Friday, September 30, y
roles within society
: What is Accounting?
-Accounting - the process of organizing, analyzing, and communicating
financial information that is used for decision making
•typically prepared by accountants
-Financial Accounting
•Financial Accounting- 1 of the broad categories of accounting; involving a
cycle of recording, summarizing, and reporting the many transactions of
business operations over a period of time
•GAAP - Generally Accepted Accounting Principles
-used to prepare financial information that is useful to decision makers
•Being relevant
•having faithful representation
•financial reports must be consistent across periods and generally
comparable between organizations
-Financial Accounting Information
•Mostly historical in nature
-primarily prepare financial reports that summarize what has already
occurred in the organization
•provides feedback value
-Feedback value- the benefit of reporting what has already occurred is
the reliability of the information
•particularly useful to internal users
-can help make better decisions about and adjustments to future
activities
•Has limitations as a predictive tool
-cannot predict how organization will perform in the future
-by observing historical financial info, users of the info can detect
patterns or trends that may be useful for estimating the company’s
future financial performance
•useful to both internal and external users
-Financial Accounting’s relationship with Managerial Accounting
•Managerial accounting- uses both financial and non financial information
as a basis for making decisions within an organization with the purpose
of equipping decision makers to set and evaluate business goals by
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The Role of Accounting in Society
-plays a fiduciary, recording, analytical, reporting, and management control
Intro to Accounting 1.1
determining what info they need to make a particular decision and how
to analyze and communicate this information
-Relationship between Financial and non-financial information
•decision made are based on both financial and non-financial information
-eg. time, transportation, marketing, people/employees, operations etc.
Who are the Users of Financial Accounting?
-Stakeholders - refers to a person or group who relies on financial
information to make decisions
•ex. lenders, investors/owners, vendors, employees and management,
government agencies, and the communities in which the businesses
operate
•Small business owners- financial statements can help them by providing
clarity around the organization’s financial performance
-In the longterm, every activity of the business has a financial impact
•By evaluating all of the financial statements together, someone with
financial knowledge can determine the overall health of a company
-Stockholders - an owner of stock in a business; in exchange for cash, they
are given an ownership interest in the business called stock or shares
•owners use the financial information to assess the financial performance
of the business and decide to buy, hold, or sell
•other decisions may by influences by the type of company
-privately held companies - day-to-day activities and long-term
decisions
-publicly traded companies - will usually only focus on strategic issues
like leadership, purchases of other businesses and executive
compensation arrangements
•Predominantly focus on profitability, expected increase in stock value,
dividends, and corporate stability
-Creditors and Lenders
•Creditor- refers to a business that grants extended payment terms to
other businesses
- time frame for extended credit to other businesses for purchase of
goods and services usually with in 30- to 45-day periods
•In order to provide goods and services to their customers, businesses
make purchases form other businesses. Businesses usually extend
“credit” to other businesses. Selling and purchasing on credit means the
payment is expected after a certain period of time following receipt of
the goods or provision of service
•Lender- a bank or other institution that has the primary purpose of
lending money with a specified repayment period and stated interest
rates
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-timeframe for borrowing from lenders typically measured in years;
typically a borrower is required to make periodic, scheduled payments
with full amount being repaid by a certain date; since borrowing for
long time, lending institutions require the borrower to pay a fee for the
use of borrowing(interest)
•Ultimate decisions both have to make is whether or not the funds will be
repaid by the borrower
-involves repayment risk - risk the funds will not be paid
-Government Regulatory Agencies
•Securities and Exchange Commission (SEC) - a federal regulatory agency
that regulates corporation with shares listed and traded on security
exchanges through required periodic filings
•Publicly traded companies required to file financial and other
informational reports to SEC
-1. issuing regulations
-2. providing oversight of financial markets
•to help ensure that businesses provide investors with access to
transparent and unbiased financial information
-SEC responsible for setting the U.S. GAAP, though SEC has statuary
authority to set it, it has currently delegated this responsibility to the
FASB (Financial Accounting Standard Board)
•IASB - sets global accounting standards
-Auditors - accountants charged with providing reasonable assurance to
users that financial statements are prepared according to standards
•PCAOS- Public Company Accounting Oversight Board - established
2002, auditing standards in U.S. for public companies
-Managers and other employees
•Employees want to know their jobs are secure, increase their value to
organization through years of service, improving knowledge and skills,
and accepting positions of increased responsibility
-An org that is financially successful is able to reward employees for
that commitment to the organization through bonuses and increased
pay
•Managers and decision makers often use non-financial (managerial
information)
-take into account other relevant factors that may not have an
immediate and direct link to financial reports
Career Paths in Accounting
-Auditing
•performed by accountants who are certified to engage in the profession
and possess the required education and experience
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•the process of determining whether a given set of info is in accordance
with the established criteria like US GAAP, International GAAP, IRS code
etc
•Internal Control System - policies and procedures that companies
develop to help ensure the company’s goals are being met and assets
are protected
-Tax Accountants
-Financial Accounting
-Consulting Services
-Information Systems
-Cost and Managerial Accounting
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