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Management and Organizational Studies 1023A/B Study Guide - International Financial Reporting Standards, Cash Flow Statement, International Accounting Standards Board


Department
Management and Organizational Studies
Course Code
MOS 1023A/B
Professor
Maria Ferraro

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SEPTEMBER 13 TH
: 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:
oNet earnings from S of E is added to beginning amount of S of RE.
oEnding amount of S of RE is reported as retained earnings amount in
shareholders’ equity section of BS.
oEnding amount of cash on CF must match amount of cash shown in assets of
BS.
SEPTEMBER 13 TH
: BUSINESS SELECT –
VIEWPOINT: OF CEOS AND ACCOUNTING
CEOs must know accounting!
They have to sign Form 52-109F1
SEPTEMBER 20 TH
: CUSTOM SELECT –
FINANCIAL STATEMENTS: FRAMEWORK, PRESENTATION, AND USAGE
Conceptual framework of accounting:
oObjecting of financial reporting:
oQualitative characteristics of accounting info:
Relevance
Faithful representation

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Comparability
Understandability
Assumptions that guide when to recognize and how to measure economic events:
oMonetary unit assumption:
Requires that only those things that can be expressed in money be
included in the accounting records.
oEconomic 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.
oTime 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.
oGoing concern assumption:
States that the business will remain in operation for the foreseeable
future.
Accounting Principles:
oCost principle
Dictates that assets be recorded at their cost at the time of acquisition.
oFull disclosure principle
Requires that all circumstances and events that would make a
difference to financial statement users be disclosed.
Accounting Constraints:
oMateriality
Relates to a financial statement item’s impact on a company’s overall
financial condition and operations.
oCost-benefit:
oEnsures 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:
oRatios:
Earnings per share (EPS)
Earnings available to shareholders / weighted av. # of common
shares.
Price-earnings (P-E)
Market price per share / earnings per share.

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Measuring liquidity:
oWorking capital
The difference between current assets and current liabilities.
oCurrent ratio
Current assets / current liabilities.
Measuring solvency (ability to survive over a long period of time):
oDebt 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…
oCash provided by operating activities – net capital expenditures – dividends
SEPTEMBER 20 TH
: 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 TH
: CUSTOM SELECT –
IFRS: INTRODUCTION AND REPORTING BASICS
Key elements of a principles-based accounting standard:
oFaithfully representing economic reality;
oResponsive to users’ needs for clarity and transparency;
oConsistent with a clear conceptual framework;
oBased on an appropriately defined scope that addresses a broad area of
accounting.
Conceptual framework:
oFirst level: The “why” – goals and purposes of accounting
oSecond level: Bridge between levels 1 and 3
oThird level: The “how” – implementation
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