1

Accounting for Business Decisions Fall 2011

William F. O’Brien, MBA, CPAlsb.scu.edu/~wobrien

2

Session IIntroduction to Financial Accounting

MBA 300--FALL 2011 1-3

Accounting Business Skills

“The What” Business Perspective Organizational Focus Bias for Action Communication Excellence People Proficiency

MBA 300--FALL 2011 1-4

Financial Management Guidelines“The How”

Cc KTT MBWA R ƒ R3

responsiveness reliability relevance

MBA 300--FALL 2011 1-5

CompanyF/S

Users

EconomicDecisions

Financial Impact

(useful &relevant)

Financial Accounting Model

MBA 300--FALL 2011 1-6

Plan

Managerial Accounting Model

Monitor

ImplementAdjust AccountingInformation

Communication Environment

MBA 300--FALL 2011 1-7

Financial Statement Content

Balance Sheet Statement of Income Statement of Cash Flows Statement of Owners’ Equity (Retained Earnings) Footnotes Management Discussion & Analysis Management Letter Auditor’s Report

MBA 300--FALL 2011 1-8

Financial Statement Relationships

Balance Sheet Income Statement Statement of Cash Flows Stmt of Ret.Earnings

CurrentAssets

Non-currentAssets

CurrentLiabilities

Long-termDebt

Equity

Revenue

Cost of Goods Sold (COGS)

Gross Margin

Operating Exps.

Net Income

Operating Cash

Investing Cash

Financing Cash

Change in Cash

Beginning Cash

Ending Cash

Beginning R/E

Net Income

Less: Dividends

Ending R/E

MBA 300--FALL 2011 1-9

Users of Financial Information

Internal Owners, Managers & Employee

External Owners Creditors and Vendors Public Interest Groups & Regulators Tax Authorities

MBA 300--FALL 2011 1-10

SFAC #8

Statement of Financial Accounting Concepts #8

The purpose of financial statements Better information for decision making Information on future cash flows Information regarding resources owned and

resources owed

MBA 300--FALL 2011 1-11

Corporate Governance

Strategic direction Governance oversight

Risk management Assurance that processes are working

MBA 300--FALL 2011 1-12

Governance and Risk

Tone at the top Sarbanes-Oxley Act of 2002

Reactionary Major provisions

Public Company Accounting Oversight Board CEO/CFO sign off Assessment of reporting controls

Is it working Shifting focus to overall business risk

Enterprise risk managerment

MBA 300--FALL 2011 1-13

Sarbanes-Oxley Act of 2002

Major provisions Creation of the Public Company Accounting Oversight

Board (PCAOB) Certification of financial statements by CEO and CFO Limits on non-audit services Audit partner rotation Limits on hiring due to conflict of interests Audit committees hire the external auditor Section 404: internal control assessment

MBA 300--FALL 2011 1-14

Ethics and You

You will face an ethical challenge It could impact

Your job Your family Your relationships Your financial stability Your physical well-being

You have only ONE reputation...

MBA 300--FALL 2011 1-15

Standard Setting Process

SEC (Securities and Exchange Commission) AICPA (Am. Institute of CPA’s) FASB (Financial Acctg. Stds. Board) GASB (Govt. Acctg. Stds. Board)

Sarbanes-Oxley Bill of 2002

MBA 300--FALL 2011 1-16

Standard Setting Flow Chart

Pub. Cos.

Gov’t

SEC

FASB

-Creates SEC 1934

-Delegates standard setting

-Finances FASB indirectly

standards

-Lobbies government

A Political Circle

MBA 300--FALL 2011 1-17

Auditors

External Auditing Audit Reports Assessment of IAC

Internal Auditing

MBA 300--FALL 2011 1-18

Enforcement Flow Chart

Pub. Cos.

PCAOB

Reg. Ind. Accts.

-Oversees Reg. Indep. Accts.

-Audits public companies

Finances PCAOB indirectly-

-Lobbies government

A Political CircleSEC

-Created the PCAOB

MBA 300--FALL 2011 1-19

FASB Codification

Arranged by topic Primary source of U.S. GAAP Other sources: rules and interpretations of the

SEC

MBA 300--FALL 2011 1-20

The Perfect Storm

IFRS Adoption: SEC Convergence: FASB Private Company GAAP: FAF All companies will be affected

MBA 300--FALL 2011 1-21

International Convergence

International Accounting Standards Board (IASB) IAS mandatory in European Union-1/1/05 IASB-FASB Convergence Project

Completion target of 2011 SEC IFRS Adoption Roadmap

IFRS in the U.S. by 2014 Decision in 2011

Do you think convergence of standards is good or bad for financial statement users?

MBA 300--FALL 2011 1-22

Rules v. Principles

Major mindset change IFRS-2,500 pages FAS-25,000 pages Thinking outside the box Emphasizes the importance of the conceptual

framework