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Framework Financial

Reporting

Introductions
Course outline
Accounting standards in Canada
Objectives of financial reporting
External-User objectives
Preparer motivations
Required financial statements
Competency areas
Case writing review Farmer John
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Introductions

Review of Course Outline


Course objectives multiple GAAPs
Powerpoint slides key to read
chapter / articles prior to class, on data
base if want to print out copy
Labs need to attend lab with your
section, question answers need two
copies one copy handed in and the
second copy used in your personal take
up, lab grade for handed in completed
answers to questions and participation
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Review of Course Outline


Required readings
Mark breakdown
Written assignments may be done with
partner in your section
Cases, midterm, final -competency based
marking
Academic honesty
Schedule
Group presentations
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Review of Annual Report


Each week questions on annual report
Need to bring Bombardier annual report
each class either download PDF or print
out copy
Questions focus on material covered in
that class
Part of course content for midterms and
finals
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Annual Report Questions


Take 10 minutes
Work individually
Answer annual report questions

Accounting Standards
IASB (International Actg Standards
Board)
AcSB (Accounting Standards Board)
Publicly accountable enterprise
Public companies
Primary fiduciary capacity (e.g. bank)
IFRS required

Private enterprises
IFRS or ASPE or disclosed basis actg
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CICA Handbook
o Part I International Financial Reporting
Standards
o Part II Accounting Standards for Private
Enterprises
unless elect to use IFRS

o Part III- Accounting Standards for NPOs


unless elect to use IFRS
Part II and Part III together

o Part IV Accounting Standards for Pension


Plans
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REPORTING FRAMEWORKS
PUBLIC

General Purpose
IFRS

Other
Special Report
(i.e. DBA)

PRIVATE

General Purpose
IFRS

General Purpose
ASPE

Other
Special Report
(i.e. DBA)

Private Enterprises
Reasons may want to use IFRS:

Subsidiary of parent using IFRS


Want to go public in future
May want to sell in future
Competitors report using IFRS
Foreign financing

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Comparability
Financial reporting impacted national
environment and cultural practices
Many countries base income tax on
reported earnings
Sweden social responsibility
Germany emphasis creditor protection
Many countries employee protection
Muslim practices no lending arrangement
Consolidated f/s Japan no parent

Objectives of Financial
Reporting
Purpose financial statements
communicate information to users
Conflict between prepares and users
Accountants make judgements:

Determine recognition
Choose measurement methods
Make suitable estimates
Decide disclosure
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Impact Financial Statements


Examples:
Earnings basis for bonus (e.g. net income)
Accounting methods may impact income
tax liability
Level inventory and A/R affect amount of
bank loan
Numbers may trigger covenant violation
Partnerships, co-ops results affect financial
rewards
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Decisions of Users
Examples:
Lenders evaluate cash flows assess ability
service loan
Income tax authorities
Employees evaluate ability increase wages
Shareholders evaluate performance
Security analysts evaluate performance
Grant agencies evaluate financial need
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Financial Reporting
General purpose financial reporting
Objective financial statements useful
wide range users economic decisions
Investors take priority

Enterprise reporting objectives


External users
Preparers

Ethical issues
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Management Considerations
Impacts financial reporting objectives
First consider:
Analysis must be
Facts
Constraints

Then identify and rank:


User Power
User Needs
Preparer Motivations

based on facts and


consider
constraints.
If, the facts and
constraints allow
for more than one
accounting
conclusion, then
the final choice
depends on the
financial reporting
objective of the
primary user.

External User Objectives


Assessing and predicting cash
flows
Assessment current cash flows vs.
prediction future cash flows
Earnings quality
relationship operating cash flows
and net income

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External User Objectives


Income Tax Deferral
Financial reporting vs. income tax
reporting
Tax deferral not tax evasion
Ethical choices

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External User Objectives


Contract Compliance
Covenants or maintenance tests
e.g. Maximum debt to equity ratio
Stewardship
Dominant objective Not-for-Profit
Performance Evaluation
Financial reporting metric based
(e.g. net income)
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Preparer Motivations
Earnings Management

Income smoothing
Maximizing earnings
Minimizing earnings
Big bath

Minimum Compliance
Expanded Disclosure
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Conflicting Objectives
Must prioritize where choice
Use professional judgment
Ethics is key!

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IFRS - Financial Statements


Statement of financial position
Statement of comprehensive income
Income statement and
Statement of other comprehensive
income (OCI)

Statement of changes in equity


Statement of cash flows

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ASPE - Financial Statements


Balance sheet (statement of financial
position)
Income statement
Statement of changes in retained earnings
Statement of cash flows
No statement of comprehensive
income or statement of changes
equity
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Competency Areas
Enabling Competencies
Technical Competencies

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Competency Areas
Enabling Competencies

Professional and Ethical Behaviour


Problem-Solving and Decision Making
Communication (written and oral)
Self-Management
Teamwork and Leadership

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Competency Areas
Technical Competencies

Financial Reporting
Strategy and Governance
Management Accounting
Audit and Assurance
Finance
Taxation

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Case Review - Analysis


General Steps in Analysis
Overview assessing the situation or
setting the stage!!
Analysis of Issues
Recommendations

Case Review Steps in


Analysis
Who are you writing to? role?
What are you asked to do? required?
Overview assess the situation or set the stage
Users, Objectives, Constraints, Critical Success and
Failure Factors

Identification and ranking of issues


Analysis based on FACTS tied to criteria; not based
on users objectives
Recommendations tied to impact on users and
objectives and /or constraints
Ethical decision making
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Case Review - Role

Accounting advisor
Business Advisor
Auditor
Arbitrator
CEO
Other
Comments made need to be
appropriate for reader of report.
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Case Review Types of


Cases
Reviewing existing accounting policies
Selecting new accounting policies
Big picture: integration of various
types of analysis

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Case Review-Reviewing
Existing Accounting Policies

Overview
Constraints GAAP or not, if private IFRS
or ASPE if GAAP constraint, covenants
Biases and influences on decision making
Analysis of Issues
Review existing policy to see if GAAP (if
GAAP constraint)
Consider other valid alternatives
Recommendations
Current policy appropriate or need change,
tied to impact on bias and financial
statement
Consider ethics
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Case Review-Selecting New


Accounting Policies

Overview
Constraints GAAP or not, if private IFRS or
ASPE if GAAP constraint, covenants
Users and objectives identify conflicts and
conclude on most important user and why
Analysis of Issues
Review alternatives based on facts
Recommendations
Select policy and consider impact primary user
and objective / constraints and financial
statement
Consider ethics
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Case Review-Big Picture


Overview
Constraints GAAP or not, if private IFRS or ASPE
if GAAP constraint, covenants
Users and objectives considering impact on big
picture
Analysis of Issues
Review alternatives based on facts
Recommendations by issue and overall
Select policy where choice based on facts and
consider impact on big picture decision e.g.
purchase company
Consider ethics
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Farmer John
Spend ten minutes reading through
the case

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CASE REVIEW: FARMER


JOHN
Short case used to illustrate evaluation
guide
Case midterm or assignment or final
would have more issues
Expectation to be competent on issues
and highly competent on other areas
Review other documents on database
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COMPETENCY BASED
MARKING
Assessment guide attached to each case
assignments, midterm
Range NA to HC
NA not addressed
NC nominally competent
RC reaching competent
C competent
HC highly competent
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COMPETENCY BASED
MARKING
Example
Small issue e.g. contingency, subsequent
event - 2 marks total
NA = 0
NC = mark
RC = 1 mark
C = 1 marks
HC = 2 marks
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COMPETENCY BASED
MARKING
Example
Large issue e.g. Calculations / lots
alternatives - 8 marks total
NA = 0
NC = 2 marks
RC = 4 marks
C = 6 marks
HC = 8 marks
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COMPETENCY BASED
MARKING
Important to rank issues and
budget your time small, medium,
large issue since number of
available marks will be different
Marks for setting the stage overview, recommendations,
communication skills (enabling
competencies)
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