pdf to jpg convert software free download their incomes as low as possible modern advanced accounting in canada 8th edition pdf free download the law. John McCurdy has recently joined a consultant group that provides investment advice to the managers of a special investment fund. The process of attempting to dissect and eliminate every possible difference that may be experienced in practice is very costly and time consuming, if not impossible. Manage notes, highlights, and bookmarks in one place for simple, comprehensive review. FASBs pronouncements are rule based and far more detailed than IFRSs, which are often described as principle-based standards requiring greater application of professional judgment by the preparers and auditors of financial statements.">
Judgment is a skill developed over many years of study and learning from ones experiences. Professional judgment is derived from knowledge and experience in the profession. It is not something that is learned from rote or memorization of requirements or answers to certain problems. It often involves making choices between meaningful alternatives and the ability to understand the consequences of ones actions.
In the preparation of financial statements, there are three main areas where judgment needs to be applied. First, accounting policies such as when to recognize revenue and whether or not to consolidate a special-purpose entity involve making a decision after considering various methods. The method adopted for a particular company must be appropriate for that company based on its existing situation.
For example, if Company A is selling to customers with poor credit history and without obtaining any security for the receivables from these customers, it would be appropriate to recognize revenue when cash is received. If competitors were selling to customers with very high credit ratings, it would be appropriate for them to recognize revenue when the goods are delivered.
The professional judgment of an accountant will take these factors into consideration and recognize that although one method is appropriate for the competitors, another may be more appropriate for Company A. Second, judgment is involved in making accounting estimates of many kinds. What is the estimated useful life of property, plant, and equipment?
What is the recoverable amount for goodwill? Will a forward contract be effective as a hedge of expected sales for the next three years? The answers to these questions are not clearly defined. In the classroom, we are usually provided with this information, but in the real world, we must gather data and make our own assessment.
Whether we feel that the company can continue as a going concern or not would likely have a material difference on the valuation of goodwill and the bottom line on the income statement.
Third judgment is involved in deciding what to disclose and how to disclose it in the notes to the financial statements. For example, in disclosing a contingent liability resulting from a lawsuit, the company could simply say that it has been sued but no provision is made in the financial statements because it feels that the lawsuit has no merit. Or, it could provide details of the lawsuit and give some probabilities of different outcomes in the note.
Is there too much latitude in accounting? Do the financial statements ever portray the complete facts? One could argue that there is no latitude because accountants. They must represent faithfully what really happened and what really exists using the generally accepted conceptual framework.
If the revenue has been earned, then the revenue should be recognized. If the expenditure will provide a future benefit, then the cost of the expenditure should be recognized as an asset.
Latitude is necessary so that the accountant can choose the methods to reflect the real situation. If the requirements are written too rigidly, companies may be forced to use methods that do not reflect their own situations. If accountants take their jobs seriously and have high ethical standards, they will present the financial statements as reliably as possible by using appropriate accounting policies, by making the best estimates possible, and by making honest and forthright statements in the notes to the financial statements.
They will use judgment to fairly present the financial position and financial performance of the entity. Otherwise, the individual accountants and the entire accounting profession will lose credibility. In this course, we will have an opportunity to develop our judgment skills and to exercise judgment through the use of cases. The cases provide realistic scenarios where conflicts exist and choices must be made. The answers are not usually clearcut. In fact, different valid answers can be defended.
For these cases, it is how you support your recommendation that is important, as opposed to what your final recommendation is. You will need to apply basic principles and use judgment to come up with an answer that tells it how it is as accurately as possible.
In so doing, you will be developing the skills required of a professional accountant. Financial statements should present what really happened during the period: that is, they should tell it how it is. If a detailed study had been made of the accounting practices used by every country in the world, it would probably have concluded that very few countries used exactly the same standards for external financial reporting purposes. Some comparisons would have yielded minor differences; others would have shown substantial ones.
Differences existed in terminology and style of presentation, as well as in methods of measurement and disclosure. Differences in measurement ranged from departures to the historical cost principle to varying standards within the historical cost model. A variety of methods existed worldwide for measuring and reporting inventories, research and development costs, fixed assets, leases, computer software, and deferred income taxes.
Income-smoothing devices varied from country to country. In Canada and the United States, GAAP allowed little opportunity to smooth income, while in other countries income-smoothing devices were allowed under GAAP or were encouraged by government regulation. This was often accomplished by setting up reserves, which are special equity accounts, and using them to transfer amounts to and from the statement of comprehensive income as needed. Inadequate disclosures often masked the real effect on yearly income measurements.
Asset revaluations have long been acceptable in many countries. Circumstances for these revaluations range from price-level-adjusted historical costs, used to counteract distortions resulting from very high inflation rates, to the regular or periodic adjustment of asset measurements to current replacement costs.
Even under historical costs, great variations have existed in yearly measurements. The accounting for the asset of goodwill, which arises as a result of one company. In past years, the variety of accounting principles being used throughout the world was large. Information disclosed is often more voluminous in other countries than that required in Canada.
Practices included the immediate write-off of purchased goodwill to equity, capitalization with amortization over greatly varying periods, capitalization without amortization thus, leaving it on the balance sheet forever , and capitalization and write-off to income only when there was evidence of impairment. Not only were there differences in measurement, but there were often also differences in the presentation and description of elements in financial statements.
For example, in many countries, long-term assets were, and continue to be, presented before current assets on the balance sheet, and shareholders equity appears before liabilities. Examples of areas where disclosure differences still exist are segment reporting, reporting financial forecasts, shareholder and environmental disclosures, and other value-added information. While many foreign multinational companies disclose the lines of business they are in and the geographical area in which they operate, there is still inconsistency in the level of detail provided.
While the provision of financial forecasts is not common in North America, some companies in Europe do provide this information.
Foreign companies often provide voluminous disclosures about their shares, shareholders rights, and changes in shareholders equity. Finally, while this is not required by accounting standards, multinational companies are increasingly providing information about environmental safety and protection issues and the ways in which they have added value to society by their distributions to owners, creditors, employees, and governments.
Differences in accounting standards have always existed, but they have been receiving greater attention in recent years because of the many changes taking place in the world economy.
For example, the dismantling of the former Soviet empire has been accompanied by a shift from controlled to market-driven economies, and most of the countries in Europe have joined together to form the European Union EU. The North American Free Trade Agreement allows the free flow of goods and services among Canada, the United States, and Mexico, and this agreement may soon be expanded to include some countries in South America.
In the midst of all this, there have been major advances in computer and communication technology that are dramatically improving the global flow of information and changing how business activities are conducted. As a result, foreign currencies now trade 24 hours a day in the worlds financial centres. Accompanying this shift toward a global marketplace has been substantial growth in the size and number of multinational corporations.
This growth has been achieved to a great extent by takeovers and mergers, often financed through the capital markets of many countries. Not only has there been a shift to a global marketplace for goods and services, but there has also been a shift toward a global capital market. Many of the worlds stock exchanges now list foreign companies. There is also considerable activity involving mergers of stock exchanges from different parts of the world.
With such a global capital market comes the need to provide the suppliers of capital with useful accounting information. Fragmented accounting principles seriously compromise comparability, which is one of the key concepts associated with information usefulness. To counter this, securities regulators in foreign countries often require foreign companies listed on their stock exchanges either to prepare financial statements in accordance with their domestic accounting standards or to prepare reconciliations from foreign to domestic standards.
For example, foreign companies listed on U. The main difference in the Encana example is the impairment test for property, plant, and equipment. Under U.
The extract below is only a small portion of Note The entire note is seven pages long. It provides narrative explanations of the main reasons for the difference in net income and provides condensed financial statements under U. With such a significant difference in net income and such extensive note disclosure, it is little wonder that there is pressure to develop one high-quality, worldwide accounting standard.
These requirements substantially increase a companys costs of preparing financial statements. Investment analysts and other users then incur further additional costs when interpreting financial statements prepared under different standards. Because of these problems, many countries in the world have either recently adopted, or are seriously considering adopting IFRSs. However, there still are many countries that have not adopted IFRSs and may not ever do so.
In order to fully understand the issues and how changes may occur in the future, we must first examine the major causes of differences in GAAP between countries. The SEC requires foreign companies to reconcile their earnings to U. GAAP is very costly to prepare. Usually, there is not one dominant factor. The following five factors can affect standards.
Accounting income and taxable income are virtually the same in some countries. For example, in Canada and the United States, companies often report net incomes on their operating statements that are substantially different from the taxable incomes they report on their tax returns.
This has led to the GAAP concept of inter-period tax allocation. However, in some countries where such differences exist, full tax allocation has not always been used. In other countries, taxation has a profound effect on how accounting income is measured.
Accounting income will not differ much from taxable income if a countrys tax statutes state that expenses must be recorded on the income statement if they are to be allowed as a deduction on the tax return. In countries where this is the case, the result is often the use of extreme conservatism in accounting measurements on the part of companies trying to keep their incomes as low as possible within the law.
In the United States, while taxable income and accounting income are different numbers, one area where consistency is required is the costing of inventory. If LIFO last in, first out is to be used for tax purposes, it must also be used for financial reporting. Highly developed capital markets often result in the development of quality accounting standards.
Code law systems specify what individuals and corporations can do, while common law systems specify what cannot be done. In countries where publicly traded debt and equity securities play a substantial role in the financing of business activities, accounting and disclosure standards tend to be much more extensive than in countries where this is not the case. This is because highly developed public capital markets tend to have fairly sophisticated investors who demand current and useful information from those who have received their capital.
Canada, the United Kingdom, and the United States all have highly developed capital markets and strong accounting and disclosure standards. In countries where business financing tends to be private rather than public, there is less reliance on extensive accounting standards because the private suppliers of capital can demand and receive the information they need directly from the consumers of such capital.
Japan is a prime example; there, corporate capital needs have been supplied by very large private suppliers, such as banks. However, it should be noted that when Japans economy took a severe dive in the s, many of Japans major banks incurred massive loan losses that nearly bankrupted them; this was cited as a major contributor to the Japanese recession.
Germany and Switzerland also have very large banks that satisfy much of the capital needs of business. Historically, a large number of businesses in Mexico were state owned, but in the s, a change to private ownership resulted in a shift to financing through private and public capital markets. Code law systems, which originated with the Roman Empire, contain very detailed statutes that govern a wide range of human activities.
In general, they specify what individuals and corporations can do. Common law systems have less-detailed statutes and rely on the court. In general, they specify what individuals and corporations cannot do i. In many common law countries, governments tend to take a hands-off approach to the setting of accounting standards.
While there may be statutes requiring that companies make information available to the providers of capital, the type of information required is left to the private sector. The United Kingdom also uses a private standard-setting body. In code law countries such as Germany, France, and Japan, the private sector is involved only in an advisory capacity, and accounting standards are reflected in legal statutes, often as protection for creditors and other capital suppliers.
It should not be surprising to note that tax law also heavily influences accounting standards in these countries. In Germany, France, and Japan, accounting standards are set by legal statutes. Ties between Countries Political and economic ties between countries have historically had some effect on accounting standards.
For example, the accounting standards and professional accounting organizations of countries that were once colonies are often patterned after those of the home country. During their early development, Canadian accounting standards were influenced by Great Britains, but in later years, this influence shifted away from Britain to the United States due to the very strong economic ties that developed between those two countries.
The formation of the European Union has certainly had an effect on the accounting standards used by its member countries. We will see more of this later. Inflation Levels The historical cost model, which implicitly assumes a relatively stable unit of measure, is used by many countries. However, the model is not useful when inflation rates are very high. Countries that have experienced high inflation rates often make financial reporting adjustments to counteract the effects of inflation.
These adjustments involve price-level-adjusted statements, or a shift from historical costs to current-value accounting, or both. Inflation in most of these South American countries is now more reasonable and inflation accounting has been discontinued. Mexico used price-level accounting because of high inflation rates from to The experiment was not successful because of the high cost of providing such information and the general lack of comprehension on the part of financial statement users.
All three countries abandoned the experiment when inflation declined. Toward Accounting Harmonization and Convergence A truly global economy will require some sort of harmonized accounting standards if it is to function properly. Three organizations that have been working. High inflation rates often result in departures from historical cost measurements. The role of these three organizations is discussed next. The use of the euro as a common currency in the European Union has not been a resounding success.
The EU has attempted to harmonize accounting standards used by its member countries. The European Union In , six European countries signed the Treaty of Rome, thereby establishing a common market for goods and services and common institutions for economic development.
In , in order to establish a common economic policy for the area, a European central bank was established, which subsequently issued a common currency called the euro. The intent was that the currencies of the member nations would be gradually phased out with full adoption of this common currency.
As of January 1, , only 17 members have complied. The government of the United Kingdom, sensing that a referendum would be defeated, decided to wait until such time that the public mood has changed. A major reason for rejection by these three countries was the fact that they did not wish to individually relinquish their ability to determine economic policy. It was also observed that each countrys economy had performed much better than many of the other EU member countries that had switched their currencies, such as Germany, Italy, and France.
The credit crisis in Europe in and put much strain on the euro and the EU. Greece and Spain received conditional bailouts from the EU in attempts to avoid the complete collapse of the EU. Harsh austerity measures had to be taken by many of the member countries. Time will tell whether the euro and the European Union will survive.
The European Union has also attempted to harmonize the accounting principles used by its member countries by issuing directives. In order to minimize conflict with the legal reporting requirements of certain of its member nations, these directives often allowed many alternative reporting practices. This is particularly true with respect to the first accounting directive. The second directive, issued in , requiring the presentation of consolidated financial statements, has had a major impact on the accounting of many countries where consolidation was not previously a common practice.
While flexibility appears to be contrary to the concept of harmonization, the adoption of the directives has, nevertheless, caused major changes to the accounting practices of some of its members. This committee, based in London, England, was formed in by an agreement between the professional accounting bodies of 10 countries with the purpose of establishing worldwide accounting principles.
Over the years, the membership grew such that it represented more than accounting. It should be pointed out, however, that membership in the organization did not translate into the adoption of its standards, and the number of countries actually using IASC standards was a much lower number. Initially, many of the standards issued by the IASC were characterized by the number of acceptable alternatives that were permitted, but in the early s, efforts were made to eliminate many of these alternatives.
This initiative was partially successful, but it left a number of standards still allowing alternative treatments. Given that some of the board members came from countries whose accounting standards are reflected in legal statutes, it is understandable that the removal of alternatives can be a tricky political process requiring compromise. Notwithstanding this difficulty, achieving worldwide accounting uniformity will depend greatly on eliminating alternative accounting practices.
A science-writing initiative will empower Kenyon students to artfully articulate important scientific topics. A senior English major talks with her advisor about his philosophy on creative writing and teaching. Professor of Anthropology Bruce Hardy makes headlines for his study on the cognitive abilities of Neanderthals. Kenyon alumni working in food and drink industries are sharing their go-to happy hour pairings. Remember me on this computer.
Cancel Forgot your password? Showing all editions for 'Modern advanced accounting in Canada'. Year 4 6 3 3 2 Show more Any assets that have fair values that are less than carrying values should be written down to reflect their lower fair value. This write-down will increase the deficit account. In a reorganization such as this it is considered appropriate to write off the deficit to reflect a fresh start. Such a write-off will reduce the common stock account.
President, you have expressed a desire to see assets written up to their higher fair values. Such a departure from historical costs is required under Handbook Section if a company has been subject to a financial reorganization, and if there has been a change of control as a result of a substantial realignment of nonequity and equity interests.
Your company has had a financial reorganization but there has been no change in control. In fact the previous shareholders still own and control the company and the debenture holders now holding newly issued preferred shares can only elect two members of the board if they convert in the future.
This does not constitute a change in control. As a result I must report to you that the write-up of assets would not be allowed. Yours truly Name. Case 3 Summerset Enterprises was declared bankrupt on March 6, On that date a receiving order was issued against it as a result of a petition to the courts by some of its unsecured creditors. Notlih has been appointed trustee, and has seized the assets of the company.
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The difference between the investor's cost and the investor's percentage of the carrying value of the net identifiable assets of the associate is known as: A. All of these problems could be avoided if the number of shares issued to each company were not equal. Slayer reported net income and made dividend payments to its shareholders at noted below. Other issues Given Space's previous problems and the recently issued shares to Space's shareholders, it is probably not a good time to try to sell more shares. D Any change is to be handled prospectively. The assets of Horn are recognized at fair value and the excess of the acquisition cost over the fair value of net assets acquired is goodwill. On the other hand, Liz is a major shareholder and has a longer- term interest. Craig expects the inventory to be lower at year-end — FIL may have a bigger problem. After measuring all of the identifiable net assets at fair value, the excess of the acquisition cost over the fair value of the identifiable net assets should be reported as goodwill acquired in the business