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Management and Organizational Studies
Management and Organizational Studies 1023A/B
Maria Ferraro

SEPTEMBER 13 : CUSTOM SELECT – THE PURPOSE AND USE OF FINANCIAL STATEMENTS • Three types of business activities: 1. Financing  Loans from banks  Selling shares 2. Investing  Property, plant and equipment 3. Operating  Revenues, ARs, merchandise inventory, COGS, interest payable, dividends payable, income tax payable, etc. • Communicating with users of financial statements: 1. Statement of Earnings  Revenues, expenses, net earnings. 2. Statement of Retained Earnings  Add net earnings from S of E, less dividends = retained earnings. 3. Balance Sheet  Assets, liabilities, shareholders’ equity. 4. Cash Flow Statement  Operating, investing, and financing (issue of common shares) activities. • Relationships between financial statements: o Net earnings from S of E is added to beginning amount of S of RE. o Ending amount of S of RE is reported as retained earnings amount in shareholders’ equity section of BS. o Ending amount of cash on CF must match amount of cash shown in assets of BS. TH SEPTEMBER 13 : BUSINESS SELECT – VIEWPOINT: OF CEOS AND ACCOUNTING • CEOs must know accounting! • They have to sign Form 52-109F1 TH SEPTEMBER 20 : CUSTOM SELECT – FINANCIAL STATEMENTS: FRAMEWORK, PRESENTATION, AND USAGE • Conceptual framework of accounting: o Objecting of financial reporting: o Qualitative characteristics of accounting info:  Relevance  Faithful representation  Comparability  Understandability • Assumptions that guide when to recognize and how to measure economic events: o Monetary unit assumption:  Requires that only those things that can be expressed in money be included in the accounting records. o Economic entity assumption:  States that the economic activity can be identified with a particular accounting unit (ex: a company) which is separate and distinct from the activities of the shareholders and of all other economic entities. o Time period assumption:  States that the life of a business can be divided into artificial time periods and that useful reports covering those periods can be prepared for the business. o Going concern assumption:  States that the business will remain in operation for the foreseeable future. • Accounting Principles: o Cost principle  Dictates that assets be recorded at their cost at the time of acquisition. o Full disclosure principle  Requires that all circumstances and events that would make a difference to financial statement users be disclosed. • Accounting Constraints: o Materiality  Relates to a financial statement item’s impact on a company’s overall financial condition and operations. o Cost-benefit: o Ensures that the value of the information is greater than the cost of providing it. Retained earnings are included in the Shareholders’ Equity section of the balance sheet! • Measuring profitability: o Ratios:  Earnings per share (EPS) • Earnings available to shareholders / weighted av. # of common shares.  Price-earnings (P-E) • Market price per share / earnings per share. • Measuring liquidity: o Working capital  The difference between current assets and current liabilities. o Current ratio  Current assets / current liabilities. • Measuring solvency (ability to survive over a long period of time): o Debt to total assets  Total debt / total assets. • Free cash flow: Solvency based measure that adjusts for demands on cash and so helps creditors and investors understand how much discretionary cash flow a company has left from operating activities… o Cash provided by operating activities – net capital expenditures – dividends SEPTEMBER 20 : BUSINESS SELECT – AUDITORS GONE WILD • Workplace deviance can take three forms: 1. Interpersonal: occurs between co-workers, ex: spreading rumors, pointing the finger. 2. Organizational: ex: when employees lash out against their organization like by intentionally working slowly. 3. Front-line: when employees vent to customers about workplace problems. • Aggregators of the auditing profession: 1. Sarbanes-Oxley (SOX): legislation enacted to curb unethical practices. 2. Demand > supply of auditors. 3. Public disgust from Enron, WorldCom… SEPTEMBER 27 : CUSTOM SELECT – IFRS: INTRODUCTION AND REPORTING BASICS • Key elements of a principles-based accounting standard: o Faithfully representing economic reality; o Responsive to users’ needs for clarity and transparency; o Consistent with a clear conceptual framework; o Based on an appropriately defined scope that addresses a broad area of accounting. • Conceptual framework: o First level: The “why” – goals and purposes of accounting o Second level: Bridge between levels 1 and 3 o Third level: The “how” – implementation SEPTEMBER 27 : BUSINESS SELECT – CHOOSING A GAAP FOR CANADA • SEC came into existence after 1929. TH SEPTEMBER 27 : BUSINESS SELECT – INTRODUCTION TO IFRS IN CANADA • The conceptual framework is a collection of theories that help define what must be included to generate high-quality, useable financial statements. o Serves three main purposes: 1. Functions as the basis for all standards 2. Provides a basis to help standard setters to evaluate existing standards 3. Are relied on in order to apply professional judgment • IASB organizes qualitative characteristics of financial statements into two categories: fundamental or enhancing. These two things are not mutually exclusive. OCTOBER 4 : CUSTOM SELECT - ACCOUNTING: INFORMATION FOR DECISION MAKING Four-step framework for decision making: 1. Specify the decision problem, including the decision maker’s goals. 2. Identify options. 3. Measure benefits (advantages) and costs (disadvantages) to determine the value (benefits reaped less costs incurred) of each option. 4. Make the decision, choosing the option with the highest value. Opportunity cost: The value of what you give up by making your decision. Four-step framework applies to individuals AND organizations. Organization: A group of individuals engaged in a collectively beneficial mission. What can owners do to align individual and organizational goals? 1. Policies and procedures to define acceptable behavior. 2. Monitoring to enforce policies and procedures. 3. Incentive schemes and performance evaluation to motivate employees to consider organizational goals. Planning decisions: Relate to choices about acquiring and using resources to deliver products and services to customers. Control decisions: Relate to motivating, monitoring, and evaluating performance. PIER cycle: Plan, Implement, Evaluate, Revise. The PRIMARY GOAL OF ACCOUNTING is to help measure the costs and benefits of decision options. Decision makers outside the firm use financial accounting information. Decision makers inside the firm use managerial accounting information. Organization chart: Shows the hierarchical relations among positions in an organization. CEO: Chief executive officer, highest-ranking executive. Assisting CEO are… • CFO: Chief financial officer. Reports to the CEO, responsible for all accounting and financial functions • CIA: Chief internal auditor. Manages internal audit function, reports directly to audit committee of board of directors. • Controller: Manages day-to-day accounting for firm and oversees corporate accounting policies. Key player in ensuring that the firm has appropriate monitoring, performance evaluation, and incentives. • Treasurer: Manages the
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