Course Outline of 70-251-91

Some Important Information:

1. Office hours:

University campus: Wed 1:45-3:45 p.m., OB 510

By email to: Dr. Jerry Sun

at jyksun@uwindor.ca
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 Course Outline of 70-251-91

2. Financial Accounting Courses in Odette

Intro-level: 151 (Principals of Accounting)

Intermediate-level: three intermediate accounting courses

251 (Introduction to Financial Accounting Theory),
Text Vol 1.
252 (Accounting Theory 1), Text Vol 1 & 2
352 (Accounting Theory 2), Text Vol 1 & 2

Advanced-level: 457 (Advanced Accounting 1)

458 (Advanced Accounting 2): Case Study

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 Course Outline of 70-251-91

3. Text and digital resource

Kieso, Weygandt, Warfield, Young, Wiecek, and
McConomy, INTERMEDIATE ACCOUNTING, Vol. 1;
Eleventh Canadian Edition (with WileyPLUS); John
Wiley & Sons Canada, Ltd. 2016.

Hardcopy of textbook and WileyPlus registration

code: University Bookstore

or purchase on-line text and WileyPlus registration

code via Wiley website.
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 Course Outline of 70-251-91

4. Midterm Exam

The midterm exam will be held in the University

campus on Feb 14, 7:00-9:00 pm, OB B20.
If you need to write the exam in other places,
please contact the Dean Suites Receptionist
Linda Smith (Email: llsmith@uwindsor.ca) for
accommodation as soon as possible.

The format of the exam will be announced prior to

the exam.

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 Course Outline of 70-251-91

5. WileyPlus Assignments and Case Project

Five assignments in total

Five attempts within at least two weeks for each assignment.
The first assignment starts at 6:00 pm on Jan 17.
Check WileyPlus for start and due dates and time. The
Course ID # is 557307. Please register at
https://www.wileyplus.com/WileyCDA /

One case project: You can work on it with another student

or individually. The details of the case project will be
announced on Mar 8. The due date of the case project is Mar
21.

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 Course Outline of 70-251-91

6. Weighting in Final Grade

WileyPLUS assignments: 15%

Case Project: 10%
Midterm Exam: 35%
Final Exam: 45%

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 Course Outline of 70-251-91

7. Course Contents
Chapter 1: Financial Reporting Environment
Chapter 2: Conceptual Framework
Chapter 3: Accounting Information System
Chapter 4: Reporting Financial Performance
Chapter 5: Financial Position
Chapter 7: Cash and Receivable
Chapter 8: Inventory
Chapter 10: Property, Plant, and Equipment (PPE)
Chapter 11: Depreciation, Impairment, and
Disposition

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 CHAPTER 1:
THE CANADIAN
FINANCIAL
REPORTING
ENVIRONMENT
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Characteristics of Accounting

1. Identification, measurement, and communication of

financial information about;
2. Economic entities to;
3. Interested persons.

Accounting is a process or information system:

Input: raw data, e.g., transactions and events
Output: financial reports or analyses

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Financial Reporting

Financial accounting results in preparation of financial

reports about business activities
Financial reporting (mainly via financial statements) is
used by both internal and external users
External users include such decision makers as
investors, creditors, unions, and government agencies
Managerial accounting provides information (e.g., cost-
benefit analyses and forecasts) used by management
(internal users only).

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Financial Statements and Other
Means of Financial Reporting

Major financial statements include:

Balance Sheet (Statement of Financial Position)
Income Statement (Statement of Comprehensive
Income)
Cash Flow Statement
Statement of Retained Earnings (Statement of
Change in Equity)
+ Note Disclosures (a part of financial statements)

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Accounting and Capital Allocation

Financial reporting aids users in the

allocation of scarce resources (capital)
Capital markets and financial institutions
play important roles in allocating capital

For example, investment decision assess relative risks

and returns of alternative investment opportunities

Credit rating rate companies financial stability

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Accounting and Capital Allocation

The accounting profession has the responsibility of

measuring a companys performance accurately, fairly,
and on a timely basis
These measurements enable investors and creditors to
compare the income and assets employed by companies

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Stakeholders in Financial
Reporting

Stakeholders: parties who have something at risk

(stake) in the financial reporting environment

Key stakeholders include traditional users of financial

information

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Stakeholders in Financial
Reporting

Broader definition of users is: anyone who prepares,

relies on, reviews, audits, or monitors financial
information
Includes both internal and external parties
Key stakeholders include:
investors, creditors, auditors, employees, regulators,
analysts, management, standard setters, and others

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What is at Stake for Each
Stakeholder

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Objective of Financial Reporting

The overall objective of financial reporting is to provide information that

is decision-useful.
Financial statements should provide information about:
1. the entitys economic resources and claims to those resources, and
2. changes in those resources and claims
General-purpose financial statements are prepared for a wide variety of
stakeholders
The information need of specific stakeholders may affect financial
reporting objective, e.g., investors need information about future cash
flows reflected by earnings performance; short-term creditors need
information about liquidity.
Accrual-basis accounting provides earnings that is more relevant to
future cash flows than cash-basis accounting.

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Information Asymmetry

Ideally, all stakeholders should have equal access to

all relevant information (i.e. information symmetry)
Managers have access to more information than
other stakeholders (i.e. information asymmetry)
Some reasons for information asymmetry
Capital markets are not fully efficient
Human behaviour sometimes motivated by
maximizing self-interest at the cost of others (agency
problems)

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Information Asymmetry Problems

Two types of information asymmetry problems:

1. Adverse selection: knowing that there is an
information asymmetry, capital markets may attract
wrong kinds of companies
2. Moral Hazard: knowing that there is information
asymmetry, individuals may act in their own best
interest at the expense of others (e.g. management
bias)
Some of the possible motivations for management
bias include the following:
1. Evaluation of management performance
2. Compensation structures
3. Access to capital markets and meeting analyst
expectations
4. Meeting contractual obligations

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 Information Asymmetry Problems

A example of management bias in financial reporting:

CEO bonus plans: bonus formula= 0.5x(net income-$1,000,000)

If no bias, reported net income is $800,000 and $600,000 in

2014 and 2015, no bonuses in these two years.

If the management took bath in 2014, e.g., use accounting

estimates to reduce net income from $800,000 to $100,000 and
move $700,000 to the next year, so reported net income is
$100, 000 in 2014 and $1,300,000, then still no bonus in 2014,
but bonus in 2015=0.5 x (1,300,000-
1,000,000)=0.5x300,000=$150,000

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The Need to Develop Standards

Accounting standards help reduce information

asymmetry problems in financial reporting
Standards are not regulations, or laws
Standards are intended to be generally accepted
accounting principles (GAAP) and universally practised
Why are accounting standards important to financial
accounting, but why not to managerial accounting?

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 The Standard Setting Process
in Canada Parties Involved

Canadian Accounting Standards Board (AcSB)

Primarily responsible for setting GAAP for
Canadian private enterprises (ASPE), not-for-
profit entities, and pension plans
Two underlying premises for development of
standards
Be responsive to the needs and viewpoints of the entire
economic community
Operate in full public view through due process

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The Standard Setting Process in
Canada Parties Involved

International Accounting Standards Board

(IASB)
Major international standard setting body
Mission to develop, in the public interest, a single
set of high quality, understandable and
international reporting standards (IFRSs) for
general purpose financial statements
IFRS must be used by public companies in
Canada
Private enterprises have an option of using IFRS

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Generally Accepted Accounting
Principles (GAAP)

Under ASPE, GAAP consists of :

Primary sources
CPA Handbook Sections 1400 to 3870
Accounting guidelines
Other sources
Background documents and implementation guidance issued
by AcSB
Pronouncements in other jurisdictions
Research studies, accounting textbooks, journals, etc.
Must be consistent with primary sources and in accordance with
the conceptual framework (i.e. CPA Handbook Section 1000)

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Generally Accepted Accounting
Principles (GAAP)

Under IFRS, GAAP includes:

IFRS (included in CPA Handbook)
International Accounting Standards (IAS, former
IFRS)
Interpretations (IFRIC or SIC)
If above sources do not specifically apply, other
sources may be considered:
Pronouncements of other standard-setting bodies
Other accounting literature
Accepted industry practices

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Professional Judgement

There cannot be a rule for every situation

Standards in Canada are based primarily on principles
rather than specific rules
Therefore, must use professional judgement
The United States currently uses a rules-based
approach

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Challenges and Opportunities for
the Accounting Profession

Oversight
Following the enactment of Sarbanes-Oxley Act (2002), Public Company
Accounting Oversight Board established, CEO and CFOs certifying financial
statements
Ethics
Challenge to accountants
Standard setting in a political environment
Political action can have a significant impact on accounting standards
Principles versus rules
Principle-based standards are more dependent on professional judgment
Rules-based standards have a larger body of knowledge (there is a rule for
most things)
Practices are more defensible under rules-based standards

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