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 Discuss the role of financial reports in investment decisions and the difference between the economic consequence and user perspectives. Learning Objective 1 4 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 5 Financial Reporting and Investment Decisions 6 Explain the difference between consumption and investment and why investors demand documentation and independent audits. Learning Objective 2 7 Consumption and Investment Consumption Purchase of goods and services for enjoyment with no future value Investment Little immediate . | 2 Chapter 1: Financial Accounting and Its Economic Context 2 3 Discuss the role of financial reports in investment decisions and the difference between the economic consequence and user perspectives. Learning Objective 1 4 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 5 Financial Reporting and Investment Decisions 6 Explain the difference between consumption and investment and why investors demand documentation and independent audits. Learning Objective 2 7 Consumption and Investment Consumption Purchase of goods and services for enjoyment with no future value Investment Little immediate gratification, generates returns for a later date Documentation provides information to investors Independent audits of the documentation provides verification by an independent third party, a certified public accountant (CPA) 8 Concept Practice 2 9 Describe the standard audit report, management letter, four financial statements, and related footnotes. Learning Objective 3 10 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 11 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 The Auditor’s Report 12 The Management Letter The management letter is the statement of management to the investors. It
