Chapter 6.docx

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Department
Financial Accounting
Course
MGAC02H3
Professor
Douglas Kong
Semester
Fall

Description
CHAPTER 6 ACCOUNTING COMMUNICATION PROCESS - PLAYERS 1) Regulators Canadian securities commission is a forum for the 13 securities regulators of Canada's provinces and territories established to harmonize regulation of the Canadian capital markets. Their mission is to protect investors from unfair improper or fraudulent practices. Accounting standards board (AcSB) is responsible for establishing standards of accounting and reporting by Canadian companies. It sets standards such as GAAP Canadian Public Accountability Board - Federal agency which oversees Canadian accounting firms (independent auditors) that perform auditing engagements of public companies. External auditors ensure that the companies prepare financial statements in accordance with these standards. Stock exchanges contributes to quality assurance by undertaking ongoing surveillance of their reporting and trading activities Corporate Governance Standards (Stock Exchanges) - Along with provincial governments, set overall corporate governance standards. (The most prominent is the Ontario Securities Commission). 2) Managers Responsible for the information in the financial statements and disclosures. CEO - highest officer in the company CFO - highest officer associated with the accounting and financial side of the business the accounting staff prepare the details of the reports and bear professional responsibility for the accuracy of the information. 3) Board of directors They are elected by the shareholders to represent their interests. They are responsible for ensuring that processes are in place for maintaining the integrity of the company’s accounting, financial statement preparation, and financial reporting. The audit committee of the board is composed of non-management (independent) directors with financial knowledge and is responsible for hiring the company’s independent auditors. They also meet separately with the auditors to discuss management’s compliance with their financial reporting responsibilities. 4) Auditors Provincial securities commission requires publicly traded companies to have their statements audited by independent accountants following international standards on accounting. They follow established auditing standards to assess the fairness of the financial statements and related presentations An unqualified, or clean, opinion states that the financial statements are fair presentations in all material respects in conformity with IFRS. This adds credibility to the statements. This lowers the risk that the company’s statements have been misrepresented. 5) Information intermediaries Most investors rely on financial analysts and information services to gather and analyze information.  Financial analysts – receive accounting information about a company from electronic information services, conversations with company executives and visits to company facilities and competitors. Then using this information they form an analyst report. Analyst reports normally include forecasts of share price and future quarterly and annual earnings per share; a buy, sell or hold recommendation for the company's shares. They basically make earnings forecasts (predictions of earnings for future accounting periods)  Information services - Canadian companies file financial statements electronically with SEDAR which is the official site for the filing of documents by public companies as required by securities law in Canada. 6) USERS  Institutional investors - managers of private pension funds (unions and employees of specific companies), public pension funds (provincial and municipal employees), mutual funds, endowment funds, and other funds that invest on behalf of others. They control majority of the publicly traded shares of Canadian companies.  Private investors include individuals who purchase shares in companies. Eg: CEO, company's directors  Lenders (creditors) Include suppliers and financial institutions that lend money to companies. Eg: suppliers, banks, commercial credit companies. Lenders are often the primary external user group for financial statements of private companies. THE DISCLOSURE PROCESS Press releases A written public news announcement normally distributed to major news services. They are used to announce Initial announcement of hiring of new vice-president of sales and also to announce quarterly and annual earnings as soon as the verified figures are available. Sometimes they also include condensed unaudited financial statements. Annual reports Annual reports for private companies are relatively simple documents that include the 4 basic financial statements, related notes and a report of independent accountants (auditor’s opinions). Annual reports for public companies are significantly more elaborate because of additional reporting requirements imposed on these companies. The report is split into two sections: non financial section (includes letter to shareholders, company's products and successes, prospects for the future, photographs of the products and facilities, etc) and financial section. This section includes:  Summarized financial data for 5 or 10 year  Notes
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