian Financial Reporting Environment Financial Statements and Financial Reporting • Accounting – (1) the identification, measurement, and communication of financial information (2) about economic entities (3) to interested persons • Financial accounting – the process that ends in the preparation of financial reports that cover all of the company’s business activities and that are used by both internal and external parties • Managerial accounting – process of identifying, measuring, and communicating financial information to internal decision makers • Financial statements – a way of communicating financial information to those who are outside an enterprise o Balance sheet – “snapshot” of the business o Income statement – rev/exp/gain/loss o Cash flow statement – cash inflows/outflows o Statement of returned earnings – (ASPE) o Statement of shareholder’s equity – (IFRS) o Note disclosures – e.g. president’s letter and supplementary schedules in the corporate annual report, news release, management forecast Stakeholders • Investors and creditors rely on the financial statements to make decisions • Standard setters set Generally Accepted Accounting Principles (GAAP) Stakeholder What is at stake? Investors/creditors Investment/loan Management Job, bonus, reputation, salary increase, access to capital markets by company Securities commissions and stock exchanges Reputation, effective and efficient capital marketplace Analysts and credit rating agencies Reputation, profits Auditors Reputation, profits (companies are their clients) Standard Setters Reputation Others Various Objective of Financial Reporting • Objective of financial reporting is to provide financial information that is useful to users and that is decision relevant • Accrual basis accounting – company records events that change its financial statements when the event occurs, rather than only in the periods in which it receives or pays cash Information Asymmetry •
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