Flashcards in Chapter 3: financial statements Deck (83)
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1
what is accounting
an organized way of summarizing the activities of a business
2
why do internal and external users of accounting rely on accounting information
to make decisions
3
why do fiancial managers require a strong understanding of accounting
they use that information to make significant decisions that will affect the firm
4
why is it important to report financial performance in a consistent manner between firms
it enhances the usefulness of those reports, allowing comparative analysis
5
what does IFRS stand for
international financial reporting standards
6
what is IFRS
a new set of accounting principles
7
who must use IFRS
publicly accountable companies in Canada
8
does IFRS replace GAAP
yes
9
How can private companies report?
they can use IFRS or ASPE
10
What is ASPE
accounting standards for private enterprises
11
which private companies are more likely to use IFRS
larger private companies
12
Which private companies are more likely to use ASPE
small to mid-size companies
13
has USA adopted IFRS
no, they use US GAAP
14
can any Canadian company use US GAAP
public companies who stock is listed on both Canadian and US stock Exchanges can use IFRS or US GAAP
15
Why was Sarbane-Oxley act (SOX) passed
due to scandals involving companies like Enron and worldcom
- was passed in an attempt to restore investor's confidence by imposing new requirements for financial disclosure and oversight
16
What are the main provisions of Sarbanes Oxley (2002)
1. A new public company accounting oversight board
- register and inspect accounting firms
- establish audit standards
2. separation of the audit function from other services provided by auditing firms
4. improved standards for corporate governance
- separate board committees for finance and audit
- require external auditors to report to the audit committee
- require audit committee independence and financial expertise with membership dominated by external directors
5. new requirement that annual reports indicate the state of a firm's internal controls and asses their effectiveness
6. the CEO and CFO must certify that the firm's financial statements "fairly present in all material respect the operations and financial conditions of the issuer)
17
what is bookkeeping
the mechanical act of managing and recording transactions
18
what is accounting
the application of GAAp and conventions to bookkeeping data to produce financial statements that fairly represent the financial condition and operations of the economic entity
19
what are the most basic accounting principles
1. the entity concept
2. going concern principle
3. A period of analysis
4. a monetary value
5. matching principle
6. Revenue recognition
20
what is the entity concept
accounting is for a specific economic entity
21
what is the going concern principle
statements are prepared on the basis that the entity will continue to operate into the future; therefore liquidation of values are irrelevant
22
what is a period of analysis
usually a fiscal year
- although quarterly and monthly f.s. are also produced
23
what is monetary value
historical costs are usually used because of the objectivity inherent in arms length transactions
24
what is the matching principle
revenue must be matched to expenses in the same period (period they are incurred or earned)
25
What is revenue recognition
revenue is recognized in the period it is earned, even though the cash may not yet have been received
26
what should financial information have
1. relevance
2. faith representation
27
what is relevance
information is relevant if it could potentially affect a user's decisions and has a predictive and/or confirmatory power
28
what is faithful representation
the information provided should be free from bias and free form error
29
to enhance relevance and faithful representation information should have the following characteristics
1. comparability
2. verifiability
3. timeliness
4. understandability
30
