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© The McGraw-Hill Companies, Inc., 2008McGraw-Hill/Irwin
Principles of Accounting (Accounting 1 for BBA - Undergraduate) Principles of Accounting (Accounting 1 for BBA - Undergraduate)
SBSVictor Yerris, PhD
[email protected]: 079 434 36 13OCTOBER 2012
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Week 1(Accounting: Information for Decision Making)
Week 1(Accounting: Information for Decision Making)
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Financial & Managerial Accounting
Financial & Managerial Accounting
The Basis for Business DecisionsWilliams, Haka, Bettner & Carcello
FOURTEENTH EDITION
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AccountingInformation for Decision Making
Chapter
1
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Learning ObjectiveLearning Objective
LO1
To discuss accounting as the language of
business and the role of accounting information
in making economic decisions.
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Accounting
information
The accounting
process
Decision makers
Economic activities
Actions (decisions)
Accounting “links” decision makers
with economic activities and
with the results of their decisions.
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Types of Accounting InformationTypes of Accounting Information
Financial
Managerial
Tax
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Learning ObjectiveLearning Objective
LO2
To discuss the significance of accounting systems in generating reliable accounting information,
and understand the five components of internal control per COSO’s Internal Control—
Integrated Framework.
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Accounting SystemsAccounting Systems
An accounting system consists of the personnel, procedures, technology, and records used by an organization to develop accounting information and to communicate this information to decision
makers.
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Information Users
InvestorsCreditors ManagersOwnersCustomersEmployeesRegulators -SEC -IRS -FTC
Information Users
InvestorsCreditors ManagersOwnersCustomersEmployeesRegulators -SEC -IRS -FTC
Decisions Supported
Performance evaluationsStock investmentsTax strategiesLabor relationsResource allocationsLending decisionsBorrowing
Decisions Supported
Performance evaluationsStock investmentsTax strategiesLabor relationsResource allocationsLending decisionsBorrowing
Information SystemInformation System
Financial Information
ProvidedProfitabilityFinancial positionCash flows
Financial Information
ProvidedProfitabilityFinancial positionCash flows
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Basic Functions of an Accounting System
Basic Functions of an Accounting System
Summarize and
communicate information to
decision makers.
Classify similar
transactions into useful
reports.
Interpret and record business
transactions.
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Components of Internal ControlComponents of Internal Control
Control Environment
Risk Assessment
Control Activities
Information and Communication
Monitoring
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Learning ObjectiveLearning Objective
LO3
To explain the importance of financial accounting information for external
parties—primarily investors and creditors—in terms of the objectives and the characteristics of
that information.
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External Users of Accounting Information
External Users of Accounting Information
•Owners
•Creditors
•Potential investors
•Labor unions
•Governmental agencies
•Suppliers
•Customers
•Trade associations
•General public
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Provide information about economic resources, claims to resources, and changes in resources and claims.
Provide information useful in assessing amount, timing and
uncertainty of future cash flows.
Provide information useful in making investment and credit decisions.
(Specific)
(General)
Objectives of
External Financial Reporting
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Objectives of External Financial Reporting
Objectives of External Financial Reporting
The primary financial
statements.
Income Statement
Balance Sheet
Statement of Cash Flows
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Characteristics of Externally Reported Information
Characteristics of Externally Reported Information
A Means to an End
A Means to an End
Broader than Financial
Statements
Broader than Financial
Statements
Historical in Nature
Historical in Nature
Results from Inexact and Approximate Measures
Results from Inexact and Approximate Measures
Based on General-Purpose
Assumption
Based on General-Purpose
Assumption
Usefulness Enhanced via Explanation
Usefulness Enhanced via Explanation
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Learning ObjectiveLearning Objective
LO4
To explain the importance of financial accounting information for internal
parties—primarily management—in terms of
the objectives and the characteristics of that
information.
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Users of Internal Accounting Information
Users of Internal Accounting Information
Board of directors Chief executive officer
(CEO) Chief financial officer (CFO) Vice presidents Business unit managers Plant managers Store managers Line supervisors
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Typical Simple
Organization Chart
PlantAccountants
PlantManagers
PlantAccountants
PlantManagers
Business Unit
Managers
V.P. Human
Resources
V.P. Information
Services
Chief Financial
Officer (CFO)
Chief ExecutiveOfficer(CEO)
Board ofDirectors
Owners
V.PEthics
Controller Treasurer
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Objectives of Management Accounting Information
Objectives of Management Accounting Information
To help achieve goals and missions
To help achieve goals and missions
To help evaluate and reward
decision makers
To help evaluate and reward
decision makers
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Characteristics of Management Accounting Information
Characteristics of Management Accounting Information
TimelinessTimeliness
Identify Decision
Maker
Identify Decision
Maker
Oriented Toward Future
Oriented Toward Future
Measures of Efficiency and Effectiveness
Measures of Efficiency and Effectiveness
A Means to an End
A Means to an End
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Learning ObjectiveLearning Objective
LO5
To discuss elements of the system of external and internal financial reporting that create
integrity in the reported information.
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Integrity of Accounting InformationIntegrity of Accounting Information
Institutional FeaturesGenerally Accepted Accounting Principles (GAAP)Financial Accounting Standards BoardInternational Accounting Standards BoardSecurities and Exchange CommissionPublic Company Accounting Oversight BoardAudits of Financial StatementsLegislation
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Sarbanes-Oxley Act of 2002Sarbanes-Oxley Act of 2002
The US Senate passed and implemented SOX following a public outcry over corporate scandals of the early 2000s (Enron &WorldCom)
Establishes the PCAOB (Public Company Accounting Oversight Board) to supervise accounting firms.
Requires Greater independence of auditors and clients (Prohibited public
accounting firms from engaging in non-audit services to a client it is also auditing.
Greater independence of corporate boards (Members of the board’s audit committee must be independent).
Independent audits of internal controls Increased disclosures of off-balance sheet arrangements and obligations
(Required the reporting of off-balance sheet activities). More types of disclosures
SEC enforces SOX and rules of the PCAOB
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Learning ObjectiveLearning Objective
LO6
To identify and discuss several professional
organizations that play important roles in
preparing and communicating
accounting information.
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Integrity of Accounting InformationIntegrity of Accounting Information
Professional OrganizationsAmerican Institute of Certified Public Accountants (CPA) Swiss Institute of Certified Accountants and Tax Consultants (CPA)
Institute of Management Accountants (IMA)Institute of Internal Auditors (IIA)American Accounting AssociationCommittee of Sponsoring Organizations of the Treadway Commission (COSO)
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Learning ObjectiveLearning Objective
LO7
To discuss the importance of personal
competence, professional judgment, and ethical behavior on the part of accounting
professionals.
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Integrity of Accounting InformationIntegrity of Accounting Information
Competence, Judgment and Ethical BehaviorCertified Public Accountants (CPAs)Certificate in Management Accounting (CMA)Certificate in Internal Auditing (CIA)
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Learning ObjectiveLearning Objective
LO8
To discuss various career opportunities in
accounting.
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Careers in AccountingCareers in Accounting
Public AccountingManagement AccountingGovernmental AccountingAccounting Education
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End of Chapter 1End of Chapter 1
