Accounting Chapter 1 – The Canadian Financial Reporting Environment
Financial Statement and financial reporting
Characteristics of Accounting: 1. Identification, measurement, and communication of financial information 2. About economic entities 3. To interested persons
- Financial accounting – The process that culminates in the preparation of financial reports that covers all of the enterprise’s business activities and that are used by both internal and external users
-Managerial accounting – the process of identifying, measuring, analyzing, and communicating financial information to internal decision-makers
-The most frequently provided financial statements are: 1. Statement of financial position 2. Statement of income 3. Statement of cash flows 4. Statement of change in equity 5. Note disclosures
Accounting and capital allocation
-The accounting profession has the important responsibility of measuring company performance accurately and fairly on a timely basis
Stakeholders
-Stakeholders – are parties who have something at risk in the financial reporting environment, such as their salary, job, investment, or reputation
-Users of financial information includes anyone who prepares, relies on, reviews, audits, or monitors financial information
Objective of financial reporting
-Provide financial information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors in making decisions in their capacity as capital providers (Decision- usefulness approach)
-General-purpose financial statement provide at the least cost and the most useful information possible
-Entity perspective (assumption) – Companies are viewed as separate and distinct form their owners
-Investors are interested 1. Company’s ability to generate new cash inflow 2. Management’s ability