Advanced Financial Accounting

Chapter 1 presents the basic structure of accounting standards in Canada as they apply to all types of organizations, private and public. We explain the role of accounting objectives, and we stress the importance of accounting estimates. While most of the accounting standards discussed in this book eliminate any choice of accounting policy, the reality is that the standards allow for a lot of latitude in making estimates that ultimately can have a significant impact on reported financial results. The chapter also develops the theme of international comparability, or the lack thereof. Chapters 2 through 6 explain the complex issues and process of consolidation and accounting for business combinations. These chapters constitute the core of the book— for most people, this is what advanced accounting is all about. We have revised and updated these chapters, while ensuring the text remains highly readable. The main focus of these chapters is on the acquisition method required under IFRS and particularly on the entity approach. This focus allows students first to obtain a clear and firm understanding of the consolidation process, and then to expand their understanding to the other complexities of consolidation. A supplementary discussion of the parentcompany extension approach (an available option within IFRS) is included later in each chapter. Throughout these chapters, the equity method is compared to the results of consolidation. The direct method of consolidation is used throughout the book. We use a unique step-by-step approach, the MEAR steps to consolidation , that we first introduced in the previous edition. This approach takes the student through a logical progression of steps that will work in all consolidation situations. The MEAR steps divide the consolidation process into self-contained parts, allowing students to approach the process of consolidation in an organized and structured manner. Thus, these steps allow students to focus on a specific task, such as the calculation of the amortization of fair value increments in later years, retained earnings, net income of the subsidiary, or non-controlling interest. These self-contained sections replicate the types of problems that students will often encounter on professional exams. We believe that students will find the MEAR steps to consolidation easy to follow and apply. We believe that focusing on the direct method for illustrations within the text chapters is another feature that makes the difficult consolidation material manageable and easy to understand. However, the worksheet-method solutions for the chapter illustrations are now presented in the Companion Website for those students and instructors who prefer this method. We have also incorporated new graphic exhibits in the consolidation chapters to complement and highlight the discussion in these chapters in a visually appealing manner. Further, the Reality Check boxes in each of the consolidation chapters have been carefully chosen to highlight the most recent examples from practice of how the material is implemented in real life as well as findings from current research on related topics.

Chapter 7 steps back from the process of consolidation to look at its opposite— disaggregation. The chapter explains the issues involved in disaggregating consolidated reporting both for shorter periods and for separate business lines of a consolidated enterprise—interim and segmented reporting. The existing problem material in this chapter has been refreshed and several new problems have been added. Chapters 8 and 9 deal with the second most important topic in the book—the impact of foreign currency transactions and investments. We have updated our discussions to include the most recent IFRS standards that became effective in 2013. Chapter 8 introduces the topic of hedging and the accounting for hedges generally. The specific topic of hedge accounting focuses on anticipated transactions. Fair value and cash flow hedges are reviewed and examples provided. Two methods of recording hedges (the gross method and the net method) are illustrated for all examples involving hedges in the chapter. In Chapter 9 , the translation of foreign operations is examined using the IFRS functional currency concept. Both Chapters 8 and 9 conclude with a discussion of Canadian accounting standards for private enterprise. Most of the problem material in these two chapters is either new or revised. Chapter 10 presents the latest developments and financial accounting standards for not-for-profit (NFP) organizations. The nature and characteristics of NFPs in Canada are introduced early in the chapter and used to provide additional insights in subsequent discussions of the accounting issues faced by NFPs. The basics of fund accounting and encumbrance accounting are also introduced in the chapter. In addition, the online Appendix 10A , “Fund Accounting,” has been substantially lengthened to provide a fuller explanation of how fund accounting works. New material is introduced on recording encumbrances and budgetary accounts. In the appendix, we include a comprehensive problem illustrating the use of the restricted fund method. Chapter 11 discusses financial reporting for governments. Governmental reporting is very different from accounting for NFPs, and yet this is the only major advanced accounting text to clearly make this distinction and to provide a separate chapter on public sector accounting. Information on the nature and characteristics of governments is introduced early in the chapter and used to inform subsequent discussions. The types of government organizations and the major public sector accounting issues are discussed. The new statement of remeasurement gains and losses is also introduced. The chapter concludes with a presentation and discussion of a comprehensive example of government financial statements.

Masuk & Baca