Accounting Case Essay

1285 WordsMay 17, 20136 Pages
Company Background & Constraints The client is a public company as it trades its shares on the national stock exchange. It is important that GAAP is complied with and the financial statements fairly represent the current state of the company. As a result, the company is entitled to follow Pre-2011 Canadian GAAP as it is required by the government for public companies to adhere to the rules of GAAP, in order to remain on the stock exchange. The company will need to follow IFRS beginning January 1, 2011. Pre-2011 Canadian GAAP allows for the recognition of extraordinary items, which is one of the main issues in this analysis. It is also important to note that the following issues pertaining to the October Division are material as it represents 20% ($18 million/$90 million) of the overall sales of the company. Users & Users Needs Management • Have a bias to present a strong income statement and balance sheet in order to secure more investors/creditors. • In order to demonstrate a strong income statement, there may be an incentive to recognize gains as income from continuing operations. • Furthermore, in a similar attempt, they may attempt to treat losses as extraordinary. Investors • Investors will want to verify the success of the company (strong income statement/balance sheet) to help them decide whether to invest in the company or not. • Smooth and steadily earnings would act as an incentive to invest in the company. • As investors only have access to the financial statements, they will need the statements to be fairly stated (including note disclosure) to adequately assess the company. Creditors • Creditors would want to see a strong balance sheet and a good cash flow from operating activities which will help them decide whether to lend money to the company or not. • Creditors would use liquidity ratios,

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