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ACCT351 (ch.1)
Why Accounting?
| Question | Answer |
|---|---|
| What is the purpose of financial reporting? | To provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors |
| What is information assymetry? | One individual having more information than another individual |
| What is adverse selection? | Employees/managers know more about the company than the general public |
| What does AcSB stand for? | Accounting Standards Board |
| What does AcSOC stand for? | Accounting Standards Oversight Council (appoint members to the AcSB) |
| What does CICA stand for? | Canadian Institute of Chartered Accountants |
| What are the criteria for an accountable enterprise? | an entity (other than a nonprofit) that: 1) has issued publicly debt/equity instruments 2) holds assets for a broad group of outsiders as one of it's primary businesses |
| What does IASB stand for? | International Accounting Standards Board |
| What is the purpose of conceptual framework of IFRS? | a) assist IASB to develop IFRS w consistent concepts b) assist development of consistent accounting policies where there might be a gray area c) assist in understanding/interpretation of standards |
| What are the fundamental characteristics of conceptual framework of IFRS? | 1) Relevance 2) faithful representation 3) enhancing characteristics |
| What is an enhancing characteristic of IFRS conceptual framework? | A characteristic that enhances the usefulness of information |
| What are the 4 IFRS conceptual framework enhancing characteristics? | 1) Comparability 2) verifiability 3) timeliness 4) understandability |
| What is the underlying assumption of financial statements? | The company is expected to continue operating in the forseeable future with no planned liquidation or scale-backs |
| What is an asset? | something the business owns |
| What is a Liability? | A present obligation to transfer an economic resource |
| What is Equity? | Owners residual interest in the business (assets-liabilities) |
| What are 2 subdivided elements of Equity? | Shareholders equity, retained earnings |
| What is income? | Increases in assets or decreases in liabilities resulting in increases in equity |
| What are expenses | Decreases in assets or increases in liabilities resulting in decreases in equity |
| What is recognition? | When an item meets the definition of a financial statement element (recognition means inclusion on financial statements) |
| What are the 2 examples of measurement bases outlined in the textbook? | 1) Historical cost 2) current value |
| What are the 3 ways to measure current value? | 1) Fair value 2) value in use 3) current cost |
| What are the 2 capital maintenance models? | 1) Financial capital 2) physical capital |
| What is the main advantage of physical capital models? | Constant purchasing power (consumer price index). More comparable over time |
| What is the main disadvantage of physical capital models? | Difficult to conclude a broad based index representative of the actual inflation experienced by a specific company (company buys and sells goods not included in indexes) |
| What is the purpose of social accounting? | Convey social/environmental effects of activities to a wider range of stakeholders |
| What are the 5 capitals of sustainability reporting? | 1) Financial 2) manufactured 3) social 4) human 5) natural |
| What is the example of an early 2000's accounting scandal leading to the introduction of IFRS? | Environ |
| IFRS is... | Principles based |
| GAAP is... | Rules based |
| Where do many problems in the accounting profession stem from? | Questionable application of ethical principles |
| What are the 5 key motivations for managers to influence financial statements? | 1) Performance-based compensation 2) evaluation of management stewardship 3) meeting market expectations 4) conditions of contracts 5) political pressures |
| What are 5 common principles of codes of conduct in professional bodies? | 1) Integrity 2) objectivity 3) professional competence 4) confidentiality 5) professional behaviour |
| What are two effects of IT outlined in the textbook? | Automation of routine tasks, blockchain and smart contracts |
| What are the 4 fundamental qualitative characteristics of ASPE? | 1) Relevance 2) reliability 3) comparability 4) understandability |
| What does ASPE stand for? | Accounting Standards for Private Enterprises |
| What are the two sets of accounting standards set by the AcSB? | IFRS and ASPE |
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