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Lecture Financial reporting and analysis (6/e) - Chapter 1: The economic and institutional setting for financial reporting

After studying this chapter, you will understand: Why financial statements are a valuable source of information? How the demand for financial information comes from its ability to improve decision making and monitor managers’ activities? How the supply of financial information is influenced by cost and benefit considerations?. | Revsine/Collins/Johnson/Mittelstaedt/Soffer: Chapter 1 The Economic and Institutional Setting for Financial Reporting Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education Learning objectives- After studying this chapter, you will understand: Why financial statements are a valuable source of information. How the demand for financial information comes from its ability to improve decision making and monitor managers’ activities. How the supply of financial information is influenced by cost and benefit considerations. How accounting rules are established, and why those rules still allow managers some accounting discretion. Why financial reporting philosophies and detailed accounting practices sometimes differ across countries. Why International Financial Reporting Standards (IFRS) influence the accounting practices of U.S. companies. 1- WorldCom’s Curious Accounting First Quarter, 2002, an analyst reported: “The company has $2.3 billion in cash, which translates into a $20.50 book value per share, And you have to pay only $2 for this gem!” Third quarter of 2002, WorldCom made a $3.8 billion reclassification from assets to expenses CFO fired, Controller resigned Stock lost 90% of its value Could you have seen it? 1- Why financial statements are important Without adequate information, investors cannot properly judge the opportunities and risks of investment alternatives. Financial statements are the first and often the best source of information about a company’s past performance, current health, and prospects for the future. Analytical tool Management report card Early warning signal Basis for prediction Measure of accountability Financial statements can be used for various purposes: 1- Epilogue to WorldCom In June 2002, WorldCom says $3.8 billion in line cost expenses were wrongly transferred to the balance sheet. Shares fall to $0.06. $11 billion of . | Revsine/Collins/Johnson/Mittelstaedt/Soffer: Chapter 1 The Economic and Institutional Setting for Financial Reporting Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education Learning objectives- After studying this chapter, you will understand: Why financial statements are a valuable source of information. How the demand for financial information comes from its ability to improve decision making and monitor managers’ activities. How the supply of financial information is influenced by cost and benefit considerations. How accounting rules are established, and why those rules still allow managers some accounting discretion. Why financial reporting philosophies and detailed accounting practices sometimes differ across countries. Why International Financial Reporting Standards (IFRS) influence the accounting practices of U.S. companies. 1- WorldCom’s Curious Accounting First Quarter, .