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Learning Objectives Understand the Business – LO1 Explain the needs of financial statement users. – LO2 Describe the environment for financial reporting,

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Presentation on theme: "Learning Objectives Understand the Business – LO1 Explain the needs of financial statement users. – LO2 Describe the environment for financial reporting,"— Presentation transcript:

1 Learning Objectives Understand the Business – LO1 Explain the needs of financial statement users. – LO2 Describe the environment for financial reporting, including the recent changes to corporate governance. Study the accounting methods – LO3 Prepare a comparative balance sheet, multiple-step income statement, and statement of shareholders’ equity. – LO4 Describe other significant aspects of the financial reporting process, including external audits and the distribution of financial information. – LO5 Explain the reasons for, and financial statement presentation effects of, using IFRS. Evaluate the results – LO6 Compare results to common benchmarks. – LO7 Calculate and interpret the debt-to-assets, asset turnover, and net profit margin ratios. Review the chapter 1© McGraw-Hill Ryerson. All rights reserved.

2 Financial Reporting in Canada Accounting and financial statement preparation for small private companies, as outlined in chapters 1 to 4, applies to all companies. However, public companies and some private companies take three additional steps: – Enhance financial statement formatting – Obtain an independent external audit – Release additional financial information © McGraw-Hill Ryerson. All rights reserved.2 LO3

3 © McGraw-Hill Ryerson. All rights reserved.3 LO3 A typical timeline for the financial reporting process is shown below:

4 Financial Statement Formatting Comparative Financial Statements report information for two or more time periods; often the most recent and the previous year. © McGraw-Hill Ryerson. All rights reserved.4 LO3 The Asset section of this comparative Balance Sheet shows changes over time, such as Activision’s huge increase in Short-Term Investments and decline in Accounts Receivable.

5 © McGraw-Hill Ryerson. All rights reserved.5 Multiple-Step Income Statements display subtotals that provide measures of profit in addition to net income. Income (loss) from Operations shows core results for the company's main business activities. Income (loss) from Investments shows peripheral results from activities other than the company’s main business. Income before Income Tax Expense is useful because not all companies pay the same rate of tax. LO3

6 Retained Earnings information © McGraw-Hill Ryerson. All rights reserved.6 The Statement of Shareholders’ Equity shows changes to Retained Earnings and changes to Contributed Capital. The beginning and ending balances correspond to the balance sheet. LO3 Contributed Capital information

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