Chapter 2 Flashcards
Demand - 1 Needs of the target market 2 strategic goal or objective 3 desirable product characteristics
Supply - technological and production constraints 1 potential product components 2 product design 3 customization
Outline of a Business Plan
Demand - 1 Users and their needs 2 objectives 3 qualitative characteristics
Supply - constraints and assumptions 1 elements of financial statements 2 recognition 3 measurement
Conceptual Framework for Financial Reporting
Users and their needs, objectives, qualitative characteristics, constraints, assumptions, elements of financial statements, recognition, measurement
8 Major Components of a Conceptual Framework
Existing and potential investors, lenders and other creditors
Users
Enable investment and lending decisions through information about the amount, timing, and uncertainty of cash flow and on the entity’s resources, claims, and performance
The Objects of Financial Reporting
A basis of accounting that records economic events when they happen rather than only when cash exchanges occur; contrast with cash accounting
Accrual Accounting
What enumerates the desirable characteristics of financial reports that help to meet users’ information needs
Qualitative Characteristics
The cataract is tics that must be present for information to be useful for decision making including relative and reliability
Fundamental Qualitative Characteristics
The characteristics that effect the information’s degree of usefulness including understandability, comparability, verifiability, and timeliness
Enhancing Qualitative Characteristics
The ab I pity to influence user’s economic decisions whether confirmatory or predictive (about the past or future)
Relevance
Whether omitting, misstating, or obscuring a particular piece of information about a reporting entity would influence the primary user’s economic decisions
Materiality
The extent to which financial information reflects the underlying transactions, resources, and claims of an enterprise
Representational Faithfulness
The three attributes that contribute to representational faithfulness or reliability
Completeness, neutrality, and freedom from error
The inclusion of all material items in the financial statements. One of three attributes of representational faithfulness
Completeness
The extent to which information is free from bias. One of three attributes of representational faithfulness
Neutrality
The extent to which information is absent of errors or omissions. One of three attributes of representational faithfulness.
Free from Error
The ease with which users are able to comprehend financial reports. One of four enhancing qualitative characteristics
Understandability
Refers to the ability to compare one set of financial statements with another. The comparison may be with the financial statements of the same enterprise in a different year or with those of a different enterprise. One of four enhancing qualitative characteristics.
Comparability
The degree to which different people would agree with the chosen representation in the financial reports. One of four enhancing qualitative characteristics
Verifiability
How soon the information becomes available to decision makers. One of four enhancing qualitative characteristics
Timeliness
Elements relating to measuring financial position
Assets, liability, and equity
Income, revenue, gains, expenses
Elements relating to measuring performance
- a resource controlled by an entity
- as a result of past events and
- from which future economic benefits are expected to flow to the entity
Asset
- a present obligation of the entity
- arising from past events
- the settlement of which is expected to result in an outflow from the entity of economic resources embodying economic benefits
Liability
The process of presenting an item in the financial statements, as opposed to merely disclosing that item in the notes. This criteria sets down the guidelines for when to report something as a line item on one of the main financial statements instead of in the notes while measurement provides the basis for quantifying the items reported
Recognition
Generally, accounting elements are recognized in the financial statements if the future inflows or outflows of resources are what and the amounts are what?
Probably and Reasonably Measurable
For example accounts receivable have a high probability while research and development is low
Probable
The basis for quantifying items reported in the financial statements
Measurement
The actual cost of an asset at the time it was purchased; can also refer to amounts based on historical cost but adjusted by depreciation or impairment
Historical Cost
Other measurement bases used for different financial statements items in addition to historical cost
Current cost, realizable value, present value
A constraint stating that the cost of reporting financial information should not exceed the benefits that can be obtained from using that information
Cost Constraint
Simplified generalizations about the real world that are deemed to be appropriate for most circumstances (but not always). Such as target markets or going concern
Assumptions
The assumption that the reporting entity will continue operating into the foreseeable future. For example this means we consider an asset’s value in use in the entity rather than its liquidation value in a forced sale
Going Concern
Refers to the amount of resources required to ensure the economic sustainability of an entity — maintains that what is necessary for the entity to continue in operations for the foreseeable future at a level similar to how it has operated in the past
Capital Maintenance
The assumption that an entity needs to have as much resource in monetary terms at the end of a period as it did at the beginning of that period to maintain its operating capacity. Amounts in excess of that required to maintain financial capital are profit
Financial Capital Maintenance
An entity, other than a not-for-profit organization, that has issued debt or equity instruments that are outstanding and traded in a public market (or is in the process of issuing such instruments or an entity that holds assets in a fiduciary capacity for a board group of outsiders as one of its primary businesses
Public ally Accountable Enterprise
In the ASPE standards, any for-profit entity that is not a publicly accountable enterprise
Private Enterprise
CPA Canada Chartered Professional Accountants of Canada providing funding to
1) Accounting Standards Oversight Board (AcSOC)
A. Accounting Standards Board (AcSB)
- Non-for-profit enterprises
- For-profit enterprises (privately and publicly held)
B. Public Sector Accounting Board (PSAB)
- Public sector accounting standards
2) Auditing and Assurance Standards Oversight Council (AASOC)
- Auditing and Assurance Standards Board (AASB)
- Auditing and Assurance Standards
The Structure of Standard Setting in Canada
