Study Guides (248,350)
Canada (121,501)
Commerce  (94)
COMM 321 (3)
Midterm

COMM 321 Midterm NOtes.docx

10 Pages
333 Views
Unlock Document

Department
Commerce 
Course
COMM 321
Professor
Peter Blake
Semester
Winter

Description
Chapter 1. The Canadian Financial Reporting Environment Objective of Financial Reporting: provide useful fin. Info for decision makers  emphasis on resource allocation decisions (Invest in X company) and  management stewardship (lenders/investors) need to assess managers since they’re managing co. but they’re not ones w/ funds at risk. Management Bias: present biased information that presents company as the best they can (aggressive financial reporting).  Not neutral: may be trying to over/under emphasize positives/negatives. Incentives for Fraudulent Accounting: -compensation tied to fin. performance; common stock price -meeting financial analysts expectations  avoid negative “earnings surprises: -meeting contractual financial ratios – banks (loans); govts (regulators) Need Accting Stds: IFRS (Intl Fin. Reporting Standards) – publicly accountable entities (shares/debt traded publicly) & govt. business enterprises  IASB (International Accounting Standards Board; London based, Int’l members) PE GAPP (Generlly Accepted Accounting Principles) – private co. have option of IFRS or PE GAAP CICA (Canadian Institute of Chartered Accountants) mandated by CBCA (Canada Business Corporation Act)  F/S must be prepared in accordance w/ GAAP as prescribed by the CICA handbook AcSB (Canadian Accounting Standards Board); private co., pension plans, not-for-profit entities US: SEC (adopting IFRS soon, keep deferring); has final authority over standards, NOT FASB  FASB (referred as U.S GAAP; working w/ IASB to IFRS); major standard setting body How Accounting standards set?  Need for std. indentified (new, never happened before, business transaction)  Put on agenda of standard selling body  Board conducts research and analysis  Publishes exposure draft for comment (everyone involved given a copy) 1. Re-exposure if necessary (from comments)  Issues final standard (based on comments and evaluation)  Standards revised if and when necessary (review every 2 years) GAAP Hiearchy (What accountant should consult first) 1. CICA Handbook (Part 1 – IFRS; Part 2- PE GAAP) 2. AcSB / IASB bkgrd info/basis for conclusions 3. AcSB / IASB implementation guidelines 4. Stds. In other jurisdictions (US and FASB) 5. Approved drafts of new standards 6. Exposure Drafts/Research Studies 7. Accting textbooks, journals, studies, articles 8. Industry Practice Sarbanes Oxley (2002)  Stronger independence rules for auditors, audit committee, analysts  F/S must be signed & certified by CEO, CFO  Stronger jail sentences for execs who knowingly commit fraud/misrepresent F/S  Protection for whistleblowers  SEC has power over accounting/auditing standads  Stronger reports on senior exec. stock transactions, off balance sheet Chapter 2. Conceptual Framework Underlying Financial Reporting Conceptual Framework, for setting accounting standards 1. Objectives of Financial Reporting – the “why” ; goals and purposes of accounting 2. Qualitative characteristics of accounting information & Elements of F/S 3. Foundational Princeiples – the “how” implementation Qualitative Characteristics of Useful Financial Information  Fundamental Characteristics o Relevance – makes a diff, has predictive value o Faithful Representation – complete, neutral, free from error or bias  Enhancing Characteristics o Comparability – identify similarities/diff b/w entities; consistency o Verifiability – diff. observers/accountants reach same value o Timeliness – available to decision makers before it loses ability to influence decisions o Understandability – to business users, with reasonable knowledge Tradeoffs – relevance & faithful rep. must be present to ensure info is decision-relevant - If new standard is applied to provide more relevant info., CONSISTENCY will be temp. sacrificed  Constraints o Materiality – if omitting an item could influence/change decisions o Cost versus Benefits – cost of obtaining the info vs. the benefits Elements of Financial Statements Assets, Liabilities, Revenues, Expenses, Gains, Losses Foundational Principles of Financial Reporting Economic Entity Assumption – can identify an entity w/ distinct activities (ie. From business); present most meaningful  usually the consolidated entity rather than the legal entity (TD Sec, wholesale) Control – include all legal entities under common control (equal ability to direct activities) Revenue Recognition and Realization – record rev. when earned (regardless when cash received) Matching – record expenses in same period as related revenues (ex. dep’n; computer to generate revenue for 3 years – expense cost over 3 years of those revenues) Periodicity – fin. info must be presented periodically so assume entity’s activities can be divided into time periods. Shorter time period = more errors Monetary Unit – money is common denominator of economic activity (i.e. ignore CPI, inflation) Going Concern – reporting entity will continue to operate for the foreseeable future (liquidation values ≠F/S Values) Historical Cost – trans’n originally recorded at cost of when took place Fair Value – may be more useful than historical cost for certain assets/liabilities in certain industries  Present fair value (value can be sold at on reporting date) ex. Old Paint company in DT T.O. Mkt value: millions (real estate) Books: thousands ; shareholders would want to know this Full Disclosure – anything that’s relevant to decisions should be disclosed in the F/S Chapter 3. The Accounting Information System A + E + D = L + C + R DR CR The Accounting Cycle  Identification/measurement of transactions and other events  Journalization  Posting (To general ledger, subsidiary ledgers; each account gets a page, running total)  Trial balance preparation (list of accounts and balances at a specific time)  Adjustments (to ensure rev. recognition principle followed, and proper matching occurs)  Adjusted trial balance  Statement Preparation (I/S  R/E  B/S  CF)  Closing (temp. accounts)  Post-closing trial balance (optional)  Reversing Entries (optional) Chapter 4. Reporting Financial Performance PE GAAP – Income Statement IFRS – Statement of Comprehensive Income Objective: Evaluating past financial performance (net income) & be able to predict future financial performance / cash flows  Must separate continuing operations from discontinued operations Within continuing operations (recurring) - Operating section: Sales – COGS (Gross profit) – SG&A Expenses = Operating Income - Non-operating section: Other Incomes & Gains; Other Expenses & Losses - Interest Rev/Exp; Gain/Loss asset/sales - Income Tax Expense (on income from continuing operations only) Within discontinued operations - Income(loss) from operations for period owned (net of tax) - Gain(loss) on disposal (net of tax) - Disc. Ops includes those disposed od & held for sale Extraordinary items (hurricanes) – no more; (other items) – sig. diff from entity’s typical business ops. Change in Accounting Estimates (dep’n extend, etc) – not disclosed separately but is referenced in notes; prior years not adjusted; change is reflected in current year & going forward only Error in Prior Years – opening R/E is adjusted (all comparative figures restated); error explained in notes Change in Accounting Policy – opening R/E is adjusted (all comparative figures restated); change in policy is explained in notes(incl. why) IFRS – Comprehensive Income = Net Income + Other Comprehensive Income (OCI) List includes: - Adjustments on revaluation of PPE (revaluation surplus) - Unrealized gains/losses on available-for-sale securities - Unrealized gains/losses on FX translation of foreign subsidiaries - Actuarial gains/losses on defined benefit pension plans - Changes in fair value of a financial instrument used as a hedge Chapter 5. Financial Position and Cash Flows Chapter 6. Revenue Recognition Earnings Approach & Contract-based Approach Earnings Approach (Completed contract method & percentage of completion method) - In place for IFRS and PE GAAP - Revenue recognized when earned; Performance complete/Collection reasonably assured o Performance achieved: 1. Risks/rewards are transferred; earnings process is substantially complete 2. Price is measurable o Collectability is reasonably assured - Issues: Goods vs. Services Goods – FOB shipping vs FOB destination o FOB shipping – include in earnings before arrives Services 1. Discrete earnings process (car tune-up, tax return prep.) o Earn revenue when finish providing the service Accounting: Use “Completed contract method” All revenue is recorded once contract is complete 2. Continuous earnings process – must perform several activities, usually with interim billings; costs are measured constantly and compared to budget Accounting: Use “% of completion method” to record revenue Revenue recognized = total revenue * % complete less revenue recorded in prior periods % Complete = (Costs incurred to date) / (Costs incurred to date + Estimated costs to complete) Percentage of Completion method GIVEN: 2010 2011 2012 Costs Incurred 3,060,000 6,435,000 9,300,000 Est. Costs to Complete 4,595,000 2,656,000 -0- Progress Billings to Date 4,000,000 6,300,000 11,000,000 Cash Collected to Date 3,500,000 5,000,000 11,000,000 NEED TO CREATE: 2010 2011 2012 Costs Incurred 3,060,000 6,435,000 9,300,000 Est. Costs to Complete 4,595,000 2,656,000 -0- Est. Total Costs 7,655,000 9,091,000 9,300,000 % Complete 39.9739% 70.7843% 100% Revenue to Recognize 4,397,129 (39.97% * 11mil) 7,786,273 11,000,000 Less: Prior years - 4,397,129 7,786,273 Current year Revenue 4,397,129 3,389,144 3,213,727 Costs 3,060,000 3,375,000 2,865,000 Gross Profit 1,337,129 14,144 348,727 Journal Entries for Percentage of Completion (Problem 6-2) 2010 2011 2012 Construction in Process 3,060,000 3,375,000 2,865,000 A/P, RM, Cash, etc 3,060,000 3,375,000 2,865,000 A/R 4,000,000 2,300,000 4,700,000 Billings on C-in-P 4,000,000 2,300,000 4,700,000 Cash 3,500,000 1,500,000 6,000,000 A/R 3,500,000 1,500,000 6,000,000 C-in-P 1,337,129 14,144 348,727 Construction Expenses 3,060,000 3,375,000 2,865,000 Revenues 4,397,129 3,389,144 3,213,727 Billings on C-in-P 11,000,000 C-in-P 11,000,000 Journal Entries Completed Contract Method (First 3 Entries same as % of completion method) 2010 2011 2012 Construction in Process 3,060,000 3,375,000 2,865,000 A/P, RM, Cash, etc 3,060,000 3,375,000 2,865,000 A/R 4,000,000 2,300,000 4,700,000 Billings on C-in-P 4,000,000 2,300,000 4,700,000 Cash
More Less

Related notes for COMM 321

Log In


OR

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


OR

By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.


Submit