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Accounting for Business Combinations Notes.doc

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Carleton University
BUSI 3001

MODERN ADVANCED ACCOUNTING IN CANADAth6 EditionSummary NotesPrologue to Chapter 52012Notice to Reader The textbook reflects the state of the accounting world as of January 1 2010 These notes summarize the key points in the textbook plus major changes in the accounting world since January 1 2010 The major changes are noted in CAPS AND BOLD for ease of identification Prologue1Explain objectives of reportingAccounting information is provided to users to assist themPredict the entitys ability to earn income and generate cash flows in order to make decisions for resource allocationAssess managements stewardship of assets and evaluate management performanceAssess compliance with legal and other business contractsIn most cases generalpurpose financial statements prepared in accordance with GAAP are provided to users as a starting point for their analysisSpecial accounting policies should be used when users have special needs and are willing to pay the additional cost of preparing special purpose reports on a disclosed basis of accounting For example entities may need to prepare nonGAAPbased statements for legislative or regulatory purposes or for contract compliance2Explain the various financial statement concepts and identify when these concepts can be should be and are being applied in accounting practiceIASBs Framework for the Preparation and Presentation of Financial Statements which is a document found just prior to the IFRSs contains the basic accounting concepts and principlesAll accounting practices should be based on these fundamental concepts or principlesThe main concepts areThe objectives of financial statementsUnderlying assumptionsQualitative characteristics of financial statementsThe elements of financial statementsRecognition and measure of the elements of financial statementsConcepts of capital and capital maintenanceMost issues in accounting can be solved using these conceptsAs you study new accounting practices try to understand these practices in terms of basic concepts and principles rather than memorizing a rule13Explain what constitutes GAAP in Canada GAAP are the basic accounting concepts specific rules broad principles and conventions that are generally accepted by users and generally practiced by most preparers of financial statementsThe primary sources of GAAP in descending order of authority are IASBs IFRSs IASs IFRICs and SICs Other sources of GAAP include foreign pronouncements research studies textbooks and other publicationsAccounting practices should be consistent with the spirit of the primary sources of GAAP and the financial statement concepts described in IASBs Framework for the Preparation and Presentation of Financial StatementsCorporations are required by the Canada Business Corporations Act and some provincial corporations acts to prepare financial statements that comply with GAAP as encompassed by the CICA HandbookPublically traded companies are required to submit statements that comply with GAAP to the securities commission 4Explain the distinguishing factors of professional judgment and apply professional judgment in a case analysisJudgment is a skill developed over many years of study and learning from ones experiencesIt involves making choices between meaningful alternativesProfessional judgment is derived from an individuals knowledge and experience in hisher professionIn financial accounting judgment is applied in choosing accounting policies in measuring financial position and results under conditions of uncertainty and in determining appropriate disclosure in the notes to the financial statementsCases provide a practical means of gaining realworld type experience and developing professional judgment Case analysis involves identifying the issues the environment type of organization and users needs analyzing the alternatives and using professional judgment to make a recommendation5Identify when and how ethical issues affect a professional decisionEthics involves understanding the impact of decisions on peoplewho is affected by the decisions how they are affected and whether the decision is fairProfessional decisions should comply not only with accounting standards but also with the ethical principles of the accounting professionGenuinely good people often disagree about what is fair and good for society2Chapter 1A Survey of International Accounting 1Identify the factors that can influence a countrys accounting standards Accounting standards are or should be developed to satisfy needs of usersThe economic political and legal conditions in which a user lives or operates are factors in determining the users needsIf these conditions vary from country then the accounting standards will likely vary from country to countryWhen the conditions are similar it should be possible to harmonize accounting standards for countries with similar conditionsThe specific factors that have been found to influence the development of a countrys accounting and reporting practices areThe countrys tax system and level of inflationThe level of development of capital markets and the sophistication of users and suppliers of capitalDiffering legal systemsthe governments involvement in standard settingPolitical and economic ties between countries2Describe areas where Canadas accounting standards differ from those used in other countriesAccounting rules and practices differ among virtually all jurisdictions often in major waysDifferences in terminology and style of presentationThe balance sheet of a Canadian firm is normally presented in decreasing order of liquidityMost other countries other than the USA and Australia follow the reverse order from least to most liquidBalance sheets in many countries are presented in a net asset format where AssetsLiabilitiesEquitiesDifferences in methods of measurement Affect the reported results andor financial position of the companyRange from departures from historical cost to varying standards within the historical cost modelDifferences in disclosure relate to the nature and amount of information included in the financial statements and associated material3Identify the role the IASB intends to play in the establishment of uniform worldwide accounting standardsObjectives of IASB areTo develop a single set of highquality global accounting standards that require transparent and comparable information in general purpose financial statementsTo cooperate with various national accounting standardsetters in order to achieve convergence in accounting standards around the worldIASB intends to issue international financial reporting standards IFRSS in areas where no international standards existed3
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