Finacc chapter 1 PDF

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How does accounting help the capital allocation process? If a company’s financial performance is measured accurately, fairly, and on a timely basis, the right managers and companies are able to attract investment capital. To provide unreliable and irrelevant information leads to poor capital allocation which adversely affects the securities market. Identify at least three major stakeholders that use financial accounting information and briefly explain how these stakeholders might use the information from financial statements. A stakeholder is someone who is affected by the financial results of the reporting company. EX. INVESTORS/CREDITORS- they measure risk and returns of the past in order to predict the FUTURE returns or decide on distribution of capital EX. Credit rating agencies- they want to give useful and reliable advice for making investment decisions EX. MANAGEMENT- for deciding performance incentives, or whether to keep certain people in certain positions. What are the major objectives of financial reporting? 1. To provide useful information to the users of fianancial reports 2. To provide information about the cash flows to which an entity is subjected, including the timing and uncertainty of cash flows 3. To disclose obligations and economic resources of an entity. There should be an emphasis on the changes in liabilities and resources which can be used to predict future cash flows. Describe what is meant by information asymmetry. Not all stakeholders have equal access to all relevant information. Management may feel that disclosure of too much information may hurt the competitive advantage or position. Adverse selection: refers to a scenario where either the buyer or seller has information about an aspect of product quality that other party does not have. What is the likely limitation on “general-purpose financial statements”? It will not satisfy the specific needs of all interested parties. Since interested parties needs vary considerably, it is unlikely that one set of financial statement is equally appropriate for these varied users

Explain the role of the Canadian Accounting Standards Board (AcSB) in establishing generally accepted accounting principles. AcSB is the Canadian accounting standards board. AcSB essentially rubberstamps IFRS for use in Canada, and they also set GAAP in Canada (ASPE)- where a practice is confusing or expensive in

IFRS, it is changed for ASPE. A practice may become GAAP by being written down by AcSB or by coming up as a standard practice in the field. Differentiate between “financial statements” and “financial reporting”? Financial statements are balance sheet, income statement, statement of cash flows, and statement of changes in owner’s or stockholders’ equity Financial reporting includes the basic financial statements and any other means of communicating financial and economic data to interested external parties.

Challenge for standard setters is to ensure the body of knowledge: 1. Rests on a cohesive set of principles and a conceptual framework that are consistently applied 2. Is sufficiently flexible to be of use in many differing business situations and industries 3. Is sufficiently detailed to provide good guidance but so big as to be unwieldly...