session2-8 - Session 2 objectives and qualitative...

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1. Provide useful info to external people outside the firm to help make decisions. To help predict future cash flows. 2. Representational faithfulness- it is what it is- say it costs $100 it is(reliability) 3. Cost of land- want market value not historical cost 4. Jointly by FASB and IASB, us gaap and ifrs, 7 part and 1 part framework 5. Qualitative characteristics relevance and r.f. 6. Capital providers are investors and creditors 7. Help them assess amount and timing of future cash inflows 8. Management as a steward of resources 9. Provide info about eco resources and claims to those resources, can see balance sheet, income statement, debts help them make decision. 10. Relevance- can make a difference in a decision by helping users to form predictions about future outcomes or to confirm or correct prior expectations. Predictive and confirmatory value. 11. Predictive- forecast future outcomes 12. Confirmatory- confirm or correct prior expectations, flow is higher than thought has confirmatory. 13. Forward looking info like forecast a lot of predictive 14. Rep faithful- can’t omit something important, like residual value, complete, neutral, and free of material error. 15. Neutrality- bias to obtain a better result, conservative can go over or under 16. Total absence of error not required but minimum is, example is if don’t know market value 17. Too much uncertainty lack of r.f 18. Enhancing characteristics- verifiability- abilty to represent info is what it is 19. Comparability- look at similarities and differences, consistent over time 20. Timeliness- info available before loses capacity 21. Might have time, but sacrifice verifiability 22. To provide present and potential investors and creditors with information useful for decision making. – objective of financial reporting 23. Primary user investors and creditors 24. What types of decisions is financial reporting designed to help users make- For investors, to decide whether to invest in a company or whether to increase or decrease the amount of that investment. For creditors, to decide whether to make a loan to an entity or whether to modify the terms of an existing loan. Additionally, current capital providers need to evaluate management as a steward of their investment. Investors need to decide how much to pay managers or whether to fire them. 25. Users care about future cash flows, future is uncertain so they use past info also to help 26. Accounts receivable- helps predict future cash flows 27. Inventory- predict 28. Ppe- Informs users of firm’s investment in productive assets and helps users determine the returns the firm is generating on that investment. This information is useful in assessing how much capital the firm needs to operate and the firm’s ability to generate positive cash inflows given its current or potential capital base. 29. Long term debt- predict cash outflows
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session2-8 - Session 2 objectives and qualitative...

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