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Accounting concepts
- Financial accounting measure/ communicate
o Enterprise financial performance
o In dollars
o Over period of time
o At a point in time
o For decision makers
 Also use internally to evaluate performance
- Financial statement includes:
o Statement of financial position [SFP] / balance sheet [BS]
o Income statement [IS] / statement of comprehensive income [SCI]
o Statement of changes in shareholders’ equity [SCE] / statement of retained
earning [SRE]
o Statement of cash flow [SCF]
o Notes to financial statement and supporting schedules
- Stakeholder – user of financial information
o Investors
o Creditor: decide on loan advance
o Government taxation authorities  Canadian tax is based on net income
 Check consistency of reporting by enterprise and owners
o Union:
 If company make more profit, they should pay higher wage
o Regulatory authorities
 In case of food industry, higher inventory  outdated stock
o General public
 How company minimize the pollution for environment
o Security analyst  make buy or sell recommendation
Role of accounting
- To communicate
o External = financial accounting
o Internal = managerial accounting
Accounting standards
- CPA Canada Handbook [HB] = primary source of GAAP within Canada
- Many Canadian companies follow US GAAP when listed in US stock exchange
Objective of financial reporting
- Provide financial information about the reporting entity that is useful to present and
potential equity investors, lenders, and other creditors in making decisions in their
capacity as capital providers.
- 2 groups of user
o External user – non-management user
o Preparer – manager who determine policies, accountants
- Preparer motivation
o Smoothing – consistent earning growth rate
o Maximize – capitalize short-term asset to maximize profit  listed companies
o Minimize – For small business owner to reduce tax
o Big bath: situation where negative event such as changes in management team or
unexpected event – catastrophe
 Preparer try to write-off all bad account in one time as there are reason to
- Professional judgement
o Principle-based standard, ASPE and IFRS, are dependent on judgement
o USA use rule-based approach
2 different format between IFRS and ASPE
- Difference is on income statement  ASPE is for private companies which does not do
hedging or pension
- ASPE is statement of retained earning as small company not listed in stock market
o Then there is no share issurance

Generally accepted accounting principles

- Canada join with more than 100 countries in International financial reporting
standard [IFRS]
o For public companies
- For private and non-profit company  accounting standard for private company
- For Canadian company listed in US stock market  they can choose to follow US