Exam 1: The Canadian Financial Reporting Environment

The problem of information asymmetry can be reduced by

Sources of GAAP International Financial Reporting Standards (IFRS) are the primary source of GAAP for public enterprises in Canada. They are, however, insufficient to address all of the accounting issues facing accountants. Explain why this is so and outline some other sources of GAAP that accountants use.

Sources of GAAP The Canadian principles-based GAAP does not offer specific standards for every transaction. When specific guidance cannot be found in primary sources such as the Handbook and Accounting guidelines, what process should the accountant follow in their consultation of other sources?

Which of the following is correct?

In the United States, the body that has the final authority over accounting standards is the

ASPE vs. IFRS Accounting standards for Private Enterprises (ASPE) are geared towards fewer users who have access to additional information about the company. The need for common language and comparability as facilitated by IFRS is less necessary among private enterprises. Explain why, despite this, a private company might choose to voluntarily adopt IFRS.

SOX and standard setting After several highly publicized accounting scandals in the U.S. such as Enron, Sunbeam, and WorldCom, all of whom, coincidentally, were clients of the former public accounting firm of Arthur Andersen, the U.S. regulators enacted the Sarbanes-Oxley Act (SOX). Pressure was put on Canada to follow a similar course. Explain what Canada has done to make public companies more accountable.

In a principles-based standard-setting system (such as Canadian GAAP), compared to a rules-based approach (such as U.S. GAAP),

In Canada, the primary exchange mechanism(s) for allocating resources is (are)

The exercise of professional judgement does NOT involve

Audited financial statements are prepared by

Financial accounting can be broadly defined as the area of accounting that prepares financial statements to be used

Stakeholders who help in the efficient allocation of resources include

The "efficient markets hypothesis" proposes that

Purpose of accounting standards Accounting professions in various countries have tried to develop a set of standards that are generally accepted and universally practised. Explain the motivation for creating such a set of standards.

Which of the following sources of generally accepted accounting principles (GAAP) are NOT developed by the Canadian Accounting Standards Board (AcSB)?

Management bias in financial statement presentation There are many reasons why management may present biased information in the financial statements. Identify at least three (3) such motivations.

Which of the following statements does NOT describe the activities and authority of the Ontario Securities Commission (OSC)?

Role of executives and management in a post-SOX world SOX introduced sweeping changes to the institutional structure of the accounting profession. What key provision was introduced relating to the role of management and executive officers, and their relationship to financial reporting? Why?

Challenges facing financial reporting In North America, the financial reporting environment is changing at a very rapid pace. Briefly describe four challenges facing the accounting profession today.