day 2 objective of accounting 2009 spring v1

day 2 objective of accounting 2009 spring v1 - ACCY301

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ACCY 301 Measurement and Disclosure Objectives of Accounting
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Today’s Agenda n Why accounting information? n Information asymmetry  n Investment and valuation n Contracting and stewardship n Discussion: Demand and supply of  accounting information n Qualitative characteristics of useful  information n Relevance n Faithful representation n Group exercise: Usefulness of movie critic  score
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Review of Last Session n Why accounting?
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Who Are Users? n Current shareholders n Potential shareholders n Lenders n Board of directors n Customers n Suppliers n Employees n Government regulators n General Public
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Main Uses of Accounting  Information n On financial markets: Make investment  decisions n Inside organizations: Make contracts  more efficient
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Financial Market Use of  Accounting Information
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Stock Market Reaction to Earnings  (Bernard and Thomas 1987)
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Stock Market Reaction to Earnings  Surprises (Skinner and Sloan 2002)
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Inside a Firm n Principal : Owner of the firm (shareholders)  n Agent : Management of the firm (CEO etc.), hired by the  principal.  n Principals (shareholders) monitor the agents to make sure  that they are maximizing shareholder wealth. n In publicly traded companies, dispersed shareholders delegate  this task to a board of directors.  n Agency Conflict : When principals cannot perfectly  observe, monitor or discipline agents, then inefficiencies  may result such as: 
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day 2 objective of accounting 2009 spring v1 - ACCY301

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