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Text Book Notes

Text Book Notes - Midterm is on FRIDAY March 4th 2011...

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Midterm is on FRIDAY March 4 th , 2011 CHAPTER 1: DEF’N and Important points including rules of – “Financial Accounting (FA) Theory” (FA + Theory) FA: Field of accounting that prepares financial reports that are used for decision- making purposes and for evaluating mgmt performance BY investors, creditors and other parties. Theory: A set of propositions which provides principles of analysis ... (see text book) Two groups of financial accounting theories: 1. Normative (prescriptive) theories 2. Positive theories Important concepts throughout the course Information Asymmetry (Condition in which at least some relevant information is known to some but not all parties) – 2 types: ADVERSE SELECTION, MORAL HAZARD DEF’N: Adverse Selection – MANAGER has some information that outsider do not have Moral Hazard – is the risk that the receiver of funds will not use the money as was intended or they may take unnecessary risks or not be vigilant in reducing risk Must distinguish the difference between the 2 Course overview: Ideal Conditions Information Asymmetry User Decision Problem Acct-ing Info CHAPTER 2: Primary Qualitative Characteristics: DECISION USEFULNESS – Relevant, Reliable, Free of Bias, Comparable and Consistent 1) Relevance (2 dimensions) - Predictive Value and
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