ACIS3115 Chapter 1 - Financial Accounting and Accounting...

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Financial Accounting and Accounting Standards
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Mes notes La valeur de la companie est la future valeur de son cash flow.
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Overview This chapter explains the environment of financial reporting and many factors affecting it. Financial Accounting and Accounting Standards Accounting and Capital Allocation Challenges Objectives Need to Develop Standards SEC AICPA FASB GASB Changing Role of the AICPA Political Environment Expectation Gap International Accounting Standards Ethics
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Financial Reporting (1) Financial statements are the principal means through which a company communicates its financial information to users. Financial Statements: Balance Sheet (BS) Income Statement (IS) Statement of Cash Flows Statement of Stockholders’ Equity Users Investors, creditors, managers, unions, and government agencies.
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Financial Reporting (2) Supplemental Information Sources: President’s letter Supplementary schedules in the annual report Prospectuses Report filed with government agencies (e.g. Bank Call Report) News releases Management’s forecasts
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Accounting and Capital Allocation Efficient use of resources often determines future success. Accountants must measure performance accurately and fairly on a timely basis, so that the right managers and companies are able to attract investment capital. Example: Investors and creditors use financial information to make their capital allocation decisions. Unreliable and irrelevant information leads to poor capital allocation, which adversely affects the securities markets.
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The Challenges Facing Financial Accounting (1) Nonfinancial Measurements Financial reports failed to provide some key performance measures. Customer satisfaction index, backlog information, reject rates in good purchased. Forward-looking information Financial reports failed to provide forward-looking information needed by present and potential investors and creditors. For example, Microsoft’s 2006 3 rd quarter financial reports were available October 26, 2006.
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The Challenges Facing Financial Accounting (2) Soft Assets Financial reports failed to provide information about a company’s soft assets (intangibles). Example: Google’s know-how, Microsoft’s market dominance, Timeliness Quarterly and audited annual financial statements are currently available. No real-time financial statement information available.
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Objectives of Financial Reporting Financial reporting should provide information: Useful information to present and potential users, such as investors and creditors, in making rational investment, credit, and similar decisions .
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