COMMERCE 1AA3 Chapter Notes - Chapter 1: International Financial Reporting Standards, International Accounting Standards Board, Relate
Course CodeCOMMERCE 1AA3
ProfessorAadil Merali Juma
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Chapter 1 Notes
: Explain why accounting is the language of business
- info. System that measures business activities, processes data into reports.
- Reports results to decision makers. 1.1 illustrates the flow of info in an accounting
system. Financial statements report this info. To users.
B. Accounting info is used by
➔Managers to set / evaluate goals and take corrective action.
➔Investors to decide whether to invest in a business or evaluate an investment
➔Creditor to evaluate a borrower's ability to make required payments
➔Government & regulatory bodies such as Canada Revenue Agency
organizations pay the correct amount of taxes.
➔Individuals to make investments decisions and/or manage a bank account
➔Not-for-profit organizations which use accounting info. In virtually the same way as
C. Accounting info can be classified into 2 categories
a. Financial accounting provides info for managers inside the business and for decision
makers outside the organization (e.g investors/creditors)
b. Managerial accounting generates inside info for internal use by management.
D. Types of business org.
1. Proprietorship :
- An unincorporated business w/ a single owner.
- The owner has unlimited liability which means that they assumed personal
responsibility for the debts of the business.
- An unincorporated business with 2 or more owners.
- Each partner has unlimited liability.
- An incorporated business owned by shareholders whose ownership is evidenced by the
number of shares held.
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Chapter 1 Notes
- Shareholders elect the members of the board of directors to set policy for the
corporation and appoint officers.
- A shareholder has limited liability.
●A corporation is distinct from its owners and has many of the rights entitled to a person.
: Explain accounting's conceptual framework & underlying assumptions
A. Generally Accepted Accounting Principles (GAAP)
Professional guidelines that govern how accountants record, measure & report financial info.
1. The Canadian Institute of Chartered Accountants (CICA) establishes GAAP
2. There are multiple sets of GAAP, each is applicable according to the type of entity /
a. Publicly accountable enterprises (PAEs) must apply International Financial Reporting
Standards (IFRS - effective Jan 1 2011 for Canadian public co. ) standards set by
International Accounting Standards Board (IASB) to enhance the comparability of
financial info. Reported by public enterprises around the world.
b. Private enterprises apply the Accounting Standards for Private Enterprises (ASPE).
However, private enterprises have the option of using IFRS or ASPE.
c. Other sets of GAAP are applicable to not-for-profit orgs., pension plans & government
B. The overall objective of financial reporting is to provide useful info., to users to make
investing and lending decisions. Characteristics of useful info., include:
1. The relevance characteristic
○Must be considered to ensure the financial statements provide info., to the
user is useful.
○Must provide predictive and/or confirmatory value.
○Must be material in nature / magnitude that omitting / misstating it could
affect the decisions of an informed user.
2. The faithful representation (reliability) characteristic
○Accounting records should be based on accurate data.
○The actual cost of assets / services is usually more reliable than market value.
C. There are 4 accounting assumptions underlying the conceptual framework.
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