MGT220H5 Chapter Notes - Chapter 1: Moral Hazard, Adverse Selection, Income Statement
Document Summary
Used by both internal and external users. External users include such decision makers as investors, creditors, unions, and government agencies. Used by management (internal users only: major financial statements include: Income statement: balance sheet, statement of cash flows, statement of shareholders" (owners") equity. [note disclosures: other forms of financial reporting include, news releases, management forecasts, etc. Includes both internal and external parties: key stakeholders include: investors, creditors, auditors, regulators, analysts, management, standard setters, and others. The overall objective of financial reporting is to provide information that is [decision-useful]. i. e. , financial reporting should help users to allocate capital. Financial statements should provide information about: the entity"s [economic resources] and [claims] to those resources, and. Resource allocation decisions include assessment of management stewardship (i. e. management role in maximizing shareholder value) Information asymmetry: not all stakeholders have equal access to all relevant information. [conflict of interests (e. g. , managers vs. investors] Adverse selection: lemon problem in used cars market (akerlof 1970)
