Ch. 1 - Accounting - Information for Decision Making
-
Upload
andrew-hanna -
Category
Documents
-
view
224 -
download
2
Transcript of Ch. 1 - Accounting - Information for Decision Making
-
7/27/2019 Ch. 1 - Accounting - Information for Decision Making
1/22
Accounting: Information for
Decision Making
Joseph V. Carcello
Accounting 301
-
7/27/2019 Ch. 1 - Accounting - Information for Decision Making
2/22
Accounting Information: A Means
to an End
Primary objective of accounting is to
provide information that is useful for
decision making purposes
The final product is the decision, NOT the
accounting information
-
7/27/2019 Ch. 1 - Accounting - Information for Decision Making
3/22
Financial Accounting
Describes financial resources, obligations,
and activities of an economic entity
Used for many purposes (i.e., general-
purpose accounting information)
-
7/27/2019 Ch. 1 - Accounting - Information for Decision Making
4/22
Management Accounting
Used to assist management in business
operations
Assists in setting overall goals, evaluating
performance, and making managerial
decisions
-
7/27/2019 Ch. 1 - Accounting - Information for Decision Making
5/22
Tax Accounting
Involves the preparation of income tax
returns and tax planning
Tax planning anticipates tax effects of
transactions and structures them in a way
to minimize (avoid) income taxes
-
7/27/2019 Ch. 1 - Accounting - Information for Decision Making
6/22
Accounting Systems
Help an organization meet its needs for
information as efficiently as possible
Produce information about financial
position, profitability, and cash flows for
investors, creditors, and other users ofinformation
-
7/27/2019 Ch. 1 - Accounting - Information for Decision Making
7/22
Functions of an Accounting System
Interpreting and recording effects of
business transactions
Classifying effects of similar transactions
Summarizing and communicatinginformation to decision makers
-
7/27/2019 Ch. 1 - Accounting - Information for Decision Making
8/22
External Users of Accounting
Information
External users have a financial interest ina reporting entity, but are not involved inits operations. Examples include:
Owners Creditors
Suppliers
Customers External financial reporting is directed
primarily towards investors and creditors
-
7/27/2019 Ch. 1 - Accounting - Information for Decision Making
9/22
Objectives of External Financial
Reporting
To provide useful information to those makinginvestment or credit decisions
To provide information that can be used to assessthe timing, amount, and uncertainty of an entitysfuture cash flows
To provide information about an entitys resources(assets), claims to those resources, and how theresources and claims to resources change over time
-
7/27/2019 Ch. 1 - Accounting - Information for Decision Making
10/22
Financial Statements
Balance Sheet (statement of financial position) Shows a companys financial position at a
specific date
Income Statement Shows the results of a companys profit-related
activities for aperiod of time
Statement of Cash Flows Shows details of a companys cash-related activities
for aperiod of time
-
7/27/2019 Ch. 1 - Accounting - Information for Decision Making
11/22
Characteristics of Externally
Reported Information
Historical
Inexact and approximate measures
Estimates
Judgments
Assumptions
General-purpose information
-
7/27/2019 Ch. 1 - Accounting - Information for Decision Making
12/22
Internal Users of Accounting
Information
Information is used primarily for planning
and control decisions
Examples of internal users include:
Board of directors
CEO
CFO
Managers
Supervisors
-
7/27/2019 Ch. 1 - Accounting - Information for Decision Making
13/22
Characteristics of Management
Accounting Information
Developed in a timely manner
Provided to those who have decision-making
authority
Created and generated in order to affect thefuture
Used to measure the effectiveness andefficiency of operations
-
7/27/2019 Ch. 1 - Accounting - Information for Decision Making
14/22
Integrity of Accounting Information
Characteristics of integrity:
Complete
Honest
Sincere Unimpaired
Integrity of accounting information is enhanced
by:
Accounting standards, internal control, audits
Professional accounting organizations
Personal competence, judgment, ethical behavior
-
7/27/2019 Ch. 1 - Accounting - Information for Decision Making
15/22
Institutional Features
Generally accepted accounting principles
(GAAP)
Principles on measurement and presentation of
financial information Rules for preparation of financial statements
Only applies to the United States
Financial Accounting Standards Board (FASB) Develops new accounting standards (GAAP)
Is part of the private sector
-
7/27/2019 Ch. 1 - Accounting - Information for Decision Making
16/22
Institutional Features
International Accounting Standards Board
(IASB)
Attempts to develop global accounting standards
Promotes the use of such standards
Securities and Exchange Commission (SEC)
Governmental agency with legal power to establish
accounting principles and reporting requirements for
publicly ownedcorporations
Generally adopts recommendations by the FASB
-
7/27/2019 Ch. 1 - Accounting - Information for Decision Making
17/22
Institutional Features
Public Company Accounting Oversight
Board (PCAOB)
Developed as a result of the Sarbanes-Oxley
Act (2002)
Oversees the accounting profession
Sets auditing standards for public companies
Inspects audits performed by publicaccounting firms
-
7/27/2019 Ch. 1 - Accounting - Information for Decision Making
18/22
Institutional Features
Internal Control Structure
Guards an organization against fraud and error
Ensures reliability of financial information
Promotes compliance with company policies
Audits of Financial Statements
An investigation to determine whether or not financial
statements are reliable, complete, conform to GAAP,
and are not misleading
-
7/27/2019 Ch. 1 - Accounting - Information for Decision Making
19/22
Sarbanes-Oxley Act of 2002
Created the PCAOB
Bans auditors from providing consultingservices to audit clients
Increases responsibility of CEOs andCFOs to certify the fairness of financial
statements
-
7/27/2019 Ch. 1 - Accounting - Information for Decision Making
20/22
American Institute of Certified
Public Accountants (AICPA)
Conducts accounting research
Works with the FASB to establish and
interpret GAAP
Prepares and grades the CPA exam
-
7/27/2019 Ch. 1 - Accounting - Information for Decision Making
21/22
Careers in Accounting
Public Accounting
Financial statement audits
Income tax services
Consulting services
Management Accounting
Financial forecasting
Cost accounting
Internal audit
-
7/27/2019 Ch. 1 - Accounting - Information for Decision Making
22/22
Careers in Accounting
Governmental Accounting
Governmental Accountability Office (GAO)
Audits federal agencies
Reports directly to Congress
Internal Revenue Service (IRS)
Securities and Exchange Commission (SEC)