Reporting standards for public companies and other publicly-accountable enterprises
IFRS
Reporting standards for private non-publicly accountable companies
IFRS
ASPE
Disclosed basis of accounting (tailored accounting policies)
Objectives of financial reporting (6)
facts (e.g., public or private, type of business)
constraints
preparer motivations
accounting choice process
user needs
user power
Constraints (3)
GAAP requirements
audit requirements
regulatory requirements
Preparer motivations (6)
income tax deferral
earnings management
contract compliance
minimum compliance
special entity-specific motivations
User needs (4)
cash flow assessment and prediction
contract compliance
performance evaluation
special entity-specific needs
User power (3)
shareholders
lenders
regulators
a person who is responsible for managing an enterprise on behalf of someone else
steward
the motivaion of managers to reveal the least amount of information that is possible while still complying with GAAP
minimum compliance
The International Accounting Standards Board has authority for setting Canadian accounting standards.
True or False
True
All Canadian corporations must comply with international accounting standards.
True or False
False - private corporations don't
IFRS were developed in order to facilitate international capital markets.
True or False
True
IFRS must be used for the financial statements of every Canadian public corporation.
True or False
True
The primary objective of general purpose financial reporting is to serve the information about an enterprise's financial performance.
True or False
True
Income tax law has no impact on the accounting choices made by management.
True or False
False
The presence of a control block can have an impact on a public company's choice of accounting policies.
True or False
True
Most Canadian corporations are listed on the Toronto Stock Exchange.
True or False
False
IFRS and the CICA Handbook, Part II, have equal status in Canada for financial reporting.
False
In a private corporation, the needs of external users have no impact on the company's financial reporting objectives.
True or False
False
Canadian accounting standards are governed by the Canadian Business Corporation Act.
True or False
False
The debt and equity securities of a private company cannot be traded on public exchanges. Therefore, private companies have no external sources of financing.
True or False
False
When an enterprise's primary reporting objective is cash flow assessment, the enterprise will use a cash basis of reporting rather than an accrual basis.
True or False
False - matching principle
Accounting Concepts or Principles (3)
underlying assumptions
qualitative characteristics
measurement methods
Underlying Assumptions (6)
time period
separate entity
unit of measure
continuity
proprietary application
stable currency
These form the basic foundation upon which accounting measurement rests
underlying assumptions
the criteria that, in conjunction with the org's reporting objectives, facts, and constraints, are used to evaluate the possible measurement options and choose the most appropriate measurement methods for the given situation
The various ways in which financial position and the results of operations can be reported
measurement methods
Qualitative Characteristics (8)
relevance
representational faithfulness
comparability
verifiability
timeliness
understandability
materiality
cost/benefit
The processs of making (or recommending) choices in accounting is the process of exercising...
Professional judgement
Factors to consider for professional ethical judgement (4)
the users of the financial statements, and their specific information needs
the motivations of managers
the organization's operations
the organization's reporting constraints, if any
meaningful information can be assembled and reported for a time period that is less than the enterprise's life span
time-period
the enterprise can be accounted for and reported independent of its owners and other stakeholders
separate entity
the results of the enterprise's operations can meaningfully be measured in monetary terms
unit of measure
the enterprise will continue in operation for a reasonable future period
continuity (also known as the going-concern assumption)
the results of the enterprise's operations should be reported from the viewpoint of its owners
proprietary approach
the value of the measurement currency does not change frrom year to year; the enterprise has generated a profit if its revenues are higher than th historical cost of the resources used
stable currency
the capacity of accounting information to make a difference to the external decision-makers who use financial reports
relevance
Two qualities that contribute to relevance
predictive value
confimatory value
Subcomponents of representational faithfulness (3)
completeness
neutrality
freedom from material error
applying accounting concepts and principles from period to period in the same manner
consistency
Aspects to verifiability (2)
the accounting measure is a resonable measure of the economic event, without material error or bias
independent observers, using the same measurement methods, would reach substantially the same conclusion
any accounting measurement or disclosure should result in greater benefits to the users than it costs to prepare and present (benefits should exceed costs)
cost/benefit tradeoff
the process of determining the amount at which an item is recognized in the financial statements
measurement
Four pervasive measurement conventions
historical cost
revenue recognition
expense recogniton
full disclosure
Three measurement levels
quoted prices in active markets for identical assets
prices for similar assets or that can be derived from observable market data
values derived by indirect valuation techniques, not verifiable by direct observation of market data
3 criteria for recognition
the item meets the definition of a financial statement element
the item has an appropriate basis of measurement, and a reasonable estimate can be made of the amount
for assets and liabilities, it is probable that the economic benefits will be received or given up (ie realized)
the accounting recognition of assets and liabilities that have not yet been realized as a cash flow
accruals
the delayed recognition of costs and receipts that have been realized through cash flows, but have not yet contributed to the earnings process as expenses and revenues
deferrals
Revenue definitions (3)
inflows of cash, increases in accounts receivable, or other increases in a business's assets
settlements of liabilities
a combination of the two
3 conditions to be met for revenue recognition
all significant acts required of the seller have been performed, and the risks and rewards of ownership have passed to and been accepted by the buyer
consideration is measurable
collection is reasonably assured
the financial statements should report all relevant information bearing on the economic affairs of business enterprise
full disclosure
building blocks of financial statements
elements
Six elements
assets
liabilities
owners' equity/net assets
revenues/gains
expenses/losses
other comprehensive income
Financial Statements required by IFRS (4)
statement of financial position (balance sheet)
statement of comprehensive income (income statement)
statement of changes in equity
statement of cash flows
Elements on a statement of financial position
assets
liabilities
owners' equity/net assets
Elements on a statement of comprehensive income (3)
revenues/gains
expenses/losses
other comprehensive income
economic resources controlled by an entity as a result of past transactions or events from which future economic benefits may be obtained
assets
To qualify as assets, the resources involved must: (3)
have future economic benefits
be under the entity's current control
result from past transactions
Obligations of an entity arising from past transactions or events, the settlement of which will result in the transfer or use of assets, provision of services, or yielding of other economic benefits in the future
liabilities
To qualify as liabilities, obligations must: (3)
require future transfer of assets or economic benefits
be an unavoidable current obligation
result from past transactions
the residual of assets minus liabilities
owners' equity or net assets
any increases in economic resources resulting from the activities of an entity
income (both revenues and gains)
decreases in economic resources resulting from the income-generating activities of an entity
expenses and losses
increases and decreases in net assets that are specifically excluded from net income by IFRS and do not reflect transactions with owners in their capacity as owners
other comprehensive income
using up of assets or incurrence of liabilities
expenses and losses
probable future economic benefits obtainedd by an entity
assets
enhancement of assets or settlements of liabilities
revenue and gains
residual interest in assets after deducting liabilities
owners' equity/net assets
increases in net assets from peripheral or incidental transactions from the entity
gains
changes in net assets from peripheral or incidental transactions of the entity
gains and losses
future sacrifices arising from past transactions
liabilities
results from the entity's ongoing major or central operation
revenues and expenses
calculation of shareholders' equity
income avail. to common shareholder weighted avg. of common shares
