Chapter 12 Flashcards
Canadian Securities Administrators (CSA)
Protect investors and maintain the integrity of the securities market
Accounting Standards Board (AcSB)
Set Generally Accepted Accounting Standards (GAAP).
Canadian Public Accountability Board
Federal agency which oversees Canadian accounting firms (independent
auditors) that perform auditing engagements of public companies.
Corporate Governance Standards (Stock Exchanges)
Along with provincial governments, set overall corporate governance
standards. (The most prominent is the Ontario Securities Commission)
Management
Responsible for the information in the financial statements and disclosures.
Chief Executive Officer (CEO)
highest officer of the company.
Chief Financial Officer (CFO)
highest officer associated with the financial and accounting side of the
business
Accounting Staff
prepare the details of the reports and bear professional responsibility for the
accuracy of the information.
Board of Directors
Responsible for ensuring that processes are in place for maintaining the integrity
of the company’s accounting, financial statement preparation, and financial
reporting.
Board of Directors (Audit Committee)
Is composed of non-management (independent) directors with financial
knowledge and is responsible for hiring the company’s independent auditors.
They also meet separately with the auditors to discuss management’s
compliance with their financial reporting responsibilities.
Independent Auditors
Follow established auditing standards to assess the fairness of the financial
statements and related presentations
Information Intermediaries
Analysis and Advice
- Receive accounting reports and other information about the company from electronic information
services. - Gather information through conversations with company executives and visits to company
facilities and competitors. - Results of their analyses are combined into analysts’ reports.
USERS
- Institutional & Private Investors
- Lenders or Creditors
Institutional Investors
Includes pension, mutual, endowment and other funds that invest on
the behalf of others
Private Investors
Individuals who purchase shares in companies
Lenders or Creditors
Suppliers, banks, commercial credit companies, and other financial institutions
that lend money to companies
THE DISCLOSURE PROCESS – PRESS RELEASES
Press Releases are used to announce quarterly and
annual earnings as soon as the verified figures are
available
ANNUAL REPORTS - Private Held Companies
- Four basic financial statements.
- Related notes.
- Report of independent accountants (auditor’s
opinion) if the statements are audited.
ANNUAL REPORTS - Public Companies
- Non-financial Section
* Includes a letter to the shareholders, a description of
management’s philosophy, products, successes, etc. - Financial Section
* Provincial securities commission regulators set
minimum disclosure standards for the financial
section for public companies.
Quarterly Reports
QUARTERLY REPORTS
- Usually begin with a short letter to shareholders
- Condensed unaudited statement of earnings and
statement of financial position for the quarter. - Often, the statement of cash flows and statement of
changes in shareholders’ equity are omitted. Some
notes to the financial statements also may be
omitted.
What does Investors need to know?
Investors need to know if the company is trying to
earn a high rate of return through product
differentiation or cost differentiation.
FINANCIAL STATEMENT USERS
Management - uses accounting data
to make product pricing
and expansion
decisions.
External Decision makers - use accounting data
for investment, credit,
tax, and public policy
decisions.
THREE TYPES OF FINANCIAL
STATEMENT INFORMATION
- Past
Performance
Net earnings,
sales volume,
cash flows,
return-on-
investment,
EPS.
- Present
Condition
Assets, debt,
inventory,
various ratios.
- Future Performance
Sales and earnings
trends are good
indicators of future
performance.
Financial Statement Analysis based on comparisons
- Time series
analysis
Examines a single
company to identify
trends over time.
- Comparison with similar companies
Provides insights
concerning a
company’s relative
performance
