Ch. 1 Statements And Reporting Flashcards
Explain how accounting makes it possible to use scarce resources more efficiently.
Accounting provides reliable, relevant, and timely information to managers, investors and creditors to help them make decisions about resource allocation.
Accounting provides measurements of efficiency, profitability and financial soundness.
What is a stakeholder and what are some examples of stakeholders?
Parties who have something at risk in the financial reporting environment, such as their salary, job, investment or reputation. Ex. Investors, creditors, analysts, managers, employees, customers, suppliers.
What is the objective of financial reporting
To communicate information that is useful to key decision makers in making resource allocation decisions
Stewardship
Management’s responsibility to manage assets with care and trust
What is management bias
Managements presentation of information in its best light in order to make the company look as successful as possible.
What is information asymmetry?
When one party has more information than the other party.
Explain the need for accounting standards
Accounting standards help reduce the information asymmetry problem.
Having a set of generally accepted and universally practiced standards allows users to easily compare financial statements from different companies. Companies would have to come up with their own standards if they didn’t exist.
What is GAAP?
Specific rules and procedures for particular circumstances, as well as broad principles and conventions that apply generally.
Explain the significance of professional judgement in applying GAAP.
ASPE and IFRS are primarily based on general rules rather than specific rules. Professional accountants with significant education and experience will be able to apply these principles appropriately to any situation.
Who has primary responsibility for setting GAAP in Canada and what important source of GAAP do they produce?
AcSB, the Accounting Standards Board produces the CICA handbook.
