∙ to make investments
∙ to decide whether to rent or buy a home
Managers of businesses
∙ to set goals for the organization
∙ to evaluate progress toward those goals
∙ to decide how much inventory to keep on hand
∙ to decide how much cash to borrow
Investors and creditors
∙ to decide whether or not to invest in a new company
∙ to determine whether or not to make a loan
Government regulatory agencies (e.g., Ontario Securities Commission)
∙ to make sure that the company is abiding by federal or provincial regulations
Taxing authorities
∙ to determine the amount of tax due
Non-profit organizations
∙ to set goals for the organization
∙ to evaluate progress toward those goals
∙ to decide how much cash to borrow
Labour unions
∙ to determine wage demands
Diff: 2 Type: ES
L.O.: 1-1
CPA COMPETENCIES: Chapter 1
1.1.1 Evaluates financial reporting needs
1.1.2 Evaluates the appropriateness of the basis of financial reporting
1.1.3 Evaluates reporting processes to support reliable financial reporting
14) What are the three forms of business organizations? How do they differ?
Answer: A proprietorship has a single, or sole, owner who is responsible for the business and its operations. A partnership has two or more individuals who operate together as co-owners of the business. In both of these forms of organization, the owners are individually liable for the debts of the business. A corporation is a business owned by shareholders, who may or may not have a part in the day-to-day operations of the business. The shareholders of a corporation are not legally liable for the debts of the business.
It is easier to sell one's ownership of a corporation, since the ownership is evidenced by shares of stock, which can be traded. There are legal rules to be considered when a partner wishes to sell his or her interest in a partnership. Such rules make it more difficult to sell a partnership interest. A sole proprietor who sells his or her business may encounter difficulty since the business owner may be the business itself (such as a consultant or other independent contractor).
Diff: 2 Type: ES
L.O.: 1-1
CPA COMPETENCIES: Chapter 1
1.1.1 Evaluates financial reporting needs
1.1.2 Evaluates the appropriateness of the basis of financial reporting
1.1.3 Evaluates reporting processes to support reliable financial reporting
15) There are many different stakeholders in Canadian Tire Corporation. Explain why the same information may not be suitable or appropriate for all stakeholders.
Answer: Different stakeholders make different decisions that require different information. For example, lenders want to know whether the company will be able to repay its loans but the Canada Revenue Agency (CRA) wants to know the amount of taxes that should be paid for the current year. Much of the information that the lenders would request, such as who are the company's major customers and the amounts they owe the company, would be of no interest to CRA. CRA is simply interested in compliance with the income tax act.