Financial Statements and John Wiley Essay

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Pages: 8

INTERMEDIATE
ACCOUNTING
TENTH CANADIAN EDITION
Kieso • Weygandt • Warfield • Young • Wiecek • McConomy

CHAPTER 1
The Canadian
Financial
Reporting
Environment
Prepared by:
Dragan Stojanovic, CA
Rotman School of Management,
University of Toronto

CHAPTE
1
R
The Canadian Financial Reporting Environment
After studying this chapter, you should be able to:
• Explain how accounting makes it possible to use scarce resources more efficiently.
• Explain the meaning of “stakeholder” and identify key stakeholders in financial reporting, explaining what is at stake for each one.
• Identify the objective of financial reporting.
• Explain how information asymmetry and bias interfere with the objective of financial reporting.
• Explain the need for accounting standards.
• Identify the major entities that influence the standard-setting process and explain how they influence financial reporting.
• Explain the meaning of generally accepted accounting principles (GAAP).
• Explain the significance of professional judgement in applying GAAP.
• Discuss some of the challenges and opportunities for accounting.
Copyright © John Wiley & Sons Canada,
Ltd.

2

The Canadian Financial Reporting
Environment
Financial
Statements and
Financial
Reporting
• Accounting and capital allocation • Stakeholders
• Objective of financial reporting
• Information asymmetry Standard
Setting
• Need for standards • Parties involved in standard setting

Challenges and
GAAP
Opportunities for the
• GAAP
Accounting Profession hierarchy • Professional• Oversight in the capital marketplace judgement
• Centrality of ethics
• Standard setting in a political environment
• Principles versus rules
• Impact of technology
• Integrated reporting

Copyright © John Wiley & Sons Canada,
Ltd.

3

Characteristics of
Accounting




Accounting identifies, measures, and communicates financial information to various users (decision makers)
Accounting has two broad classifications:

1. Financial accounting
2. Managerial accounting


Accounting theory and practice have evolved and will continue to evolve to meet changing demands and influences

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Ltd.

4

Characteristics of
Accounting
1. Identification, measurement, and communication of financial information about; 2. Economic entities to;
3. Interested persons.

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Ltd.

5

5

Financial Reporting
• Financial accounting results in preparation of financial reports about business activities
• Financial reporting is used by both internal and external users
• External users include such decision makers as investors, creditors, unions, and government agencies • Managerial accounting is used by management
(internal users only)

Copyright © John Wiley & Sons Canada,
Ltd.

6

Financial Statements and
Other Means of Financial
Reporting
• Major financial statements include:





Balance Sheet
Income Statement
Cash Flow Statement
Statement of Retained Earnings
+ Note Disclosures

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Ltd.

7

Financial Reporting
• Other forms of financial reporting include:






President’s letter
Prospectuses
Government reporting
News releases
Management forecasts

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Ltd.

8

Accounting and Capital
Allocation
• Financial reporting aids users in the allocation of scarce resources (capital)

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Ltd.

9

Accounting and Capital
Allocation
• The accounting profession has the responsibility of measuring a company’s performance accurately, fairly, and on a timely basis
• These measurements enable investors and creditors to compare the income and assets employed by companies
• Investors can then assess the relative risks and returns associated with companies

Copyright © John Wiley & Sons Canada,
Ltd.

10

Capital Allocation Process

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Ltd.

11

Accounting and Capital
Allocation
• In Canada, the primary exchange mechanisms for allocating resources…