Chapter 6 Communicating and Interpreting Accounting Information

Chapter 6 Communicating and Interpreting Accounting Information

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Chapter 6: Communicating and Interpreting Accounting Information November 17, 2013 11:16 PM PLAYERS IN THE ACCOUNTING COMMUNICATION PROCESS Regulators (CSA, AcSB, AASB, Stock Exchanges) Financial info reported by Canadian companies has strict regulations and standards issued by gov't regulators and private standard-setting organizations Canadian Securities Administration (CSA): forum for 13 securities regulators of Canada's provinces and territories o Harmonize regulation of capital markets o Protect investors from unfair practices, fostering fair, efficient, vibrant capital markets Accounting Standards Board (AcSB): responsible for establishing standards of accounting and reporting by Canadian companies o External auditors ensure companies prepare financial reports following standards o Auditors guided by International Standards on Auditing Stock exchanges: ongoing surveillance of reporting and trading activities o If something is up, they undertake independent investigations Managers (CEO, CFO, and Accounting Staff) Chief Executive Officer (CEO) o Highest officer of the company o Responsible for information in financial statements + disclosures Chief Financial Officer (CFO) o Highest officer associated with financial + accounting side of the business o Responsible for information in financial statements + disclosures Accounting Staff o Prepare details of reports o Bear professional responsibility for accuracy of info Board of Directors (Audit Committee) Board of Directors: elected by shareholders to represent their interests o Responsible for maintaining integrity of company's financial reports Audit Committee: composed of non-management directors with financial knowledge o Responsible for hiring company's independent auditors These guys can be sued if the company (listed on a stock exchange) is found guilty of knowingly violating any disclosure regulation Auditors Publicly traded companies must be audited by professional independent accountants following International Standards on Auditing Audit firm assumes some responsibility for fairness of financial statements
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Independent verification = reduced risk of misrepresented company condition Information Intermediaries: Analysts and Information Services Financial Analysts o Receive accounting reports about the company from electronic information services o Gather info through conversations with execs and visits to facilities and competitors o Results combined into analysts' reports Include earnings forecasts (predictions of earnings for future accounting periods) o Evaluated based on accuracy of forecasts + profitability of stock picks o Transfer knowledge of accounting, company, and industry to those lacking expertise o Market efficiency: a quick, unbiased reaction to information o Tend to make optimistic earnings forecasts to maintain good relationship with company's management
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