tailieunhanh - Lecture Financial accounting in an economic context (9th edition): Chapter 1 – Jamie Pratt

Chapter 1 - Financial accounting and its economic context. This chapter discuss the role of financial reports in investment decisions and the difference between the economic consequence and user perspectives. | 2 Chapter 1: Financial Accounting and Its Economic Context 2 3 The Role of Financial Reporting in Investment Decisions Profit-seeking companies - managers prepare reports for owners of the companies. Owners and other interested parties (users) - use reports to assess financial condition and performance of companies. User decisions - users obtain information from reports to make investment decisions. Effects of user decisions - decisions affect the company and its managers because of the need for capital 3 4 Financial Reporting and Investment Decisions 5 Content of Financial Reports The Auditor’s Report The Management Letter The Financial Statements: Balance Sheet Income Statement Statement of Shareholders’ Equity Statement of Cash Flows The Footnotes 5 6 The Auditor’s Report The auditor’s report is a statement to the board of directors of the company and to the shareholders of the company. It expresses an opinion as to whether the financial statements present fairly the financial activities of the company and whether the financials were prepared in accordance with GAAP 6 7 The Management Letter The management letter is the statement of management to the investors. It indicates: Management is responsible for the preparation and content of the financial report. The statements were prepared in accordance with Generally accepted accounting principles (GAAP). The company maintains a system of internal controls to safeguard assets. 7 8 Financial Statements For Microline Figure 1-4 Financial Statements 8 9 The Footnotes Integral part of the financials, and explain many of the policies and assumptions used to prepare the financials. FIGURE 1–5 (Partial) Notes to the financial statements 9 Make a Decision Analysis of Financial Statements Cash position Earning power Ratio Analysis Form of Investment Debt (Loan) Equity (Ownership) 10 11 Providers of Capital - Roles Provide capital equity capital through stock investments debt capital through bond and loan investments . | 2 Chapter 1: Financial Accounting and Its Economic Context 2 3 The Role of Financial Reporting in Investment Decisions Profit-seeking companies - managers prepare reports for owners of the companies. Owners and other interested parties (users) - use reports to assess financial condition and performance of companies. User decisions - users obtain information from reports to make investment decisions. Effects of user decisions - decisions affect the company and its managers because of the need for capital 3 4 Financial Reporting and Investment Decisions 5 Content of Financial Reports The Auditor’s Report The Management Letter The Financial Statements: Balance Sheet Income Statement Statement of Shareholders’ Equity Statement of Cash Flows The Footnotes 5 6 The Auditor’s Report The auditor’s report is a statement to the board of directors of the company and to the shareholders of the company. It expresses an opinion as to whether the financial statements present fairly the financial .