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Financial Accouting

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Chapter One: The Canadian Financial Reporting Environment Accounting is the identification, measurement, and communication of financial information about economic entities to interested persons. Stakeholder Investors/creditors Management Securities commissions and stock exchanges Analysts and credit rating agencies Auditors Standard Setters Various What is at stake? Investment/loan Job, bonus, reputation, salary increase, access to capital markets by company Reputation, effective and efficient capital marketplace Reputation, profits Reputation, profits (companies are their clients) Reputation -

The overall objective of financial reporting is to provide financial information that is useful to users and that is decision relevant. The statements should communicate information about: 1. The entity’s economic resources and claims to those resources 2. Changes in those resources and claims Sometimes financial statements are prepared with biased information to depict the company in its best light through aggressive financial reporting (opposite to conservative financial reporting). This process may involve overstating assets or net income, understating liabilities/expenses or carefully selecting note disclosures that emphasize positive events. Meeting financial analysts’ expectations and the fact that managers are often compensated based on the company’s net income are several reasons why bias in the financial statements may arise. Additionally, certain benchmarks may need to be met to comply with contracts that the company has (financial stability or liquidity ratios). A single set of general-purpose financial statements are prepared with the expectation that the majority of the stakeholder needs will be met. These statements are also expected to present the enterprise’s financial operations fairly. Accounting professions in various countries have tried to develop a set

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