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Chapter

AFM291 Chapter Notes -Finance Charge, Consignee, Repurchase Agreement


Department
Accounting & Financial Management
Course Code
AFM291
Professor
Mindy Wolfe

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Chapter 1: The Canadian Financial Reporting Environment
Accounting is the identification , measurement and communication of financial information
about economic entities to interested parties
Financial Accounting reports business activities to both internal and external users
Management Accounting communicates financial info to internal users only
Accountants have the role of measuring company performance , providing good information
that is relevant , reliable and timely therefore improves capital allocation leading to more
investing
Stakeholders are anyone who prepares, relies, reviews, audits and monitors financial info , in
essence anyone who is affected by this info is some way or other
Management Bias , aggressive accounting done by overstating or understating info in order to
make the firm look stronger in the eyes of shareholders
GAAPS help reduce management bias ( the need to skew numbers or info in order to meet
analysts’ forecast, or to earn bonuses)
The objective of financial accounting is to provide info that is useful to users and relevant in
decision making
Management Stewardship , the role of management maximizing shareholder value
Standards were needed due to conflicting and coinciding needs, not all users have the need or
level of knowledge , as well as to decrease management bias
Canadian Accounting Standards Board , sets GAAPS and CICA handbook , deals with standards
for public , private and nonprofit entities but now due to IFRS they only set the standards for the
private , not for profit entities and the pension plans
The International Accounting Standards Board , sets the global standards for public or highly
complex private entities
Financial accounting Standards Board, US major standards setting board, no final authority over
standards this is therefore the role of the Securities Exchange Commission
If a company is listed on US stock exchange you must comply with US GAAP or IFRS
Provincial Securities Commission, oversees and monitors the marketplace ensuring it is fair
GAAPS are principles that are general not specific rules therefore professional judgment and the
conceptual framework must be used
Sarbanes Oxley act , created to fight fraud and poor reporting practices by improving auditor
independence rules and materiality guidelines
Public Company Accounting Oversight Board, oversees auditor s of public companies ( auditors
of the auditors )
Chapter 2: The Conceptual Framework
The conceptual framework is a system of objectives and fundamentals that are interrelated and
used to create standards , also used to increase the understanding of financial statements ,
enhance the comparability of F/S and solve new problems
The conceptual framework consists of three levels , the why , what and how

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The Why ; is the first level and it explains the goals and purposes of accounting
The What ; is the second level and it contains the elements and the qualitative characteristics of
financial info
The How; is the third level and it contains the foundational principles used to set standards
Level 1 The objective of accounting is to communicate useful info to users ( investors ,
creditors , analysts , managers and securities commissions) in order to make their resource
allocation decisions
Level 2 The Qualitative Characteristics ; the most fundamental are that the information be
relevant ( as in capable of making a difference in decision making , has predictive value and
confirmatory value )
The information must also have representational faithfulness (reflecting the economic
substance of the transaction, being complete, transparent, neutral and free of material bias)
We also have Enhancing Qualitative Characteristics being; comparability , verifiability,
timeliness , understandability
Elements of F/S , Assets involve present economic resources capable of producing cash flows,
entity has the right or access to these resources ( ownership ) , Liabilities present an economic
obligation , and are also enforceable / callable , Equity are net assets which are residual interest
, Revenue the increase in economic resources by ordinary activities, Expenses are decreases in
economic resources resulting by revenue generating activities , Both gain and losses result
from incidental transactions
Level 3 : Foundational Principles these principles help explain which, when and how financial
elements should be recognized , measured and presented on the financial statements
Revenue Recognition Principle , in order to record revenue ; the risks and rewards have to
have been substantially complete, measurability is certain , and collectability is assured
Matching Principle , matching the costs with the revenues that they produce within that same
period
Periodicity assumption , the activities of a business can be divided into artificial time periods
Monetary Unit Assumption , money / dollars is the measurement used
Going Concern Assumption , the assumption that the business will continue to operate in the
foreseeable future
Historical Cost Principle , transactions are measured at the amount of cash that was paid or
received at the time the transaction took place , for this to happen there must be ; a value that
represents a point in time, also a reciprocal exchange and all dealing with an outside party
Fair Value Principle , the price that would be received to sell an asset or paid to transfer a
liability between market participants at the measurement date , in accordance with IFRS
Full Disclosure Principle - anything that is relevant to decision making should be included in the
financial statements.
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