BBA UST Topic1 Accounting Environment

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    Accounting Environment

    Topic 1

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    Introduction

    Accounting is widely used in business to explain the nature

    of business transactions in any organization. It is widely

    used by the managers of the organization, the owners,

    investors, bankers, lawyers, estate agent, share brokers. The

    initial stage of accounting record is usually referred to as

    book-keeping. However, accounting is not merely book-

    keeping, it is far more than that, emphasizing on use of

    information, analyzing and interpreting of the accountinginformation. The accountant must be able to scrutinize the

    relationship between the results available in the financial

    period and relate to the events that lead to such results.

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    Definition of Accounting

    Accounting is

    a) Collecting and recording economic data relating to

    a business enterprise

    b) Processing this data to produce useful economic

    information (often referred to accounting information)

    c) Communicating or reporting this accounting informationto interested parties and, if necessary, interpreting if for

    their benefit.

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    Definition of Accounting

    To determine profit

    a) Collecting and recording data about the income and

    expenditure of the business during the year

    b) Processing this data to calculate the profit for the year

    c) Reporting this information to the owner of the businessand to others who need to be aware of it

    (e.g. tax authorities, bankers, investors)

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    Managerial Accounting

    Financial Accounting

    Fields of Accounting

    Types of Accounting

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    ]

    Financial Accounting is concerned with

    providing information to stockholders,

    creditors and others outside the organization.Recording and reporting of financial

    transactions, including the origination of the

    transaction, its recognition, processing, andsummarization in the financial statements.

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    Managerial Accounting

    Managerial Accounting is concerned with

    providing information to managers, i.e. people

    inside the organization. In Management Accountingthe term cost is used in many different ways. Each

    different use of cost data demands classification &

    definition of costs. For example, preparation of

    external Financial Report requires the use ofhistorical data, where as decision-making requires

    current cost data.

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    Financial Accounting Vs

    Managerial AccountingManagerial Accounting provides essential

    data with which organizations are actually

    run, whilst Financial Accounting providesscorecard by which a companys past

    performance is judged.

    Both financial & managerial accounting rely

    on the same financial data

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    Other Types of Accounting

    Auditing

    Taxation

    Financial Management

    Fields of Accounting

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    Professional Accountancy Bodies

    The Institute of Chartered Accountants in England andWales (ICAEW)

    The Institute of Chartered Accountant in Scotland (ICAS)

    The Institute of Chartered Accountants in Ireland (ICAI)

    The Chartered Institute of Management Accountants(CIMA)

    The Association of Chartered Certified Accountants

    (ACCA) The Chartered Institute of Public Finance and Accountancy

    (CIPFA)

    United Kingdom

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    Financial Accounting and Reporting

    Failures

    Eg. Enron, worldCom, Tyco, Xerox

    Financial Accounting Standards Board(FASB)

    Business Ethics & Regulation

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    Regulatory requirements in

    Malaysia Incorporation and Companies Regulation

    are provided under the Companies Act 1965

    At least 2 members to sign on the

    Companys Memorandum

    Present the Companys Memorandum to

    CCM (Companies Commission ofMalaysia) with the Articles of the Company

    together with other relevant forms, such as

    Form 6, Form 48A, etc.

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    Regulatory requirements in

    Malaysia(contd) Contents of M&A of a company:

    Name of company (ends with Sdn Bhd or

    Berhad)

    Registered Address, Companys Objective,

    Capital of Company

    Articles - Shares, Proceedings at General

    Meeting, Directors Appointment, Power

    Duties of Directors, Accounts, Dividends,

    etc

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    Regulatory requirements in

    Malaysia(contd) Regulation of Accounts & Audit is stated in

    the Companys Act 1965 under Part V1

    Division 1 & Division 2 Section 167 (1) of Companies Act 1965:

    Requirement by every company and the

    directors and managers to keep accountingrecords and such that will sufficiently

    explain transactions and financial position

    of the company- true and fair P&L and B/S

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    Regulatory requirements in

    Malaysia(contd) Section 169 of the Companies Act 1965:

    Not later than 18 months after the

    incorporation and subsequently once a yearto lay at its annual general meeting a Profit

    & Loss Account & Balance Sheet; must be

    audited first Penalty: Imprisonment for five years or

    thirty thousand ringgit

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    Regulatory requirements in

    Malaysia(contd) Section 169 of the Companies Act 1965:

    Not later than 18 months after the

    incorporation and subsequently once a yearto lay at its annual general meeting a Profit

    & Loss Account & Balance Sheet; must be

    audited first. Requirements to follow NinthSchedule (Schd. 9)

    Penalty: Imprisonment for five years or

    thirty thousand ringgit

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    Types of Businesses

    Manufacturing Business

    e.g.. Sony, Honda, Coca Cola, Adidas

    Merchandising Business

    e.g.. Wal-Mart, Amazon. COM,

    Servicing Businesse.g.. Tadamon Bank, Sabafon, Marriot Hotel

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    Types of Business Organisation Proprietorship

    - Owned by individual

    Partnership

    - Owned by two or more individuals

    Corporation (Legal Entity)

    - Owned by individuals or businesses

    Limited Liability Corporation

    - Owned by individuals

    - Liability is limited to capital contribution

    - Attributes of a partnership (taxed as a partnership) and acorporation

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    UnderstandabilityRelevance

    ReliabilityComparability and

    Consistency

    Characteristic of Qualitative

    Accounting Information

    That makes What Makes Accounting Information Useful?

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    Questions Can you identify some internal and

    external users of accounting

    information?

    Why do each of the user groups

    identified need financialinformation?

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    Users of Accounting Information

    Internalusersmake decisions

    forthe entity.

    Business Owner

    Management

    Employees

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    Users of Accounting Information

    External usersmake decisions

    aboutthe entity.

    Investors

    Banks and Lenders

    Suppliers

    Customers

    Competitors

    The Government

    The General Public