Sei sulla pagina 1di 8

1-1

Copyright © 2015 Pearson Canada Inc.


Purpose: To create an awareness
and understanding of the financial
reporting environment in a market
economy

1-2
Copyright © 2015 Pearson Canada Inc.
Some Concepts

• “Capital is an accumulation of
Income”
– Explain

• Correspondingly, “Income is rate of


Change of Capital”

1-3
Copyright © 2015 Pearson Canada Inc.
Some Concepts (contd.)

•1. “Decision usefulness of accounting information.”.


–Useful to whom? Useful for what ?
-Accounting information must be relevant and reliable

•2. Managerial stewardship perspective of accounting


numbers. What is this ?

1-4
Copyright © 2015 Pearson Canada Inc.
Efficient Contracting
Contracts are often based in accounting numbers

Efficient Debt Contracts. Lenders must be willing to lend. Debt


contracts: Debt equity ratio caps. Accounting Conservatism.

Compensation Contracts. Shareholders delegate decision making


to managers. Managers’ bonus contracts as % of NI. Helps align
management and shareholder’s interests. But NI should reflect
managerial effort.

Compensation and debt Contracts should be efficient. So parties


trust each other.

1-5
Copyright © 2015 Pearson Canada Inc.
Information Asymmetry

Adverse selection: Different parties have


unequal Information

Moral Hazard: One party cannot observe the


actions/decisions of another party.

1-6
Copyright © 2015 Pearson Canada Inc.
The Fundamental Problem Of Financial
Accounting Theory

• The best measure of net income to reduce adverse


selection is not necessarily the same as the best
measure of net income to capture managerial
performance.

• Standard setting could help balance the needs of


different parties for different properties of accounting
information.
• Rule based versus principle based standards. Conceptual
framework, ethics.

1-7
Copyright © 2015 Pearson Canada Inc.
The Process of Standard Setting

• Structure
– IASB
• International standards (IFRS; International GAAP)

– FASB
• United States standards (US GAAP)

– Securities commissions

1-8
Copyright © 2015 Pearson Canada Inc.

Potrebbero piacerti anche