Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

ACC 3110 > Chapter 1 > Flashcards

Chapter 1 Flashcards

1
Q

What is the definition of accounting?

A

identifies, measures, and communicates financial information about economic entities to interested people

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What are the two types of accounting?

A

Financial and managerial accounting

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is financial accounting?

A

preparation of financial statements

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Who is financial accounting for?

A

Internal and external users
Investors, creditors, and other

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is managerial accounting?

A

Communicating financial information through varied forms

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Who is managerial accounting for?

A

Internal decision makers
Management uses to plan, evaluate, and control operations

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is the purpose of basic financial statements?

A

Communicates financial information to outsiders

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What are the major financial statements?

A

Statement of financial position (Balance sheet)
Statement of income / comprehensive income (Income statement)
Statement of cash flows
Statement of changes in equity (IFRS) or statement of retained earnings (ASPE)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What does accounting help investors and creditors do?

A

They help compare the income and assets of companies
Assess the risks and returns associated with companies before making an investment decision

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is the responsibility of the accounting profession?

A

measuring a company’s performance accurately and fairly on a timely basis

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is necessary for a healthy economy?

A

an effective process of capital allocation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

How is accounting involved in credit ratings?

A

Accounting is used to rate a companies financial stability

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

List stakeholders in financial reporting:

A

investors and creditors (resource allocation)
financial analysts and regulators (help allocation of resources)
Anyone who prepares, relies on, reviews, audits, or monitors financial information

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Who audits statements?

A

Independent auditors
They act on behalf of shareholders to ensure accountability

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is at stake for investors/creditors?

A

Investments or loans

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is at stake for managers?

A

Jobs, bonuses, reputation, salary increase…

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What is at stake for securities commissions and stock exchanges?

A

reputation, effective and efficient capital marketplace

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What is at stake for analysts and credit rating agencies?

A

reputation & profits

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What is the objective of financial reporting?

A

to provide financial information that is useful to current and potential decision makers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What is the entity perspective of financial reporting?

A

Companies are viewed as separate from their owners
Assets are rights accruing to the entity where capital providers have claim on those assets
Assets = Creditor equities + owner equities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What is the proprietary perspective?

A

owners are the central position of financial reporting
assets are resources of the owner, liabilities are obligations of the owner
Assets - Liabilities = proprietorship (equity)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What is information asymmetry?

A

managers having access to more information than other stakeholders

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

In an ideal world, what would the flow of information look like?

A

there would be information symmetry where all stakeholders have equal access to all relevant information

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What are the reasons information asymmetry exists?

A

Capital markets - not all information is available and incorporated into stock prices of companies
Human behaviour - individuals and companies act according to their self interest at the cost of capital market participants

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

What is information symmetry?

A

all stakeholders have equal access to relevant information
nice in theory, doesn’t work in practice

26
Q

What are two types of asymmetry problems?

A

Adverse selection
Moral hazard

27
Q

What is the adverse selection problem (information asymmetry)

A

when information asymmetry exists, the marketplace attracts the wrong kind of participants

28
Q

What is the moral hazard problem (information asymmetry)

A

concept where people shrink their responsibilities if they think no one is watching

29
Q

What is aggressive accounting?

A

downplay the negatives and focus on the positives

30
Q

What is conservative accounting?

A

downplay the positives and focus on the negatives

31
Q

What are the reasons managers may present biased information?

A

evaluation of their performance
compensation structures
access to capital markets and meeting analyst expectations
meeting contractual obligations

32
Q

Are accounting standards the law?

A

No

33
Q

What are accounting standards classified as?

A

Recommendations, they are not rules or the law

34
Q

Why do accounting standards exist?

A

they help reduce information asymmetry problems in financial reporting

35
Q

When creating accounting standards who is considered?

A

the entire economic community

36
Q

What does AcSB stand for?

A

The Canadian Accounting Standards Board

37
Q

What does IASB stand for?

A

The International Accounting Standards Board

38
Q

What does FASB stand for?

A

The Financial Accounting Standards Board (FASB)

39
Q

What does GAAP stand for?

A

Generally accepted accounting principles

40
Q

Who is responsible for setting GAAP in Canada?

A

The Canadian Accounting Standards Board (AcSB)

41
Q

What are the objectives of AcSB?

A

establish standards that improve the quality of information
participate with other standard setters to develop internationally accepted standards
facilitate the capital allocation process through improved information

42
Q

What does the IASB do?

A

dominant global standard-setting body
tries to lessen differences among countries

43
Q

Who uses IFRS in Canada?

A

Public companies in Canada

44
Q

Who uses GAAP in Canada

A

Private companies

45
Q

What does FASB do?

A

they are the major standard-setting body in the United States

46
Q

How does US GAAP compare with ASPE (accounting standards for private enterprises)?

A

ASPE - principle-based
US GAAP - more prescriptive and provides more guidance

47
Q

If a Canadian company is listed on US exchanges, what standard must they follow?

A

IFRS or US GAAP

48
Q

Why are most large Canadian companies registered with the Ontario Securities Commission?

A

Because the Toronto Stock Exchange is in Ontario and governed by the Ontario Securities Commission

49
Q

How does professional judgment come into play for standards in accounting?

A

There cant be a rule for every situation
Canadian standards are based primarily on principles rather than rules
If no principle exists, accountants must use professional judgement
US GAAP provides more detailed guidance than IFRS and ASPE

50
Q

What is data governance?

A

a collection of processes, roles, policies, standards, and metrics that ensure the effective and efficient use of information in enabling an organization to achieve its goals

51
Q

What is value creation?

A

the process of creating the potential for
- revenue and net income in the future
- future benefits for stakeholders

52
Q

What is sustainability reporting (ESG) all about?

A

encompassing a broader stakeholder perspective - beyond shareholders and profits

53
Q

What is looked at when analyzing ESG?

A

how businesses deal with environmental, social, and governance (ESG) issues is related to creating economic value

54
Q

What are examples of environmental issues that ESG addresses?

A

climate change, air quality, energy management, land use, greenhouse gas emissions

55
Q

What are examples of social issues ESG addresses?

A

human capital management, diversity and inclusion, health and safety, product safety

56
Q

What are examples of governance issues ESG addresses?

A

quality of the board of directors, oversight of executive performance / compensation, oversight of company’s risk strategy, risk management, performance, and disclosure

57
Q

Do accountants face ethical dilemmas?

A

Yes, they are in environments of conflict and must be able to make the right decision

58
Q

Are accounting standards affected by just logic/research findings?

A

No, they are affected by political action too

59
Q

What is the challenge of setting standards in a political environment?

A

Giving stakeholders a voice without becoming political

60
Q

Explain the difference between principles vs. rules

A

Rule-based standards like the Canadian tax system have many rules for almost every scenario.
Principle-based standards (ASPE and IFRS) are more reliant on professional judgement with bright-line tests minimized

Principle-based standards can be easier to defend (as it has some interpretation to it)
Rule-based approach might not communicate the best information to users.

61
Q

What are bright-line tests?

A

numeric benchmarks for determining accounting treatment.
For example: a loan must be greater than 75% of the economic life of the asset to be treated a certain way… making it a threshold that is black and white.
Often times it isn’t black and white (its not always clear cut)

62
Q

What should standards be?

A

Based on cohesive set of principles and a conceptual framework that is consistently applied
Flexible to cover many industries
Detailed enough to provide good guidance

ACC 3110 (2 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions