Development of Accounting

1 Principles and Professional

Practice

LEARNING OBJECTIVES
After studying this chapter, you should be able to:

1. Identify the objective of financial

reporting.
2. Identify the major policy-setting bodies and
their role in the standard-setting process.
3. Explain the meaning of IFRS.

1-1
 OBJECTIVE OF FINANCIAL ACCOUNTING

Objective: Provide financial information about the reporting

entity that is useful to
► present and potential equity investors,

► lenders, and

► other creditors

in making decisions about providing resources to the entity.

1-2 LO 1
 OBJECTIVE OF FINANCIAL ACCOUNTING

General-Purpose Financial Statements

► Provide financial reporting information to a wide variety
of users.
► Provide the most useful information possible at the
least cost.

Equity Investors and Creditors

► Investors and creditors are the primary user group.

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 OBJECTIVE OF FINANCIAL ACCOUNTING

Entity Perspective
► Companies viewed as separate and distinct from their
owners (shareholders).

Decision-Usefulness
► Investors are interested in assessing
1. the company’s ability to generate net cash inflows and
2. management’s ability to protect and enhance the capital
providers’ investments.

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 OBJECTIVE OF FINANCIAL ACCOUNTING

Question
The objective of financial reporting places most emphasis on:
a. reporting to capital providers.
b. reporting on stewardship.
c. providing specific guidance related to specific needs.
d. providing information to individuals who are experts in
the field.

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 OBJECTIVE OF FINANCIAL ACCOUNTING

Question
General-purpose financial statements are prepared primarily
for:
a. internal users.
b. external users.
c. auditors.
d. government regulators.

1-6 LO 1
 Development of Accounting
1 Principles and Professional
Practice

LEARNING OBJECTIVES
After studying this chapter, you should be able to:

1. Identify the objective of financial reporting.

2. Identify the major policy-setting bodies

and their role in the standard-setting
process.
3. Explain the meaning of IFRS.

1-7
 STANDARD-SETTING ORGANIZATIONS

Main international standard-setting organization:

► International Accounting Standards Board (IASB)

● Issues International Financial Reporting Standards

(IFRS).

● Standards used on most foreign exchanges.

● IFRS used in over 115 countries.

● Organizations that have a role in international standard-

setting are the International Organization of Securities
Commissions (IOSCO) and the IASB.

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 STANDARD-SETTING ORGANIZATIONS

International Organization of Securities

Commissions (IOSCO)
► Does not set accounting standards.

► Dedicated to ensuring that global

markets can operate in an efficient
and effective basis.
http://www.iosco.org/
► Supports the use of IFRS as the
single set of international
standards in cross-border offerings
and listings.
1-9 LO 2
 STANDARD-SETTING ORGANIZATIONS

International Accounting Standards Board (IASB)

Composed of four organizations—

► IFRS Foundation

► International Accounting Standards Board (IASB)

► IFRS Advisory Council

► IFRS Interpretations Committee

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 International Accounting Standards Board
ILLUSTRATION 1-4
International Standard-Setting Structure

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 STANDARD-SETTING ORGANIZATIONS

Question
IFRS stands for:
a. International Federation of Reporting Services.
b. Independent Financial Reporting Standards.
c. International Financial Reporting Standards.
d. Integrated Financial Reporting Services.

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 STANDARD-SETTING ORGANIZATIONS

Question
The major key players on the international side are the:
a. IASB and IFRS Advisory Council.
b. IOSCO and the U.S. SEC.
c. London Stock Exchange and International
Securities Exchange.
d. IASB and IOSCO.

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 International Accounting Standards Board

Due Process
The IASB due process has the following elements:

1. Independent standard-setting board;

2. Thorough and systematic process for developing
standards;
3. Engagement with investors, regulators, business leaders,
and the global accountancy profession at every stage of
the process; and
4. Collaborative efforts with the worldwide standard-setting
community.
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 International Accounting Standards Board

ILLUSTRATION 1-5
International
Standard-Setting
Structure

1-15
LO 2
 International Accounting Standards Board

Question
Accounting standard-setters use the following process in
establishing international standards:
a. Research, exposure draft, discussion paper, standard.
b. Discussion paper, research, exposure draft, standard.
c. Research, preliminary views, discussion paper,
standard.
d. Research, discussion paper, exposure draft, standard.

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 International Accounting Standards Board

Types of Pronouncements
► International Financial Reporting Standards.

► Conceptual Framework for Financial Reporting.

► International Financial Reporting Standards Interpretations.

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 Development of Accounting
1 Principles and Professional
Practice

LEARNING OBJECTIVES
After studying this chapter, you should be able to:

1. Identify the objective of financial reporting.

2. Identify the major policy-setting bodies and
their role in the standard-setting process.

3. Explain the meaning of IFRS.

1-18
 STANDARD-SETTING ORGANIZATIONS

Hierarchy of IFRS
Companies first look to:
1. International Financial Reporting Standards; International
Financial Reporting Standards, International Accounting
Standards (issued by the predecessor to the IASB), and IFRS
interpretations originated by the IFRS Interpretations
Committee (and its predecessor, the IAS Interpretations
Committee);
2. The Conceptual Framework for Financial Reporting; and
3. Pronouncements of other standard-setting bodies that use a
similar conceptual framework (e.g., U.S. GAAP).
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 STANDARD-SETTING ORGANIZATIONS

Question
IFRS is comprised of:
a. International Financial Reporting Standards and FASB
financial reporting standards.
b. International Financial Reporting Standards,
International Accounting Standards, and International
Accounting Standards Interpretations.
c. International Accounting Standards and International
Accounting Standards Interpretations.
d. FASB financial reporting standards and International
Accounting Standards.
1-20 LO 3
 Development of Accounting
1 Principles and Professional
Practice

LEARNING OBJECTIVES
After studying this chapter, you should be able to:

1. Describe the usefulness of a conceptual 4. Define the basic elements of financial

framework. statements.

2. Understand the objective of financial 5. Describe the basic assumptions of

reporting. accounting.

3. Identify the qualitative characteristics of 6. Explain the application of the basic principles
accounting information. of accounting.
7. Describe the impact that the cost constraint
has on reporting accounting information.

1-21
 CONCEPTUAL FRAMEWORK

Conceptual Framework establishes the concepts that

underlie financial reporting.

Need for a Conceptual Framework

► Enables IASB to issue more useful and consistent
pronouncements over time.

► Enables IASB to more quickly solve new and emerging

practical problems by referring to an existing framework of
basic theory.

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 CONCEPTUAL FRAMEWORK

Overview of the Conceptual Framework

Three levels:
 First Level = Objectives of Financial Reporting

 Second Level = Qualitative Characteristics and

Elements of Financial Statements

 Third Level = Recognition, Measurement, and

Disclosure Concepts.

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 ASSUMPTIONS PRINCIPLES CONSTRAINTS
1. Economic entity 1. Measurement 1. Cost
2. Going concern 2. Revenue recognition
Third level
3. Monetary unit 3. Expense recognition The "how"—
4. Periodicity 4. Full disclosure implementation
5. Accrual

QUALITATIVE
CHARACTERISTICS ELEMENTS
1. Fundamental 1. Assets Second level
qualities 2. Liabilities Bridge between
2. Enhancing 3. Equity levels 1 and 3
ILLUSTRATION 2-7 qualities 4. Income
Conceptual Framework 5. Expenses
for Financial Reporting

OBJECTIVE
Provide information about First level
the reporting The "why"—purpose
entity that is useful
to present and potential of accounting
equity investors,
lenders, and other
creditors in their
capacity as capital
providers.

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 Development of Accounting
1 Principles and Professional
Practice

LEARNING OBJECTIVES
After studying this chapter, you should be able to:

1. Describe the usefulness of a conceptual 4. Define the basic elements of financial

framework. statements.

2. Understand the objective of financial 5. Describe the basic assumptions of

reporting. accounting.

3. Identify the qualitative characteristics of 6. Explain the application of the basic principles
accounting information. of accounting.
7. Describe the impact that the cost constraint
has on reporting accounting information.

1-25
 FIRST LEVEL: BASIC OBJECTIVE

OBJECTIVE
“To provide financial information about the reporting entity
that is useful to present and potential equity investors,
lenders, and other creditors in making decisions about
providing resources to the entity.

 Provided by issuing general-purpose financial statements.

 Assumption is that users need reasonable knowledge of business
and financial accounting matters to understand the information.

1-26 LO 2
 Development of Accounting
1 Principles and Professional
Practice

LEARNING OBJECTIVES
After studying this chapter, you should be able to:

1. Describe the usefulness of a conceptual 4. Define the basic elements of financial

framework. statements.
2. Understand the objective of financial 5. Describe the basic assumptions of
reporting. accounting.

3. Identify the qualitative characteristics of 6. Explain the application of the basic principles
accounting information. of accounting.
7. Describe the impact that the cost constraint
has on reporting accounting information.

1-27
SECOND LEVEL: FUNDAMENTAL CONCEPTS

Qualitative Characteristics of Accounting

Information
IASB identified the Qualitative Characteristics of accounting
information that distinguish better (more useful) information
from inferior (less useful) information for decision-making
purposes.

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SECOND LEVEL: FUNDAMENTAL CONCEPTS

ILLUSTRATION 2-2
Hierarchy of Accounting
Qualities

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 Relevance

ILLUSTRATION 2-7
Conceptual Framework
for Financial Reporting

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SECOND LEVEL: FUNDAMENTAL CONCEPTS

Fundamental Quality—Relevance

To be relevant, accounting information must be capable of making a

difference in a decision.

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SECOND LEVEL: FUNDAMENTAL CONCEPTS

Fundamental Quality—Relevance

Financial information has predictive value if it has value as an input to

predictive processes used by investors to form their own expectations
about the future.

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SECOND LEVEL: FUNDAMENTAL CONCEPTS

Fundamental Quality—Relevance

Relevant information also helps users confirm or correct prior

expectations.

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SECOND LEVEL: FUNDAMENTAL CONCEPTS

Fundamental Quality—Relevance

Information is material if omitting it or misstating it could influence

decisions that users make on the basis of the reported financial
information.

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 Faithful Representation

ILLUSTRATION 2-7
Conceptual Framework
for Financial Reporting

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SECOND LEVEL: FUNDAMENTAL CONCEPTS

Fundamental Quality—Faithful Representation

Faithful representation means that the numbers and descriptions

match what really existed or happened.

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SECOND LEVEL: FUNDAMENTAL CONCEPTS

Fundamental Quality—Faithful Representation

Completeness means that all the information that is necessary for

faithful representation is provided.

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SECOND LEVEL: FUNDAMENTAL CONCEPTS

Fundamental Quality—Faithful Representation

Neutrality means that a company cannot select information to favor one

set of interested parties over another.

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SECOND LEVEL: FUNDAMENTAL CONCEPTS

Fundamental Quality—Faithful Representation

An information item that is free from error will be a more accurate

(faithful) representation of a financial item.

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SECOND LEVEL: FUNDAMENTAL CONCEPTS

Enhancing Qualities

Information that is measured and reported in a similar manner for

different companies is considered comparable.

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SECOND LEVEL: FUNDAMENTAL CONCEPTS

Enhancing Qualities

Verifiability occurs when independent measurers, using the same

methods, obtain similar results.

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SECOND LEVEL: FUNDAMENTAL CONCEPTS

Enhancing Qualities

Timeliness means having information available to decision-makers

before it loses its capacity to influence decisions.

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SECOND LEVEL: FUNDAMENTAL CONCEPTS

Enhancing Qualities

Understandability is the quality of information that lets reasonably

informed users see its significance.

1-43 LO 3
 Identify the qualitative characteristics of
accounting information that each case has or
lack.
• Potential investors use financial statement to analyze
current resources, dividend payments, and past income
performance to predict the amount, timing, and uncertainty
Has predictive
of company’s future cash flows. value

• A company has the following figures to be reported in its

income statement; Sales = $100,000, Expense = $90,000,
Gain = $2,000. The amount of the gain is omitted in the
report. It lacks relevance b/c the omitted amount is
material. It also lacks faithful representation b/c it
isn’t free from error
1-44 44
 Identify the qualitative characteristics of
accounting information that each case has or
lack.
• Two independent auditors compute a company’s
inventory value at the end of the year using the FIFO
Has
method and arrive at the same physical quantity. verifiability

• A company waited to report its financial statements

Lacks
until nine months after the period. timeliness

• A company reports sales of €60 million when it had

Not free from error and it
sales of €40 million. lacks faithful representation

1-45 45
 Identify the qualitative characteristics of
accounting information that each case has
or lack.
• A company concealed information about lawsuits that

have been filed against it, thinking that reporting the

Lacks
information is damaging to the company. neutrality

• During the current year, a company changed its

Lacks
method of depreciation without any justification. consistency

• Two companies within the same industry have different

Lacks
accounting method for pension. comparability

1-46 46
 Development of Accounting
1 Principles and Professional
Practice

LEARNING OBJECTIVES
After studying this chapter, you should be able to:

1. Describe the usefulness of a conceptual 4. Define the basic elements of financial

framework. statements.
2. Understand the objective of financial 5. Describe the basic assumptions of
reporting. accounting.
3. Identify the qualitative characteristics of 6. Explain the application of the basic principles
accounting information. of accounting.
7. Describe the impact that the cost constraint
has on reporting accounting information.

1-47
 Basic Elements

ILLUSTRATION 2-7
Conceptual Framework
for Financial Reporting

1-48 LO 4
 SECOND LEVEL: BASIC ELEMENTS
Elements of Financial Statements

A resource controlled by the entity as a

Asset
result of past events and from which future
economic benefits are expected to flow to
Liability the entity.

Equity

Income

Expenses

1-49 LO 4
 SECOND LEVEL: BASIC ELEMENTS
Elements of Financial Statements

Asset
A present obligation of the entity arising
from past events, the settlement of which
Liability
is expected to result in an outflow from the
entity of resources embodying economic
Equity benefits.

Income

Expenses

1-50 LO 4
 SECOND LEVEL: BASIC ELEMENTS
Elements of Financial Statements

Asset

Liability

The residual interest in the assets of the

Equity
entity after deducting all its liabilities.

Income

Expenses

1-51 LO 4
 SECOND LEVEL: BASIC ELEMENTS
Elements of Financial Statements

Asset

Liability

Equity Increases in economic benefits during the

accounting period in the form of inflows or
enhancements of assets or decreases of
Income
liabilities that result in increases in equity,
other than those relating to contributions
Expenses from equity participants.

1-52 LO 4
 SECOND LEVEL: BASIC ELEMENTS
Elements of Financial Statements

Asset

Liability

Equity Decreases in economic benefits during the

accounting period in the form of outflows or
Income depletions of assets or incurrences of
liabilities that result in decreases in equity,
other than those relating to distributions to
Expenses
equity participants.
1-53 LO 4
 SECOND LEVEL: BASIC ELEMENTS
Exercise 2-4: Identify the qualitative characteristic(s) to be used
given the information provided. Characteristics
(a) Qualitative characteristic being Relevance
displayed when companies in the Faithful representation
same industry are using the same Predictive value
accounting principles.
Confirmatory value
(b) Quality of information that confirms Neutrality
users’ earlier expectations.
Materiality
(c) Imperative for providing comparisons Timeliness
of a company from period to period.
Verifiability
(d) Ignores the economic consequences Understandability
of a standard or rule. Comparability
1-54 LO 4
 SECOND LEVEL: BASIC ELEMENTS
Exercise 2-4: Identify the qualitative characteristic(s) to be used
given the information provided. Characteristics
(e) Requires a high degree of consensus Relevance
among individuals on a given Faithful representation
measurement. Predictive value
(f) Predictive value is an ingredient of this Confirmatory value
fundamental quality of information. Neutrality
(g) Four qualitative characteristics that Materiality
enhance both relevance and faithful Timeliness
representation.
Verifiability
(h) An item is not reported because its Understandability
effect on income would not change a Comparability
decision.
1-55 LO 4
 SECOND LEVEL: BASIC ELEMENTS
Exercise 2-4: Identify the qualitative characteristic(s) to be used
given the information provided. Characteristics
(i) Neutrality is a key ingredient of this Relevance
fundamental quality of accounting Faithful representation
information. Predictive value
(j) Two fundamental qualities that make Confirmatory value
accounting information useful for Neutrality
decision-making purposes.
Materiality
(k) Issuance of interim reports is an Timeliness
example of what enhancing
Verifiability
ingredient?
Understandability
Comparability
1-56 LO 4
 Development of Accounting
1 Principles and Professional
Practice

LEARNING OBJECTIVES
After studying this chapter, you should be able to:

1. Describe the usefulness of a conceptual 4. Define the basic elements of financial

framework. statements.
2. Understand the objective of financial 5. Describe the basic assumptions of
reporting. accounting.
3. Identify the qualitative characteristics of 6. Explain the application of the basic principles
accounting information. of accounting.
7. Describe the impact that the cost constraint
has on reporting accounting information.

1-57
THIRD LEVEL: RECOGNITION, MEASUREMENT,
AND DISCLOSURE CONCEPTS

These concepts explain how companies should recognize,

measure, and report financial elements and events.

Recognition, Measurement, and Disclosure Concepts

ASSUMPTIONS PRINCIPLES CONSTRAINTS
1. Economic entity 1. Measurement 1. Cost
2. Going concern 2. Revenue recognition
3. Monetary unit 3. Expense recognition
4. Periodicity 4. Full disclosure
5. Accrual

ILLUSTRATION 2-7
Conceptual Framework for
Financial Reporting

1-58 LO 5
 THIRD LEVEL: ASSUMPTIONS

Basic Assumptions
Economic Entity – company keeps its activity separate from its
owners and other business unit.

Going Concern - company to last long enough to fulfill objectives

and commitments.

Monetary Unit - money is the common denominator.

Periodicity - company can divide its economic activities into time

periods.

Accrual Basis of Accounting – transactions are recorded in the

periods in which the events occur.
1-59 LO 5
 THIRD LEVEL: ASSUMPTIONS
BE2-8: Identify which basic assumption of accounting is best
described in each item below.
(a) The economic activities of FedEx Corporation
(USA) are divided into 12-month periods for the Periodicity
purpose of issuing annual reports.
(b) Total S.A. (FRA) does not adjust amounts in its Monetary
financial statements for the effects of inflation. Unit
(c) Barclays (GBR) reports current and non-current
classifications in its statement of financial Going Concern
position.
(d) The economic activities of Tokai Rubber
Industries (JPN) and its subsidiaries are merged Economic
for accounting and reporting purposes. Entity

1-60 LO 5
 Development of Accounting
1 Principles and Professional
Practice

LEARNING OBJECTIVES
After studying this chapter, you should be able to:

1. Describe the usefulness of a conceptual 4. Define the basic elements of financial

framework. statements.
2. Understand the objective of financial 5. Describe the basic assumptions of
reporting. accounting.
3. Identify the qualitative characteristics of 6. Explain the application of the basic
accounting information. principles of accounting.
7. Describe the impact that the cost constraint
has on reporting accounting information.

1-61
 THIRD LEVEL: BASIC PRINCIPLES

Measurement Principles
 Historical Cost is generally thought to be a faithful
representation of the amount paid for a given item.

 Fair value is defined as “the price that would be received to

sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement
date.”

 IASB has given companies the option to use fair value as the
basis for measurement of financial assets and financial
liabilities.

1-62 LO 6
 THIRD LEVEL: BASIC PRINCIPLES

Revenue Recognition
When a company agrees to perform a service or sell a product to
a customer, it has a performance obligation.

Requires that companies recognize revenue in the accounting

period in which the performance obligation is satisfied.

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 THIRD LEVEL: BASIC PRINCIPLES

Expense Recognition - Requires that companies

recognize expense in the time periods when efforts are made to
generate revenue.
“Let the expense follow the revenues.”

ILLUSTRATION 2-6
Expense Recognition

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 THIRD LEVEL: BASIC PRINCIPLES

Full Disclosure
Providing information that is of sufficient importance to
influence the judgment and decisions of an informed user.

Provided through:
 Financial Statements

 Notes to the Financial Statements

 Supplementary information

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 THIRD LEVEL: BASIC PRINCIPLES
BE2-9: Identify which basic principle of accounting is best
described in each item below.
(a) Parmalat (ITA) reports revenue in its income Revenue
statement when it delivered goods instead of when Recognition
the cash is collected.
(b) Google (USA) recognizes depreciation expense for Expense
a machine over the 2-year period during which that Recognition
machine helps the company earn revenue.
(c) KC Corp. (USA) reports information about pending Full
lawsuits in the notes to its financial statements. Disclosure
(d) Fuji Film (JPN) reports land on its statement of
financial position at the amount paid to acquire it,
even though the estimated fair market value is Measurement
greater.
1-66 LO 6
 Development of Accounting
1 Principles and Professional
Practice

LEARNING OBJECTIVES
After studying this chapter, you should be able to:

1. Describe the usefulness of a conceptual 4. Define the basic elements of financial

framework. statements.
2. Understand the objective of financial 5. Describe the basic assumptions of
reporting. accounting.
3. Identify the qualitative characteristics of 6. Explain the application of the basic principles
accounting information. of accounting.

7. Describe the impact that the cost

constraint has on reporting accounting
information.

1-67
 THIRD LEVEL: COST CONSTRAINT

Cost Constraint
Companies must weigh the costs of providing the information
against the benefits that can be derived from using it.

 Rule-making bodies and governmental agencies use cost-

benefit analysis before making final their informational
requirements.

 In order to justify requiring a particular measurement or

disclosure, the benefits perceived to be derived from it
must exceed the costs perceived to be associated with it.

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 Summary of
the Structure

ILLUSTRATION 2-7
Conceptual Framework
for Financial Reporting

1-69 LO 7
 Test

1-70 70
 Choose the right answer from the alternatives

1. Quality of information that permits users to

identify similarities in and differences between
two sets of economic phenomena.

(a) Confirmatory value

(b) Comparability
(c) Relevance
(d) Faithful representation

1-71 71
 Choose the right answer from the alternatives

2. Having information available to users before it

loses its capacity to influence decisions.

(a) Timeliness
(b) Understandability
(c) Relevance
(d) Faithful representation

1-72 72
 Choose the right answer from the alternatives

3. Information about an economic phenomenon

that has value as an input to the processes used
by capital providers to form their own expectations
about the future.

(a) Confirmatory value

(b) Predictive value
(c) Relevance
(d) Faithful representation

1-73 73
 Choose the right answer from the alternatives

4. Information that is capable of making a

difference in the decisions of users in their
capacity as capital providers.

(a) Timeliness
(b) Neutrality
(c) Relevance
(d) Faithful representation

1-74 74
 Choose the right answer from the alternatives

5. Absence of bias intended to attain a

predetermined result or to induce a particular
behavior.

(a) Faithful representation

(b) Neutrality
(c) Relevance
(d) Completeness

1-75 75
 Choose the right answer from the alternatives

6. Quality of information that assures users that

information represents the reality of the economic
phenomena.

(a) Faithful representation

(b) Materiality
(c) Relevance
(d) Understandability

1-76 76
 Choose the right answer from the alternatives

7. Information about an economic phenomenon

that changes past or present expectations based
on previous evaluations.

(a) Confirmatory value

(b) Predictive value
(c) Faithful representation
(d) Timeliness

1-77 77
 Choose the right answer from the alternatives

8. The extent to which information is accurate in

representing the economic substance of a
transaction.

(a) Timeliness
(b) Understandability
(c) Free from error
(d) Verifiability

1-78 78
 Choose the right answer from the alternatives

9. Includes all the information that is necessary for

a faithful representation of the economic
phenomena that it purports to represent.

(a) Faithful representation

(b) Neutrality
(c) Relevance
(d) Completeness

1-79 79
 Choose the right answer from the alternatives

10. Quality of information that allows users to

comprehend its meaning.

(a) Understandability
(b) Relevance
(c) Materiality
(d) Faithful representation

1-80 80
 Choose the right answer from the alternatives

11. General-purpose financial reports are most

useful to company insiders in making strategic
business decisions

(a) True

(b) False

1-81 81
 Choose the right answer from the alternatives

12. The objective of financial reporting is the

foundation from which the other aspects of the
framework logically result

(a) True

(b) False

1-82 82
 Choose the right answer from the alternatives

13. Information that is a faithful representation is

characterized as having predictive or confirmatory
value.

(a) True

(b) False

1-83 83
 Determine the underlying assumption or
principle
14. The assumption that indicates personal and
business record keeping should be separately
maintained.

1-84 84
 Determine the underlying assumption or
principle
15. The principle that dictates revenue should be
recorded at point of sale

1-85 85
 Determine the underlying assumption or
principle
16. The assumption that says reporting must be
done at defined time intervals.

1-86 86
 Determine the underlying assumption or
principle
17. According to this assumption, cash received
and paid is not the basis used to recognize
revenues and expenses

1-87 87
 Determine the underlying assumption or
principle
18. The assumption that states Birr is the
“measuring stick” used to report on financial
performance of an Ethiopian company.

1-88 88
 Explain your position

19. In January 2016, Janeway Inc. decides to

double the amount of its outstanding shares by selling
an additional 10,000 shares to finance an expansion
of the business. You propose that this information be
shown by a footnote to the statement of financial
position as of December 31, 2015. The president
objects, claiming that this sale took place after
December 31, 2015, and, therefore, should not be
shown. Explain your position.

1-89 89
 Explain your position

20. Describe the major constraint inherent in the

presentation of accounting information.

1-90 90
 END

1-91