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Homeworksolution-ch.1 - BRIEF EXERCISE 1-2 Accounting has...

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BRIEF EXERCISE 1-2 Accounting has the responsibility of measuring company performance accurately and fairly on a timely basis. This enables investors and creditors to assess the relative risks and returns of investment opportunities and channel resources more effectively. If a company’s financial performance is measured accurately, fairly, and on a timely basis, the right managers and companies are able to attract investment capital. Unreliable and irrelevant information leads to poor capital allocation, which adversely affects the securities market. BRIEF EXERCISE 1-3 Financial statements generally refer to the four basic financial statements: balance sheet, income statement, statement of cash flows, and statement of changes in owners’ or shareholders’ equity. Financial reporting is a broader concept; it includes the basic financial statements and any other means of communicating financial and economic data to interested external parties. Examples of financial reporting other than financial reports are annual reports, prospectuses, reports filed with government agencies, news releases, management forecasts or plans, and descriptions of an enterprise’s social or environmental impact.
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BRIEF EXERCISE 1-4 The objective of financial statements is to communicate information that is useful to investors, members, contributors, creditors, and other users in making their resource allocation decisions and/or assessing management stewardship. Consequently, financial statements provide information about: (a) an entity’s economic resources, obligations, and equity/ net assets; (b) changes in an entity’s economic resources, obligations, and equity/net assets; and (c) the economic performance of the entity ( CICA Handbook section 1000.15). In order to make resource allocation decisions, users look for information about the ability of the enterprise to earn income and generate future cash flows, which will be used to meet obligations and generate a return on investment. In order to assess management stewardship of the company’s resources, users traditionally look at historical data to determine whether management decisions are acceptable and optimize shareholder wealth/value. Users may also attempt to predict the impact of current decisions made by management on the company’s future financial health. BRIEF EXERCISE 1-13 The sources of pressure are innumerable, but the most intense and continuous pressure to change or influence accounting principles or standards come from individual companies, industry associations, governmental agencies, securities commissions, practicing accountants, academicians, professional accounting organizations, and public opinion. As we move towards international harmonization, the U.S.
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