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Unformatted text preview: Frameworks Accounting Exam 1 Spring 2011 Chapter One I. Financial Statements and Financial Reporting 3 Characteristics The Identification, measurement, and communication of financial information Economic entities Interested parties Financial Reporting The accounting process that culminates in the preparation of financial reports for use by both internal and external parties. Examples: president's letter or supplementary schedules in the corporate annual presort, prospectuses, report filed with government agencies, news releases, management's forecast, and social or environmental impact statements II. Accounting and Capital Allocation Capital Accounting Process 1. Financial Reporting o The financial information a company provides to help users with capital allocation decisions about the company 2. Users (present and Potential) o Investors and creditors use financial reports to make their capital allocation decisions 3. Capital Allocation o The process of determining how and at what cost money is allocated among competing interests Effective process is critical to healthy economy and promotes productivity, encourages innovation, and provides an efficient and liquid market for buying and selling securities and obtaining and granting credit III. The Challenges Facing Financial Accounting Non-Financial Measurement Failed to provide some key performance measures widely used by management, such as customer satisfaction indexes, backlog information, and reject rates on goods purchased Forward-looking Information Failed to provide forward-looking information needed by present and potential investors and creditors. Soft Assets Financial reports focused on hard assets (inventory, plant assets) but failed to provide much information about a company's soft assets (intangibles) which are often the best assets Timeliness Companies only prepared financial statements quarterly, and provided audited financials annually, little to no real- time financial statement information was available Signs Change will Occur Some companies voluntarily disclose information deemed relevant to investors, often the information is non- financial Companies originally provided limited financial date on the internet, now most companies publish their annual reports in several formats on the web and some have sections of financial reports More accounting standards that require the recording of disclosing of fair value information IV. Objectives of Financial Reporting 3 Objectives 1. Is useful to existing and potential investors and creditors and other users in making rational investment, credit, and similar decisions; 1 Chapter 1 [Type text]...
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- Spring '11