FA_Chapter2 - ACTG 1P11 CHAPTER 2 QUALITIES OF ACCOUNTING...

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ACTG 1P11 CHAPTER 2: QUALITIES OF ACCOUNTING INFORMATION Information for decision making I. Financial reporting provides information for decision making a. The income statement reports net income (or profit) b. The income statement is prepared to show business activity during a period II. For financial information to be useful the same rules must be applied consistently a. Across time (comparing financial information for the same entity over multiple periods b. Across companies (comparing financial information of different entities) III. Generally accepted accounting principles (GAAP) provides consistency a. Rules that companies follow when preparing financial statements b. Historically developed through common usage IV. Who makes the rules? a. Profit and not-for profit companies in Canada: the Accounting Standards Board (AcSB) of the Canadian Institute of Chartered Accountants (CICA)* b. Public sector (governments) in Canada: Public Sector Accounting Board (PSAB) of the CICA c. In Canada the accounting profession sets its own rules* d. *Starting in 2011 Canada will adopt International Financial Reporting Standards (IFRS) in place of Canadian GAAP for all publicly accountable enterprises. It is the International Accounting Standards Board (IASB) that establishes IFRS. Financial Statements concepts I. In 1978, the FASB began a series of conceptual statements to serve as a framework for future accounting rules and deliberations II. These conceptual statements are called Statements of Financial Accounting Concepts (SFACs) and formed the basis of Canada’s financial statement concepts. a. Define and describe the kind of information financial reporting should include b. Conceptual or theoretical in nature III. Section 1000 (“ Financial Statement Concepts “) of the CICA Handbook sets out the framework for financial reporting
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a. Think of these as general guiding principles, helping you to determine the proper way to account for business transactions where no specific rule(s) exist. I.E. they reflect the “spirit” of GAAP Objectives of accounting information I. Section 1000 of the CICA Handbook defines the objectives of financial reporting a. Most important objective is to provide useful information b. What constitutes “useful information”?
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