Net Nanny Software International Inc., headquartered in Vancouver, specializes in Internet safety and computer security products for both the home and commercial markets. In a recent balance sheet, it reported a deficit (negative retained earnings) of US $5,678,288. It has reported only net losses since its inception. In spite of these losses, Net Nanny’s common shares have traded anywhere from a high of $3.70 to a low of $0.32 on the Canadian Venture Exchange.
Net Nanny’s financial statements have historically been prepared in Canadian dollars. Recently, the company adopted the U.S. dollar as its reporting currency.
Instructions
(a) What is the objective of financial reporting? How does this objective meet or not meet Net Nanny’s investors’ needs?
(b) Why would investors want to buy Net Nanny’s shares if the company has consistently reported losses over the last few years? Include in your answer an assessment of the relevance of the information reported on Net Nanny’s financial statements.
(c) Comment on how the change in reporting information from Canadian dollars to U.S. dollars likely affected the readers of Net Nanny’s financial statements. Include in your answer an assessment of the comparability of the information.