Financial Accounting Chapter 1

The information provided by accounting enables investors and creditors to compare the income and assets of companies and thus assess the relative risks and returns of different investment oppor- tunities. Based on their assessments, investors and creditors can then channel their resource

Stakeholders are parties who have something at risk in the financial reporting environment;
ManagementInvestorsAuditorsAnalystsStock exchange

The overall objective is to provide financial information that is useful to users (primarily capital providers such as investors and lenders) and that is decision relevant (i.e., will help them make decisions about allocating capital). The statements should communicate information about:
1.the entity’s economic resources and claims to those resources and 2. changes in those resources and claims

Managers are often compensated based on a company's share price or net income.
There is also incentive to meet financial analysts expectations as it affects a company's access to capital markets
Finally, there is the desire to comply with contracts - to meet certain financial ratios included in a contract

The objective is to provide information to users, of different levels and knowledge.

Accounting professions in various countries have tried to develop a set of standards that are generally accepted and universally practised. Without these standards, each enterprise would have to develop its own standards, and readers of financial statements would have to become familiar with every company’s particular accounting and reporting practices. It would be almost impossible to prepare statements that could be compared

1. Canadian Accounting Standards Boards CASB - has primary responsibly for setting GAAP in Canada and publishes the CICA handbook (deals with private enterprise, not for profit and pension plans)
2. International Accounting Standards Board IASB - international IFRS standards
3. Financial Accounting Standards Board FASB - USA board governed by the SEC
4. Securities Commission

GAAP includes not only specific rules, practices, and procedures for particular cir- cumstances but also broad principles and conventions that apply generally, including underlying concepts.

Professional judgement plays an especially important role in private entity GAAP and IFRS.35 This is due to the basic philosophy of Canadian and international accountants on standard setting: the idea that there cannot be a rule for every situation. Private entity GAAP and IFRS are therefore based primarily on general principles rather than specific rules. The basic premise is that professional accountants with significant education and experience will be able to apply these principles appropriately to any situation.