Financial Statement Users

1
Financial Statement Users

• Internal Users
• Management
• Board of Directors

2
Financial Statement Users

• External Users
• Shareholders
• Creditors
• Government
• Regulators
• Potential Investors
• Other Corporations

3
Financial Statement Users

• Shareholders and Potential Investors
• Assess performance of management
• Value of investment (shares)
• Return on Investment (dividends and share
  appreciation)

4
Financial Statement Users

• Creditors
• Cash flow (short term and long term)
• Short term obligations and revenues
• Leverage or Debt Capacity

5
Financial Statement Users

• Government
• Canada Customs Revenue Agency
• Assess taxable income and taxes owed

6
Financial Statement Users

• Regulators
• Securities Commission
• Requires dissemination of critical information to
  the public
• Monitors performance and compliance with key
  regulations

7
Objectives of Financial Statements

• To communicate information that is useful to
  investors, members, contributors, creditors and
  other users in making their resource allocation
  decisions and/or assessing management
  stewardship.

8
Objectives of Financial Statements

• To provide information about
• an entitys economic resources, obligations and
  equity/net assets
• changes in an entitys economic resources,
  obligations and equity/net assets and
• the economic performance of the entity

9
Conceptual Framework

• Understandability
• Relevance
• Predictive value and feedback value
• Timeliness
• Reliability
• Representational faithfulness
• Verifiability

10
Conceptual Framework

• Reliability
• Neutrality
• Conservatism
• Comparability

11
Conceptual Framework

• Generally Accepted Accounting Principles
• Constraints
• Cost versus Benefit
• Materiality
• Matching Principle

12
Annual Report

• Corporate Profile
• Report to Shareholders
• Management Discussion and Analysis
• Auditors Report
• Financial Statement and Information

13
Balance Sheet

• Snapshot of an entitys financial position
• 3 main components
• Assets
• Liabilities
• Shareholders Equity

14
Balance Sheet

• Assets
• 3 characteristics
• provide a future benefit to the entity (profits
  or cash flows)
• the entity can control access to the benefit
  (ownership)
• the transaction giving rise to the entitys right
  to, or control of, the benefit has already
  occurred.

15
Balance Sheet

• Assets
• Examples
• Cash
• Accounts Receivable
• Inventory
• Capital Assets
• Investments

16
Balance Sheet

• Liabilities
• 3 characteristics
• embodies a duty or responsibility to others that
  entails settlement by future transfer or use of
  assets, provision of services or other yielding
  of economic benefits at a specified date.
• little or no discretion to avoid the
  responsibility
• the transaction or event has already occurred

17
Balance Sheet

• Liabilities
• Loans
• Accounts Payable
• Income Taxes
• Deferred Revenue

18
Basic Accounting Equation

• Assets Liabilities Shareholders Equity

19
Balance Sheet

• Classified Balance Sheet
• classifies assets and liabilities as current or
  non-current
• classification is determined by the entitys
  operating cycle
• items listed in order of liquidity

20
Income Statement

• Statement of an entitys earnings in a given
  period
• Net Income Revenues - Expenses /-
  Extraordinary Items
• Calculates changes in shareholders wealth

21
Income Statement

• Revenues
• Examples
• sales of goods
• interest
• royalties or dividends
• rent

22
Income Statement

• Expenses
• Examples
• cost of goods sold
• interest
• rents
• salaries and wages
• depreciation

23
Income Statement

• Earnings per Share
• Net Income / of voting shares outstanding
• normally given in two calculations basic and
  diluted
• gives the shareholders information on the
  performance of their investment

24
Statement of Cash Flows

• measures the entitys cash flows during the
  period by various activities
• provides vital information on the long-term
  viability of the entity.

25
Statement of Cash Flows

• Operating Activities
• those associated with developing, producing,
  marketing, and selling the products and/or
  services of the corporation.
• Examples
• sales to customers
• collections on accounts receivable
• payments on accounts payable

26
Statement of Cash Flows

• Financing Activities
• the activity of obtaining funds that can be used
  to buy major assets such as the buildings and
  equipment used by virtually every business.
• Examples
• Borrowing/repayment of loans
• Issuing Shares
• Paying dividends

27
Statement of Cash Flows

• Investing Activities
• activities relating to the investing of long-term
  assets of the corporation.
• Examples
• purchase or sale of capital assets
• purchase of shares of another corporation

28
Other Financial Information

• Notes to the Financial Statements
• provides supplementary information to support the
  financial statements
• Segmented Information
• gives information regarding industry or
  geographical segments of the business which
  assists the user to assess the risk exposure of
  the entity