[AFM 291] - Midterm Exam Guide - Comprehensive Notes for the exam (14 pages long!)

• School: University of Waterloo
• Department: Accounting & Financial Management
• Course: AFM291
• Professor: Forbes Burkowski

Document Summary

Financial reporting is the process by which enterprises provide information to external parties. Tax accounting is reporting of taxable amounts to the government revenue authorities. Financial reporting is an economic good and therefore subject to the laws of demand and supply. Information is evidence that can affect an individual"s decision. The outcome of decision regarding investing , selling products and more depend on firms performance in the future and past performance is a good source of information to help predict the future. Decision making needs of external parties make demand for financial reporting. Information asymmetry : condition in which some people have more information than others. Adverse selection : a type of information asymmetry whereby one party to a contract has an information advantage over another party. Scenario: all the cars are identical and the sellers have advertised the car at the best offer.